Live Current Media Inc. - Annual Report: 2008 (Form 10-K)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
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x
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ANNUAL
REPORT UNDER SECTION 13 0R 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
fiscal year ended December
31, 2008
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o
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TRANSITION
REPORT UNDER SECTION 13 0R 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
transition period
from
Commission
file
number 000-29929
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LIVE
CURRENT MEDIA INC.
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(Name
of Small Business Issuer in its
charter)
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Nevada
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88-0346310
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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375
Water Street, Suite 645, Vancouver, British Columbia
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V6B
5C6
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(Address
of principal executive offices)
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(Zip
Code)
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Issuer’s
telephone number (604)
453-4870
Securities
registered pursuant to Section 12(b) of the Act:
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Title
of each class
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Name
of each exchange on which registered
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None
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N/A
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Securities
registered pursuant to Section 12(g) of the Act:
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Common
Stock - $0.001 par value
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(Title
of Class)
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Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
o Yes T
No
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
o Yes T
No
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.
T
Yes o No
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. T
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.
Large
accelerated filer o
Accelerated
filer o
Non-accelerated
filer o
(Do not check if a smaller reporting
company) Smaller
reporting company x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
o Yes T
No
State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of the
last business day of the registrant’s most recently completed second fiscal
quarter. As of June 30, 2008, the aggregate market value of the
voting and non-voting common equity held by non-affiliates was
$59,143,933.
Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock, as of the latest practicable date. As of March 20, 2009 the
registrant had 23,906,445 shares of common stock outstanding.
List
hereunder the following documents if incorporated by reference and the Part of
the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) Any annual report to security holders; (2) Any
proxy or information statement; and (3) Any prospectus filed pursuant to Rule
424(b) or (c) under the Securities Act of 1933. The listed documents
should be clearly described for identification purposes (e.g., annual report to
security holders for fiscal year ended December 24, 1980).
Live
Current Media Inc.
Form
10-K - 2008
CONTENTS
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Page
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Forward-Looking
Statements
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iii
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| Part I | ||||
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Item
1
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Business
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1
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Item
1A
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Risk
Factors
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7
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Item
1B
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Unresolved
Staff Comments
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13
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Item
2
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Properties
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13
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Item
3
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Legal
Proceedings
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13
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Item
4
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Submission
of Matters to a Vote of Security Holders
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14
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| Part II | ||||
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Item
5
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Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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14
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Item
6
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Selected
Financial Data
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16
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Item
7
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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28
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Item
7A
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Quantitative
and Qualitative Disclosures About Market Risk
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28
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Item
8
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Financial
Statements and Supplementary Data
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28
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Item
9
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Changes
In and Disagreements With Accountants on Accounting and Financial
Disclosure
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28
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Item
9A(T)
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Controls
and Procedures
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Item
9B
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Other
Information
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29
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| Part III | ||||
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Item
10
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Directors,
Executive Officers and Corporate Governance
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29
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Item
11
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Executive
Compensation
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33
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Item
12
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Security
Ownership of Certain Beneficial Owners and Management and Releated
Stockholder Matters
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38
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Item
13
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Certain
Relationships and Related Transactions and Director
Independence
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41
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Item
14
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Principal
Accountant Fees and Services
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42
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Part
IV
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Item
15
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Exhibits,
Financial Statement Schedules
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43
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Signatures
and Certifications
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47
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Financial
Statements
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F-1
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i
Live
Current Media Inc.
Form
10-K - 2008
Forward
Looking Statements
This
Annual Report on Form 10-K for the year ended December 31, 2008, including the
discussion of the business of Live Current Media Inc. (“Live Current”, the
“Company”, “we”, “us”, and “our”), management’s discussion and analysis of
financial condition and results of operations, as well as other sections of this
Annual Report contain “forward-looking” statements. Certain
information contained or incorporated by reference in this Annual Report,
including the information set forth as to the future financial or operating
performance of Live Current, constitutes “forward-looking
statements”. These statements may be identified by their use of words
like “plans”, “expect”, “aim”, “believe”, “projects”, “anticipate”, “intend”,
“estimate”, “will”, “should”, “could”, “contemplate”, “target”, “continue”,
“budget”, “may” and other similar expressions that indicate future events and
trends. All statements, other than historical statements of fact,
that address expectations or projections about the future, including statements
about Live Current’s strategy for growth, product development, market position,
expenditures and financial results, are forward-looking statements.
Forward-looking
statements in this Form 10-K include but are not limited to statements regarding
(1) expectation that revenue will increase during fiscal 2009; (2) expectation
that our participant base will increase; (3) expectation of an increase in
future operating expenses; (4) expectation that the expansion of our participant
base will cause wages, marketing and promotional costs to increase; (5)
expectation that working capital needs for fiscal 2009 will be funded through
the equity capital markets and private financings; (6) expectation that an
increase in our participant base will lead to hiring of additional employees or
independent contractors; (7) expectation relating to the future developments of
content, features, and services to be provided on the website; (8) uncertainty
of utilizing deferred tax assets; and (9) expectation that inflation will not
have a material impact on future operations.
These
forward-looking statements involve a number of risks and uncertainties,
including, but not limited to, the following: general economic conditions
particularly as they relate to demand for Live Current’s products and services;
changes in business strategy; competitive factors (including the introduction or
enhancement of competitive services); pricing pressures; changes in operating
expenses; fluctuation in foreign currency exchange rates; inability to attract
or retain consulting, sales and/or development talent; changes in customer
requirements; evolving industry standards; and other factors described in Live
Current’s filings with the Securities and Exchange Commission. The
results that Live Current achieves may differ materially from any
forward-looking statements due to these risks and uncertainties. The
forward-looking statements in this Form 10-K for the fiscal year ended December
31, 2008 are subject to risks and uncertainties that could cause actual results
to differ materially from the results expressed in or implied by the statements
contained in this report.
As a
result, the identification and interpretation of data and other information and
their use in developing and selecting assumptions from and among reasonable
alternatives requires the exercise of judgment. To the extent that
the assumed events do not occur, the outcome may vary substantially from
anticipated or projected results, and accordingly, no opinion is expressed on
the achievability of those forward-looking statements. No assurance
can be given that any of the assumptions relating to the forward-looking
statements are accurate. All forward-looking statements are made as
of the date of filing of this Form 10-K and Live Current disclaims any duty to
update any such forward-looking statements.
The
following discussion should be read in conjunction with our consolidated
financial statements and their explanatory notes, which are included in this
Annual Report.
iii
Live
Current Media Inc.
Form
10-K - 2008
PART
I
Item
1. Business
OVERVIEW
Live
Current Media Inc. was incorporated under the laws of the State of Nevada on
October 10, 1995 under the name “Troyden Corporation”. We changed our
name on August 21, 2000 from Troyden Corporation to “Communicate.com Inc.”, and
again on May 30, 2008 to Live Current Media Inc. Since August 4,
2008, our common stock has been quoted on the OTCBB under the symbol,
“LIVC”.
The
corporate website is located at www.livecurrent.com. Information
included on the website is not a part of this Annual Report.
SUBSIDIARIES
Our
principal operating subsidiary, Domain Holdings Inc. (“DHI”), was incorporated
under the laws of British Columbia on July 4, 1994 under the name “IMEDIAT
Digital Creations Inc.”. On April 14, 1999, IMEDIAT Digital
Creations, Inc. changed its name to “Communicate.com Inc.” and was redomiciled
from British Columbia to the jurisdiction of Alberta. On April 5,
2002, Communicate.com Inc. changed its name to Domain Holdings
Inc. DHI has 62,635,383 shares of common stock currently issued and
outstanding. 61,478,225 shares, or approximately 98.2% of the
outstanding shares, are held by Live Current.
On
December 31, 2005, DHI reorganized by transferring certain domain name assets
into its wholly owned subsidiary, Acadia Management Corp. (“Acadia”), a British
Columbia corporation incorporated on December 1, 2005. In October
2008, the assets and liabilities of Acadia were assigned to DHI and Acadia was
subsequently dissolved in January 2009. On December 31, 2006, DHI
transferred the domain name Importers.com to its wholly owned subsidiary 0778229
B.C. Ltd. (“Importers”), a British Columbia company incorporated on December 27,
2006. DHI also has a dormant wholly owned subsidiary, 612793 B.C.
Ltd. (“612793”), which was incorporated on August 21, 2000.
On March
13, 2008, the Company incorporated a wholly owned subsidiary in the state of
Delaware, Communicate.com Delaware, Inc. (“Delaware”). The new
subsidiary was incorporated to facilitate the merger with
Auctomatic.
On August
8, 2008, the Company formed a wholly-owned subsidiary in Singapore, LCM Cricket
Ventures Pte. Ltd. (“LCM Cricket Ventures”). This company holds
50.05% of Global Cricket Venture Pte. Ltd.
A list of
the Company’s subsidiaries is attached as Exhibit 21.
On
October 1, 2003, we acquired a 71% controlling interest in FrequentTraveller.com
Inc. (“FT”) a private Nevada corporation incorporated on October 29,
2002. As of September 30, 2007, we owned a 50.4% interest in FT. FT
provided travel services to customers online and by telephone to destinations
encompassed by the geographic domain names owned by us, pursuant to a domain
lease agreement we entered into with FT dated May 1, 2005 (the “Domain Lease
Agreement”). FT commenced limited operations in November
2003. We unwound our relationship with FT and, effective November 12,
2007, pursuant to an asset purchase agreement between us and FT, we 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, in
consideration for (a) the delivery of 8,000,000 shares of FT capital stock owned
by us; and (b) the cancellation of $261,833 of debt owed by FT to us under the
Domain Lease Agreement. As a result, we acquired all rights associated with the
operation of the frequentraveller.com website and terminated the Domain Lease
Agreement. FT is no longer our subsidiary.
OUR
BUSINESS
DHI, our
majority-owned subsidiary, owns more than 800 domain names. Through
DHI, we build consumer internet experiences around our large portfolio of
intuitive, easy to remember domain names. These domain names span
several consumer and business-to-business categories including health and beauty
(such as Perfume.com), sports and recreation (such as Cricket.com and
Boxing.com), travel (such as Brazil.com and Vietnam.com), and global trade
(Importers.com). We believe that we can develop and sustain
businesses based on these intuitive domain names in part because of the
significant amount of search and direct type-in traffic they
receive. We have begun to exploit this traffic through the
construction of consumer experiences online, which we call DestinationHubs®, at Perfume.com
and Cricket.com. DestinationHubs® tap into a large, passionate,
pre-existing community of interested users. From a technology and
product standpoint, a DestinationHub® is architected for discovery, meaning it
is built in such a way that it is found easily through search. One of
the best ways to ensure sites are found through search is to have a powerful
domain name asset as a low-cost customer acquisition vehicle that easily enables
ownership of that subject category. Over time, we will build out
additional DestinationHubs® at several of our
domain names. We may also choose to sell select domain names to
strategic buyers.
1
Live
Current Media Inc.
Form
10-K - 2008
We also
own a number of .cn (China) domain names. We believe that the .cn
domain names could have significant value as the internet market in China
develops. We also have a number of non-core “bound.com” domain names
that we may choose to develop that cover expansive categories of interest such
as shoppingbound.com, pharmacybound.com and vietnambound.com.
We have
organized our operations into two principal segments: (1) ECommerce Products, in
essence “Health and Beauty”, and (2) Advertising. Our Health and
Beauty websites generate revenue by facilitating the sale of products direct to
consumers (eCommerce). Currently, our eCommerce revenues are
primarily derived from the sale of fragrance products to consumers at our
Perfume.com website. Our sports and recreation, travel, and global
trade websites generate revenues through the sale of online advertising space to
advertisers, derived by offering “pay per click” and display advertising on
various websites in our portfolio. Prior to November 12, 2007, we
also sold travel services through our majority-owned subsidiary
FrequentTraveller.com Inc. This business has been
terminated.
ECommerce
Revenues
We
currently generate almost all of our eCommerce revenues through product sales on
Perfume.com. We plan to continue to build Perfume.com eCommerce
revenues by expanding to more efficient distribution and fulfillment channels,
creating a more engaging consumer experience, and performing continued technical
improvements to the websites. We will also continue to explore other
product-related revenue streams across our domain name portfolio.
Health
and Beauty Products
Our
Perfume.com website sells discounted brand name fragrances, including women’s
perfume, men’s cologne, and designer hair care and skin care products direct to
consumers in the US and select international markets. Perfume.com
sells 100% authentic products and provides customers with a satisfaction
guarantee. We are not dependent on any single supplier for the
products that we sell. The products are supplied by various wholesale
suppliers located in the United States.
Our
products are described in detail on our website. The products are
offered through an easily navigated website experience within a transaction
secure environment accepting the usual modes of secure credit card payments,
PayPal and Google Checkout. Products can also be ordered using our
toll-free telephone number.
By way of
its intuitive domain name and through ongoing technical optimizations,
Perfume.com consistently ranks highly in organic, unpaid search results across
major search engines. Organic search traffic delivers the majority of
traffic and customers to Perfume.com. The site also realizes traffic
through direct navigation by visitors. Finally, we acquire internet
traffic through paid search, comparison shopping websites, and our robust email
marketing efforts as well as through affiliate sales. We use affiliate
relationships whereby we pay our affiliates sales commissions if they deliver
traffic to Perfume.com that results in a successful
sale. Affiliates do not represent themselves as Perfume.com, and
through a rigorously enforced policy, are not allowed to use our
name. Affiliates place our advertisements on their
websites. We pay these affiliates a commission when visitors to their
sites click on our advertisements and make purchases on
Perfume.com.
Advertising
Revenues
Over
time, we expect to generate significant revenues by selling advertising either
directly to advertisers or in partnership with third party advertising
networks. During 2007 and early 2008, we had an arrangement with
Overture Services, Inc. (“Overture”) pursuant to which we were paid a fee for
referrals to sites with connections to Overture. We terminated our
relationship with Overture effective February 29, 2008, to give us more
flexibility to deploy advertising across our websites. Currently,
many of our websites are part of Google AdSense's network of publishers which
generates advertising revenues and monetizes our properties. Google
AdSense matches ads to our sites’ content and audiences, and depending on the
type of ad, we earn revenues from clicks or impressions.
The relationship with Google is a non-exclusive agreement and as
we develop our domain websites we may revisit direct relationships or other
third party advertising networks.
2
Live
Current Media Inc.
Form
10-K - 2008
Sports
and Recreation
We
currently host one sports-related website, Cricket.com. Cricket.com
is a community website for cricket fans. The site includes
cricket-related news, schedules of games played worldwide, scores, photos and an
active fantasy cricket league. Cricket.com generates revenue through
paid advertisements on the website.
Travel
We
currently host three travel websites; Brazil.com, Indonesia.com and
Vietnam.com. These sites seek to provide much of the information a
traveler to these destinations might need. Aside from information and
access to flights and hotels, the sites provide basic facts about the countries
(history, language, maps and facts), information on tourist attractions and
major cities, weather, blogs from travelers and links to other sites about the
destination. We earn advertising revenues and affiliate commission
revenues for the referred sales of hotels, flights and travel bookings from
these websites.
As of
December 31, 2006, we owned a 50.4% controlling interest in
FrequentTraveller.com Inc. (“FT”) a private Nevada corporation incorporated on
October 29, 2002. Through FT, we sold travel services to customers
online and by telephone to destinations encompassed by our geographic domain
names, pursuant to a domain lease agreement entered with FT dated May 1, 2005
(the “Domain Lease Agreement”). FT’s travel sites were launched late
in 2003 and conducted limited business in 2006 and 2007 as FT continued to
develop its business. FT had not become profitable throughout 2007
and was expected to operate at a loss for the year. The business did
not reach its goal for break-even sales of $150,000 per
month. Accordingly, effective on November 12, 2007, we unwound our
relationship with FT via an Asset Purchase Agreement. As part of this
agreement the Domain Lease Agreement was cancelled for minimal 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
us. We assumed no liabilities of FT going
forward.
Global
Trade
Importers.com
is a trade website that connects businesses around the world by providing tools
such as an email service and a searchable, online database which helps
facilitate communication between buyers and sellers. Businesses
register on the website for free. Once registered, buyers and
distributors can access information about manufacturers and wholesalers and vice
versa. The information is grouped in product categories or may be
found via a search bar included on the website. As long as both
parties are members, they may contact each other via e-mail. The
website also provides useful information concerning international trade-related
issues such as customs clearance, transportation providers and trade development
organizations. We earn advertising revenues from this
website.
Joint
Ventures and Participations
We
believe that joint ventures and partnerships are a viable and potentially
attractive way to build profitability. Each partnership opportunity will be
evaluated based on its prospects for long term value creation. These
partnerships may take several forms including leasing, renting or co-investing
to develop one or more of the websites. We expect to continue to seek additional
opportunities utilizing our domain names; however, there can be no assurance
that we will be able to locate such opportunities, or if located, we will be
able to enter into arrangements with such entities.
On
September 30, 2008 we announced that we entered into a letter of intent with
Domain Strategies, Inc., an internet development and management company, to
jointly establish a new company for the purpose of building, managing and
monetizing our domain name www.karate.com. As
discussed below, we have also signed a Memorandum of Understanding with the
Board of Control for Cricket in India and the DLF Indian Premier League for the
purpose of becoming the exclusive online provider of content for these
entities.
Sale
and Lease of Domain Names
We own
more than 800 domain names. We believe that there is high value in
building businesses around the domain names we own, however we recognize that
there are opportunities whereby selling or leasing them may be more valuable
than exploiting the ownership value of the names. We also recognize
that selling some non-core domain names is an effective way to raise funds in a
non-dilutive manner. Therefore, we actively marketed a few domain
name assets for sale during late 2008 which resulted in one sale in December
2008 and two additional sales subsequent to our fiscal year end. We
continue to evaluate any offers received. In the future, we may buy
domain names to complement our existing businesses in the health and beauty,
sports, travel and global trade categories. In 2007, there were no sales of
domain name assets.
3
Live
Current Media Inc.
Form
10-K - 2008
RECENT
TRANSACTIONS
Auctomatic
Merger
On March
25, 2008, we entered into an Agreement and Plan of Merger (the “Merger
Agreement”) by and among the Company, Communicate.com Delaware, Inc., a Delaware
corporation and a wholly-owned subsidiary of the Company (Delaware”), Entity,
Inc., a Delaware corporation, (“Auctomatic”), Harjeet Taggar, Kulveer Taggar and
Patrick Collison, the founding members of Auctomatic (each a “Founder” and
collectively, the “Founders”) and Harjeet Taggar as representative of the
shareholders of Auctomatic (the “Stockholder Representative”).
Pursuant
to the Merger Agreement, Auctomatic merged with and into Delaware with Delaware
as the surviving corporation (the “Merger”). The Merger closed on May
22, 2008 (the “Closing Date”). In connection with the Merger
Agreement, the stockholders of Auctomatic received in total (i) $2,000,000 cash
minus $152,939 in certain assumed liabilities (the “Cash Consideration”) and
(ii) 1,000,007 shares of common stock of the Company (equal to $3,000,000
divided by $3.00 per share, the last price of a single share of the Company’s
common stock as reported by the Over the Counter Bulletin Board on the business
day immediately preceding the Closing Date) 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 $152,939 in assumed
liabilities (the “Initial Cash”). An additional 246,402 shares of the
common stock were issued and shall be distributed in equal amounts to the
Auctomatic shareholders on each of the first, second and third anniversary of
the Closing Date. The remaining $800,000 of the total Cash
Consideration (the “Distribution Cash”) 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 (“the “Distribution Shares”) of the
common stock payable on the first, second and third anniversary of the Closing
Date (the “Distribution Date”) to the Auctomatic Founders is subject to their
continuing employment with the Company or a subsidiary on each Distribution
Date. Subsequent to year end, one of the Founders resigned from Live
Current, and therefore the distribution of 137,868 shares of the common stock on
the first, second and third anniversary will no longer be
payable. The remaining 275,736 shares of the common stock owing to
the other Founders remain payable on the anniversary dates as noted
above. See also Note 6 and Note 10 to our financial
statements.
At May
22, 2008, the present value of the amounts payable in cash to shareholders of
Auctomatic on the first anniversary of the closing date was
$640,000. At year end, the present value discount was accreted by
$96,700, leaving a present value remaining at December 31, 2008 of
$736,700. Also at year end, $53,099 of cash owing at closing has yet
to be paid to one of the Auctomatic shareholders. As a result, at
December 31, 2008, amounts payable to shareholders of Auctomatic totaled
$789,799.
Global
Cricket Venture
On April
17, 2008, the Company signed a Memorandum of Understanding (“MOU” or “Original
MOU”) with each of the Board of Control for Cricket in India (“BCCI”) and the
DLF Indian Premier League (“IPL”). The MOUs grant the Company the
exclusive right to provide the official websites for the BCCI and the IPL
(the “Cricket Websites”). The ten-year agreement outlined in the
MOUs gives the Company the right to build, launch and operate the official
online destinations for the BCCI and the IPL. As consideration for
the rights conveyed, the Company agreed to pay a minimum annual fee to the BCCI
of the greater of 50% of all revenues generated from the Cricket Websites or an
average payment of $3 million per year and a minimum annual fee to the IPL of
the greater of 50% of all revenues generated from the website or an average
payment of $2 million per year. In addition to the annual fee, the
Company agreed to pay a total of 5% of the revenues generated by the Cricket
Websites to the BCCI and the IPL. Revenues are defined as all
revenues generated by the Cricket Websites with the exception of revenues earned
from the sale of tickets to the matches. The Company agreed that the
minimum annual fee would be paid on a quarterly basis during the first 3 years
of the term. The payments, when made, may 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 first payment to the BCCI of
$625,000 was due on October 1, 2008, with additional payments of $625,000 due on
January 1, 2009, April 1, 2009 and July 1, 2009. The first payment to
the IPL of $325,000 was due on October 1, 2008, with additional payments of
$325,000 due on January 1, 2009, April 1, 2009 and July 1, 2009. In
the fourth quarter of 2008, the payments owed to the BCCI were renegotiated,
although a formal amendment to the MOU has not been signed. The
parties agreed that the October 1, 2008 payment would be decreased by $500,000,
to $125,000, and that the payment of $750,000 that was due to be made on October
1, 2009 would be eliminated entirely. The amounts due to the IPL were
not changed. The parties are currently discussing possible changes to
the timing of the payments, but no formal agreement has been
reached. The Company has not made any of the quarterly payments to
date. Pursuant to the Original MOUs, which are binding, the parties agreed
to negotiate and enter into definitive agreements with further terms and
conditions. No definitive agreements have yet been prepared, however,
and the MOUs continue to govern the relationships of the parties in this
business venture.
4
Live
Current Media Inc.
Form
10-K - 2008
In
conjunction with its agreement with the BCCI and the IPL, the Company signed an
MOU (the “Venture MOU”) with Netlinkblue (“NLB”), the owner of the live
streaming and mobile rights to the BCCI and IPL cricket
matches. Under the Venture MOU, the Company and NLB agreed to create
a new company into which they would transfer all of their digital
assets. As contemplated by the Venture MOU, a company 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, the Company is entitled to a 40% equity interest in Global Cricket
Venture. However, on October 30, 2008, as part of the formation
process, the Company, through its wholly-owned subsidiary LCM Cricket Ventures
(described below) was issued 50.05% of the shares of Global Cricket
Venture. 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. We anticipate that in the future
the ownership interest will be realigned in accordance with the intent of the
Venture MOU. Pursuant to the Venture MOU, the parties agreed to
negotiate and enter into definitive agreements with further terms and
conditions. To date, no definitive agreements have been prepared and,
aside from forming Global Cricket Venture, the parties to the Venture MOU have
not taken any of the other actions required by the Venture MOU, including
assigning their rights to the digital assets to Global Cricket
Venture. Global Cricket Venture currently has nominal assets and
operations.
On August 8, 2008, the Company formed a wholly-owned subsidiary in Singapore, LCM Cricket Ventures Pte. Ltd. (“LCM Cricket Ventures”), through which its business activities relating to the Cricket Websites will be performed. To date, LCM Cricket Ventures has nominal assets and limited operations.
The
Company has incurred costs of approximately $1.47 million 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. These costs are
related to, but are not limited to, expenditures for business development,
product development, travel, consulting, and salaries. The Company
incurred no such costs during the 2007 fiscal year. An additional $1
million owing in aggregate to the BCCI and IPL for the October 1, 2008 minimum
payments under the initial MOUs have also been accrued and expensed in 2008,
therefore, the total costs expensed for the year related to this venture are
$2.47 million.
Currently,
GCV has not yet obtained funding. All $2.47 million in costs were
expensed during the year ended December 31, 2008 due to uncertainty regarding
reimbursement of these costs by GCV.
We
compete with many companies in the B2B2C (business-to-business-to-consumer)
market that possess greater financial resources and technical facilities than we
have, which likely makes them more successful in attracting and retaining
qualified personnel. In addition, while we hold title to a wide variety of
generic domain names that may prove valuable, currently almost all of our
revenues are earned through our Perfume.com website. Many of our
competitors, however, have a very diverse portfolio of names and have not
confined their market to one industry, product or service, but offer a wide
array of multi-layered businesses consisting of many different customer and
industry partners. Some of these competitors may also be more
successful than we are because they have been in business longer than us and may
have established more strategic partnerships and relationships than we
have. We do not represent a significant presence in the B2B2C
market.
The
fragrance eCommerce business is intensely competitive. Perfume.com’s
current and potential competitors include (a) eCommerce sites specializing in
fragrance products, (b) other eCommerce sites offering a wide variety of
products including fragrances, and (c) traditional brick and mortar retailers
with a high degree of brand awareness among consumers that have expanded into
online sales, including various department stores and specialty health and
beauty stores. We believe that the principal competitive factors in
our Perfume.com business include price, selection, ease of website use, fast and
reliable fulfillment, strong customer service and development of a trusted
brand. Many of our current competitors have greater resources, more
customers, longer operating histories and greater brand
recognition. They may secure better terms from suppliers, have more
efficient distribution capability, and devote more resources to technology,
fulfillment and marketing.
In
addition, the Internet Corporation for Assigned Names and Numbers (“ICANN”) has
introduced, and has proposed the introduction, of additional new domain name
suffixes, which may be as or more attractive than the “.com” domain name
suffix. New root domain names may have the effect of allowing the
entrance of new competitors at limited cost, which may further reduce the value
of our domain name assets. We do not presently intend to acquire
domain names using newly authorized root domain names to match our existing
domain names, although we have certain .cn (China) root domain names to
complement our growth strategy.
ICANN
regularly develops new domain name suffixes that will have the result of making
a number of domain names available in different formats, many of which may be
more attractive than the formats held by us.
DEPENDENCE
ON ONE OR A FEW MAJOR CUSTOMERS
We do not
currently depend on any single customer for a significant proportion of our
business.
5
Live
Current Media Inc.
Form
10-K - 2008
PATENTS,
TRADEMARKS AND PROPRIETARY RIGHTS
On
November 16, 2007, we filed a trademark application with the US Patent &
Trademark Office (“USPTO”) for the mark "LIVE CURRENT". A certificate
of registration was issued on October 14, 2008 and the mark was assigned
registration number 3,517,876.
On March
11, 2008, we filed a trademark application with the USPTO for the mark
"DESTINATIONHUB". A certificate of registration was issued on
December 9, 2008 and the mark was assigned registration number
3,544,934.
We
currently do not own any patents and we are not a party to any license or
franchise agreements, concessions, or labor contracts arising from our
intellectual property.
All of
our online businesses and web sites are copyrighted upon loading.
“Livecurrent.com” is a registered domain name of DHI.
While we
will consider seeking further protections for our intellectual property, we may
be unable to avail ourselves of protections under United States laws because,
among other things, our domain names are generic and intuitive. Consequently, we
will seek protection of our intellectual property only where we have determined
that the cost of obtaining protection, and the scope of protection provided,
results in a meaningful benefit to us.
EFFECT
OF EXISTING GOVERNMENTAL REGULATION
Our
business is subject to regulation at the federal, state and local
levels. To date, we have not found it burdensome to comply with
regulatory requirements. The enactment of new adverse regulation or
regulatory requirements, however, may have a negative impact upon us and our
business.
Licensing
Currently,
other than business and operations licenses applicable to most commercial
ventures, we are not required to obtain any governmental approval for our
business operations. There can be no assurance, however, that
governmental institutions will not, in the future, impose licensing or other
requirements to which we will be subject. Additionally, as noted
below, there are a variety of laws and regulations that may, directly or
indirectly, have an impact on our business.
Privacy
Legislation and Regulations
Entities
engaged in operations over the Internet, particularly relating to the collection
of user information, are subject to limitations on their ability to utilize such
information under federal and state legislation and regulation. In 2000, the
Gramm-Leach-Bliley Act required that the collection of identifiable information
regarding users of financial services be subject to stringent disclosure and
“opt-out” provisions. While this law and the regulations enacted by the Federal
Trade Commission and others relates primarily to information relating to
financial transactions and financial institutions, the broad definitions of
those terms may make the businesses entered into by the Company subject to the
provisions of the Act. This may increase the cost of doing business
which may, in turn, may reduce our revenues. Similarly, the Children On-line
Privacy and Protection Act (“COPPA”) imposes strict limitations on the ability
of internet ventures to collect information from minors. The impact of COPPA may
be to increase the cost of doing business on the internet and reduce potential
revenue sources. We may also be impacted by the USA Patriot Act, which requires
certain companies to collect and provide information to United States
governmental authorities. A number of state governments have also proposed or
enacted privacy legislation that reflects or, in some cases, extends the
limitations imposed by the Gramm-Leach-Bliley Act and COPPA. These laws may
further impact the cost of doing business on the internet and the attractiveness
of our inventory of domain names.
Advertising
Regulations
In
response to concerns regarding “spam” (unsolicited electronic messages),
“pop-up” web pages and other internet advertising, the federal government and a
number of states have adopted or proposed laws and regulations which would limit
the use of unsolicited internet advertisements. The cumulative effect of these
laws may be to limit the attractiveness of effecting sales on the internet, thus
reducing the value of our inventory of domain names.
Taxation
Currently,
the sale of goods and services on the internet is not subject to a uniform
system of taxation. A number of states, as well as the federal
government, have considered enacting legislation that would subject internet
transactions to sales, use or other taxes. Because there are a
variety of jurisdictions considering such actions, any attempt to tax internet
transactions could create uncertainty in the ability of internet-based companies
to comply with varying, and potentially contradictory,
requirements. We cannot predict whether any of the presently proposed
schemes will be adopted, or the effect any of them would have on our
operations.
6
Live
Current Media Inc.
Form
10-K - 2008
EMPLOYEES
We
presently employ 22 full-time and 2 part-time employees, as well as 3
consultants.
Item
1A. Risk Factors
In
addition to the factors discussed elsewhere in this Annual Report, the following
risks and uncertainties could materially adversely affect our business,
financial condition and results of operations. The current global
economic downturn amplifies many of these risks. Additional risks and
uncertainties not presently known to us or that we currently deem immaterial
also may impair our business operations and financial condition.
Risks
Relating to Our Business
WE
MAY BE UNABLE TO CONTINUE AS A GOING CONCERN.
Our
consolidated financial statements have been prepared on a going concern basis
which assumes that we will be able to realize our assets and discharge our
liabilities in the normal course of business for the foreseeable
future. We have generated a consolidated net loss of $10,006,456 and
realized a negative cash flow from operating activities of $4,854,260 for the
year ended December 31, 2008. At this date, we had a working capital
deficiency of $3,164,157, as compared to positive working capital of $5,930,413
at December 31, 2007. At December 31, 2008 we had an accumulated
deficit of $12,532,134, as compared to an accumulated deficit of $2,525,678 at
December 31, 2007. Stockholders equity was $2,255,601 at December 31,
2008, as compared to stockholders equity of $7,675,753 at December 31,
2007.
Our
ability to continue as a going-concern is in substantial doubt as it is
dependent on a number of factors including, but not limited to, the receipt of
continued financial support from our investors, our ability to market and sell
domain name assets for cash, our ability to raise equity or debt financing as we
need it, and whether we will be able to use our securities to meet certain of
our liabilities as they become payable, including our commitments for the Global
Cricket Venture as disclosed in Note 5 of our consolidated financial
statements. The outcome of these matters is dependent on factors
outside of our control and cannot be predicted at this time.
THE
EFFECTS OF THE RECENT ECONOMIC DOWNTURN MAY IMPACT OUR BUSINESS, OPERATING
RESULTS, OR FINANCIAL CONDITION. WE ARE NOT CERTAIN WHEN THIS
DOWNTURN WILL END.
The
recent economic downturn has caused disruptions and extreme volatility in global
financial markets, has increased rates of default and bankruptcy, and has
impacted consumer and business spending. These developments may negatively
affect our business, operating results, or financial condition in a number of
ways. For example, the downturn in consumer spending, especially in the
United States, may result in decreased sales of our Health and Beauty products,
since most of these products are not necessities but are purchased with
discretionary funds. Furthermore, the tightening credit market may
make it impossible for us to obtain financing if it is required. We are
not sure when this economic downturn will end.
WE
MAY NOT BE ABLE TO PROTECT OUR DOMAIN NAMES, WHICH WOULD ADVERSELY AFFECT OUR
BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
We seek
to develop a portfolio of operating businesses either by ourselves or by
entering into arrangements with businesses that operate in the product or
service categories that are described by the domain name assets owned by
DHI. We may not be able to prevent third parties from acquiring
domain names that are confusingly similar to our domain names, which could
adversely affect our business. Governmental agencies and their
designees generally regulate the acquisition and maintenance of internet
addresses. However, the regulation of internet addresses in the
United States and in foreign countries is subject to change. As a
result, we may not be able to acquire or maintain relevant internet addresses in
all countries where we conduct business. All of our online businesses
and web sites are copyrighted upon loading. “Livecurrent.com” is a registered
domain name of DHI. While we will consider seeking further protection
for our intellectual property, we may be unable to avail ourselves of protection
under United States laws because, among other things, our domain names are
generic and intuitive. Consequently, we will seek protection of our intellectual
property only where we determine that the cost of obtaining protection and the
scope of protection provided result in a meaningful benefit to
us.
7
Live
Current Media Inc.
Form
10-K - 2008
WE
MAY BE UNABLE TO MAKE THE PAYMENTS REQUIRED UNDER OUR MEMORANDUM OF
UNDERSTANDING WITH THE BCCI OR THE IPL. IN THAT CASE, WE MAY HAVE TO
FORFEIT SOME OR ALL OF OUR RIGHTS UNDER THE MEMORANDUM OF UNDERSTANDING AND WE
MAY BE LIABLE FOR DAMAGES TO THE BCCI OR THE IPL.
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 Memorandum of Understanding
(“MOU”). Although no formal amendment to the MOU has been executed,
the parties have agreed to decrease the amount owing to the BCCI to $125,000,
and to eliminate entirely the payment of $750,000 that will be due to the BCCI
on October 1, 2009. 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, nor have we made other payments required by the
MOUs. The parties are currently discussing possible changes to the
timing of the payments, however no formal agreement has been
reached. 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 we are unable to make the required payments to the BCCI or the IPL, and no
extension or renegotiation of the payment terms can be arranged, we may have to
forfeit some or all of our rights to the cricket-related digital content and may
be exposed to potential liability for defaulting on our payment. We
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 we are unable to make the
required payments, we face potential claims for breach of contract, lack of
performance and other damages which other parties to the MOU may seek to
recover. We do not concede that such claims would be enforceable or
result in a recovery against us. If these events were to occur, such
events would have a negative effect on our overall anticipated results of
operations and performance.
OUR
EXPANSION INTO NEW GEOGRAPHIC AREAS AND INTERNATIONAL OPERATIONS IN CONNECTION
WITH OUR CRICKET BUSINESS CREATES ADDITIONAL RISKS WHICH COULD HARM OUR
BUSINESS, OPERATING RESULTS, AND FINANCIAL CONDITION.
By virtue
of the MOUs we have entered with NLB, the BCCI and the IPL, our cricket business
is expanding into new geographic areas where our partners and the cricket
leagues are located, such as Dubai, South Africa, India, and the
UK. We have limited experience with operations outside North America,
and our ability to manage our business and conduct our operations
internationally requires considerable management attention and resources and is
subject to a number of risks, including the following:
|
·
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local
economic conditions;
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·
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geopolitical
events, including war and
terrorism;
|
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·
|
challenges
caused by distance, language and cultural differences and by doing
business with foreign agencies and
governments;
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·
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longer
payment cycles in some countries;
|
|
·
|
uncertainty
regarding liability for services and
content;
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currency
exchange rate fluctuations;
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·
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potentially
adverse tax consequences;
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·
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higher
costs associated with doing business
internationally;
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·
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different
employee/employer relationships and the existence of workers’ councils and
labor unions.
|
Our
cricket business is centered in an area of the world that has recently
experienced significant geopolitical events, including the November 2008
terrorist attacks in Mumbai, India and the February 2009 attacks against the Sri
Lankan cricket team in Pakistan. These events have adversely affected
our cricket business. For example, the Champions League cricket
tournament was cancelled following the terrorist attacks in Mumbai, which
resulted in lost revenue generating opportunities in December
2008. In addition, on March 24, 2009, the IPL announced that its
second season will be relocated from India to South Africa. Future
geopolitical activity may negatively impact our business prospects and affect
our ability to maximize revenues and profits.
8
Live
Current Media Inc.
Form
10-K - 2008
WE
COMPETE WITH COMPANIES POSSESSING SUBSTANTIALLY GREATER RESOURCES WHICH MAY
ADVERSELY AFFECT OUR ABILITY TO ATTRACT QUALIFIED PERSONNEL OR TO GROW OUR
BUSINESS.
We
compete with many companies in the B2B2C (business-to-business-to-consumer)
market that possess greater financial resources and technical facilities than we
have, which likely makes them more successful in attracting and retaining
qualified personnel. In addition, while we hold title to a wide
variety of generic names that may prove valuable, currently almost all of our
revenues are earned through our Perfume.com website. Many of our
competitors, however, have a very diverse portfolio of names and have not
confined their market to one industry, product or service, but offer a wide
array of multi-layered businesses consisting of many different customer and
industry partners. Some of these competitors may also be more
successful than we are because they have been in business longer than us and may
have established more strategic partnerships and relationships than we
have. We do not represent a significant presence in the B2B2C
market.
OUR
PERFUME.COM ECOMMERCE BUSINESS FACES SIGNIFICANT COMPETITION.
The
fragrance eCommerce business is extremely competitive. The internet
facilitates competitive entry and comparison shopping and renders eCommerce
inherently more competitive than other retail. Perfume.com has many
current and potential competitors including specialized online fragrance
retailers, other eCommerce retailers selling a wide variety of products
including fragrances, and traditional brick and mortar retailers with a high
degree of brand awareness among consumers that have expanded into online sales
such as department stores and specialty health and beauty
stores. Many of our current competitors have greater resources, more
customers, longer operating histories and greater brand
recognition. They may secure better terms from suppliers, have more
efficient distribution capability, and devote more resources to technology,
fulfillment and marketing. Increased competition may reduce our sales
and profits.
NEW
ROOT DOMAIN NAMES MAY HAVE THE EFFECT OF ALLOWING THE ENTRANCE OF NEW
COMPETITORS AT LIMITED COST, WHICH MAY REDUCE THE VALUE OF OUR DOMAIN NAME
ASSETS.
The
Internet Corporation for Assigned Names and Numbers (“ICANN”) has introduced,
and has proposed the introduction of, additional new domain name suffixes, which
may be as or more attractive than the “.com” domain name suffix. New root domain
names may have the effect of allowing the entrance of new competitors at limited
cost, which may further reduce the value of our domain name assets. We do not
presently intend to acquire domain names using newly authorized root domain
names to match our existing domain names, although we have certain .cn (China)
root domain names to complement our growth strategy. ICANN regularly develops
new domain name suffixes that will have the result of making a number of domain
names available in different formats, many of which may be more attractive than
the formats held by us.
FAILURE
TO MANAGE GROWTH EFFECTIVELY COULD ADVERSELY AFFECT OUR BUSINESS, RESULTS OF
OPERATIONS AND FINANCIAL CONDITION.
We seek
to develop a portfolio of operating businesses either by ourselves or by
entering into arrangements with businesses that operate in the product or
service categories that are described by our domain name assets. The
success of our future operating activities will depend upon our ability to
expand our support system to meet the demands of our growing
business. Any failure by our management to effectively anticipate,
implement, and manage changes required to sustain our growth would have a
material adverse effect on our business, financial condition, and results of
operations. We cannot assure you that we will be able to successfully
operate acquired businesses, become profitable in the future, or effectively
manage any other change.
THE
LOSS OF CERTAIN KEY PERSONNEL COULD SIGNIFICANTLY HARM OUR BUSINESS, RESULTS OF
OPERATIONS AND FINANCIAL CONDITON.
Our
performance is substantially dependent upon the services of our executive
officers and other key employees, as well as on our ability to recruit, retain,
and motivate other officers and key employees. Competition for qualified
personnel is intense and there are a limited number of people with knowledge of
and experience in the ownership, development, and management of websites and
internet domain names. The loss of services of any of our officers or
key employees, or our inability to hire and retain a sufficient number of
qualified employees, will harm our business. Specifically, the loss of Mr.
Hampson, our Chief Executive Officer and Chairman, Mr. Melville, our President
and Chief Corporate Development Officer, and Chantal Iorio, our Vice President
Finance, would be detrimental. We have employment agreements with Mr.
Hampson, Mr. Melville and Ms. Iorio that provide for their continued service to
us until June 1, 2012, January 1, 2013 and January 7, 2013
respectively.
9
Live
Current Media Inc.
Form
10-K - 2008
We
entered into an Agreement and Plan of Merger to acquire Entity, Inc. (known as
“Auctomatic”) for the primary purpose of employing its founders who we believe
will enable us to execute on our strategy of building successful websites in
various commerce segments. Other than that acquisition, we do not
currently have any commitments, agreements or understandings to acquire any
specific businesses or other material operations but we will consider
acquisitions in the future. We may not be able to locate suitable
acquisition candidates at prices that we consider appropriate or to finance
acquisitions on terms that are satisfactory to us. We may not be able
to successfully integrate the work of the Auctomatic development team into our
existing personnel groups over time. If we do identify other
appropriate acquisition candidates, we may not be able to successfully negotiate
the terms of an acquisition, finance the acquisition or, if the acquisition
occurs, integrate the acquired business into our existing
business. Negotiations of potential acquisitions and the integration
of acquired business operations could disrupt our business by diverting
management away from day-to-day operations. Acquisitions of
businesses or other material operations may require additional debt or equity
financing, resulting in additional leverage or dilution of
ownership. The difficulties of integration may be increased by the
necessity of coordinating geographically dispersed organizations, integrating
personnel with disparate business backgrounds and combining different corporate
cultures. We also may not realize expected cost efficiencies or
synergies. In addition, we may need to record write-downs from future
impairments of intangible assets or goodwill, which could reduce our future
reported earnings. If any such acquisition occurs, there can be no
assurance as to the effect thereof on our business, results of operations, and
financial condition.
WE
ANTICIPATE RAISING ADDITIONAL CAPITAL IN THE FUTURE AND FAILURE TO RAISE
SUFFICIENT CAPITAL WILL LIMIT OUR ABILITY TO OPERATE AND EXPAND OUR
BUSINESS.
We will
be required to raise additional funds for operations in 2009 and intend to do so
primarily through the sales or leases of a few of our non-core domain
names. It is possible that if we are unable to raise adequate funds
from the sale of these domain names, we would have to raise additional funds
through public or private financing, strategic relationships or other
arrangements to carry out our business strategy and seize opportunities to make
business acquisitions. We cannot be certain that any financing will be available
on acceptable terms, or at all, and our failure to raise capital when needed
could limit our ability to expand our business. Additional equity financing may
be dilutive to the holders of our common stock, and debt financing, if
available, may involve restrictive covenants. Moreover, strategic relationships,
if necessary to raise additional funds, may require that we relinquish valuable
rights.
OUR
EXECUTIVE OFFICERS, DIRECTORS AND MAJOR SHAREHOLDERS HAVE SIGNIFICANT
SHAREHOLDINGS, WHICH MAY LEAD TO CONFLICTS WITH OTHER SHAREHOLDERS OVER
CORPORATE GOVERNANCE MATTERS.
Our
current directors, officers and more than 5% shareholders, as a group,
beneficially own approximately 21.7% of our outstanding common stock. Acting
together, these shareholders would be able to significantly influence all
matters that our shareholders vote upon, including the election of directors and
mergers or other business combinations.
WE MAY BE SUBJECT TO RECENTLY
ENACTED PRIVACY LEGISLATION AND REGULATION WHICH COULD REDUCE OUR POTENTIAL REVENUES AND
PROFITABILITY.
Entities
engaged in operations over the internet, particularly relating to the collection
of user information, are subject to limitations on their ability to utilize such
information under federal and state legislation and regulation. In
2000, the Gramm-Leach-Bliley Act required that the collection of identifiable
information regarding users of financial services be subject to stringent
disclosure and “opt-out” provisions. While this law and the
regulations enacted by the Federal Trade Commission and others relates primarily
to information relating to financial transactions and financial institutions,
the broad definitions of those terms may make the businesses entered into by the
Company and its strategic partners subject to the provisions of the Act, which
may, in turn, increase the cost of doing business and reduce our
revenues. Similarly, the Children On-line Privacy and Protection Act
(“COPPA”) imposes strict limitations on the ability of internet ventures to
collect information from minors. The impact of COPPA may be to increase the cost
of doing business on the internet and reduce potential revenue
sources. We may also be impacted by the USA Patriot Act, which
requires certain companies to collect and provide information to United States
governmental authorities. A number of state governments have also proposed or
enacted privacy legislation that reflects or, in some cases, extends the
limitations imposed by the Gramm-Leach-Bliley Act and
COPPA. These laws may further impact the cost of doing business on
the internet.
10
Live
Current Media Inc.
Form
10-K - 2008
ANY
ATTEMPT OF FEDERAL OR STATE GOVERNMENT TO TAX INTERNET TRANSACTIONS COULD CREATE
UNCERTAINTY IN OUR ABILITY TO COMPLY WITH VARYING, AND POTENTIALLY
CONTRADICTORY, REQUIREMENTS WHICH COULD NEGATIVELY IMPACT OUR BUSINESS, RESULTS
OF OPERATIONS, AND FINANCIAL CONDITION.
Currently,
the sale of goods and services on the internet is not subject to a uniform
system of taxation. A number of states, as well as the federal
government, have considered enacting legislation that would subject internet
transactions to sales, use or other taxes. Because there are a
variety of jurisdictions considering such actions, any attempt to tax internet
transactions could create uncertainty in the ability of internet-based companies
to comply with varying, and potentially contradictory,
requirements. We cannot predict whether any of the presently proposed
schemes will be adopted. We cannot predict the effect, if any, that
the adoption of such proposed schemes would have on our business with certainty;
however, they are likely to have a negative impact on our business, results of
operations or financial condition.
LAWS
MAY BE ADOPTED IN THE FUTURE REGULATING COMMUNICATIONS AND COMMERCE ON THE
INTERNET WHICH COULD HAVE A NEGATIVE IMPACT UPON OUR BUSINESS, RESULTS OF
OPERATIONS AND FINANCIAL CONDITION.
There are
currently few laws or regulations that specifically regulate communications,
access to, or commerce on the internet. Governing bodies have, and
may continue to, adopt laws and regulations in the future that address issues
such as user privacy, pricing and the characteristics and quality of products
and services offered over the Internet. For example, the
Telecommunications Act of 1996 sought to prohibit transmitting various types of
information and content over the internet. Several telecommunications
companies have petitioned the Federal Communications Commission to regulate
internet service providers and on-line service providers in a manner similar to
long distance telephone carriers and to impose access fees on those
companies. This could increase the cost of transmitting data over the
internet. Moreover, it may take years to determine the extent to
which existing laws relating to issues such as intellectual property ownership,
libel and personal privacy are applicable to the internet. Any new
laws or regulations relating to the internet or any new interpretations of
existing laws could have a negative impact on our business and add additional
costs to doing business on the internet. Currently we have no
significant expenses associated with legal or regulatory
compliance.
WE
MAY BE EXPOSED TO LIABILITY FOR INFRINGING INTELLECTUAL PROPERTY RIGHTS OF OTHER
COMPANIES WHICH COULD RESULT IN SUBSTANIAL COSTS TO US IN THE DEFENSE OF PATENT,
COPYRIGHT OR TRADEMARK INFRINGEMENT SUITS.
Our
success will, in part, depend on our ability to operate without infringing on
the proprietary rights of others. Although we have conducted searches
and are not aware of any patents, trademarks or copyrights upon which our domain
names or their use might infringe, and the majority of our portfolio of domain
names is generic in nature, we cannot be certain that infringement has not or
will not occur. We could incur substantial costs, in addition to the
great amount of time lost, in defending any patent, copyright or trademark
infringement suits or in asserting any patent, copyright or trademark rights, in
a suit with another party.
OUR
COMMON STOCK IS CONSIDERED A “PENNY STOCK”. THE APPLICATION OF THE “PENNY STOCK”
RULES TO OUR COMMON STOCK COULD LIMIT THE TRADING AND LIQUIDITY OF THE COMMON
STOCK, ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK AND INCREASE THE
TRANSACTION COSTS TO SELL THOSE SHARES.
Our
common stock is a “low-priced” security or “penny stock” under rules promulgated
under the Securities Exchange Act of 1934, as amended. In accordance with these
rules, broker-dealers participating in transactions in low-priced securities
must first deliver a risk disclosure document which describes the risks
associated with such stocks, the broker-dealer’s duties in selling the stock,
the customer’s rights and remedies and certain market and other information.
Furthermore, the broker-dealer must make a suitability determination approving
the customer for low-priced stock transactions based on the customer’s financial
situation, investment experience and objectives. Broker-dealers must also
disclose these restrictions in writing to the customer, obtain specific written
consent from the customer, and provide monthly account statements to the
customer. The effect of these restrictions will likely decrease the willingness
of broker-dealers to make a market in our common stock, will decrease liquidity
of our common stock and will increase transaction costs for sales and purchases
of our common stock as compared to other securities.
11
Live
Current Media Inc.
Form
10-K - 2008
THE
STOCK MARKET IN GENERAL HAS EXPERIENCED VOLATILITY THAT OFTEN HAS BEEN UNRELATED
TO THE OPERATING PERFORMANCE OF LISTED COMPANIES. THESE BROAD FLUCTUATIONS MAY
BE THE RESULT OF UNSCRUPULOUS PRACTICES THAT MAY ADVERSELY AFFECT THE PRICE OF
OUR STOCK, REGARDLESS OF OUR OPERATING PERFORMANCE.
Shareholders
should be aware that, according to SEC Release No. 34-29093 dated April 17,
1991, the market for penny stocks has suffered in recent years from patterns of
fraud and abuse. Such patterns include (1) control of the market for the
security by one or a few broker-dealers that are often related to the promoter
or issuer; (2) manipulation of prices through prearranged matching of purchases
and sales and false and misleading press releases; (3) boiler room practices
involving high-pressure sales tactics and unrealistic price projections by
inexperienced sales persons; (4) excessive and undisclosed bid-ask differential
and markups by selling broker-dealers; and (5) the wholesale dumping of the same
securities by promoters and broker-dealers after prices have been manipulated to
a desired level, along with the resulting inevitable collapse of those prices
and with consequent investor losses. The occurrence of these patterns or
practices could increase the volatility of our share price.
WE DO NOT EXPECT TO PAY DIVIDENDS
FOR THE FORESEEABLE FUTURE, AND WE MAY NEVER PAY DIVIDENDS. INVESTORS SEEKING CASH DIVIDENDS
SHOULD NOT PURCHASE OUR COMMON STOCK.
We
currently intend to retain any future earnings to support the development of our
business and do not anticipate paying cash dividends in the foreseeable future.
Our payment of any future dividends will be at the discretion of our Board of
Directors after taking into account various factors, including but not limited
to our financial condition, operating results, cash needs, growth plans and the
terms of any credit agreements that we may be a party to at the time. In
addition, our ability to pay dividends on our common stock may be limited by
Nevada state law. Accordingly, investors must rely on sales of their common
stock after price appreciation, which may never occur, as the only way to
realize a return on their investment. Investors seeking cash dividends should
not purchase our common stock.
LIMITATIONS
ON DIRECTOR AND OFFICER LIABILITY AND OUR INDEMNIFICATION OF OFFICERS AND
DIRECTORS MAY DISCOURAGE SHAREHOLDERS FROM BRINGING SUIT AGAINST A
DIRECTOR.
Our
Articles of Incorporation and Bylaws provide, with certain exceptions as
permitted by governing Nevada law, that a director or officer shall not be
personally liable to us or our shareholders for breach of fiduciary duty as a
director, except for acts or omissions which involve intentional misconduct,
fraud or knowing violation of law, or unlawful payments of dividends. These
provisions may discourage shareholders from bringing suit against a director for
breach of fiduciary duty and may reduce the likelihood of derivative litigation
brought by shareholders on our behalf against a director. In addition, our
Articles of Incorporation and Bylaws provide for mandatory indemnification of
directors and officers to the fullest extent permitted by Nevada
law.
FUTURE
SALES OF OUR COMMON STOCK COULD PUT DOWNWARD SELLING PRESSURE ON OUR COMMON
STOCK, AND ADVERSELY AFFECT THE PER SHARE PRICE. THERE IS A RISK THAT THIS
DOWNWARD PRESSURE MAY MAKE IT IMPOSSIBLE FOR AN INVESTOR TO SELL SHARE OF COMMON
STOCK AT ANY REASONABLE PRICE, IF AT ALL.
Future
sales of substantial amounts of our common stock in the public market or the
perception that such sales could occur, could put downward selling pressure on
our common stock and adversely affect its market price.
THE
OVER THE COUNTER BULLETIN BOARD IS A QUOTATION SYSTEM, NOT AN ISSUER LISTING
SERVICE, MARKET OR EXCHANGE. THEREFORE, BUYING AND SELLING STOCK ON THE OTC
BULLETIN BOARD IS NOT AS EFFICIENT AS BUYING AND SELLING STOCK THROUGH AN
EXCHANGE. AS A RESULT, IT MAY BE DIFFICULT FOR YOU TO SELL YOUR COMMON STOCK OR
YOU MAY NOT BE ABLE TO SELL YOUR COMMON STOCK FOR AN OPTIMUM TRADING
PRICE.
The Over
the Counter Bulletin Board (the “OTC BB”) is a regulated quotation service that
displays real-time quotes, last sale prices and volume limitations in
over-the-counter securities. Because trades and
quotations on the OTC Bulletin Board involve a manual process, the market
information for such securities cannot be guaranteed. In addition, quote
information, or even firm quotes, may not be available. The manual execution
process may delay order processing and intervening price fluctuations may result
in the failure of a limit order to execute or the execution of a market order at
a significantly different price. Execution of trades, execution reporting and
the delivery of legal trade confirmations may be delayed significantly.
Consequently, one may not be able to sell shares of our common stock at the
optimum trading prices.
12
Live
Current Media Inc.
Form
10-K - 2008
When
fewer shares of a security are being traded on the OTC Bulletin Board,
volatility of prices may increase and price movement may outpace the ability to
deliver accurate quote information. Lower trading volumes in a security may
result in a lower likelihood of an individual’s orders being executed, and
current prices may differ significantly from the price one was quoted by the OTC
Bulletin Board at the time of the order entry. Orders for OTC
Bulletin Board securities may be canceled or edited like orders for other
securities. All requests to change or cancel an order must be submitted to,
received and processed by the OTC Bulletin Board. Due to the manual order
processing involved in handling OTC Bulletin Board trades, order processing and
reporting may be delayed, and an individual may not be able to cancel or edit
his order. Consequently, one may not be able to sell shares of common stock at
the optimum trading prices.
The
dealer’s spread (the difference between the bid and ask prices) may be large and
may result in substantial losses to the seller of securities on the OTC Bulletin
Board if the common stock or other security must be sold immediately. Further,
purchasers of securities may incur an immediate “paper” loss due to the price
spread. Moreover, dealers trading on the OTC Bulletin Board may not have a bid
price for securities bought and sold through the OTC Bulletin Board. Due to the
foregoing, demand for securities that are traded through the OTC Bulletin Board
may be decreased or eliminated.
WE
EXPECT VOLATILITY IN THE PRICE OF OUR COMMON STOCK, WHICH MAY SUBJECT US TO
SECURITIES LITIGATION RESULTING IN SUBSTANTIAL COSTS AND LIABILITIES AND
DIVERTING MANAGEMENT’S ATTENTION AND RESOURCES.
The
market for our common stock may be characterized by significant price volatility
when compared to seasoned issuers, and we expect that our share price will be
more volatile than a seasoned issuer for the indefinite future. In the past,
plaintiffs have often initiated securities class action litigation against a
company following periods of volatility in the market price of its securities.
We may in the future be a target of similar litigation. Securities litigation
could result in substantial costs and liabilities and could divert management’s
attention and resources.
Item
1B.
Unresolved Staff Comments
As a
smaller reporting company, we are not required to provide this
information.
Item
2. Properties
Our
principal office is located at #645-375 Water Street, Vancouver, British
Columbia V6B5C6, Canada. We lease this office space, which consists
of approximately 5,400 square feet. The lease has a term of
5 years, beginning on October 1, 2007 and ending on September 30,
2012. Pursuant to the terms of the lease agreement, we have committed
to basic rent costs for the remaining 4 fiscal years commencing January 1, 2009
as follows: (a) year 1 - $116,188; (b) year 2 - $121,531; (c) year 3 - $126,873;
(d) year 4 (which will be comprised of nine months only) -
$98,159. We are also responsible for common area costs which are
currently estimated to be equal to approximately 43% of basic
rent. We also leased an office at the Pacific NorthWest Trade Center,
800 Fifth Avenue, Suite 4100, Seattle, WA 98104 for a nominal amount per month,
however we are changing locations in April of 2009. Our new office
address will be 12201 Tukwila Intl. Blvd, Suite 200, Tukwila, WA
98168.
Item
3. Legal
Proceedings
In the
normal course of business, we may become involved in various legal proceedings.
Except as stated below, we know of no pending or threatened legal proceeding to
which we are or will be a party which, if successful, might result in a material
adverse change in our business, properties or financial condition.
In
December 1999, DHI commenced a lawsuit in the Supreme Court of British Columbia
(No. C996417) against Paul Green for breach of fiduciary duty for wrongfully
attempting to appropriate DHI’s business opportunities. Mr. Green was
the former chief executive officer of DHI. DHI is seeking an undetermined amount
of damages and a declaration that it had just cause to terminate Paul Green as
the chief executive officer in or about June 1999. No decision has been rendered
in this case and DHI cannot predict whether it will prevail, and if it does,
what the terms of any judgment may be.
On March
9, 2000, Paul Green commenced a separate action in the Supreme Court of British
Columbia (No. S001317) against DHI. In that action, Paul Green claimed wrongful
dismissal and breach of contract on the part of DHI. Paul Green is seeking an
undetermined amount of damages and, among other things, an order of specific
performance for the issuance of a number of shares in the capital of DHI equal
to 18.9% or more of the outstanding shares of DHI. On June 1, 2000, DHI filed a
statement of defense and counterclaim. Management intends to defend this action
vigorously.
13
Live
Current Media Inc.
Form
10-K - 2008
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 fourth quarter of the fiscal year covered by this
report.
PART
II
Item
5. Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
Market
Information
Our
common stock, $0.001 par value per share, has been quoted on the OTC Bulletin
Board under the symbol “LIVC” since August 4, 2008 (formerly trading under the
symbol “CMNN”). The following table sets forth, for each fiscal
quarter for the past two years, the reported high and low closing bid quotations
for our common stock as reported on the OTC Bulletin Board. The bid
information was obtained from the OTC Bulletin Board and reflects inter-dealer
prices, without retail mark-up, markdown or commission, and may not represent
actual transactions.
|
High
& Low Bids
|
|||
|
Period
ended
|
High
|
Low
|
Source
|
|
December
31, 2008
September
30, 2008
June
30, 2008
March
31, 2008
December
31, 2007
September
30, 2007
June
30, 2007
March
31, 2007
|
$1.34
$2.81
$3.10
$3.47
$2.05
$2.65
$2.10
$1.48
|
$0.25
$1.25
$2.26
$2.37
$2.03
$1.60
$1.01
$0.90
|
OTC
Bulletin Board
OTC
Bulletin Board
OTC
Bulletin Board
OTC
Bulletin Board
OTC
Bulletin Board
OTC
Bulletin Board
OTC
Bulletin Board
OTC
Bulletin Board
|
Holders
of Record
We have
approximately 74 record holders of our common stock as of March 20, 2009
according to a shareholders’ list provided by our transfer agent as of that
date. The number of registered shareholders does not include any estimate by us
of the number of beneficial owners of common shares held in street name. The
transfer agent and registrar for our common stock is Computershare Trust
Company, 350 Indiana Street, Suite 800, Golden, Colorado, 80401.
Dividends
We have
never declared nor paid any cash dividends on our common stock and we do not
anticipate that we will pay any cash dividends on our common stock in the
foreseeable future. Any future determination regarding the payment of cash
dividends will be at the discretion of our Board of Directors and will be
dependent upon our financial condition, results of operations, capital
requirements and other factors as our Board of Directors may deem relevant at
that time.
Securities
Authorized for Issuance under Equity Compensation Plans
On August
21, 2007, our Board of Directors adopted the Live Current Media Inc. 2007 Stock
Incentive Plan (the “Plan”). The Plan authorizes awards of options (both
incentive stock options and non-qualified stock options), stock awards or stock
bonuses. Persons eligible to receive awards under the Plan include our
employees, officers, directors, consultants, independent contractors, and
advisors, and those of our subsidiaries.
14
Live
Current Media Inc.
Form
10-K - 2008
The table
below illustrates, as of December 31, 2008, the number of shares of common stock
to be issued upon the exercise of options granted from the Plan, the weighted
average exercise price of the outstanding options and the number of securities
remaining available in the Plan for future issuance.
|
Equity
Compensation Plan Information
|
|||
|
Plan
category
|
Number
of securities to
be
issued upon exercise
of
outstanding options,
warrants
and rights
(a)
|
Weighted-average
exercise
price of
outstanding
options,
warrants
and rights
(b)
|
Number
of securities
remaining
available for
future
issuance under
equity
compensation
plans
(excluding securities
reflected
in column (a))
(c)
|
|
Equity
compensation plans approved by security holders
|
4,797,500
|
$2.29
|
202,500
|
|
Equity
compensation plans not approved by security holders
|
--
|
--
|
--
|
|
Total
|
4,797,500
|
$2.29
|
202,500
|
Our Board
of Directors administers the Plan. Our Board of Directors has the authority to
determine, at its discretion, the number and type of awards that will be
granted, the recipients of the awards, and the exercise or purchase price
required to be paid, when options may be exercised and the term of the option
grants. Options granted under the plan may not be exercised after 10 years from
the date the option is granted. A total of 5,000,000 shares of common stock were
reserved for awards granted under the Plan.
Options
granted under the Plan may be designated as incentive stock options or
non-qualified stock options. Incentive stock options may be granted only to our
employees and employees of our subsidiaries (including officers and directors
who are also employees). The exercise price of non-qualified stock options may
not be less than 85% of the fair market value of a share of our common stock on
the date of the grant, and the exercise price of incentive stock options may not
be less than 100% of the fair market value of a share of our common stock on the
date of the grant. However, the exercise price of any option may not be less
than 110% of the fair market value of our common stock on the date of grant in
the case of individual owning 10% or more of our common stock. Neither incentive
stock options nor non-qualified stock options may have a term exceeding 10
years. In the case of an incentive option that is granted to an individual
owning 10% or more of the common stock, the term may not exceed 5 years. We are
required to obtain shareholder approval of the Plan before the options granted
can qualify for incentive stock option treatment under U.S. tax
laws. We obtained shareholder approval of the Plan on May 27,
2008.
Recent
Sales of Unregistered Securities
During
the quarter ended December 31, 2008, we sold or issued the following securities
which were not registered under the Securities Act of 1933, as amended (the
“Securities Act”). Except as stated below, there were no underwriting
discounts or commissions payable with respect to any of the following
transactions.
During
November 2008, we accepted subscriptions from 11 accredited investors pursuant
to which we issued and sold 1,627,344 units consisting of one share of the
Company’s common stock and two warrants, each for the purchase of one-half a
share of common stock. The price per unit was $0.65. We
raised gross proceeds of $1,057,775 (the “Offering”). The private
placement closed on November 19, 2008. One warrant is exercisable at
$0.78 (a 20% premium) and expires November 19, 2010. The other
warrant is exercisable at $0.91 (a 40% premium) and expires November 19,
2011. The Company incurred $86,803 in share issuance costs related to
the private placement. We are required to use our reasonable best
efforts to file an S-1 Registration Statement with the SEC to register for
resale the common stock and the common stock underlying the
warrants. The offer and sale of the securities were exempt from the
registration requirements of the Securities Act under Rule 506 insofar as (1)
each of the investors was accredited within the meaning of Rule 501(a); (2) the
transfer of the securities is restricted by the Company in accordance with Rule
502(d); (3) there were no more than 35 non-accredited investors in any
transaction within the meaning of Rule 506(b); and (4) none of the offers and
sales were effected through any general solicitation or general advertising
within the meaning of Rule 502(c).
15
Live
Current Media Inc.
Form
10-K - 2008
On
December 16, 2008, we issued 33,000 shares of common stock to an investor
relations firm, Alliance Advisors LLC, in payment of services that had been
rendered to the Company having a value of $16,500. The offer
and sale of the securities were exempt from the registration requirements of the
Securities Act in accordance with Section 4(2). The offer and sale
was not effected through any general solicitation or general advertising and the
offeree was an accredited investor.
In
October, November and December 2008, we issued 45,000 shares to an investor
relations firm, Lexington Advisors LLC, which provided investor relations
services to the Company. These shares had a value of $39,000 and were issued as
partial consideration for services rendered during the quarter. The offer and
sale of the securities were exempt from the registration requirements of the
Securities Act in accordance with Section 4(2). The offer and sale
was not effected through any general solicitation or general advertising and the
offeree was an accredited investor.
Item
6.
Selected Financial Data
As a
smaller reporting company we are not required to provide this
information.
Item
7. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
discusses our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United
States. The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. On an on-going basis,
management evaluates its estimates and judgments. Management bases
its estimates and judgments on historical experience and on various other
factors that are believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying value of assets
and liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or
conditions.
You
should read the following discussion of our financial condition and results of
operations together with our consolidated financial statements and the notes to
our consolidated financial statements included elsewhere in this
report.
Overview
We build
consumer internet experiences around our large portfolio of domain
names. We have developed content or commerce experiences across our
core domain names. In addition, we own hundreds of non-core domain
names that we may choose to develop, lease or sell in the future to raise funds
in a non-dilutive manner. We generate revenues from this portfolio in
two different ways; through the online sales of products (eCommerce) and through
the sale of advertising. Almost all of our revenues earned in 2008
were generated from our main Health and Beauty website,
Perfume.com. Through this website, we sell discount, brand name
fragrances, skin care, and hair care products directly to
consumers. We also generate revenues by selling online advertising
space to advertisers or in partnership with third party advertising
networks. However, in 2008, advertising accounted for less than 1% of
total revenues.
In 2008,
we began shipping our Perfume.com products to selected international
markets. Until then, we shipped only to delivery addresses located in
the United States. However, sales of products shipped to non-U.S.
locations remain immaterial for the 2008 fiscal year and therefore are not
disclosed separately.
The
recent downturn in the global economy has significantly impacted the U.S.
economy and consumer confidence. It remains a challenge for all
retailers, including online retailers, to achieve sales growth with adequate
gross margins. As a result of our dependence on the U.S. marketplace
for sales, it is likely that the current recession will cause a negative impact
to our results for at least the short-term.
We have
also experienced significant challenges in raising capital through debt or share
issuances. Financing opportunities have become more expensive and
difficult to find. The steep decrease in our share price would cause
any large financing through share issuance to significantly dilute our current
shareholdings. As a result, management has decided to actively pursue
the sale of some non-core domain names to raise much needed funds in order to
avoid such dilution. We sold one domain name at the 2008 fiscal year
end for CDN$500,000, and subsequent to year end we sold an additional two domain
names for USD$1.65 million. We believe these sales are a testament to
the inherent value of our domain name assets, and together with other
cost-cutting measures, the proceeds will help meet our working capital needs and
management’s strategy to achieve the goal of cash flow positive operations by
the end of 2009.
In 2008,
we had a significant net loss and significant cash outflows. As noted
above, in late 2008 and early 2009, we instituted cost-cutting measures to
better position our business in the coming years. Some of these
measures included layoffs of staff, including our former President and COO, and
the termination of consulting and investor relations contracts. In
addition, our CEO has agreed to defer all of his salary
indefinitely.
16
Live
Current Media Inc.
Form
10-K - 2008
Annual
Financial Data
The
following selected financial data was derived from the Company’s audited
consolidated financial statements as filed in this report. The information set forth below
should be read in
conjunction with the Company’s financial statements and related
notes included elsewhere in this report.
CONSOLIDATED
STATEMENTS OF OPERATIONS
Years
Ended December 31, 2008 and 2007
(Expressed
in U.S. dollars)
|
2008
|
2007
|
|||||||
|
SALES
|
||||||||
|
Health
and beauty eCommerce
|
$ | 9,271,237 | $ | 8,092,707 | ||||
|
Other
eCommerce
|
455 | 485,199 | ||||||
|
Domain
name advertising
|
93,141 | 449,613 | ||||||
|
Miscellaneous
income
|
- | 35,810 | ||||||
|
Total
Sales
|
9,364,833 | 9,063,329 | ||||||
|
COSTS
OF SALES
|
||||||||
|
Health
and Beauty eCommerce
|
7,683,432 | 6,512,292 | ||||||
|
Other
eCommerce
|
380 | 509,181 | ||||||
|
Total
Costs of Sales
|
7,683,812 | 7,021,473 | ||||||
|
GROSS
PROFIT
|
1,681,021 | 2,041,856 | ||||||
|
EXPENSES
|
||||||||
|
Amortization
and depreciation
|
253,141 | 29,169 | ||||||
|
Amortization
of website development costs
|
58,640 | - | ||||||
|
Corporate
general and administrative
|
2,537,422 | 686,921 | ||||||
|
ECommerce
general and administrative
|
567,980 | 304,212 | ||||||
|
Management
fees and employee salaries
|
4,746,255 | 1,981,051 | ||||||
|
Corporate
marketing
|
42,399 | - | ||||||
|
ECommerce
marketing
|
766,393 | 817,101 | ||||||
|
Other
expenses
|
708,804 | 637,730 | ||||||
|
Total
Expenses
|
9,681,034 | 4,456,184 | ||||||
|
LOSS
FROM OPERATIONS BEFORE OTHER ITEMS
|
(8,000,013 | ) | (2,414,328 | ) | ||||
| - | ||||||||
|
Global
Cricket Venture expenses
|
(2,476,255 | ) | - | |||||
|
Gain
from sales and sales-type lease of domain names
|
498,829 | - | ||||||
|
Accretion
expense
|
(96,700 | ) | - | |||||
|
Interest
and investment income
|
67,683 | 119,574 | ||||||
|
Gain
on disposal of subsidiary of Frequenttraveler.com Inc.
|
- | 276,805 | ||||||
|
NET
LOSS AND COMPREHENSIVE LOSS FOR THE PERIOD
|
$ | (10,006,456 | ) | $ | (2,017,949 | ) | ||
|
BASIC
AND DILUTED LOSS PER SHARE
|
$ | (0.46 | ) | $ | (0.11 | ) | ||
|
WEIGHTED
AVERAGE NUMBER OF COMMON
|
||||||||
|
SHARES
OUTSTANDING - BASIC AND DILUTED
|
21,937,179 | 19,070,236 | ||||||
17
Live
Current Media Inc.
Form
10-K - 2008
Results
of Operations
Sales
and Costs of Sales
Combined
gross sales totalled $9,364,833 for the year ended December 31, 2008 as compared
to $9,063,329 during the year ended December 31, 2007, a 3.3% overall
increase. The 2007 total included $480,591 in sales related to the
operations of FT, which we disposed of in November 2007. Without
these revenues, 2007 total revenues were $8,582,738 and our combined gross sales
in 2008 actually grew by over 9.1%. Health and Beauty eCommerce
product sales represented 99.0% of total revenues in 2008, compared to 94.3% of
total revenues in 2007.
During
the year ended December 31, 2008, costs of sales overall increased to $7,683,812
as compared to costs of sales of $7,021,473 for the year ended December 31,
2007. The amounts incurred during the 2007 fiscal year included
$506,588 of costs of sales relating to FT’s operations, therefore total costs of
sales incurred during the 2007 fiscal year without this amount were
$6,514,885. This resulted in an increase in costs of sales of 17.9%
which is directly attributable to an increase in costs of sales with respect to
the growth of our eCommerce business as discussed below.
For the
2008 fiscal year, gross margin was 18.0% compared to an overall gross margin of
22.5% in 2007. These decreases are due to a material decrease in
online advertising revenues which have very high gross margins, as well as an
increase in our efforts to generate significant sales growth by providing more
aggressive discounts, coupons and promotions such as free shipping to
customers.
Total
revenues in Q4 of 2008 of $3,622,036 dropped by 7.8% due to a large decrease in
our advertising revenues and miscellaneous income in this quarter compared to Q4
of 2007, without amounts relating to FT’s operations. Overall, Health
and Beauty eCommerce product sales represented 99.5% of total revenues in Q4 of
2008, compared to 94.4% of total revenues in Q4 of 2007.
Costs of
sales were $3,012,434 in Q4 of 2008 compared to $3,087,927 in Q4 of 2007, a
decrease of 2.4% without costs of sales relating to FT’s
operations. This decrease in costs of sales was primarily due to the
slight decrease in sales in the quarter in our eCommerce business, as well as
the inclusion of inventory on our balance sheet at the end of the fiscal year to
reflect inventories in transit, which had been immaterial at the end of the 2007
fiscal year. Overall gross margin in Q4 of 2008 was 16.8% compared to
a gross margin of 20.6% during Q4 of 2007, without taking into account the
results from FT’s operations.
Health
and Beauty (H&B) eCommerce Sales
Our
Health and Beauty eCommerce sales result from the sale of fragrances, designer
skin care and hair care products to customers at Perfume.com and
Body.com. ECommerce monetization of Body.com ended in early
2008. Perfume.com accounted for nearly all of our eCommerce sales in
2007 and 2008 and we expect that this will continue in the short
term.
The
second half of 2008 presented great challenges for all retailers including
eCommerce, due to the worldwide economic downturn. Despite these
challenges, we were able to achieve significant revenue growth in our H&B
eCommerce business compared to 2007. In addition to the decrease in
overall demand, the holiday shopping season was compressed in
2008. This season begins around the U.S. Thanksgiving holiday, which
was later in 2008 than in 2007, resulting in 5 fewer holiday shopping
days. We believe that the continued increases in sales we have
experienced in each quarter demonstrate the strong potential of this business
segment. There is no certainty, however, that such results can be
continued into the foreseeable future. Moreover, it is possible that
due to the continued decline in economic conditions, there may be a further
decrease in consumer spending on discretionary items. Such a decrease
will likely adversely affect the revenues from Perfume.com over the
short-term. All figures below exclude any results from Frequent
Traveler’s operations during the 2007 fiscal year.
In a
press release dated January 2, 2009, ComScore, Inc., a marketing research
company that measures use of the Internet, indicated that eCommerce sales
declined during the 2008 holiday season as compared to the 2007 holiday season,
defined as November 1st to
December 24th of each
year. According to their
research, online sales of "flowers, greetings and gifts", a category we believe
comparable to Perfume.com’s business, declined by 7% over last year's holiday
season.
In
contrast to the performance of online sales trends as measured by ComScore Inc.,
we were able to maintain strong sales during the holiday season, resulting in
relatively flat eCommerce sales from Perfume.com in Q4 of 2008 compared to Q4 of
2007.
In Q4 of
2008, the combined H&B retail sites generated sales of $3,604,003 compared
to $3,705,635 in Q4 of 2007, a decrease of 2.7% year over year. This
resulted in average sales of approximately $39,174 per day in Q4 of 2008
compared to $40,279 per day in Q4 of 2007. Cost of purchases and
shipping totalled $3,012,606 in Q4 of 2008 compared to $3,085,334 in Q4 of
2007. This produced a gross margin of $591,397 or 16.4% in Q4 of 2008
compared to $620,301 or 16.7% in Q4 of 2007. H&B
eCommerce sales in Q4 accounted for 38.9% of total 2008 annual eCommerce sales
compared to 45.8% of total 2007 annual eCommerce sales.
18
Live
Current Media Inc.
Form
10-K - 2008
During
the fiscal year ended December 31, 2008, the combined H&B retail sites
generated sales of $9,271,237 compared to $8,092,707 in 2007, or an average of
$25,331 per day in 2008 compared to $22,172 per day in 2007. Costs of
purchases and shipping in 2008 totalled $7,683,432 compared to $6,512,292 in
2007, resulting in gross margin of $1,587,805 or 17.1% in 2008 compared to
$1,580,415 or 19.5% in 2007.
Comparable
annual sales have increased by 14.6% while gross margins have decreased to 17.1%
from 19.5%. This decrease in gross margin in 2008 was attributed to a
significant rise in oil prices leading to increased shipping costs, as well as
product discounting and free shipping promotions in 2008 to drive customer and
revenue growth due to increasingly competitive market conditions. We
continue to monitor our overall product offerings, discounts and promotions to
increase, or at least maintain, these profit margins into 2009. While
we plan to increase or maintain this profit margin, there is no certainty that
such result can be achieved and sustained throughout the year or continue into
the foreseeable future. We also intend to explore opportunities to
introduce and implement a more robust supply chain capability which, if
realized, should increase gross margins by the end of 2010.
Other
eCommerce Sales
In Q1 of
2008, we ceased offering goods or services for sale on any of our websites other
than Perfume.com and undertook to re-evaluate the business models around which
these websites were built. As a result, these websites generated no
revenue after the first quarter of the 2008 fiscal year. For the
first half of 2009 we will continue to allocate our resources to the
development of Perfume.com.
Not
including the revenue earned from Perfume.com or from the operations of Frequent
Traveler, during the 2008 fiscal year our eCommerce retail sites generated sales
of $455 compared to $4,608 in 2007. Costs of sales in the 2008 fiscal
year totaled $380 compared to $2,593 in 2007, resulting in gross margin of $75
or 16.5% in 2008 compared to $2,015 or 43.7% in 2007.
Annual
results for the 2007 fiscal year included eCommerce service sales earned through
our former subsidiary FT of $480,591 and costs of sales of $506,588, resulting
in a negative gross margin of 5.4%. Effective November 12, 2007, we
terminated our relationship with FT. Up to the termination date in Q4
of 2007, FT‘s operations generated sales of $18,317 and costs of sales of
$102,505. This resulted in a negative gross margin in the period of
$84,188 or negative 460%. During 2007, there was no requirement to
record any non-controlling interest in the share of the loss in FT.
Advertising
In Q4 of
2008, we generated advertising revenues of $18,033 compared to $180,956 in Q4 of
2007, a decrease of 90.0%. We terminated our primary advertising
contract in early 2008 because its restrictive conditions limited monetization
in the medium and long term. Advertising revenues have decreased
every quarter as a result. In Q4 of 2008, advertising accounted for
less than 1% of total revenues. This is similar to every other
quarter in 2008. However in Q4 of 2008, advertising revenues
accounted for 4.7% of total revenues, excluding the results from FT’s
operations. Advertising revenues are expected to continue to account
for a small percentage of total revenues in 2009 as we investigate new
monetization strategies and realign our opportunities to increase advertising
options available on our domain properties.
Overall,
during the 2008 fiscal year, advertising revenues of $93,141 were generated
compared to $449,613 in 2007, a decrease of 79.3%. Advertising
revenue had improved in 2007 primarily due to management’s decisions to focus on
search engine optimization, restructure existing relationships and pursue new
relationships with advertising vendors, and redesign the main operating websites
to increase their visibility. However, as a result of the high costs
required to maximize the monetization of our domain names, advertising revenues
dropped in 2008. Management is now pursuing new opportunities to earn
additional advertising revenues, and expect these revenues to increase to
approximately 3% of total revenues in the short term.
Domain
Name Leases and Sales
In 2008,
we entered into one agreement for a sales-type lease of one of our domain names
for CDN$200,000 and one agreement for an outright sale of another domain name
for CDN$500,000. The net gain on the disposal of these two domain
names was USD$498,829 as disclosed in the consolidated financial statements. In 2007, there
were no sales or leases of any domain names.
We have
announced our intention to sell six of our non-core but highly valuable dot.com
domain names from our portfolio in order to provide additional working capital
in a non-dilutive manner. We engaged the services of brokers to
assist us with sales of our domain names. As a result of actively
marketing some of our non-core domain name assets for sale, we successfully sold
one domain name in December 2008, as well as two additional domain names
subsequent to the 2008 fiscal year end. We continue to evaluate any
interest we receive from domain name buyers, and continue to consider acquiring
certain other domain names that would complement either our advertising or
eCommerce businesses.
19
Live
Current Media Inc.
Form
10-K - 2008
General
and Administrative (G&A) Expenses
General
and administrative expenses consist of costs for general and corporate
functions, including facility fees, travel, telecommunications, investor
relations, insurance, merchant charges, and professional fees.
Overall,
during 2008, G&A expenses of $3,105,402, or 33.2% of total revenues,
were incurred compared to $991,133, or 11.5% of total revenues, in 2007, an
increase of 213.3%. This total includes corporate and eCommerce
related general and administrative costs. We expect these expenses to
decrease as a percentage of revenue in 2009 as the eCommerce business grows and
as a result of our cost cutting measures.
Corporate
general and administrative expenses of $2,537,422 have increased over the 2007
expenses of $686,921 by $1,850,501, or over 269%. This was primarily
due to expenses incurred for investor relations services of approximately
$347,000 in cash and common stock valued at approximately $366,000, costs of
$381,143 related to our M&A activities that were expensed during the year,
and $283,414 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 and strategic
initiatives. The remainder of the increase in corporate general and
administrative expenses was due to increases in legal fees of $267,160 and audit
and accounting fees of $164,246 due to increased corporate activity and SEC
filings, as well as the purchase of additional insurance policies and increased
premium costs which combined was $40,165. In total, these expenses
accounted for 27.1% of total revenues in 2008 and 8.0% of total revenues in
2007. We are implementing strategies in 2009 to decrease corporate
G&A costs as a percentage of revenue in the future, however there is no
certainty that our attempts will be successful.
As
disclosed in Item V, we anticipate that we may incur additional legal expenses
to comply with new disclosure and reporting requirements mandated by the British
Columbia Securities Commission for companies listed on the OTC Bulletin Board
with a presence in British Columbia. These regulations were effective
as of September 15, 2008.
ECommerce
general and administrative costs of $567,980 have increased over the 2007
expense of $304,212 by $263,768, or 86.7%. This was primarily a
result of human resources costs of approximately $105,271 relating to our
Perfume.com team which have been eliminated for 2009. In 2008, there
were also increased travel expenses of $57,202, internet traffic and
telecommunication charges of $18,814, IT consulting of $54,337 as well as
$21,704 in increased merchant fees generated on increased
sales. These expenses represented 6.1% of eCommerce sales in 2008
compared to 3.8% of eCommerce sales in 2007. We believe that these
expense ratios are reasonable given the increasingly competitive environment for
eCommerce sales and our continued focus on growing the eCommerce business
throughout 2009. We expect to maintain eCommerce general and
administrative costs below 10% of eCommerce sales.
Management
Fees and Employee Salaries
In 2008,
we incurred $4,746,255 in management fees and staff salaries compared to
$1,981,051 in 2007. However, these amounts include items such as
stock based compensation expense of $2,111,354 in 2008 and $428,028 in 2007, and
bonuses accrued but unpaid of $235,650 in 2008 and $241,290 in
2007. Excluding these amounts, normalized management fees were
$2,399,251 in 2008, representing an increase of 82.9% over normalized management
fees of $1,311,733 in 2007. The addition of a new executive management
team in late 2007 and early 2008, acquiring new senior employees through the
Auctomatic merger, an expansion of the IT department, and the use of various
consultants in our eCommerce business to help scale revenues, all contributed to
a larger expense in 2008. Normalized management fees and salaries
represented 25.6% of total revenues in 2008 and 15.3% in
2007. Subsequent to the end of the 2008 fiscal year, our staffing
requirements were restructured and a number of employees were laid off,
including our former President and COO. After severance payments have
been fully paid out, the reduced number of staff will contribute to a decrease
in management fees and salaries as a percentage of revenue. We
anticipate maintaining salary expense at approximately 20% of
revenues.
Executive
compensation in 2008 of $3,354,064 (2007 of $1,452,611) accounted for 70.7%
(2007 – 73.0%) of the total management fees and employee salary
expense. Excluding executive compensation, employee salaries increased by
163% due to the addition of personnel resources in both the H&B business and
administrative support.
20
Live
Current Media Inc.
Form
10-K - 2008
Marketing
We
generate internet traffic through paid search, email and affiliate
marketing. We pay marketing costs related to search and email in
order to drive traffic to our various websites. We pay our affiliates
sales commissions if they deliver traffic to Perfume.com that result in a
successful sale. In the year ended December 31, 2008, total marketing
expenses were $808,792, or 8.6% of total revenues, compared to $817,101, or 9.5%
of total revenues, in 2007, a 1.0% decrease year over year.
Expenses
related to corporate activity, which we classify as corporate marketing
expenditures totalled $42,399 for 2008. These expenses consisted
entirely of costs related to public relations. There were no such
costs in 2007.
ECommerce
marketing expenses relate entirely to advertising costs incurred in our
eCommerce business, particularly email advertising, search engine marketing, and
affiliate marketing programs. In 2008, eCommerce marketing expenses
of $766,393 decreased by 6.2% compared to $817,101 in 2007. These
expenses decreased steadily during 2008 due to management’s decision
to move key marketing efforts in-house, thereby eliminating agency
expenses, as well as to take steps to increase the effectiveness of our
search engine and email marketing campaigns for Perfume.com. We
believe that customer acquisition is the key to accelerated growth, and
deploying direct, measurable marketing vehicles like search, email, and
affiliate marketing account for the largest part of these marketing
expenditures.
In 2008
eCommerce marketing expenses were 8.3% of eCommerce sales, compared to 10.1% of
eCommerce sales in 2007. This was largely due to expenses related to
television advertising and internet search positioning during the 2007
holiday season, which we did not incur in 2008.
Organic
search rankings for Perfume.com currently perform
adequately. However, we believe when these results are complemented
with targeted, paid keyword advertising at opportune times, it brings additional
traffic to Perfume.com. We believe that the more strategic and
measurable advertising expenditures implemented during the year were a
contributing factor to increased revenues in 2008.
Marketing
costs coincide with revenue growth and are expected to be in the range of 10% of
gross product revenue. We have been able to maintain marketing costs below 10%
of revenues while aggressively marketing our products and services.
Other
Expenses
In 2008,
we incurred various restructuring costs of $708,804. These included
approximately $168,400 in severance payments and $25,700 in consulting fees for
assistance with the transition of the new management team, both of which were
paid to our former Chief Financial Officer, $317,100 in signing bonuses which
were paid to our new Chief Corporate Development Officer and our new Vice
President Finance, additional severance of $53,600 paid to one of our full time
employees, $39,800 in costs related to changing the Company name and rebranding,
$31,700 in valuation costs relating to the issuance of DHI common stock to the
Company for the conversion of $3,000,000 in intercompany debt, and $27,300 in
some final windup costs related to the disposition of Frequent Traveler in late
2007. This total also included $45,000 in financing costs related to
our discussions with investment bankers to raise capital. Financing
costs that were directly identifiable with the raising of our round of capital
during the fourth quarter were charged to equity. However, the
amounts included in “other expenses” are costs relating to transactions that are
no longer being pursued, and therefore are no longer directly identifiable with
the raising of capital and expensed during the quarter.
In 2007,
we incurred costs relating to restructuring and the recruiting and relocating
costs associated with attracting the new management team. These costs
included a $205,183 severance payment to our former Chief Executive Officer,
$30,558 in consulting fees to our former Chief Executive Officer, a $205,183
signing bonus to our President and Chief Operating Officer, and $196,806 of
general legal costs associated with the preparation of employment agreements,
severance agreements and stock option agreements.
21
Live
Current Media Inc.
Form
10-K - 2008
Global
Cricket Venture Expenses
The
Company has incurred costs of approximately $1.47 million 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. These costs are
related to, but are not limited to, expenditures for business development,
product development, travel, consulting, and salaries. The Company
incurred no such costs during the 2007 fiscal year. An additional $1 million
owing in aggregate to the BCCI and IPL for the October 1, 2008 minimum payments
under the initial MOUs have also been accrued and expensed in 2008, therefore
the total costs expensed for the year related to this venture are $2.47
million.
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 Global Cricket Venture. The payments owed to the BCCI were
renegotiated, although a formal amendment to the MOU has not been
signed. The parties agreed that the October 1, 2008 payment would be
decreased by $500,000, to $125,000, and that the payment of $750,000 that was
due to be made on October 1, 2009 would be eliminated entirely. The
amounts due to the IPL were not changed. Given that these
renegotiated amounts have not yet been memorialized in writing, on October 1,
2008 we accrued and expensed the initial amounts owing to the BCCI of $625,000
and to the IPL of $375,000. All $2.47 million in costs were expensed
during the year ended December 31, 2008 due to uncertainty regarding
reimbursement of these costs by GCV.
Liquidity
and Capital Resources
We
generate revenues from (i) the sale of third-party products over the Internet;
(2) "pay-per-click" advertising; (3) selling advertising on media rich websites
with relevant content; and (4) the sale or lease of domain name
assets. However, during the 2008 fiscal year our revenues were not
adequate to support our operations. In order to conserve cash, we
paid certain service providers with shares of our common stock during the year,
and we continue to explore opportunities to do so in 2009 as well.
In
November 2008, we also raised $1,057,775 of cash by selling 1,627,344 units
consisting of one share of our common stock and two warrants, each for the
purchase of a half share of common stock. The offering price was
$0.65 per unit.
As at
December 31, 2008, current liabilities were in excess of current assets
resulting in a working capital deficiency of $3,164,157 as compared to
positive working capital of $5,930,413 at the fiscal year ending December 31,
2007. During the year ended December 31, 2008, we incurred a loss of
$10,006,456 and a decrease in cash of $5,542,725, compared to net loss of
$2,017,949 and an increase in cash of $5,269,905 for the year ended December 31,
2007. The net loss for 2008 included incorporation and start up
expenses for the Global Cricket Venture of $2,476,255, which have been expensed
in the year due to uncertainty regarding reimbursement of these costs by the
GCV. During 2008, we increased our accumulated deficit to $12,532,134
from $2,525,678 in 2007 and have stockholders’ equity of $2,255,601, primarily
due to the net loss for the year, as well as various issuances of common
shares.
The
decrease in cash during the 2008 fiscal year includes cash outlays that are
either unusual or non-operational in nature. During the year, cash
outlays included amounts paid in connection with the acquisition of Auctomatic
of $1.29 million, payments relating to Global Cricket Venture expenses
incurred to perform under the MOUs with BCCI, IPL and NLB of $1.1 million,
and other expenditures of $709,000 relating to changing the company’s name,
rebranding and restructuring the management team. Without these
expenditures, cash decreased due to operations by approximately $204,000 per
month.
Operating
Activities
Operating
activities in 2008 resulted in cash outflows of $4,854,260 after
adjustments for non-cash items, the most significant of which are the
stock-based compensation expensed during the year of $2,111,354 and the increase
in accounts payable of $2,615,835 partially due to large accruals and
unpaid invoices for goods and services at the end of 2008.
Operating
activities in 2007 resulted in cash outflows of $951,973 after adjustments for
non-cash items, the most significant of which were the stock-based compensation
expensed during the year of $428,028 and the increase in accounts payable of
$523,574 partially due to accrued audit fees that did not exist at the 2006 year
end, as well as accrued bonuses of $241,290.
Investing
Activities
Investing
activities in 2008 generated cash outflows of $1,659,437, primarily due to cash
consideration and related acquisition costs of $1,530,047 related to the
Auctomatic merger. We also invested $187,532 in the purchase of
property and equipment, as well as approximately $451,000 in website development
as we worked towards our pre-holiday launch of Perfume.com.
Investing
activities in 2007 generated cash inflows of $101,978, due to the sale of all
“available for sale” securities and the purchase of approximately $160,000 of
property and equipment, mostly consisting of leasehold improvements for our new
office location.
22
Live
Current Media Inc.
Form
10-K - 2008
Financing
Activities
Financing
activities in 2008 generated $970,972 of cash inflows due to the issuance of
1.6 million shares of common stock in connection with our November private
placement.
Financing
activities in 2007 generated $6,119,900 of cash inflows due primarily to the
issuance of 1,000,000 shares of common stock to the new CEO in June 2007 and the
issuance of common stock in the private offering that we undertook in September
and October 2007, which raised approximately $5,100,000.
Future
Operations
At the
2008 year end, we had a working capital deficiency, and for the past two fiscal
years we have experienced substantial losses. We expect to continue
to incur losses in the coming quarters even though costs have been reduced
through lay-offs and restructuring. We may also seek to explore new
business opportunities, including the partnering, building or acquisition of a
distribution center or warehouse in the United States to enhance our fragrance
fulfillment capability and improve gross margins. These acquisitions
may require additional cash beyond what is currently available and such funds
may be raised by future equity and/or debt financings, and through the sale of
non-core domain name assets.
We are
pursuing opportunities to increase cash flows, however there is no certainty
that these opportunities will generate sufficient cash flows to support our
activities in the future in view of changing market
conditions. During the 2009 fiscal year, we expect to expend
significant funds toward additional marketing costs, which we believe will
translate into higher revenue growth, as well as to fund costs related to the
Global Cricket Venture. There is no certainty that the profit margins
we may generate going forward, as well as any successful raising of working
capital, will be sufficient to offset the anticipated marketing costs, Global
Cricket Venture costs, and other expenditures and may result in net cash outflow
for the 2009 fiscal year.
We have
actively curtailed some operations and growth activities in an effort to reduce
costs and preserve cash on hand. We are also continuing to seek
opportunities to sell selected domain names in order to address short term
liquidity needs. As a result, we have entered into agreements with
brokers to sell several of our non-core but highly valuable dot-com domain names
from our portfolio of more than 800 domain names. One domain name was
successfully sold on December 31, 2008 for CDN$500,000. After the end
of the 2008 fiscal year, we sold an additional two domain names for proceeds of
$1.65 million. We anticipate that further strategic sales of these
domain names, if successful, will provide us with the required cash to meet our
working capital needs, to fund cricket related expenditures, and to provide for
general operating capital needs over the next 12 to 18 months. There
can be no assurances that any future sales of domain names on terms acceptable
to us will occur.
The
consolidated financial statements have been prepared on a going concern basis
which assumes that we will be able to realize assets and discharge liabilities
in the normal course of business for the foreseeable future. Our
ability to continue as a going-concern is in substantial doubt as it is
dependent on continued financial support from our investors, our ability to sell
additional non-core domain names, our ability to raise future debt or equity
financings, and the attainment of profitable operations to meet our liabilities
as they become payable. The outcome of our operations and fundraising
efforts is dependent in part on factors and sources beyond our direct control
that cannot be predicted with certainty. Access to future debt or
equity financing is not assured and we may not be able to enter into
arrangements with financing sources on acceptable terms, if at
all. The financial statements do not include any adjustments relating
to the recoverability or classification of assets or the amounts or
classification of liabilities that might be necessary should we be unable to
continue as a going concern.
On or
about October 1, 2008, we were 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 MOUs. The payments owed to
the BCCI were renegotiated, although a formal amendment to the MOU has not been
signed. The parties agreed that the October 1, 2008 amount owing to
the BCCI would be decreased to $125,000. In addition, the parties
also agreed that the payment of $750,000 that will be due to the BCCI on October
1, 2009 would be eliminated entirely. Given that these renegotiated
amounts have not yet been memorialized in writing, the original payments due to
the BCCI and the IPL for the October 1, 2008 commitment have been accrued and
expensed as Global Cricket Venture expenses. The parties are
currently discussing possible changes to the timing of the payments, but no
formal agreement has been reached. These payments have not yet been
made. Such payments may be subject to certain withholding or other
taxes which we may be required to gross up pursuant to the terms of the
MOU.
23
Live
Current Media Inc.
Form
10-K - 2008
If at any
time we are unable to make the required payments to the BCCI or the IPL, and no
extension or renegotiation of the payment terms can be arranged, we 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. We
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 we are unable to make the
required payments, we face potential claims for breach of contract, lack of
performance and other damages which other parties to the MOU may seek to enforce
against the Company. We do 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 our overall
anticipated results of operations and performance.
We have
no current plans to purchase any significant property and
equipment.
Off-Balance
Sheet Arrangements
As of
December 31, 2008, we did not have any off-balance sheet arrangements, including
any outstanding derivative financial instruments, off-balance sheet guarantees,
interest rate swap transactions or foreign currency contracts. We do
have off-balance sheet commitments as disclosed in the notes to our consolidated
financial statements. We do not engage in trading activities
involving non-exchange traded contracts.
Application
of Critical Accounting Policies
Our
consolidated financial statements and accompanying notes are prepared in
accordance with United States generally accepted accounting
principles. Preparing financial statements requires management to
make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue, and expenses. These estimates and assumptions are affected
by management's application of accounting policies. We believe that
understanding the basis and nature of the estimates and assumptions involved
with the following aspects of our consolidated financial statements is critical
to an understanding of our operating results and financial
position.
Going
Concern
Our
consolidated financial statements have been prepared on a going concern basis
which assumes that we will be able to realize our assets and discharge our
liabilities in the normal course of business for the foreseeable future. We have
generated a consolidated net loss of $10,006,456 and realized a negative cash
flow from operating activities of $4,854,260 for the year ended December 31,
2008. At this date, we had a working capital deficiency of
$3,164,157, as compared to positive working capital of $5,930,413 at December
31, 2007. At December 31, 2008 we had an accumulated deficit of
$12,532,134, as compared to an accumulated deficit of $2,525,678 at December 31,
2007. Stockholders equity was $2,255,601 at December 31, 2008, as
compared to stockholders equity of $7,675,753 at December 31, 2007.
Our
ability to continue as a going-concern is in substantial doubt as it is
dependent on a number of factors including, but not limited to, the receipt of
continued financial support from our investors, our ability to sell additional
non-core domain names, our ability to raise equity or debt financing as we need
it, our ability to renegotiate the terms and timing of the minimum guaranteed
payments to the IPL and BCCI, and whether we will be able to use our securities
to meet certain of our liabilities as they become payable, including our
commitments for the Global Cricket Venture as disclosed in Note 5 of our
consolidated financial statements. The outcome of these matters is
dependant on factors outside of our control and cannot be predicted at this
time.
Our
financial statements do not include any adjustments relating to the
recoverability or classification of assets or the amounts or classification of
liabilities that might be necessary if we were unable to continue as a going
concern.
Principles
of Consolidation
Our
consolidated financial statements include our accounts as well as those of our
subsidiaries. The comparative figures for the 2007 fiscal year
include our 50.4% interest in Frequent Traveler (from January 1, 2007 until the
sale of our controlling interest in Frequent Traveler on November 12,
2007). All significant intercompany balances and transactions are
eliminated on consolidation.
24
Live
Current Media Inc.
Form
10-K - 2008
Revenue
Recognition
Revenues
and associated costs of goods sold, from the on-line sales of products, which
currently consist primarily of fragrances and other beauty products, are
recorded upon delivery of products and determination that collection is
reasonably assured. We record inventory as an asset for items in transit as
title does not pass until received by the customer. All associated
shipping and handling costs are recorded as cost of goods sold upon delivery of
products.
Web
advertising revenue consists primarily of commissions earned from the referral
of visitors to our sites from other parties. The amount and
collectibility of these referral commissions is subject to uncertainty;
accordingly, revenues are recognized when the amount can be determined and
collectibility can be reasonably assured. In accordance with Emerging
Issues Task Force (“EITF”) 99-19, Reporting Revenue Gross as a
Principal versus Net as an Agent we record web advertising revenue on a
gross basis.
Until the
disposal of our shares in FrequentTraveler.com Inc. on November 12, 2007,
revenues from the sales of travel products, including tours, airfares and hotel
reservations, where we 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 we 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 to our consolidated financial statements.
Revenue
from the sale of domain names, whose carrying values are recorded as intangible
assets, consists primarily of funds earned for the transfer of rights to domain
names that are currently in our control. Revenues have been
recognized when the sale agreement is signed and the collectibility of the
proceeds is reasonably assured. In 2008, there was a sale of a
geo-domain name for net proceeds of $369,041. Collectibility of the
amounts owing on this sale are reasonably assured and therefore accounted for as
a sale in the period the transaction occurred. There were no sales of
domain names during 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 our
control. Collectibility of these revenues is reasonably assured and
therefore accounted for as a sales-type lease in the period the transaction
occurs. See also Note 11 to our consolidated financial
statements.
Stock-Based
Compensation
During
the third quarter of 2007, the Company implemented the following new critical
accounting policy related to our stock-based compensation. Beginning
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 assumptions including estimating price volatility and
expected life. Our computation of expected volatility is based on a
combination of historic and market-based implied volatility. In
addition, we consider many factors when estimating expected life, including
types of awards and historical experience. If any of these assumptions used in
the Black-Scholes valuation model change significantly, stock-based compensation
expense may differ materially in the future from what is recorded in the current
period.
In August
2007, our Board of Directors approved an Incentive Stock Incentive Plan to make
available 5,000,000 shares of common stock for the grant of stock options,
including incentive stock options. Incentive stock options may be
granted to our employees, officers, directors, consultants, independent
contractors and advisors, provided such consultants, independent contractors and
advisors render bona-fide services not in connection with the offer and sale of
securities in a capital-raising transaction or promotion of our
securities. See also Note 10 to our consolidated financial
statements.
We
account for equity instruments issued in exchange for the receipt of goods or
services from other than employees in accordance with FAS No. 123(R) and the
conclusions reached by the EITF in Issue No. 96-18. Costs are measured at
the estimated fair market value of the consideration received or the estimated
fair value of the equity instruments issued, whichever is more reliably
measurable. The value of equity instruments issued for consideration other
than employee services is determined on the earliest of a performance commitment
or completion of performance by the provider of goods or services as defined by
EITF 96-18.
25
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Current Media Inc.
Form
10-K - 2008
Inventory
Inventory
is recorded at the lower of cost or market using the first-in first-out (FIFO)
method. We maintain little or no inventory of perfume which is
shipped from the supplier directly to the customer. The inventory on
hand as at December 31, 2008 is recorded at cost of $74,082 and represents
inventory in transit from the supplier to the customer.
Website
development costs
We have
adopted the provisions of EITF No. 00-2, Accounting for Web Site Development
Costs, whereby costs incurred in the preliminary project phase are
expensed as incurred; costs incurred in the application development phase are
capitalized; and costs incurred in the post-implementation operating phase are
expensed as incurred. Website development costs are stated at cost
less accumulated amortization and are amortized using the straight-line method
over its estimated useful life. Upgrades and enhancements are
capitalized if they result in added functionality which enables the software to
perform tasks it was previously incapable of performing.
Intangible
Assets
We have
adopted the provision of the FAS No. 142, Goodwill and Intangible
Assets, which revises the accounting for purchased goodwill and
intangible assets. Under FAS No. 142, intangible assets with indefinite lives
are no longer amortized and are tested for impairment annually. The
determination of any impairment would include a comparison of estimated future
operating cash flows anticipated during the remaining life with the net carrying
value of the asset as well as a comparison of the fair value to its book
value.
Our
intangible assets, which consist of our portfolio of generic domain names, have
been determined to have an indefinite life and as a result are not
amortized. Management has determined that there is no impairment of
the carrying value of intangible assets at December 31, 2008.
Goodwill
Goodwill
represents the excess of acquisition cost over the fair value of the net assets
of acquired entities. In accordance with FAS
No. 142, Accounting for
Goodwill and Other Intangible Assets. we
are required to assess the carrying value of goodwill annually or whenever
circumstances indicate that a decline in value may have occurred, utilizing a
fair value approach at the reporting unit level. A reporting unit is the
operating segment, or a business unit one level below that operating segment,
for which discrete financial information is prepared and regularly reviewed by
segment management.
The
goodwill impairment test is a two-step impairment test. In the first
step, we compared the fair value of each reporting unit to its carrying
value. We determine the
fair value of our reporting units using a discounted cash flow approach. If the fair value of the
reporting unit exceeds the carrying value of the net assets assigned to that
reporting unit, goodwill is not impaired and we are not required to
perform further testing. If the carrying value of
the net assets assigned to the reporting unit exceeds the fair value of the
reporting unit, then we must perform the second step in order to determine
the implied fair value of the reporting unit’s goodwill and compare it to the
carrying value of the reporting unit’s goodwill. The activities in the
second step include valuing the tangible and intangible assets and liabilities
of the impaired reporting unit based on their fair value and determining the
fair value of the impaired reporting unit’s goodwill based upon the residual of
the summed identified tangible and intangible assets and
liabilities.
The fair
value of the Perfume.com reporting unit exceeded the carrying value of the
assigned net assets, therefore no further testing was required and an impairment
charge was not required.
Income
Taxes
During
the first quarter of 2007, we adopted the following new critical accounting
policy related to income tax. Beginning on January 1, 2007, we began accounting
for income tax under the provisions of Financial Accounting Standards Board
(“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income
Taxes-an interpretation of FASB Statement No. 109 (“FIN
48”). FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements in accordance with FASB
Statement 109, Accounting for
Income Taxes, and prescribes a recognition threshold and measurement
process for financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return. FIN 48 also provides
guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosure and transition. We and our 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 our
evaluation, we have concluded that there are no significant uncertain tax
positions requiring recognition in our financial statements. Our
evaluation was performed for the tax years ended December 31, 2002, 2003, 2004,
2005, 2006, 2007 and 2008, the tax years which remain subject to examination by
major tax jurisdictions as of December 31, 2008. We 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 our financial
results. We classified these assessments in our financial statements
as selling, general and administrative expense.
26
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Current Media Inc.
Form
10-K - 2008
Recent
Accounting Pronouncements
FAS
162
In May,
2008, the FASB issued FAS 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. We do not expect
that this Statement will result in a change in current practice.
FAS
161
In
March 2008, the FASB issued FAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FAS
No. 133. FAS 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 FAS 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. FAS No. 161 is effective for financial statements issued
for fiscal years and interim periods beginning after November 15, 2008,
which, for us, would be the fiscal year beginning January 1, 2009. We are
currently assessing the impact of FAS No. 161 on our financial position and
results of operations.
FAS
142-3
In April
2008, the FASB issued FSP FAS 142-3, Determination of the Useful Life of
Intangible Assets (“FSP FAS 142-3”). FSP FAS 142-3 amends the
factors that should be considered in developing renewal or extension assumptions
used to determine the useful life of a recognized intangible asset under SFAS
No. 142, Goodwill and Other
Intangible Assets (“SFAS 142”). The intent of FSP FAS 142-3 is
to improve the consistency between the useful life of a recognized intangible
asset under SFAS 142 and the period of expected cash flows used to measure the
fair value of the asset under SFAS 141(R) and other applicable accounting
literature. FSP FAS 142-3 is effective for financial statements
issued for fiscal years beginning after December 15, 2008, which, for us, would
be the fiscal year beginning January 1, 2009. We are currently
assessing the impact of FSP FAS 142-3 on our financial position and results of
operations.
FAS
141R
In
December 2007, the FASB issued FAS No. 141 (revised 2007), Business Combinations
("141R"). FAS No. 141R significantly changes the accounting for
business combinations in a number of areas including the treatment of contingent
consideration, pre-acquisition contingencies, transaction costs, in-process
research and development and restructuring costs. In addition, under FAS
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. FAS No. 141R is effective for fiscal years beginning
after December 15, 2008, which, for us, would be the fiscal year beginning
January 1, 2009. We are currently assessing the impact of FAS No.
141R on our financial position and results of operations.
FAS
160
In
December 2007, the FASB issued FAS No. 160 Noncontrolling Interests in
Consolidated Financial Statements, and simultaneously revised FAS 141
Business
Combinations. This Statement applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008, which,
for us, would be the fiscal year beginning January 1, 2009. An entity may not
adopt the policy before the transitional date. We are currently
assessing the impact of FAS No. 160 and the revision of FAS 141 on our financial
position and results of operations.
FAS
159
In
February 2007, the FASB issued FAS 159, “Fair Value Option for Financial Assets
and Financial Liabilities,” which allows an irrevocable option, the Fair Value
Option, to carry eligible financial assets and liabilities at fair value. The
election is made on an instrument-by-instrument basis. Changes in fair value for
these instruments are recorded in earnings. The objective of FAS 159 is to
improve financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions.
We
adopted FAS 159 in 2008. The adoption did not have a material effect
on our financial results.
27
Live
Current Media Inc.
Form
10-K - 2008
FAS
157
In
September 2006, the FASB issued FAS No. 157, Fair Value
Measurements. This Statement defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles
(GAAP), and expands disclosures about fair value measurements. This
standard does not require any new fair value measurements.
In
February 2008, the FASB issued FASB Staff Position (“FSP”) FAS 157-2, which
delays the effective date of FAS No. 157 to fiscal years beginning after
November 15, 2008 for nonfinancial assets and nonfinancial liabilities, except
for those items that are recognized or disclosed at fair value in the financial
statements on a recurring basis, which for us would be the fiscal year
beginning January 1, 2009.
In 2008,
we adopted FAS 157 for financial assets and liabilities recognized at fair value
on a recurring basis. The adoption did not have a material effect on our
financial results. The disclosures required by FAS 157 for financial assets and
liabilities measured at fair value on a recurring basis as at December 31, 2008
are included in Note 3.
We will
apply the requirements of FAS 157 for fair value measurements of financial and
nonfinancial assets and liabilities not valued on a recurring basis in 2009. We
are currently evaluating the effect of this application on our financial
reporting and disclosures.
In
October 2008, the FASB issued FSP No. FAS 157-3, Determining the Fair Value of a
Financial Asset When the Market for that Asset is Not Active, which
clarifies the application of FAS 157 in determining the fair value of a
financial asset when the market for that asset is not active. FSP FAS
157-3 is effective as of the issuance date and has not affected the valuation of
our financial assets.
Item
7A. Quantitative and
Qualitative Disclosures About Market Risk
As a
smaller reporting company we are not required to provide this
information.
Item
8.
Financial Statements and Supplementary Data
The
financial statements are listed in the Index to Financial Statements on page
F-1.
Item
9.
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Not
applicable.
Item
9A(T). Controls and Procedures
Disclosure
Controls and Procedures
Our
management, with the participation of our Chief Executive Officer (“CEO”) and
Principal Accounting Officer (“PAO”), has evaluated the effectiveness of the
Company’s disclosure controls and procedures (as such term is defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”)) as of the end of the period covered by this Report
(December 31, 2008). Based on such evaluation, our Chief Executive
Officer and Principal Accounting Officer have concluded that, as of the end of
such period, the Company’s disclosure controls and procedures are effective in
recording, processing, summarizing and reporting, on a timely basis, information
required to be disclosed by us in the reports that we file or submit under the
Exchange Act and are effective in ensuring that information required to be
disclosed by us in the reports that we file or submit under the Exchange Act is
accumulated and communicated to our management, including our Chief Executive
Officer and Principal Accounting Officer, as appropriate to allow timely
decisions regarding required disclosure.
Management’s
Report on Internal Control over Financial Reporting
Our
internal control over financial reporting includes policies and procedures that
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect transactions and dispositions of our assets; provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with accounting principles generally accepted
in the United States of America, and that receipts and expenditures are being
made only in accordance with authorization of our management and directors; and
provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have a
material effect on our financial statements.
28
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Current Media Inc.
Form
10-K - 2008
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Therefore, even those systems determined to be
effective can provide only reasonable assurance with respect to financial
statement preparation and presentation. Projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Management
assessed the effectiveness of our internal control over financial reporting at
December 31, 2008. In making this assessment, management used the criteria
set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”) in Internal Control—Integrated
Framework. Based on that assessment under those criteria,
management has determined that, at December 31, 2008, our internal control over
financial reporting was effective.
This
Annual Report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only management's report in this Annual
Report.
Changes
in Internal Control over Financial Reporting
There
have been no changes in our internal control over financial reporting (as such
term is defined in Rules 13a-15(f) and 15d-15 (f) under the Exchange Act) during
the fourth quarter of 2008 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
Item
9B.
Other Information
For the
fourth quarter ended December 31, 2008, all items required to be disclosed under
Form 8-K were reported.
PART
III
Item
10.
Directors, Executive Officers and Corporate Governance
Directors
and Executive Officers
The
following table identifies our executive officers and directors, their age,
their respective offices and positions, and their respective dates of election
or appointment.
|
Name
|
Age
|
Position
Held
|
Officer/Director
Since
|
|||
|
C.
Geoffrey Hampson
|
51
|
Chief
Executive Officer, Chief Accounting Officer and Chairman
|
June
1, 2007
|
|||
|
Mark
Melville
|
39
|
President
and Chief Corporate Development Officer
|
January
1, 2008 (Chief Corporate Development Officer);
February
4, 2009 (President)
|
|||
|
Chantal
Iorio
|
31
|
Vice-President,
Finance
|
January
7, 2008
|
|||
|
James
P. Taylor
|
53
|
Director
|
July
23, 2007
|
|||
|
Mark
Benham
|
58
|
Director
|
September
12, 2007
|
|||
|
Boris
Wertz
|
35
|
Director
|
March
14, 2008
|
The
directors named above will serve until the next annual meeting of our
stockholders or until their successors are duly elected and have qualified.
Officers will hold their positions at the pleasure of the Board of Directors,
absent any employment agreement. There is no arrangement or understanding
between any of our directors or officers and any other person pursuant to which
any director or officer was or is to be selected as a director or officer, and
there is no arrangement, plan or understanding as to whether non-management
stockholders will exercise their voting rights to continue to elect the current
Board of Directors. There are also no arrangements, agreements or understandings
between non-management stockholders that may directly or indirectly participate
in or influence the management of our affairs.
29
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Current Media Inc.
Form
10-K - 2008
C. Geoffrey Hampson has been
our Chief Executive Officer (“CEO”) and director since June 1, 2007 and has been
our Principal Accounting Officer since January 31, 2008. Mr. Hampson
has been the founder, president, and CEO of many successful start-up and
operating companies over the last 25 years. He was CEO, President and
a director of PEER 1 Network Enterprises, Inc., an Internet infrastructure
company from September 2000 to January 2006. He has been the CEO of
Corelink Data Centers, LLC since November 2008, the President, CEO and co-owner
of Fibrox Technologies Ltd. since June 1994, and the CEO and a co-owner of
Techvibes Media Inc., a local market technology resource website and blog, since
March 2007. Mr. Hampson sits on the board of directors of
several companies including Corelink Data Centers, LLC, a private company since
November 2008, Cricket Capital Corp. on the TSX Venture market since March 2008,
Techvibes Media Inc., a private company, since March 2007, Carat Exploration
Inc. on the TSX Venture market since January 2006, and Pacific Rodera Energy
Inc. on the TSX Venture market since May 2002.
James P. Taylor has been our
director since July 23, 2007, and is the Chair of the Audit
Committee. Mr. Taylor has over 20 years of experience in corporate
management, finance and planning. From April 2008 to the present, he
has served as the Chief Financial Officer of Corelink Data Centers,
LLC. From April 2007 to December 2007, he was the Chief Financial
Officer of Lakewood Engineering and Manufacturing. From May 2006 to
April 2007, he was engaged as a financing and management consultant for various
companies. From February 2002 to April 2006, Mr. Taylor served as the
Chief Financial Officer for Peer 1 Network Enterprises, Inc., a publicly traded
company and North American provider of Internet infrastructure
services. While at Peer 1, he was responsible for financial and
administrative operations and led the development of annual and strategic
business plans and financial models. From 2001 to 2002, Mr. Taylor
served as Chief Operating Officer and Chief Financial Officer of Chicago
Aerosol, LLC. Mr. Taylor is a member of the Society of Competitive
Intelligence. Mr. Taylor is a graduate of Indiana University
where he obtained a Bachelor of Science degree in Finance and
Accounting. He earned his MBA from DePaul University where he
focused his studies on International Business and Corporate
Finance.
Mark Benham has been our
director since September 12, 2007. He is Chair of the Compensation
Committee and is also a member of the Audit Committee. Mr. Benham has
fifteen years of experience in private equity and investment
banking. Since 1994, Mr. Benham has been a partner at Celerity
Partners, a private equity fund based in California. He has also been
a director of Peer 1 Network, a TSX-Venture listed company, since September 2,
2005. Mr. Benham holds a B.A. in English from the University of
California, Berkeley, and an M.A. and M.B.A. from the University of
Chicago.
Mark Melville has been our
Chief Corporate Development Officer since January 1, 2008. On
February 4, 2009, he was also named the Company’s President. From
July 2005 to November 2007, Mr. Melville was Global Account Manager at Monitor
Group L.P., one of the world’s premier strategic consulting and investment
firms. While at Monitor, he worked directly with senior executives of Fortune 500 companies on a
range of strategic initiatives and co-led Monitor’s West Coast technology
practice. From August 2002 to July 2005, Mr. Melville was Chief
Executive Officer of SteelTrace Ltd., a leading provider of business process and
requirements management software. Mr. Melville sold SteelTrace to
Compuware Corporation in 2006. Prior to SteelTrace, from 1999 to
2001, he was the Vice President of Corporate Development at MobShop, a pioneer
in online commerce. Prior to MobShop from 1998 to 1999, he was a
senior member of Exchange.com, which was sold to Amazon.com in 1999. Mr.
Melville holds a Masters in Business Administration degree from the Harvard
Graduate School of Business, a Masters in Public Administration degree from
Harvard's JFK School of Government, and an Honors Bachelor degree in Finance
from the University of British Columbia.
Chantal Iorio has served as
our Vice President, Finance since January 7, 2008. From 2000 to
November 2007, Ms. Iorio was employed at HLB Cinnamon Jang Willoughby &
Company, Chartered Accountants. Most recently, she was a manager
responsible for the supervision and training of staff, managing, delegating and
reviewing files, completing and supervising audit, non-audit and tax procedures,
as well as administering client relations. Since September 2004, Ms. Iorio
has been Treasurer, Board of Directors (volunteer) for the Vancouver Community
Network, a not-for-profit organization focused on providing low-cost access to
the internet to communities in Vancouver. Ms. Iorio is a Chartered
Accountant in British Columbia, Canada and a Certified Public Accountant in the
state of Illinois. She also holds a Bachelor of Commerce in
International Business with a focus in Accounting from the University of British
Columbia.
Boris Wertz was appointed as a
director effective March 14, 2008. Dr. Wertz was also appointed to serve
as Chair of the Governance Committee of the Board. Dr. Wertz has an
established career of strategic management and operational experience in the
area of consumer internet use. From February 2008 to the present, he has
served as CEO of Nexopia, the most popular social networking utility for
Canadian youth. From November 2007 to the present, he has served as
CEO of W Media Ventures, a Vancouver-based venture capital firm that focuses on
consumer internet investments. From 2002 to 2007, Dr. Wertz was the Chief
Operating Officer of AbeBooks.com, the world's largest online marketplace for
books, which was recently sold to Amazon.com. He also served as a
Director of AbeBooks.com from November 2003 to November 2008. He
currently serves on the Board of Directors for Suite 101, Inc., Indochino.com,
TeamPages, Techvibes Media Inc. and Nexopia.com. Dr. Wertz completed
his Ph. D. as well as his graduate studies at the Graduate School of Management
(WHU), Koblenz, majoring in Business Economics and Business
Management.
30
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Current Media Inc.
Form
10-K - 2008
Family
Relationships
There are
no family relationships among our directors and executive officers.
Involvement
in Certain Legal Proceedings
To the
best of our knowledge, none of our directors or executive officers has, during
the past five years:
|
·
|
been
convicted in a criminal proceeding or been subject to a pending criminal
proceeding (excluding traffic violations and other minor
offences);
|
|
·
|
had
any bankruptcy petition filed by or against any business of which he was a
general partner or executive officer, either at the time of the bankruptcy
or within two years prior to that
time;
|
|
·
|
been
subject to any order, judgment, or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, permanently
or temporarily enjoining, barring, suspending or otherwise limiting his
involvement in any type of business, securities, futures, commodities or
banking activities; or
|
|
·
|
been
found by a court of competent jurisdiction (in a civil action), the
Securities and Exchange Commission or the Commodity Futures Trading
Commission to have violated a federal or state securities or commodities
law, and the judgment has not been reversed, suspended, or
vacated.
|
Compliance
with Section 16(a) of the Exchange Act
Section 16(a)
of the Securities Exchange Act of 1934 requires our executive officers and
directors, and persons who own more than 10% of our common stock to file reports
of ownership and change in ownership with the Securities and Exchange Commission
and the exchange on which the common stock is listed for trading. Executive
officers, directors and more than 10% stockholders are
required by regulations promulgated under the Exchange Act to furnish us with
copies of all Section 16(a) reports filed.
To our
knowledge, based solely on review of the copies of such reports furnished to us
and written representations that no other reports were required, all of our
officers, directors and greater than 10% shareholders complied with all
applicable Section 16(a) filing requirements for the fiscal year ended December
31, 2008.
Code
of Ethics
We have
adopted a code of ethics that applies to our executive officers and employees,
including our principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar
functions. A copy of our code of ethics may be found under the
“Investors” section of our website at www.livecurrent.com.
Audit
Committee and Audit Committee Financial Expert
Our Board
of Directors formed an audit committee on August 16, 2007 (the “Audit
Committee”). James P. Taylor was appointed as Chair of the Audit Committee on
August 16, 2007 and Mark Benham was appointed as an additional member of the
Audit Committee on March 14, 2008. We believe Mr. Taylor and Mr.
Benham are “audit committee financial experts” as that term is defined by Item
407 of Regulation S-K.
The Audit
Committee assists the Board of Directors in its oversight of the quality and
integrity of our accounting, auditing, and reporting practices. The
Audit Committee's role includes overseeing the work of our internal accounting
and financial reporting and auditing processes and discussing with management
our processes to manage business and financial risk, and for compliance with
significant applicable legal, ethical, and regulatory
requirements. The Audit Committee is responsible for the appointment,
compensation, retention, and oversight of the independent auditor engaged to
prepare or issue audit reports on our financial statements and internal control
over financial reporting. The Audit Committee relies on the expertise and
knowledge of management and the independent auditor in carrying out its
oversight responsibilities. The Committee's specific responsibilities
are delineated in its charter.
31
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Current Media Inc.
Form
10-K - 2008
Compensation
Committee
Our Board
of Directors formed a Compensation Committee on January 22, 2008 (the
“Compensation Committee’). Mark Benham was appointed as Chair and
sole member of the Compensation Committee on January 22, 2008. Our
Board of Directors has delegated to the Compensation Committee strategic and
administrative responsibility on a broad range of issues. The
Compensation Committee’s basic responsibility is to assure that the Chief
Executive Officer, other officers, and key management are compensated
effectively in a manner consistent with our compensation strategy and
competitive practice. In addition, the Compensation Committee is
responsible for establishing general compensation guidelines for non-management
employees.
The
Compensation Committee will be responsible for overseeing and, as appropriate,
making recommendations to the Board regarding the annual salaries and other
compensation of our executive officers, our general employee compensation and
other policies and providing assistance and recommendations with respect to our
compensation policies and practices. The Compensation Committee is
authorized to carry out these activities and other actions reasonably related to
the Compensation Committee’s purposes or assigned by the Board from time to
time. The Committee's specific responsibilities are delineated in its
charter.
Nominating
and Governance Committee
Our Board
of Directors formed a Nominating and Governance Committee on January 22, 2008
(the “Nominating and Governance Committee’). On March 14, 2008, Dr.
Boris Wertz was appointed as Chair and sole member of the Nominating and
Governance Committee. Our Board of Directors has delegated to the
Nominating and Governance Committee the responsibility for overseeing and, as
appropriate, making recommendations to the Board regarding membership and
constitution of the Board and its role in overseeing our affairs of the
Company. The Committee's specific responsibilities are delineated in
its charter.
There
have been no material changes to the procedures by which stockholders may
recommend nominees to our Board of Directors.
32
Live
Current Media Inc.
Form
10-K - 2008
Item
11.
Executive Compensation
The
following table summarizes all compensation for the 2007 and 2008 fiscal years
received by our Chief Executive Officer and our two most highly compensated
executive officers who earned more than $100,000. All annual totals
have been converted from Canadian dollars to USD at the average 2008 foreign
exchange rate of 0.9371.
|
Summary
Compensation Table
|
|||||||||
|
Name
and
principal
position
(a)
|
Year
(b)
|
Salary
(1)
($)
(c)
|
Bonus
(1)
($)
(d)
|
Stock
Awards
($)
(e)
|
Option
Awards
($)
(f)
|
Non-Equity
Incentive
Plan
($)
(g)
|
Non-qualified
Deferred Compen-
sation
Earnings
($)
(h)
|
All
Other Compen-
sation
($)
(i)
|
Total
($)
(j)
|
|
David
Jeffs
Former
Chief Executive Officer
July
2002 – September 30, 2007
|
2008
2007
|
None
102,100
|
None
98,726
|
None
3,311
|
None
None
|
None
None
|
None
None
|
None
175,382
|
None
379,519
|
|
Cameron
Pan
Former
Chief Financial Officer
Aug
2000 – Feb 2002
July
2002 – Jan 31, 2008
|
2008
2007
|
206,487
149,090
|
None
133,728
|
None
3,320
|
None
None
|
None
None
|
None
None
|
35,750
None
|
242,237
286,138
|
|
C.
Geoffrey Hampson
Chief
Executive Officer, Chairman of the Board
June
1, 2007 – present (1)
|
2008
2007
|
285,320
162,908
|
None
167,563
|
None
None
|
594,030
198,610
|
None
None
|
None
None
|
None
None
|
879,350
529,081
|
|
Mark
Melville
Chief
Corporate Development Officer
January
1, 2008 to Present;
President
January 31, 2009 to Present (2)
|
2008
2007
|
230,276
None
|
281,130
None
|
None
None
|
350,000
None
|
None
None
|
None
None
|
35,844
None
|
897,250
None
|
|
Jonathan
Ehrlich.
Chief
Operating Officer and President
Oct
2007 – January 31, 2009 (3)
|
2008
2007
|
258,612
65,823
|
235,650
186,181
|
None
None
|
724,010
181,251
|
None
None
|
None
None
|
49,198
None
|
1,267,470
433,254
|
(1) Mr.
Hampson did not receive any compensation for services as director of the
Company. The Company valued Mr. Hampson’s options using the Black
Scholes option pricing model using the following assumptions: no dividend yield;
expected volatility rate of 118.02%; a risk free interest rate of 3.97 and an
expected life of 3 years resulting in a value of $1.78 per option
granted.
(2) The
Company valued Mr. Melville’s options using the Black Scholes option pricing
model using the following assumptions: no dividend yield; expected volatility
rate of 75.66%; risk free interest rate of 3.07% and an expected life of 3 years
resulting in a value of $1.05 per option granted
(3) The
Company valued Mr. Ehrlich’s options using the Black Scholes option pricing
model using the following assumptions: no dividend yield; expected volatility
rate of 118.02%; risk free interest rate of 4.05% and an expected life of 3
years resulting in a value of $1.45 per option granted.
33
Live
Current Media Inc.
Form
10-K - 2008
There are
no plans that provide for the payment of retirement benefits, or benefits that
will be paid primarily following retirement, including but not limited to
tax-qualified defined benefit plans, supplemental executive retirement plans,
tax-qualified defined contribution plans and nonqualified defined contribution
plans.
Other
than as discussed below in “Employment Agreements,” there are no contracts,
agreements, plans or arrangements, written or unwritten, that provide for
payment to a named executive officer at, following, or in connection with the
resignation, retirement or other termination of a named executive officer, or a
change in control of our company or a change in the named executive officer's
responsibilities following a change in control, with respect to each named
executive officer.
On June
1, 2007, David Jeffs resigned as our Chief Executive Officer and remained
President until September 27, 2007. Pursuant to the terms and
conditions of an employment severance agreement dated September 27, 2007 between
us and Mr. Jeffs, Mr. Jeffs resigned as our President, director and
employee. Pursuant to the severance agreement, we agreed to pay Mr.
Jeffs on October 1, 2007 a severance allowance in the amount of CDN$200,000 less
any and all applicable government withholdings and
deductions. Furthermore, pursuant to the severance agreement, for a
period commencing on October 1, 2007 until December 31, 2007, we agreed to
retain Mr. Jeffs as a consultant for a monthly fee of CDN$10,000 to assist in
the day to day operations of Live Current, the transition of duties from Mr.
Jeffs to Mr. Jonathan Ehrlich who assumed the position of President and Chief
Operating Officer of Live Current on October 1, 2007, and the relocation of Live
Current’s offices.
On
January 31, 2008, Cameron Pan resigned as our Chief Financial
Officer. Pursuant to the terms and conditions of an employment
severance agreement, dated January 17, 2008 between us and Mr. Pan, Mr. Pan
resigned as our Chief Financial Officer and employee. Pursuant to the
severance agreement, we agreed to pay Mr. Pan on February 1, 2008 CDN$248,000
represented by CDN$158,400 of severance allowance, CDN$79,200 of accrued bonus
and CDN$10,400 for other benefits, less any and all applicable government
withholdings and deductions. Furthermore, pursuant to the severance
agreement, for a period commencing on February 1, 2008 until April 30, 2008, we
agreed to retain Mr. Pan as a consultant for a daily fee of CDN$750 or as the
case may be, for an hourly rate of CDN$120, to assist in the day to day
operations of Live Current and the transition of duties from Mr. Pan to others
that may be designated by Live Current.
On
February 4, 2009, Jonathan Ehrlich resigned as our President and Chief Operating
Officer and employee, effective January 31, 2009. Pursuant to the
terms and conditions of an employment severance agreement dated February 4, 2009
between us and Mr. Ehrlich, the Company agreed to pay CDN$600,000 to Mr.
Ehrlich, which consists of a severance allowance in the amount of CDN$298,000
and an accrued special bonus in the amount of CDN$250,000, less any and all
applicable government withholdings and deductions, as well as other benefits in
the amount of CDN$52,000. The severance allowance and other benefits
will be paid over a period of 12 months. The accrued special bonus
had become due on October 1, 2008 and has been expensed in the fourth quarter of
the 2008 fiscal year. The other benefits were owing to Mr. Ehrlich
before his resignation. The payment of the net amount of the accrued
special bonus is to be converted to equity and paid in restricted shares of the
Company’s common stock over a period of 12 months. The number of
shares of common stock to be issued for each payment will be computed using the
closing price of the common stock on the 15th day of
each month or, in the event that the 15th day is
not a trading day, on the trading day immediately before the 15th day of
the month.
On August
21, 2007, our Board of Directors adopted the Live Current Media Inc. 2007 Stock
Incentive Plan (the “Plan”) and granted incentive stock options from the Plan to
certain key personnel, as further described below.
Employment
Agreements
C.
Geoffrey Hampson, Chief Executive Officer and Chairman
We
entered into an employment agreement with C. Geoffrey Hampson on May 31,
2007. Pursuant to the employment agreement, Mr. Hampson shall serve
as our Chief Executive Officer for a term of five years effective June 1, 2007
and subject to certain termination rights on the part of Live Current and Mr.
Hampson. The employment agreement provides that Mr. Hampson will
receive an annual base salary of CDN$300,000, subject to annual review as well
as a bonus of up to 60% of base salary as determined by the Board of Directors. The employment agreement also entitles him
to participate in the health, dental and other fringe benefits or policies
available to personnel with commensurate duties. In connection with
the employment agreement, on September 11, 2007 we granted to Mr. Hampson an
incentive stock option to purchase up to 1,000,000 shares of our common stock at
an exercise price of $2.50 per share. The option to purchase shares
of our common stock vests over the term of the employment agreement as follows:
(i) exercisable as to 333,333 shares on September 11, 2008 and (ii) thereafter
the option to purchase 83,333 shares vests after each successive three-month
period until the entire option has vested. Unless earlier terminated,
the option shall expire on September 11, 2012. The incentive stock
option was granted pursuant to our 2007 Stock Incentive Plan.
On June
1, 2007, the Board of Directors appointed Mr. Hampson as a director and Chairman
of the Board.
34
Live
Current Media Inc.
Form
10-K - 2008
Jonathan
Ehrlich, former Chief Operating Officer and former President
We
entered into an employment agreement with Jonathan Ehrlich on September 11,
2007. Pursuant to the employment agreement, Mr. Ehrlich was to serve as the
Chief Operating Officer and President of Live Current for a term of five years
effective October 1, 2007, subject to certain early termination rights on the
part of Live Current and Mr. Ehrlich. The employment agreement
provided that Mr. Ehrlich was to receive an annual base salary of CDN$275,000,
subject to annual review by the Chief Executive Officer and the Board of
Directors as well as a bonus of up to 50% of his base salary, to be determined
by the Board of Directors in its sole discretion. He also was paid a
signing bonus of CDN$200,000 upon his start date and is to be paid two special
bonuses of CDN$250,000 each on each of October 1, 2009 and October 1, 2010
unless earlier terminated. The employment agreement also entitled Mr.
Ehrlich to participate in the health and dental and other fringe benefits or
policies available to personnel with commensurate duties. In
connection with the employment agreement, on September 8, 2007, Live Current
granted an incentive stock option to Mr. Ehrlich to purchase up to 1,500,000
shares of common stock at an exercise price of $2.04 per share. The
option was to vest over the term of the employment agreement as follows: (i)
exercisable as to 500,000 shares on October 1, 2008 and (ii) thereafter the
option to purchase 125,000 shares vests after each successive three-month period
until the entire option has vested. Unless earlier terminated, the
option would expire on October 1, 2012. The incentive stock option
was granted under the Company’s 2007 Stock Incentive Plan. Mr.
Ehrlich resigned as our Chief Operating Officer and President on February 4,
2009.
Mark Melville, Chief Corporate
Development Officer and President
We
entered into an employment agreement with Mark Melville on November 9,
2007. Pursuant to the employment agreement, Mr. Melville shall serve
as our Chief Corporate Development Officer for a term of five years effective
January 1, 2008, subject to certain early termination rights on the part of Live
Current and Mr. Melville. The employment agreement provides that Mr.
Melville will receive an annual base salary of CDN$250,000, commencing January
1, 2008, subject to annual review by the Chief Executive Officer and the Board
of Directors as well as a bonus of up to 50% of his base salary, to be
determined by the Board of Directors in its sole discretion. He also
was paid a signing bonus of CDN$300,000 upon his start date and is to be paid
two special bonuses of CDN$100,000 each on each of January 1, 2009 and January
1, 2010. We have not yet paid the bonus that was due on January 1,
2009. The employment agreement also entitles Mr. Melville to
participate in the health and dental and other fringe benefits or policies
available to personnel with commensurate duties. In connection with
the employment agreement, on January 1, 2008, we granted an incentive stock
option to Mr. Melville to purchase up to 1,000,000 shares of our common stock at
an exercise price of $2.05 per share. The option vests over the term
of the employment agreement as follows: (i) exercisable as to 333,333 shares on
January 1, 2009 and (ii) thereafter the option to purchase an additional 83,333
shares vests on the last day of each successive three month period thereafter,
until all such shares have vested. Unless earlier terminated, the option shall
expire on January 1, 2013. The incentive stock option was granted pursuant to
our 2007 Stock Incentive Plan. On February 4, 2009, Mr. Melville
assumed the duties of the office of President.
35
Live
Current Media Inc.
Form
10-K - 2008
The
following table sets forth certain information concerning unexercised stock
options for each named executive officer above. There were no stock
awards outstanding as of end of fiscal year 2008.
|
OPTION
AWARDS
|
STOCK
AWARDS
|
||||||||
|
Name
|
Number
of securities underlying unexercised options (#)
Exercisable
|
Number
of securities underlying unexercised options (#)
Unexercisable
|
Equity
Incentive Plan Awards: Number of Securities underlying unexercised
unearned options (#)
|
Option
exercise
price
($)
|
Option
expiration
date
|
Number
of shares or units of stock that have not vested (#)
|
Market
value of shares or units of stock that have not vested ($)
|
Equity
incentive plan awards: number of unearned shares, units or other rights
that have not vested (#)
|
Equity
incentive plan awards: Market or payout value of unearned shares, units or
other rights that have not vested ($)
|
|
C.
Geoffrey Hampson
|
416,666
(1)
|
583,334
(1)
|
$2.50
|
09/11/2012
|
|||||
|
Jonathan
Ehrlich
|
500,000
(2)
|
1,000,000
(2)
|
$2.04
|
10/01/2012
|
|||||
|
Mark
Melville
|
--
|
1,000,000
(3)
|
$2.06
|
01/01/2013
|
|||||
____________________
|
(1)
|
The
option became exercisable as to 333,333 shares on September 11, 2008 and
83,333 shares on December 11, 2008, and will become exercisable as to an
additional 83,333 shares on the last day of each successive three-month
period thereafter, until all such shares have vested.
|
|
|
(2)
|
The
option became exercisable as to 500,000 shares on October 1, 2008 and will
become exercisable as to an additional 125,000 shares on the last day of
each successive three-month period thereafter, until all such shares have
vested.
|
|
|
(3)
|
The
option will become exercisable as to (i) 333,333 shares on January 1, 2009
and (ii) an additional 83,333 shares on the last day of each successive
three-month period thereafter, until all such shares have
vested.
|
36
Live
Current Media Inc.
Form
10-K - 2008
Director
Compensation
The
following director compensation disclosure reflects all compensation awarded to,
earned by or paid to the directors below for the fiscal year ended
December 31, 2008.
|
DIRECTOR
COMPENSATION
|
||||||||||||||||||||||||||||
|
Name
|
Fees
Earned
or
Paid in Cash
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive Plan Compensation
($)
|
Change
in Pension Value and Nonqualified Deferred Compensation
Earnings
($)
|
All
Other
Compensation
($)
|
Total
($)
|
|||||||||||||||||||||
|
James
P. Taylor (1)
|
-- | -- | $ | 59,404 | -- | -- | $ | $ | ||||||||||||||||||||
|
Mark
Benham (2)
|
-- | -- | $ | 58,068 | -- | -- | $ | $ | ||||||||||||||||||||
|
Boris
Wertz (3)
|
-- | -- | $ | 31,711 | -- | -- | $ | $ | ||||||||||||||||||||
____________________
|
(1)
|
The
aggregate number of stock awards and option awards issued to
Mr. Taylor and outstanding as of December 31,
2008 is 0 and 100,000, respectively.
|
|
|
(2)
|
The
aggregate number of stock awards and option awards granted to
Mr. Benham and outstanding as of December 31,
2008 is 0 and 100,000 respectively.
|
|
|
(3)
|
The
aggregate number of stock awards and option awards granted to
Dr. Wertz and outstanding as of December 31,
2008 is 0 and 100,000 respectively.
|
|
On March
14, 2008, the Company granted to Dr. Wertz a stock option to purchase up to
100,000 shares of its common stock at the then market price on March 14, 2008,
$2.49 per share. The option is subject to vesting as follows: (i)
33,333 shares on the first anniversary of the incentive stock option agreement
and (ii) thereafter 8,333 shares vest after each successive three-month period.
The incentive stock option has been granted under the Company’s 2007 Stock
Option Plan. 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
37
Live
Current Media Inc.
Form
10-K - 2008
Item
12. Security Ownership of Certain Beneficial
Holders and Management
Securities
Authorized for Issuance Under Equity Compensation Plans
On August
21, 2007, our Board of Directors adopted the Live Current Media Inc. 2007 Stock
Incentive Plan (the “Plan”). The Plan authorizes awards of options (both
incentive stock options and non-qualified stock options), stock awards or stock
bonuses. Persons eligible to receive awards under the Plan include our
employees, officers, directors, consultants, independent contractors, and
advisors, and those of our subsidiaries.
The table
below illustrates, as of December 31, 2008, the number of shares of common stock
to be issued upon the exercise of options granted from the Plan, the weighted
average exercise price of the outstanding options and the number of securities
remaining available in the Plan for future issuance.
|
Equity
Compensation Plan Information
|
|||
|
Plan
category
|
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights
(a)
|
Weighted-average
exercise price of outstanding options, warrants and rights
(b)
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
(c)
|
|
Equity
compensation plans approved by security holders
|
4,797,500
|
$2.29
|
202,500
|
|
Equity
compensation plans not approved by security holders
|
--
|
--
|
--
|
|
Total
|
4,797,500
|
$2.29
|
202,500
|
Our Board
of Directors administers the Plan. Our Board of Directors has the authority to
determine, at its discretion, the number and type of awards that will be
granted, the recipients of the awards, and the exercise or purchase price
required to be paid, when options may be exercised and the term of the option
grants. Options granted under the Plan may not be exercised after 10 years from
the date the option is granted. A total of 5,000,000 shares of common stock were
reserved for awards granted under the Plan.
Options
granted under the Plan may be designated as incentive stock options or
non-qualified stock options. Incentive stock options may be granted only to our
employees and employees of our subsidiaries (including officers and directors
who are also employees). The exercise price of non-qualified stock options may
not be less than 85% of the fair market value of a share of our common stock on
the date of the grant, and the exercise price of incentive stock options may not
be less than 100% of the fair market value of a share of our common stock on the
date of the grant. However, the exercise price of any option may not be less
than 110% of the fair market value of our common stock on the date of grant in
the case of an individual owning 10% or more of our common stock. Neither
incentive stock options nor non-qualified stock options may have a term
exceeding 10 years. In the case of an incentive option that is granted to an
individual owning 10% or more of the common stock, the term may not exceed 5
years. We are required to obtain shareholder approval of the Plan before the
options granted can qualify for incentive stock option treatment under U.S. tax
laws. We obtained shareholder approval of the Plan on May 27,
2008.
38
Live
Current Media Inc.
Form
10-K - 2008
Security
Ownership of Certain Beneficial Owners (more than 5%)
The
following table sets forth certain information, as of March 20, 2009, with
respect to the holdings of (1) each person who is the beneficial owner of more
than five percent of our common stock, (2) each of our directors, (3) each named
executive officer, and (4) all of our directors and executive officers as a
group.
Beneficial
ownership of the common stock is determined in accordance with the rules of the
Securities and Exchange Commission and includes any shares of common stock over
which a person exercises sole or shared voting or investment powers, or of which
a person has a right to acquire ownership at any time within 60 days of March
20, 2009. Except as otherwise indicated, and subject to applicable community
property laws, we believe that the persons named in this table have sole voting
and investment power with respect to all shares of common stock held by them.
Applicable percentage ownership in the following table is based on 23,906,445
shares of common stock outstanding as of March 20, 2009 plus, for each
individual, any securities that individual has the right to acquire within 60
days of March 20, 2009.
|
Title of
Class
|
Name and Address
(1)
|
Shares Beneficially
Owned
(2)
|
Percentage of
Class
(2)
|
||
|
Beneficial Owners
of
More than
5%:
|
|||||
|
Common
Stock
|
Odyssey
Value Advisors, LLC
601
Montgomery Street, Suite 1112
San
Francisco, CA 94111
|
1,521,525
|
6.36%
|
||
|
Current Directors
and
Named
Executive
Officers:
|
|||||
|
Common
Stock
|
C.
Geoffrey Hampson, Chief Executive Officer, Principal Accounting Officer,
Director (3)
|
2,843,333
|
11.07%
|
||
|
Common
Stock
|
Mark
Melville, President, Chief Corporate Development Officer
(4)
|
524,359
|
2.15%
|
||
|
Common
Stock
|
Jonathan
Ehrlich, former Chief Operations Officer, former President
(5)
|
306,621
|
1.28%
|
||
|
Common
Stock
|
Mark
Benham, Director (6)
|
83,333
|
0.35%*
|
||
|
Common
Stock
|
James
P. Taylor, Director (7)
|
68,333
|
0.29%*
|
||
|
Common
Stock
|
Boris
Wertz,
Director
(8)
|
0
|
0.17%*
|
||
|
All Directors and Executive Officers
as a group (6 persons) |
3,825,979
|
15.31%
|
* Less
than 1%.
39
Live
Current Media Inc.
Form
10-K - 2008
|
(1)
|
Unless
otherwise indicated, the address of the beneficial owner is c/o Live
Current Media Inc., 375 Water Street, Suite 645, Vancouver, BC, V6B5C6,
Canada.
|
|
(2)
|
Percentage
based upon 23,906,445 shares of our common stock outstanding as of March
20, 2009.
|
|
(3)
|
Includes
1,000,000 shares of common stock and a warrant to purchase 1,000,000
shares of our common stock with an exercise price of $1.25 effective June
11, 2007, exercisable at any time, and expiring June 10, 2009 to Hampson
Equities Ltd. (a company owned and controlled by C Geoffrey Hampson, Chief
Executive Officer) in exchange for $1,000,000 cash (received) pursuant to
a subscription agreement dated June 1, 2007.
|
|
Includes
an option to purchase 583,333 shares of our common stock granted on
September 11, 2007 pursuant to an employment agreement that will have
vested within 60 days of March 20, 2009. Does not include an
option to purchase 416,667 shares of our common stock under the same
grant, as Mr. Hampson will not have the right to acquire shares pursuant
to this option until September 11, 2009.
|
|
|
Includes
a warrant to purchase 97,500 shares of our common stock with an exercise
price of $0.78 effective November 19, 2008, exercisable at any time, and
expiring November 19, 2010. Also includes a warrant to purchase
97,500 shares of our common stock with an exercise price of $0.91
effective November 19, 2008, exercisable at any time, and expiring
November 19, 2011. Both these warrants were issued as part of
our private placement on November 19, 2008.
|
|
|
(4)
|
Includes
an option to purchase 416,667 shares of our common stock granted on
January 1, 2008 pursuant to an employment agreement that will have vested
within 60 days of March 20, 2009. Does not include an option to
purchase 583,333 shares of our common stock under the same grant, as Mr.
Melville will not have the right to acquire shares pursuant to this option
until July 1, 2009.
|
|
Includes
a warrant to purchase 26,923 shares of our common stock with an exercise
price of $0.78 effective November 19, 2008, exercisable at any time, and
expiring November 19, 2010. Also includes a warrant to purchase
26,923 shares of our common stock with an exercise price of $0.91
effective November 19, 2008, exercisable at any time, and expiring
November 19, 2011. Both these warrants were issued as part of
our private placement on November 19, 2008.
|
|
|
(5)
|
Includes
a warrant to purchase 19,230 shares of our common stock with an exercise
price of $0.78 effective November 19, 2008, exercisable at any time, and
expiring November 19, 2010. Also includes a warrant to purchase
19,230 shares of our common stock with an exercise price of $0.91
effective November 19, 2008, exercisable at any time, and expiring
November 19, 2011. Both these warrants were issued as part of
our private placement on November 19, 2008.
|
|
(6)
|
Includes
an option to purchase 58,333 shares of our common stock granted on
September 11, 2007 for services as a member of our Board of Directors that
will have vested within 60 days of March 20, 2009. Does not
include an option to purchase 41,667 shares of our common stock under the
same grant, as Mr. Benham will not have the right to acquire shares
pursuant to this option until September 11, 2009.
|
|
(7)
|
Includes
an option to purchase 58,333 shares of our common stock granted on
September 11, 2007 for services as a member of our Board of Directors that
will have vested within 60 days of March 20, 2009. Does not
include an option to purchase 41,667 shares of our common stock under the
same grant, as Mr. Taylor will not have the right to acquire shares
pursuant to this option until September 11, 2009.
|
|
(8)
|
Includes
an option to purchase 41,667 shares of our common stock granted on March
14, 2008 for services as a member of our Board of Directors that will have
vested within 60 days of March 20, 2009. Does not include an
option to purchase 58,333 shares of our common stock under the same grant,
as Dr. Wertz will not have the right to acquire shares pursuant to this
option until September 14,
2009.
|
40
Live
Current Media Inc.
Form
10-K - 2008
Item
13. Certain Relationships
and Related Transactions and Director Independence
Transactions
with Related Persons
The
following describes all transactions since January 1, 2007, and all proposed
transactions, in which the Company was or is to be a participant and the amount
involved exceeds the lesser of $120,000 or one percent of the average of the
Company’s total assets at year-end for the last two completed fiscal years, and
in which any related person had or will have a direct or indirect material
interest.
On June
11, 2007, the Board of Directors of Live Current issued 1,000,000 shares of
common stock and warrants to purchase up to 1,000,000 additional shares of
restricted common stock at the price of $1.25 effective until June 10, 2009 to
Hampson Equities Ltd., a company owned and controlled by C. Geoffrey Hampson,
our Chief Executive Officer, pursuant to a subscription agreement dated June 1,
2007. The amount of the subscription was $1,000,000.
On
September 24, 2007 we closed a $5,100,000 private placement financing in which
Mr. Hampson invested $110,000. Mr. Hampson received 55,000 restricted
shares of our common stock.
On
November 19, 2008, we closed a private placement financing in which Mr. Hampson
invested $126,750. Mr. Hampson received 195,000 restricted shares of
common stock, two-year warrants to purchase 97,500 common shares at an exercise
price of $0.78, and three-year warrants to purchase 97,500 common shares at an
exercise price of $0.91.
On March
25, 2009, our Board of Directors reduced the exercise price of all outstanding
stock options granted pursuant to the Live Current Media Inc. Stock Incentive
Plan $0.65. These options are held by our officers, directors,
employees, consultants and agents. The original exercise prices
ranged from a high of $3.30 to a low of $0.65. As a result of this
reduction, the exercise price of the outstanding stock option granted to Mr.
Hampson was reduced from $2.50 and the exercise price of the outstanding stock
option(s) granted to Mr. Melville was reduced from $2.06. No other
terms of conditions of the stock option grants were modified.
Certain
of our current officers and directors have employment agreements with us and we
entered into employment severance agreements with certain of our former
officers. See Item 11 – Executive Compensation for a discussion of
these agreements.
Director
Independence
We
currently have three directors, Mr. Mark Benham, Mr. James P. Taylor, and Dr.
Boris Wertz, who are independent directors as that term is defined under the
rules of the NASDAQ Capital Market. Mr. Benham serves as the chairman
and independent director of the Compensation Committee and as an independent
director of the Audit Committee. Mr. Taylor serves as the chairman
and an independent director of the Audit Committee. Dr. Wertz serves
as the chairman and independent director of the Nominating and Governance
Committee. Both Mr. Benham and Mr. Taylor are audit committee
financial experts as defined by Item 407 of Regulation S-K and meet the
independent requirement for an audit committee and compensation committee
member.
41
Live
Current Media Inc.
Form
10-K - 2008
Item
14. Principal Accounting
Fees and Services
(1)
Audit Fees and Related Fees
The
aggregate fees billed for each of the last two fiscal years for professional
services rendered by our principal accountant for the audit of annual financial
statements and for review of financial statements included in our quarterly
reports or for services that are normally provided by the accountant in
connection with statutory and regulatory filings or engagements for those fiscal
years was:
2007 -
$ 39,000 – Dale Matheson Carr-Hilton LaBonte
2007 -
$112,000 – Ernst & Young (accrued for 2007 audit fees)
2008 -
$273,000 – Ernst & Young (including accrual for 2008 audit
fees)
(2)
Tax Fees
The
aggregate fees billed in each of the last two fiscal years for professional
services rendered by the principal accountant for tax compliance, tax advice,
and tax planning was:
2007 -
$10,000 – Dale Matheson Carr-Hilton LaBonte
2007 -
$ 8,000 – Ernst & Young
2008 -
$72,000 – Ernst & Young
(3)
All
Other Fees
The
aggregate fees billed in each of the last two fiscal years for the products and
services provided by the principal accountant, other than the services reported
in paragraphs (1) and (2) was:
2007 -
$ nil – Dale Matheson Carr-Hilton
LaBonte
2007 -
$23,000 – Ernst & Young
2008 -
$ 3,000 – Ernst & Young
(4) Our audit
committee’s pre-approval policies and procedures require that the audit
committee pre-approve all accounting related activities prior to the performance
of any services by any accountant or auditor.
(5) The
percentage of hours expended on the principal accountant’s engagement to audit
our financial statements for the most recent fiscal year that were attributed to
work performed by persons other than the principal accountant’s full time,
permanent employees was nil.
42
Live
Current Media Inc.
Form
10-K - 2008
Item
15. Exhibits
EXHIBIT
INDEX
|
Number
|
Description
|
|
3.1
|
Articles
of Incorporation (1)
|
|
3.2
|
Bylaws
(2)
|
|
3.3
|
Certificate
of Amendment to the Articles of Incorporation (3)
|
|
3.4
|
Text
of Amendment to the Bylaws (4)
|
|
10.1
|
Live
Current Media Inc. 2007 Stock Incentive Plan (6)
|
|
10.2
|
Employment
agreement between Live Current Media Inc. and C. Geoffrey Hampson dated
May 31, 2007 (7)+
|
|
10.3
|
Real
Property Lease Agreement between Live Current Media Inc. and Landing
Holdings Limited and Landing Properties Limited dated July 16, 2007 (8)
|
|
10.4
|
Employment
Agreement between Live Current Media Inc. and Jonathan Ehrlich dated
September 8, 2007 (9)+
|
|
10.5
|
Incentive
Stock Option Agreement between Live Current Media Inc. and Jonathan
Ehrlich dated September 8, 2007 (10)+
|
|
10.6
|
Incentive
Stock Option Agreement between Live Current Media Inc. and C. Geoffrey
Hampson dated September 11, 2007 (11)+
|
|
10.7
|
Incentive
Stock Option Agreement between Live Current Media Inc. and James P. Taylor
dated September 11, 2007 (12)+
|
|
10.8
|
Incentive
Stock Option Agreement between Live Current Media Inc. and Mark Benham
dated September 12, 2007 (13)+
|
|
10.9
|
Employment
Severance Agreement between Live Current Media Inc. and David M. Jeffs
dated September 27, 2007 (14)+
|
|
10.10
|
Employment
Agreement between Live Current Media Inc. and Mark Melville dated November
9, 2007 (15)+
|
|
10.11
|
Incentive
Stock Option Agreement between Live Current Media Inc. and Mark Melville
dated November 9, 2007 (16)+
|
|
10.12
|
Asset
Purchase Agreement between Live Current Media Inc. and
FrequentTraveller.com, Inc. dated November 12, 2007 (17)+
|
|
10.13
|
Form
of Subscription Agreement (5)
|
|
10.14
|
Employment
Agreement between Live Current Media Inc. and Chantal Iorio dated December
12, 2007 (19)+
|
|
10.15
|
Employment
Severance Agreement between Live Current Media Inc. and Cameron Pan dated
January 17, 2008 (20)+
|
|
10.16
|
Agreement
and Plan of Merger, dated March 25, 2008 (22)
|
|
10.17
|
Founders
Employment Agreement (Harjeet Taggar), dated March 25, 2008 (23)
|
|
10.18
|
Founders
Employment Agreement (Kulveer Taggar), dated March 25, 2008 (24)
|
43
Live
Current Media Inc.
Form
10-K - 2008
|
10.19
|
Founders
Employment Agreement (Patrick Collison), dated March 25, 2008 (25)
|
|
10.20
|
Employment
Agreement (Phillip Kast), dated March 25, 2008 (26)
|
|
10.21
|
Employment
Agreement (Brian Collins), dated March 25, 2008 (27)
|
|
10.22
|
Interim
Consulting Agreement (Harjeet Taggar) dated March 10, 2008 (28)
|
|
10.23
|
Interim
Consulting Agreement (Kulveer Taggar) dated February 28, 2008 (29)
|
|
10.24
|
Interim
Consulting Agreement (Patrick Collison) dated February 28, 2008 (30)
|
|
10.25
|
Interim
Consulting Agreement (Phillip Kast) dated March 10, 2008 (31)
|
|
10.26
|
Interim
Consulting Agreement (Brian Collins) dated March 25, 2008 (32)
|
|
10.27
|
Secondment
Agreement (Harjeet Taggar), dated March 25, 2008 (33)
|
|
10.28
|
Secondment
Agreement (Kulveer Taggar), dated March 25, 2008 (34)
|
|
10.29
|
Secondment
Agreement (Patrick Collison) dated March 25, 2008 (35)
|
|
10.30
|
Secondment
Agreement (Phillip Kast), dated March 25, 2008 (36)
|
|
10.31
|
Secondment
Agreement, dated (Brian Collins) March 25, 2008 (37)
|
|
10.32
|
Subscription
Agreement (38)
|
|
10.33
|
Common
Stock Purchase Warrant dated November 19, 2008 (38)
|
|
10.34
|
Common
Stock Purchase Warrant dated November 19, 2008 (38)
|
|
10.35
|
Employment
Severance Agreement dated February 4, 2009 between Live Current Media Inc.
and Jonathan Ehrlich (39)
|
|
21
|
List
of Subsidiaries *
|
|
23
|
Consent
of Independent Registered Public Accounting Firm *
|
|
31
|
Certification
Pursuant To Section 302 Of The Sarbanes-Oxley Act Of 2002 — Chief
Executive Officer and Principal Accounting Officer *
|
|
32
|
Certification
Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of
The Sarbanes-Oxley Act Of 2002 — Chief Executive Officer and Principal
Accounting Officer *
|
* Filed
herewith.
+ Denotes
a management contract.
|
(1)
|
Previously
filed as Exhibit 2(a) to Live Current Media Inc.’s Registration Statement
on Form 10-SB as filed on March 10, 2000 and incorporated herein by this
reference.
|
|
(2)
|
Previously
filed as Exhibit 2(b) to Live Current Media Inc.’s Registration Statement
on Form 10-SB as filed on March 10, 2000 and incorporated herein by this
reference.
|
|
(3)
|
Previously
filed as Exhibit 3.3 to Live Current Media Inc.’s Quarterly Report on Form
10-QSB for period ended September 30, 2007 as filed on November 19, 2007
and incorporated herein by this reference.
|
44
Live
Current Media Inc.
Form
10-K - 2008
|
(4)
|
Previously
filed as Exhibit 3.4 to Live Current Media Inc.’s Current Report on Form
8-K as filed on August 22, 2007 and incorporated herein by this
reference.
|
|
(5)
|
Previously
filed as Exhibit 10.1 to Live Current Media Inc.’s Current Report on Form
8-K as filed on September 25, 2007 and incorporated herein by this
reference.
|
|
(6)
|
Previously
filed as Exhibit 4.1 to Live Current Media Inc.’s Registration Statement
Form S-8 as filed on August 22, 2007 and incorporated herein by this
reference.
|
|
(7)
|
Previously
filed as Exhibit 10.7 to Live Current Media Inc.’s Current Report on Form
8-K as filed on June 5, 2007 and incorporated herein by this
reference.
|
|
(8)
|
Previously
filed as Exhibit 10.8 to Live Current Media Inc.’s Quarterly Report on
Form 10-QSB for period ended September 30, 2007 as filed on November 19,
2007 and incorporated herein by this reference.
|
|
(9)
|
Previously
filed as Exhibit 10.1 to Live Current Media Inc.’s Current Report on Form
8-K as filed on September 12, 2007 and incorporated herein by this
reference.
|
|
(10)
|
Previously
filed as Exhibit 10.2 to Live Current Media Inc.’s Current Report on Form
8-K as filed on September 12, 2007 and incorporated herein by this
reference.
|
|
(11)
|
Previously
filed as Exhibit 10.6 to Live Current Media Inc.’s Registration Statement
on Form SB-2 as filed on November 28, 2007 and incorporated herein by this
reference.
|
|
(12)
|
Previously
filed as Exhibit 10.7 to Live Current Media Inc.’s Registration Statement
on Form SB-2 as filed on November 28, 2007 and incorporated herein by this
reference.
|
|
(13)
|
Previously
filed as Exhibit 10.8 to Live Current Media Inc.’s Registration Statement
on Form SB-2 as filed on November 28, 2007 and incorporated herein by this
reference.
|
|
(14)
|
Previously
filed as Exhibit 10.1 to Live Current Media Inc.’s Current Report on Form
8-K as filed on October 3, 2007 and incorporated herein by this
reference.
|
|
(15)
|
Previously
filed as Exhibit 10.1 to Live Current Media Inc.’s Current Report on Form
8-K as filed November 16, 2007 and incorporated herein by this
reference.
|
|
(16)
|
Previously
filed as Exhibit 10.2 to Live Current Media Inc.’s Current Report on Form
8-K as filed November 16, 2007 and incorporated herein by this
reference.
|
|
(17)
|
Previously
filed as Exhibit 10.1 to Live Current Media Inc.’s Current Report on Form
8-K as filed November 16, 2007 and incorporated herein by this
reference.
|
45
Live
Current Media Inc.
Form
10-K - 2008
|
(18)
|
Previously
filed as exhibit 14.1 to Live Current Media Inc.’s Registration Statement
on Form SB-2 as filed on November 28, 2007 and incorporated herein by this
reference.
|
|
(19)
|
Previously
filed as Exhibit 10.1 to Live Current Media Inc.’s Current Report on Form
8-K as filed December 18, 2007 and incorporated herein by this
reference.
|
|
(20)
|
Previously
filed as Exhibit 10.1 to Live Current Media Inc.’s Current Report on Form
8-K as filed January 18, 2008 and incorporated herein by this
reference.
|
|
(21)
|
Previously
filed as Exhibit 16.1 to Live Current Media Inc.’s Current Report on Form
8-K as filed January 28, 2008 and incorporated herein by this
reference.
|
|
(22)
|
Previously
filed as Exhibit 10.1 to Live Current Media Inc.’s Current Report on Form
8-K as filed March 26, 2008 and incorporated herein by this
reference.
|
|
(23)
|
Previously
filed as Exhibit 10.2 to Live Current Media Inc.’s Current Report on Form
8-K as filed March 26, 2008 and incorporated herein by this
reference.
|
|
(24)
|
Previously
filed as Exhibit 10.3 to Live Current Media Inc.’s Current Report on Form
8-K as filed March 26, 2008 and incorporated herein by this
reference.
|
|
(25)
|
Previously
filed as Exhibit 10.4 to Live Current Media Inc.’s Current Report on Form
8-K as filed March 26, 2008 and incorporated herein by this
reference.
|
|
(26)
|
Previously
filed as Exhibit 10.5 to Live Current Media Inc.’s Current Report on Form
8-K as filed March 26, 2008 and incorporated herein by this
reference.
|
|
(27)
|
Previously
filed as Exhibit 10.6 to Live Current Media Inc.’s Current Report on Form
8-K as filed March 26, 2008 and incorporated herein by this
reference.
|
|
(28)
|
Previously
filed as Exhibit 10.7 to Live Current Media Inc.’s Current Report on Form
8-K as filed March 26, 2008 and incorporated herein by this
reference.
|
|
(29)
|
Previously
filed as Exhibit 10.8 to Live Current Media Inc.’s Current Report on Form
8-K as filed March 26, 2008 and incorporated herein by this
reference.
|
|
(30)
|
Previously
filed as Exhibit 10.9 to Live Current Media Inc.’s Current Report on Form
8-K as filed March 26, 2008 and incorporated herein by this
reference.
|
|
(31)
|
Previously
filed as Exhibit 10.10 to Live Current Media Inc.’s Current Report on Form
8-K as filed March 26, 2008 and incorporated herein by this
reference.
|
|
(32)
|
Previously
filed as Exhibit 10.11 to Live Current Media Inc.’s Current Report on Form
8-K as filed March 26, 2008 and incorporated herein by this
reference.
|
|
(33)
|
Previously
filed as Exhibit 10.12 to Live Current Media Inc.’s Current Report on Form
8-K as filed March 26, 2008 and incorporated herein by this
reference.
|
|
(34)
|
Previously
filed as Exhibit 10.13 to Live Current Media Inc.’s Current Report on Form
8-K as filed March 26, 2008 and incorporated herein by this
reference.
|
|
(35)
|
Previously
filed as Exhibit 10.14 to Live Current Media Inc.’s Current Report on Form
8-K as filed March 26, 2008 and incorporated herein by this
reference.
|
|
(36)
|
Previously
filed as Exhibit 10.15 to Live Current Media Inc.’s Current Report on Form
8-K as filed March 26, 2008 and incorporated herein by this
reference.
|
|
(37)
|
Previously
filed as Exhibit 10.16 to Live Current Media Inc.’s Current Report on Form
8-K as filed March 26, 2008 and incorporated herein by this
reference.
|
|
(38)
|
Previously
filed as Exhibit 10.1 to Live Current Media Inc.’s Current Report on Form
8-K as filed November 20, 2008 and incorporated herein by this
reference.
|
|
Previously
filed as Exhibit 10.1 to Live Current Media Inc.’s Current Report on Form
8-K as filed February 5, 2009 and incorporated herein by this
reference.
|
46
Live
Current Media Inc.
Form
10-K - 2008
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
LIVE
CURRENT MEDIA INC.
By:
/s/ C. Geoffrey
Hampson
Name: C.
Geoffrey Hampson
Title:
Chief
Executive Officer, Principal Accounting Officer and
Chairman
Dated: March
30, 2009
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
|
Name
|
Title
|
Date
|
||
|
/s/
C. Geoffrey Hampson
|
||||
|
C.
Geoffrey Hampson
|
Chief
Executive Officer, Principal Financial Officer,
Principal Accounting Officer, and Director |
March
30, 2009
|
||
|
/s/
Mark Melville
|
||||
|
Mark
Melville
|
President
|
March
30, 2009
|
||
|
/s/
Boris Wertz
|
||||
|
Boris
Wertz
|
Director
|
March
30, 2009
|
||
|
/s/
Mark Benham
|
||||
|
Mark
Benham
|
Director
|
March
30, 2009
|
||
|
/s/James
P. Taylor
|
||||
|
James
P. Taylor
|
Director
|
March
30, 2009
|
47
Live
Current Media Inc.
Form
10-K - 2008
|
CONSOLIDATED
FINANCIAL STATEMENTS
|
||||
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|||
|
Consolidated
Balance Sheets for the years ended December 31, 2008 and
2007
|
F-3
|
|||
|
Consolidated
Statements of Operations for the years ended December 31, 2008 and
2007
|
F-4
|
|||
|
Consolidated
Statements of Stockholders’ Equity (Deficit) for the years ended
December 31, 2008 and 2007
|
F-5
|
|||
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2008 and
2007
|
F-6
|
|||
|
Notes
to Consolidated Financial Statements
|
F-7
|
F-1
REPORT
OF INDEPENDENT REGISTERED
PUBLIC
ACCOUNTING FIRM
To the
Board of Directors and Stockholders of
Live
Current Media Inc. (formerly Communicate.com Inc.)
We have
audited the accompanying consolidated balance sheets of Live Current Media Inc. as of
December 31, 2008 and 2007 and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the years in the two
year period ended December 31, 2008. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an
audit of the Company's internal control over financial reporting. Our
audit includes consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Live Current Media
Inc. at December 31, 2008 and 2007, and the consolidated results of its
operations and its cash flows of the years in the two year period ended December
31, 2008 in conformity with U.S. generally accepted accounting
principles.
As
discussed in Note 1 to the financial statements, the Company's recurring net
losses raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1.
These financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
|
Vancouver,
Canada,
March
24, 2009
|
/s/
Ernst & Young LLP
Chartered
Accountants
|
F-2
LIVE
CURRENT MEDIA INC.
(formerly
COMMUNICATE.COM INC.)
CONSOLIDATED
BALANCE SHEETS
Expressed
In U.S. Dollars
(Going
Concern - See Note 1)
|
As
at December 31
|
2008
|
2007
|
||||||
|
ASSETS
|
||||||||
|
Current
|
||||||||
|
Cash
and cash equivalents
|
$ | 1,832,520 | $ | 7,375,245 | ||||
|
Accounts
receivable (net of allowance for doubtful accounts of nil)
|
93,582 | 138,930 | ||||||
|
Prepaid
expenses and deposits
|
109,543 | 246,174 | ||||||
|
Inventory
|
74,082 | - | ||||||
|
Current
portion of receivable from sales-type lease (Note
11)
|
23,423 | - | ||||||
|
Total
current assets
|
2,133,150 | 7,760,349 | ||||||
|
Long-term
portion of receivable from sales-type lease (Note
11)
|
23,423 | - | ||||||
|
Property
& equipment (Note
7)
|
1,042,851 | 175,797 | ||||||
|
Website
development costs (Note
8)
|
392,799 | - | ||||||
|
Intangible
assets
|
1,587,463 | 1,645,061 | ||||||
|
Goodwill
(Note
6)
|
2,428,602 | - | ||||||
|
Total
Assets
|
$ | 7,608,288 | $ | 9,581,207 | ||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
|
Current
|
||||||||
|
Accounts
payable and accrued liabilities
|
$ | 4,131,264 | $ | 1,515,429 | ||||
|
Bonuses
payable
|
235,650 | 241,290 | ||||||
|
Due
to shareholders of Auctomatic (Note
6)
|
789,799 | - | ||||||
|
Deferred
revenue
|
120,456 | 53,079 | ||||||
|
Current
portion of deferred lease inducements (Note
9)
|
20,138 | 20,138 | ||||||
|
Total
current liabilities
|
5,297,307 | 1,829,936 | ||||||
|
Deferred
lease inducements (Note
9)
|
55,380 | 75,518 | ||||||
|
Total
Liabilities
|
5,352,687 | 1,905,454 | ||||||
|
STOCKHOLDERS'
EQUITY
|
||||||||
|
Common
Stock (Note
10)
|
||||||||
|
Authorized:
50,000,000 common shares, $0.001 par value
|
||||||||
|
Issued
and outstanding:
|
||||||||
|
23,546,370
common shares (December 31, 2007 - 21,446,623)
|
14,855 | 12,456 | ||||||
|
Additional
paid-in capital
|
14,772,880 | 10,188,975 | ||||||
|
Accumulated
deficit
|
(12,532,134 | ) | (2,525,678 | ) | ||||
|
Total
Stockholders' Equity
|
2,255,601 | 7,675,753 | ||||||
|
Total
Liabilities and Stockholders' Equity
|
$ | 7,608,288 | $ | 9,581,207 | ||||
|
Commitments
and Contingency (Notes
15 and 16)
|
||||||||
|
Subsequent
Events (Note
18)
|
||||||||
|
See
accompanying notes to consolidated financial statements
|
||||||||
|
/s/
James P. Taylor
|
/s/
Mark Benham
|
|||
|
James
P. Taylor, Director
|
Mark
Benham,
Director
|
F-3
LIVE
CURRENT MEDIA INC.
(formerly
COMMUNICATE.COM INC)
CONSOLIDATED
STATEMENTS OF OPERATIONS
Expressed
In U.S. Dollars
|
Years
Ended December 31
|
2008
|
2007
|
||||||
|
SALES
|
||||||||
|
Health
and beauty eCommerce
|
$ | 9,271,237 | $ | 8,092,707 | ||||
|
Other
eCommerce
|
455 | 485,199 | ||||||
|
Domain
name advertising
|
93,141 | 449,613 | ||||||
|
Miscellaneous
income
|
- | 35,810 | ||||||
|
Total
Sales
|
9,364,833 | 9,063,329 | ||||||
|
COSTS
OF SALES
|
||||||||
|
Health
and Beauty eCommerce
|
7,683,432 | 6,512,292 | ||||||
|
Other
eCommerce
|
380 | 509,181 | ||||||
|
Total
Costs of Sales
|
7,683,812 | 7,021,473 | ||||||
|
GROSS
PROFIT
|
1,681,021 | 2,041,856 | ||||||
|
EXPENSES
|
||||||||
|
Amortization
and depreciation
|
253,141 | 29,169 | ||||||
|
Amortization
of website development costs (Note
8)
|
58,640 | - | ||||||
|
Corporate
general and administrative
|
2,537,422 | 686,921 | ||||||
|
ECommerce
general and administrative
|
567,980 | 304,212 | ||||||
|
Management
fees and employee salaries
|
4,746,255 | 1,981,051 | ||||||
|
Corporate
marketing
|
42,399 | - | ||||||
|
ECommerce
marketing
|
766,393 | 817,101 | ||||||
|
Other
expenses (Note
12)
|
708,804 | 637,730 | ||||||
|
Total
Expenses
|
9,681,034 | 4,456,184 | ||||||
|
LOSS
FROM OPERATIONS BEFORE OTHER ITEMS
|
(8,000,013 | ) | (2,414,328 | ) | ||||
|
Global
Cricket Venture expenses
(Note 5)
|
(2,476,255 | ) | - | |||||
|
Gain
from sales and sales-type lease of domain names (Note
11)
|
498,829 | - | ||||||
|
Accretion
expense (Note
6)
|
(96,700 | ) | - | |||||
|
Interest
and investment income
|
67,683 | 119,574 | ||||||
|
Gain
on disposal of subsidiary of Frequenttraveler.com Inc. (Note
4)
|
- | 276,805 | ||||||
|
NET
LOSS AND COMPREHENSIVE LOSS FOR THE PERIOD
|
$ | (10,006,456 | ) | $ | (2,017,949 | ) | ||
|
BASIC
AND DILUTED LOSS PER SHARE
|
$ | (0.46 | ) | $ | (0.11 | ) | ||
|
WEIGHTED
AVERAGE NUMBER OF COMMON
|
||||||||
|
SHARES
OUTSTANDING - BASIC AND DILUTED
|
21,937,179 | 19,070,236 | ||||||
See
accompanying notes to consolidated financial statements
F-4
LIVE
CURRENT MEDIA INC.
(formerly
COMMUNICATE.COM INC)
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
Expressed
In U.S. Dollars
|
Common
stock
|
Additional
Paid-in Capital
|
Accumulated
Deficit
|
Total
|
|||||||||||||||||
|
Years
ended December 31
|
Number
of Shares
|
Amount
|
||||||||||||||||||
|
Balance,
December 31, 2006
|
17,836,339 | $ | 8,846 | $ | 3,605,579 | $ | (507,729 | ) | $ | 3,106,696 | ||||||||||
|
Issuance
of 60,284 common shares at $0.98 per share
|
||||||||||||||||||||
|
in
lieu of accrued bonuses to officers
|
60,284 | 60 | 59,018 | 59,078 | ||||||||||||||||
|
Issuance
of 1,000,000 common shares at $1.00 per share to CEO
|
1,000,000 | 1,000 | 999,000 | 1,000,000 | ||||||||||||||||
|
Private
Placement of 2,550,000 common shares at $2.00 per share
|
2,550,000 | 2,550 | 5,097,450 | 5,100,000 | ||||||||||||||||
|
Share
issue costs
|
(100 | ) | (100 | ) | ||||||||||||||||
|
Stock-based
compensation
|
428,028 | 428,028 | ||||||||||||||||||
|
Net
loss and comprehensive loss
|
(2,017,949 | ) | (2,017,949 | ) | ||||||||||||||||
|
Balance,
December 31, 2007
|
21,446,623 | 12,456 | 10,188,975 | (2,525,678 | ) | 7,675,753 | ||||||||||||||
|
Stock-based
compensation (Note
10d)
|
2,111,354 | 2,111,354 | ||||||||||||||||||
|
Issuance
of 586,403 common shares per the merger
|
||||||||||||||||||||
|
agreement
with Auctomatic (Note
6)
|
586,403 | 586 | 1,137,533 | 1,138,119 | ||||||||||||||||
|
Issuance
of 33,000 common shares to investor relations firm (Note
10b)
|
33,000 | 33 | 85,649 | 85,682 | ||||||||||||||||
|
Issuance
of 120,000 common shares to investor relations firm (Note
10b)
|
120,000 | 120 | 218,057 | 218,177 | ||||||||||||||||
|
Issuance
of 50,000 warrants to investor relations firm (Note
10e)
|
45,500 | 45,500 | ||||||||||||||||||
|
Cancellation
of 300,000 common shares not distributed (Note
10b)
|
(300,000 | ) | - | - | - | |||||||||||||||
|
Private
Placement of 1,627,344 units at $0.65 per share (Note
10b)
|
1,627,344 | 1,627 | 1,056,148 | 1,057,775 | ||||||||||||||||
|
Share
issue costs (Note
10b)
|
(86,803 | ) | (86,803 | ) | ||||||||||||||||
|
Extinguishment
of accounts payable
(Note 10b)
|
33,000 | 33 | 16,467 | 16,500 | ||||||||||||||||
|
Net
loss and comprehensive loss
|
(10,006,456 | ) | (10,006,456 | ) | ||||||||||||||||
|
Balance,
December 31, 2008
|
23,546,370 | $ | 14,855 | $ | 14,772,880 | $ | (12,532,134 | ) | $ | 2,255,601 | ||||||||||
See
accompanying notes to consolidated financial statements
F-5
LIVE
CURRENT MEDIA INC.
(formerly
COMMUNICATE.COM INC)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Expressed
In U.S. Dollars
|
Years
Ended December 31
|
2008
|
2007
|
||||||
|
OPERATING
ACTIVITIES
|
||||||||
|
Net
loss for the period
|
$ | (10,006,456 | ) | $ | (2,017,949 | ) | ||
|
Non-cash
items included in net loss:
|
||||||||
|
Gain
from sales and sales-type lease of domain name
|
(498,829 | ) | - | |||||
|
Accretion
expense
|
96,700 | - | ||||||
|
Stock-based
compensation
|
2,111,354 | 428,028 | ||||||
|
Accrued
and unpaid bonuses payable
|
235,650 | 241,290 | ||||||
|
Warrants
issued
|
45,500 | - | ||||||
|
Issuance
of common stock (Note
10b)
|
303,859 | - | ||||||
|
Extinguishment
of debt by issuance of common stock (Note
10b)
|
16,500 | - | ||||||
|
Amortization
and depreciation
|
291,643 | 24,135 | ||||||
|
Issuance
of common stock for bonuses (Note
10b)
|
- | 59,078 | ||||||
|
Change
in operating assets and liabilities:
|
||||||||
|
Accounts
receivable
|
45,348 | (117,724 | ) | |||||
|
Prepaid
expenses and deposits
|
136,631 | (246,174 | ) | |||||
|
Inventory
|
(74,082 | ) | - | |||||
|
Accounts
payable and accrued liabilities
|
2,615,835 | 523,574 | ||||||
|
Bonuses
payable
|
(241,290 | ) | - | |||||
|
Deferred
revenue
|
67,377 | 53,079 | ||||||
|
Deferred
lease inducements
|
- | 100,690 | ||||||
|
Cash
flows used in operating activities
|
(4,854,260 | ) | (951,973 | ) | ||||
|
INVESTING
ACTIVITIES
|
||||||||
|
Proceeds
from disposal of available for sale securities
|
- | 261,912 | ||||||
|
Net
proceeds from sale of domain name
|
369,041 | - | ||||||
|
Net
proceeds from sales-type lease of domain name
|
140,540 | - | ||||||
|
Cash
consideration for Auctomatic (Note
6)
|
(1,530,047 | ) | - | |||||
|
Purchases
of property & equipment
|
(187,532 | ) | (159,934 | ) | ||||
|
Website
development costs (Note
8)
|
(451,439 | ) | - | |||||
|
Cash
flows used in (from) investing activities
|
(1,659,437 | ) | 101,978 | |||||
|
FINANCING
ACTIVITIES
|
||||||||
|
Proceeds
from restricted cash
|
- | 20,000 | ||||||
|
Proceeds
from sale of common stock (net of share issue costs)
|
970,972 | 6,099,900 | ||||||
|
Cash
flows from financing activities
|
970,972 | 6,119,900 | ||||||
|
Net
increase (decrease) in cash and cash equivalents
|
(5,542,725 | ) | 5,269,905 | |||||
|
Cash
and cash equivalents, beginning of year
|
7,375,245 | 2,105,340 | ||||||
|
Cash
and cash equivalents, end of year
|
$ | 1,832,520 | $ | 7,375,245 | ||||
SUPPLEMENTAL
INFORMATION
|
2008
|
2007
|
|||||||
|
Cash
paid during the year for:
|
||||||||
|
Interest
|
$ | - | $ | - | ||||
|
Income
taxes
|
$ | 6,944 | $ | - | ||||
F-6
|
Live
Current Media Inc.
(formerly
Communicate.com Inc.)
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2008
|
Form
10-K - 2008
|
NOTE
1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION
Nature
of business
Live
Current Media Inc. (the “Company”) was incorporated under the laws of the State
of Nevada on October 10, 1995 under the name “Troyden Corporation” and changed
its name on August 21, 2000 from Troyden Corporation to “Communicate.com
Inc.”. On May 30, 2008, the Company changed its name from
Communicate.com Inc. to Live Current Media Inc. after obtaining formal
shareholder approval to do so at the Annual General Meeting in May
2008.
Our
principal operating subsidiary, Domain Holdings Inc. (“DHI”), was incorporated
under the laws of British Columbia on July 4, 1994 under the name “IMEDIAT
Digital Creations Inc.”. On April 14, 1999, IMEDIAT Digital
Creations, Inc. changed its name to “Communicate.com Inc.” and was redomiciled
from British Columbia to the jurisdiction of Alberta. On April 5,
2002, Communicate.com Inc. changed its name to Domain Holdings
Inc. DHI has 62,635,383 shares of common stock currently issued and
outstanding. 61,478,225 shares, or approximately 98.2% of the
outstanding shares, are held by Live Current.
Through
its majority-owned subsidiary, Domain Holdings, Inc. (“DHI”), the Company builds
consumer Internet experiences around its large portfolio of domain
names. DHI’s current business strategy is to develop or to seek
partners to develop its domain names to include content, commerce and community
applications. DHI is currently actively developing websites on two
domain names; one that provides e-commerce for fragrance and
other health and beauty products, and another that will be a media rich consumer
experience on a sports related website where the revenue model is based on paid
advertising and sales of digital content and merchandise. DHI develops
content and sells advertising services on other domains held for future
development.
On March
13, 2008, the Company incorporated a wholly owned subsidiary in the state of
Delaware, Communicate.com Delaware, Inc. (“Delaware”). 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”). Acadia’s assets and liabilities were assigned to DHI in
October 2008, and that company was dissolved and struck from the registrar of
British Columbia on January 21, 2009.
On August
8, 2008, the Company also formed a wholly-owned subsidiary in Singapore, LCM
Cricket Ventures Pte. Ltd. (“LCM Cricket Ventures”). This company
holds 50.05% of Global Cricket Venture Pte. Ltd. (“Global Cricket Venture” or
“GCV”).
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.
Going
Concern
The
consolidated financial statements have been prepared on a going concern basis
which assumes that the Company will be able to realize assets and discharge
liabilities in the normal course of business for the foreseeable future. The
Company has generated a consolidated net loss of $10,006,456 and realized a
negative cash flow from operating activities of $4,854,260 for the year ended
December 31, 2008. There is an accumulated deficit of $12,532,134
(December 31, 2007 - $2,525,678) and a working capital deficiency of $3,164,157
at December 31, 2008.
The
Company's ability to continue as a going-concern is in substantial doubt as it
is dependent on the continued financial support from its investors, the ability
of the Company to raise equity financing and the attainment of profitable
operations and further share issuances to meet the Company's liabilities as they
become payable, including its commitments for the Global Cricket Venture as
disclosed in Note 5. The outcome of these matters is dependant
on factors outside of the Company’s control and cannot be predicted at this
time.
F-7
|
Live
Current Media Inc.
(formerly
Communicate.com Inc.)
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2008
|
Form
10-K - 2008
|
NOTE
1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION (continued)
Going
Concern (continued)
The
accompanying consolidated financial statements have been prepared on a going
concern basis which assumes that the Company will be able to realize assets and
discharge liabilities in the normal course of business for the foreseeable
future. These financial statements do not include any adjustments
relating to the recoverability or classification of assets or the amounts or
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The
following is a summary of significant accounting policies used in preparation of
these consolidated financial statements:
Principles
of consolidation
The
consolidated financial statements include the accounts of the Company, its
wholly owned subsidiary Delaware, its wholly-owned subsidiary LCM Cricket
Ventures, its 98.2% (December 31, 2007 - 94.9%) interest in its subsidiary DHI,
DHI’s wholly owned subsidiaries Importers, Acadia, and 612793, and LCM Cricket
Ventures’ 50.05% interest in Global Cricket Venture. 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.
Use
of estimates
The
preparation of consolidated financial statements in conformity with U.S.
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of intangible assets, fair
value measurement, related party transactions, stock based compensation,
determination and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and for the periods that the consolidated
financial statements are prepared. Actual results could differ from these
estimates.
Revenue
recognition
Revenues
and associated costs of goods sold from the on-line sales of products, currently
consisting primarily of fragrances and other beauty products, are recorded upon
delivery of products and determination that collection is reasonably
assured. The Company records inventory as an asset for items in
transit as title does not pass until received by the customer. All
associated shipping and handling costs are recorded as cost of goods sold upon
delivery of products.
Web
advertising revenue consists primarily of commissions earned from the referral
of visitors to the Company’s sites from other parties. The amount and
collectibility of these referral commissions is subject to uncertainty;
accordingly, revenues are recognized when the amount can be determined and
collectibility can be reasonably assured. In accordance with Emerging
Issues Task Force (“EITF”) 99-19, Reporting Revenue Gross as a
Principal versus Net as an Agent, the Company records web advertising
revenues on a gross basis.
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 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. 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. Revenues have been
recognized when the sale agreement is signed and the collectibility of the
proceeds is reasonably assured. In 2008, there was a sale of a
geo-domain name for net proceeds of $369,041. Collectibility of the
amounts owing on this sale are reasonably assured and therefore accounted for as
a sale in the period the transaction occurred. There were no sales of
domain names during 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.
F-8
|
Live
Current Media Inc.
(formerly
Communicate.com Inc.)
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2008
|
Form
10-K - 2008
|
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Foreign
currency transactions
The
consolidated financial statements are presented in United States
dollars. The functional currency of the Company is United States
dollars. In accordance with FAS 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). There was no effect to comprehensive
income (loss) related to the share conversion with DHI.
Transactions
denominated in foreign currencies are remeasured at the exchange rate in effect
on the respective transaction dates and gains and losses are reflected in the
consolidated statements of operations.
Comprehensive
loss
Comprehensive
loss includes all changes in equity of the Company during a period except those
resulting from investments by shareholders and distributions to shareholders.
Comprehensive income (loss) includes net income (loss) and other comprehensive
income (loss) (“OCI”). The major components included in OCI are
cumulative translation adjustments arising on the translation of the financial
statements of self-sustaining foreign operations and unrealized gains and losses
on financial assets classified as available-for-sale, of which we have
none.
Loss
per share
Basic
loss per share is computed by dividing losses for the period by the weighted
average number of common shares outstanding for the period. Diluted
loss per share reflects the potential dilution of securities by including other
potential common stock in the weighted average number of common shares
outstanding for a period and is not presented where the effect is
anti-dilutive.
Cash
and cash equivalents
The
Company considers all highly liquid instruments, with original maturity dates of
three months or less at the time of issuance, to be cash
equivalents.
Accounts
receivable and allowance for doubtful accounts
The
Company’s accounts receivable balance consists primarily of goods and services
taxes (GST) receivable, advertising revenues receivable and the balance
receivable relating to our December 31, 2008 sale of a domain name as disclosed
in Note 11. Per the Company’s review of open accounts and collection
history, the accounts receivable balances are reasonably collectible and
therefore no allowance for doubtful accounts has been reflected at year
end.
Inventory
Inventory
is recorded at the lower of cost or market using the first-in first-out (FIFO)
method. The Company maintains little or no inventory of perfume which
is shipped from the supplier directly to the customer. The inventory
on hand as at December 31, 2008 is recorded at cost of $74,082 and represents
inventory in transit from the supplier to the customer.
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 charged
against the capital stock issued during the period in a private
placement. As there were no debt financings, no financing costs were
amortized to interest expense.
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. During the period, deferred acquisition costs were expensed
in full as it is not possible to predict whether the related acquisition
activities will resume.
F-9
|
Live
Current Media Inc.
(formerly
Communicate.com Inc.)
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2008
|
Form
10-K - 2008
|
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Property & Equipment
These
assets are stated at cost. Minor additions and improvements are charged to
operations, and major additions are capitalized. Upon retirement, sale or other
disposition, the cost and accumulated depreciation are eliminated from the
accounts, and a gain or loss is included in operations.
Amortization
for equipment is computed using declining balance method at the following annual
rates:
|
Office
Furniture and Equipment
|
20%
|
|
|
Computer
Equipment
|
30%
|
|
|
Computer
Software
|
100%
|
|
|
Auction
Software
|
3
years straight-line
|
Amortization
for leasehold improvements is based on a straight-line method calculated over
the term of the lease. Auction software is amortized straight line
over the life of the asset. Other additions are amortized on a
half-year basis in the year of acquisition.
Website
development costs
The
Company has adopted the provisions of EITF No. 00-2, Accounting for Web Site Development
Costs, whereby costs incurred in the preliminary project phase are
expensed as incurred; costs incurred in the application development phase are
capitalized; and costs incurred in the post-implementation operating phase are
expensed as incurred. Website development costs are stated at cost
less accumulated amortization and are amortized using the straight-line method
over its estimated useful life. Upgrades and enhancements are
capitalized if they result in added functionality which enables the software to
perform tasks it was previously incapable of performing. See also
Note 8.
Intangible
assets
The
Company has adopted the provisions of FAS No. 142, Goodwill and Intangible
Assets, which revises the accounting for purchased goodwill and
intangible assets. Under FAS No. 142, intangible assets with indefinite lives
are no longer amortized and are tested for impairment annually. The
determination of any impairment would include a comparison of estimated future
operating cash flows anticipated during the remaining life with the net carrying
value of the asset as well as a comparison of the fair value to book value of
the Company.
The
Company’s intangible assets, which consist of its portfolio of generic domain
names, have been determined to have an indefinite life and as a result are not
amortized. Management has determined that there is no impairment of
the carrying value of intangible assets at December 31, 2008.
Goodwill
Goodwill
represents the excess of acquisition cost over the fair value of the net assets
of acquired entities. In accordance with FAS
No. 142, Accounting for
Goodwill and Other Intangible Assets. the
Company is required to assess the carrying value of goodwill annually or
whenever circumstances indicate that a decline in value may have occurred,
utilizing a fair value approach at the reporting unit level. A reporting unit is the
operating segment, or a business unit one level below that operating segment,
for which discrete financial information is prepared and regularly reviewed by
segment management.
The
goodwill impairment test is a two-step impairment test. In the first step, the
Company compares the fair value of each reporting unit to its carrying value.
The Company
determines the fair value of its reporting units using a discounted cash flow
approach. If the
fair value of the reporting unit exceeds the carrying value of the net assets
assigned to that reporting unit, goodwill is not impaired and the Company is not
required to perform further testing. If the carrying value of
the net assets assigned to the reporting unit exceeds the fair value of the
reporting unit, then the Company must perform the second step in order to
determine the implied fair value of the reporting unit’s goodwill and compare it
to the carrying value of the reporting unit’s goodwill. The activities in the
second step include valuing the tangible and intangible assets and liabilities
of the impaired reporting unit based on their fair value and determining the
fair value of the impaired reporting unit’s goodwill based upon the residual of
the summed identified tangible and intangible assets and
liabilities.
The fair
value of the Perfume.com reporting unit exceeded the carrying value of the
assigned net assets, therefore no further testing was required and an impairment
charge was not required.
F-10
|
Live
Current Media Inc.
(formerly
Communicate.com Inc.)
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2008
|
Form
10-K - 2008
|
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Deferred
Revenue
Revenue
that has been received but does not yet qualify for recognition under the
Company's policies is reflected as either deferred revenue or long-term deferred
revenue.
Deferred
Lease Inducements
Lease
inducements, including rent free periods, are deferred and accounted for as a
reduction of rent expense over the term of the related lease on a straight-line
basis.
Advertising Costs
The
Company recognizes advertising expenses in accordance with SOP 93-7, Reporting on Advertising
Costs. As such, the Company expenses the costs of producing
advertisements at the time production occurs or the first time the advertising
takes place and expenses the cost of communicating advertising in the period
during which the advertising space or airtime is used. Internet
advertising expenses are recognized as incurred based on the terms of the
individual agreements, which are generally: 1) a commission for traffic
driven to the Website that generates a sale or 2) a referral fee based on
the number of clicks on keywords or links to our Website generated during a
given period. Total advertising expense in 2008 of $808,792 (2007 -
$817,101) were reported in “Corporate Marketing” and “eCommerce Marketing” on
the Company’s consolidated statements of operations.
Stock-based
compensation
During
the third quarter of 2007, the Company implemented the following new critical
accounting policy related to our stock-based compensation. Beginning on
July 1, 2007, the Company began accounting for stock options under the
provisions of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment
(FAS 123(R)), which requires the recognition of the fair value of
stock-based compensation. Under the fair value recognition provisions for
FAS 123(R), stock-based compensation cost is estimated at the grant date
based on the fair value of the awards expected to vest and recognized as expense
ratably over the requisite service period of the award. The Company has used the
Black-Scholes valuation model to estimate fair value of its stock-based awards
which requires various judgmental assumptions including estimating stock price
volatility and expected life. The Company’s computation of expected volatility
is based on a combination of historical and market-based volatility. In
addition, the Company considers many factors when estimating expected life,
including types of awards and historical experience. If any of the assumptions
used in the Black-Scholes valuation model change significantly, stock-based
compensation expense may differ materially in the future from that recorded in
the current period.
In August
2007, the Company’s Board of Directors approved an Incentive Stock Option Plan
to make available 5,000,000 shares of common stock for the grant of stock
options, including incentive stock options. Incentive stock options
may be granted to employees of the Company, while non-qualified stock options
may be granted to employees, officers, directors, consultants, independent
contractors and advisors of the Company, provided such consultants, independent
contractors and advisors render bona-fide services not in connection with the
offer and sale of securities in a capital-raising transaction or promotion of
the Company’s securities. See also Note 10.
The
Company accounts for equity instruments issued in exchange for the receipt of
goods or services from other than employees in accordance with FAS 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.
F-11
|
Live
Current Media Inc.
(formerly
Communicate.com Inc.)
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2008
|
Form
10-K - 2008
|
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Income taxes
During
the first quarter of 2007, the Company adopted the following new critical
accounting policy related to income tax. Beginning on January 1, 2007, the
Company began accounting for income tax under the provisions of Financial
Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income
Taxes-an interpretation of FASB Statement No. 109 (“FIN
48”). FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements in accordance with FASB
Statement 109, Accounting for
Income Taxes, and prescribes a recognition threshold and measurement
process for financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return. FIN 48 also provides
guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosure and transition. The Company and its
subsidiaries are subject to U.S. federal income tax and Canadian
income tax, as well as income tax of multiple state and local jurisdictions.
Based on the Company’s evaluation, the Company has concluded that there are no
significant uncertain tax positions requiring recognition in the Company’s
financial statements. The Company’s evaluation was performed for the tax years
ended December 31, 2002, 2003, 2004, 2005, 2006, 2007 and 2008, the tax years
which remain subject to examination by major tax jurisdictions as of December
31, 2008. The Company may from time to time be assessed interest or
penalties by major tax jurisdictions, although any such assessments historically
have been minimal and immaterial to the Company’s financial
results. In the event the Company has received an assessment for
interest and/or penalties, it has been classified in the financial statements as
selling, general and administrative expense.
Recent
Accounting Pronouncements
FAS
162
In May,
2008, the FASB issued FAS 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.
FAS
161
In
March 2008, the FASB issued FAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FAS
No. 133. FAS 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 FAS 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. FAS 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 FAS
No. 161 on its financial position and results of operations.
FAS
142-3
In April
2008, the FASB issued FSP FAS 142-3, Determination of the Useful Life of
Intangible Assets (“FSP FAS 142-3”). FSP FAS 142-3 amends the
factors that should be considered in developing renewal or extension assumptions
used to determine the useful life of a recognized intangible asset under SFAS
No. 142, Goodwill and Other
Intangible Assets (“SFAS 142”). The intent of FSP FAS 142-3 is
to improve the consistency between the useful life of a recognized intangible
asset under SFAS 142 and the period of expected cash flows used to measure the
fair value of the asset under SFAS 141(R) and other applicable accounting
literature. FSP FAS 142-3 is effective for financial statements
issued 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 FSP FAS 142-3 on its financial
position and results of operations.
F-12
|
Live
Current Media Inc.
(formerly
Communicate.com Inc.)
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2008
|
Form
10-K - 2008
|
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Recent
Accounting Pronouncements (continued)
FAS
141R
In
December 2007, the FASB issued FAS No. 141 (revised 2007), Business Combinations
("141R"). FAS 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 FAS
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. FAS 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 FAS No. 141R on its financial position and results of
operations.
FAS
160
In
December 2007, the FASB issued FAS No. 160 Noncontrolling Interests in
Consolidated Financial Statements, and simultaneously revised FAS 141
Business
Combinations. This Statement applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008, which,
for the Company, 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 FAS No. 160 and the revision of FAS 141 on its
financial position and results of operations.
FAS
159
In
February 2007, the FASB issued FAS 159, “Fair Value Option for Financial Assets
and Financial Liabilities,” which allows an irrevocable option, the Fair Value
Option, to carry eligible financial assets and liabilities at fair value. The
election is made on an instrument-by-instrument basis. Changes in fair value for
these instruments are recorded in earnings. The objective of FAS 159 is to
improve financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions.
We
adopted FAS 159 in 2008. The adoption did not have a material effect
on our financial results.
FAS
157
In
September 2006, the FASB issued FAS No. 157, Fair Value
Measurements. This Statement defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles
(GAAP), and expands disclosures about fair value measurements. This
standard does not require any new fair value measurements.
In
February 2008, the FASB issued FASB Staff Position (“FSP”) FAS 157-2, which
delays the effective date of FAS No. 157 to fiscal years beginning after
November 15, 2008 for nonfinancial assets and nonfinancial liabilities, except
for those items that are recognized or disclosed at fair value in the financial
statements on a recurring basis, which for the Company would be the fiscal year
beginning January 1, 2009.
In 2008,
we adopted FAS 157 for financial assets and liabilities recognized at fair value
on a recurring basis. The adoption did not have a material effect on our
financial results. The disclosures required by FAS 157 for financial assets and
liabilities measured at fair value on a recurring basis as at December 31, 2008
are included in Note 3.
We will
apply the requirements of FAS 157 for fair value measurements of financial and
nonfinancial assets and liabilities not valued on a recurring basis in 2009. We
are currently evaluating the effect of this application on our financial
reporting and disclosures.
In
October 2008, the FASB issued FSP No. FAS 157-3, Determining the Fair Value of a
Financial Asset When the Market for that Asset is Not Active, which
clarifies the application of FAS 157 in determining the fair value of a
financial asset when the market for that asset is not active. FSP FAS
157-3 is effective as of the issuance date and has not affected the valuation of
our financial assets.
F-13
|
Live
Current Media Inc.
(formerly
Communicate.com Inc.)
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2008
|
Form
10-K - 2008
|
NOTE
3 – FINANCIAL INSTRUMENTS
Interest
rate risk exposure
The
Company currently has limited exposure to any fluctuation in interest
rates.
Foreign
exchange risk
The
Company is subject to foreign exchange risk for sales and purchases denominated
in foreign currencies. Foreign currency risk arises from the fluctuation of
foreign exchange rates and the degree of volatility of these rates relative to
the United States dollar. The Company does not actively manage this
risk.
Concentration
of credit risk
Financial
instruments, which potentially subject the Company to concentrations of credit
risk, consist primarily of cash and cash equivalents, 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
As
described in Note 2, the Company adopted the provisions of FAS 157 as of January
1, 2008. FAS 157 defines fair value, establishes a consistent
framework for measuring fair value, and expands disclosures for each major asset
and liability category measured at fair value on either a recurring or
nonrecurring basis. FAS 157 clarifies that fair value is an exit price,
representing the amount that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants. As
such, fair value is a market-based measurement that should be determined based
on assumptions that market participants would use in pricing an asset or
liability. As a basis for considering such assumptions, FAS 157 establishes a
three-tier fair value hierarchy which prioritizes the inputs used in measuring
fair value as follows:
Level 1 -
observable inputs such as quoted prices in active markets for identical assets
and liabilities;
Level 2 -
observable inputs such as quoted prices for similar assets or liabilities in
active markets, quoted prices for identical or similar assets or liabilities in
markets that are not active, other inputs that are observable, or can be
corroborated by observable market data; and
Level 3 -
unobservable inputs for which there are little or no market data, which require
the reporting entity to develop its own assumptions.
The
Company’s financial instruments consist of cash and cash equivalents, accounts
receivable, investment in sales-type lease, accounts payable, bonuses payable
and due to shareholders of Auctomatic. The Company did not elect to
value its financial assets or liabilities in accordance with FAS 159. The
Company believes that the recorded values of all of its financial instruments
approximate their fair values because of their nature and respective
durations.
F-14
|
Live
Current Media Inc.
(formerly
Communicate.com Inc.)
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2008
|
Form
10-K - 2008
|
NOTE
4 – NON-CONTROLLING INTEREST
The
Company currently holds 98.2% (December 31, 2007 – 94.9%) of the issued and
outstanding shares of its principal operating subsidiary, DHI. During
Q1 2008, DHI issued 40,086,645 shares to Live Current Media Inc. at fair value
in exchange for a conversion of intercompany debt of $3,000,000, therefore
diluting the non-controlling interest by 3.3%. This conversion was accounted for
using the purchase method. There was no effect to the consolidated
financial statements in the year ended December 31, 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 into 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 minimal
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.
|
Assets
|
||||
|
Cash
|
$ | 46,974 | ||
|
Accounts
Receivable
|
7,570 | |||
|
Liabilities
|
||||
|
Account
payable and accrued liabilities
|
(176,312 | ) | ||
|
Deferred
Revenue
|
(111,857 | ) | ||
|
Loan
|
(43,180 | ) | ||
|
Net
Liabilities
|
$ | 276,805 | ||
F-15
|
Live
Current Media Inc.
(formerly
Communicate.com Inc.)
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2008
|
Form
10-K - 2008
|
NOTE
5 – GLOBAL CRICKET VENTURE
Memoranda
of Understanding
On April
17, 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
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
Company signed a separate MOU (“Venture MOU”) with Netlinkblue
("NLB") 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. To date, Global Cricket
Venture has nominal assets and operations.
Pursuant
to both MOUs, the parties agreed to negotiate and enter into definitive
agreements, however the parties are currently operating, performing, and funding
obligations under the MOUs.
On August
8, 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, LCM Cricket Ventures was
issued 50.05% of the shares of GCV. To date, LCM Cricket Venture has
nominal assets and limited operations.
The
Company has incurred $1.47m 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. These costs relate to, but are not
limited to, expenditures for business development, travel, consulting, and
salaries. There were no such costs in any period of
2007. An additional $1 million owing in aggregate to the BCCI and IPL
for the October 1, 2008 minimum payments under the initial MOUs have also been
accrued and expensed in 2008, therefore, the total costs expensed for the year
related to this venture are $2.47 million. Currently, GCV has not yet
obtained outside funding. Therefore, all of these costs were expensed
during the year ended December 31, 2008 due to uncertainty regarding
reimbursement of these costs by the GCV.
The
payments due to the BCCI and the IPL for the October 1, 2008 commitment have not
been made to date.
F-16
|
Live
Current Media Inc.
(formerly
Communicate.com Inc.)
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2008
|
Form
10-K - 2008
|
NOTE
6 – MERGER AGREEMENT
On March
25, 2008, the Company and its wholly owned subsidiary, Communicate.com Delaware,
Inc. (“Delaware”) entered into an Agreement and Plan of Merger (the “Merger
Agreement”) with Entity, Inc., a Delaware corporation, (“Auctomatic”). The
Company believed 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 $152,939 in certain assumed liabilities and (ii)
1,000,007 shares of common stock of the Company (equal to $3,000,000 divided by
$3.00 per share, the closing price of one share of the Company’s common stock on
the business day immediately preceding the Closing Date) in exchange for all the
issued and outstanding shares of Auctomatic.
The
consideration was payable on the Closing Date as follows: (i) 340,001 shares, or
34%, of the common stock and (ii) $1,200,000 less $152,939 in assumed
liabilities. An additional 246,402 shares of common stock were issued
and shall be distributed in equal amounts to the Auctomatic shareholders on each
of the first, second and third anniversary of the Closing Date. The remaining
$800,000 of the total Cash Consideration shall be distributed on the first
anniversary of the Closing Date. All amounts of cash and common stock
shall be distributed pro rata among the Auctomatic Stockholders.
The
distribution of the remaining 413,604 shares of the common stock payable on the
first, second and third anniversary of the Closing Date to the Auctomatic
founders is subject to their continuing employment with the Company or a
subsidiary on each Distribution Date. Subsequent to year end, one of
the founders resigned from Live Current, and therefore the distribution of
137,868 shares of the common stock on the first, second and third anniversary
will no longer be payable. The remaining 275,736 shares of the common
stock owing to the other founders remain payable on the anniversary dates as
noted above. See also Note 10.
At May
22, 2008, the present value of the amounts payable in cash to shareholders of
Auctomatic on the first anniversary of the closing date was
$640,000. At year end, the present value discount was accreted by
$96,700, leaving a present value remaining at December 31, 2008 of
$736,700.
Also at
year end, $53,099 of cash owing at closing has yet to be paid to one of the
Auctomatic shareholders. As a result, at year end, amounts payable to
shareholders of Auctomatic totaled $789,799.
The
purchase price to affect the merger was allocated as following on the closing
date:
|
Purchase
Price Paid
|
||||
|
Cash
(net of assumed liabilities)
|
$ | 1,046,695 | ||
|
Transaction
Costs
|
387,358 | |||
|
Cash
consideration for Auctomatic
|
1,434,053 | |||
|
Present
value of shares of common stock paid and payable to shareholders of
Auctomatic
|
1,138,119 | |||
|
Present
value of amounts payable to shareholders of Auctomatic
|
640,000 | |||
|
Total
|
$ | 3,212,172 | ||
F-17
|
Live
Current Media Inc.
(formerly
Communicate.com Inc.)
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2008
|
Form
10-K - 2008
|
NOTE
6 – MERGER AGREEMENT (continued)
|
Net
Assets Acquired
|
||||
|
Assets
|
||||
|
Cash
|
$ | 3,066 | ||
|
Share
subscriptions receivable
|
780 | |||
|
Computer
hardware
|
7,663 | |||
|
Auction
software
|
925,000 | |||
|
Goodwill
|
2,428,602 | |||
|
Less
Liabilities
|
||||
|
Accounts
payable and accrued liabilities
|
(85,622 | ) | ||
|
Loan
payable
|
(67,317 | ) | ||
|
Net
Assets Acquired
|
$ | 3,212,172 | ||
To show
effect to the merger of Auctomatic and Delaware as if the merger had occurred on
January 1, 2008, the pro forma information for the nine months ended December
31, 2008 would have resulted in revenues that remain unchanged from those
reported in the consolidated financial statements, no cumulative effect of
accounting changes, and income before extraordinary items and net income which
both would have decreased by $106,035. 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 year ended December 31, 2007 would
have no effect to reported revenues, cumulative effect of accounting changes,
income before extraordinary items or net income.
NOTE
7 – PROPERTY & EQUIPMENT
|
2008
|
Cost
|
Accumulated
Amortization
|
Net
Book Value
|
|||||||||
|
Office
Furniture and Equipment
|
$ | 165,868 | $ | 30,778 | $ | 135,090 | ||||||
|
Computer
Equipment
|
100,789 | 51,554 | 49,235 | |||||||||
|
Computer
Software
|
27,276 | 13,638 | 13,638 | |||||||||
|
Auction
Software
|
925,000 | 179,861 | 745,139 | |||||||||
|
Leasehold
Improvements
|
142,498 | 42,749 | 99,749 | |||||||||
| $ | 1,361,431 | $ | 318,580 | $ | 1,042,851 | |||||||
|
2007
|
Cost
|
Accumulated
Amortization
|
Net
Book Value
|
|||||||||
|
Office
Furniture and Equipment
|
$ | 28.644 | $ | 14,159 | $ | 14,485 | ||||||
|
Computer
Equipment
|
70,095 | 37,031 | 33,064 | |||||||||
|
Leasehold
Improvements
|
142,498 | 14,250 | 128,248 | |||||||||
| $ | 241,237 | $ | 65,440 | $ | 175,797 | |||||||
NOTE
8 – WEBSITE DEVELOPMENT COSTS
Website
development costs are related to infrastructure development of various websites
that the Company operates. In previous years, costs qualifying for
capitalization were immaterial and therefore were expensed as
incurred. Website maintenance, training, data conversion and business
process reengineering costs are expensed in the period in which they are
incurred. Costs incurred in the application development phase are
capitalized, and when the related websites reach the post-implementation
operating phase, the Company begins amortizing these costs on a straight-line
basis over 36 months beginning in the month following the implementation of the
related websites.
|
2008
|
2007
|
|||||||
|
Website
Development Costs
|
$ | 451,439 | $ | - | ||||
|
Less:
Amortization
|
( 58,640 | ) | - | |||||
| $ | 392,799 | $ | - | |||||
F-18
|
Live
Current Media Inc.
(formerly
Communicate.com Inc.)
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2008
|
Form
10-K - 2008
|
NOTE
9 – DEFERRED LEASE INDUCEMENTS
|
2008
|
2007
|
|||||||
|
Deferred
Lease Inducements
|
$ | 75,518 | $ | 95,656 | ||||
|
Less:
Current Portion
|
(20,138 | ) | (20,138 | ) | ||||
| $ | 55,380 | $ | 75,518 | |||||
NOTE
10 – COMMON STOCK
a) Authorized
The
authorized capital of the Company consists of 50,000,000 common shares with a
par value of $0.001 per share. No other shares have been
authorized.
b) Issued
At
December 31, 2008, there were 23,546,370 (2007 – 21,446,683) shares issued and
outstanding.
2008
In June
2008, the Company issued 586,403 shares of common stock in relation to the May
22, 2008 merger with Auctomatic. Of those total issued shares,
340,001 shares were distributed to the shareholders and an additional 246,402
shares are being held for future distribution in three equal installments on the
next three anniversary dates of the merger pursuant to the terms of the merger
agreement. The value of the stock consideration was added to the cash
consideration in our determination of the purchase price. See also
Note 6. The remaining 413,604 shares of common stock are reserved for
future issuance to the Auctomatic founders. See also Note
10c.
In May
and June 2008, the Company issued 45,000 shares to an investor relations firm
that had been engaged to provide investor relations services to the
Company. Of the 45,000 shares, 30,000 shares with a value of $85,350
were issued as partial consideration for services rendered, while the remaining
15,000 shares with an estimated value of $42,300 were recorded as a prepaid
expense in June 2008 for services to be rendered in July 2008. In
July 2008, this amount was revalued to $36,573 based on the July average stock
price and expensed with the difference between the estimated and actual values
adjusted to Additional Paid-In Capital.
The
Company also issued 50,000 warrants to the investor relations firm in May 2008,
and expensed $45,500 in relation to the value of the warrants. See
also Note 10(e).
In August
2008, the Company issued 33,000 shares to an investor relations firm that had
previously been engaged to provide investor relations services to the
Company. The contract with this former investor relations firm
terminated August 1, 2008. The 33,000 shares owing to the firm had a
value of $85,682 and were issued as full consideration for services
rendered.
In August
and September 2008, the Company issued 30,000 shares to an investor relations
firm that had been engaged to provide investor relations services to the
Company. These shares, which were valued at $57,254, were issued as
partial consideration for services rendered during the year.
In
October 2008, the Company cancelled 300,000 shares of common stock that had been
pre-maturely issued in a prior year in anticipation of a transaction that was
never consummated.
F-19
|
Live
Current Media Inc.
(formerly
Communicate.com Inc.)
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2008
|
Form
10-K - 2008
|
NOTE
10 – COMMON STOCK (continued)
b) Issued
(continued)
2008
(continued)
During
November 2008, the Company accepted subscriptions from 11 accredited investors
pursuant to which the Company issued and sold 1,627,344 units consisting of one
share of the Company’s common stock and two warrants, each for the purchase of
one-half a share of common stock. The price per unit was
$0.65. The Company raised gross proceeds of $1,057,775 (the
“Offering”). The private placement closed on November 19, 2008. One
warrant is exercisable at $0.78 (a 20% premium) and expires November 19,
2010. The other warrant is exercisable at $0.91 (a 40% premium) and
expires November 19, 2011. The Company incurred $86,803 in share
issuance costs related to the private placement. The Company is
required to use its reasonable best efforts to file an S-1 Registration
Statement with the SEC to register for resale the common stock and the common
stock underlying the warrants. The securities were offered and sold
by the Company to accredited investors in reliance on Section 506 of Regulation
D of the Securities Act of 1933, as amended.
In
December 2008, the Company extinguished $16,500 of accounts payable by issuing
33,000 shares to the investor relations firm that had previously been engaged to
provide investor relations services to the Company.
In
October, November and December 2008, the Company issued 45,000 shares to an
investor relations firm that had been engaged to provide investor relations
services to the Company. These shares, which were valued at $39,000,
were issued as partial consideration for services rendered.
2007
On May
24, 2007 the Company issued 60,284 shares of common stock to management in lieu
of $59,078 of bonuses payable.
On June
11, 2007, the Company issued 1,000,000 shares of common stock and 1,000,000
common stock share purchase warrants to a company owned and controlled by the
Company’s Chief Executive Officer (“CEO”) in exchange for $1,000,000
cash. See also Note 10(e). The warrants expire June 10,
2009.
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 144 of the
Securities Act of 1933, as amended. 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
At the
year end, the Company reserved 413,604 shares of common stock for future
issuance and distribution in relation to the May 22, 2008 merger with
Auctomatic. These shares were to be issued to the Auctomatic founders
in three equal instalments on the next three anniversary dates of the merger
contingent on their continued employment with the Company pursuant to the terms
of the merger agreement. Subsequent to year end, one of the
Auctomatic founders resigned from the Company. As a result, 137,868
shares reserved for distribution to this individual have been released
subsequent to year end and are no longer payable. Pursuant to the
release, the balance of reserved shares of common stock for future issuance and
distribution is 275,736. See also Note 6.
F-20
|
Live
Current Media Inc.
(formerly
Communicate.com Inc.)
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2008
|
Form
10-K - 2008
|
NOTE
10 – SHARE CAPITAL (continued)
d) Stock
Options
The Board
of Directors and stockholders approved the 2007 Stock Incentive Plan and adopted
it August 21, 2007 (the “Plan”). The Company has reserved
5,000,000 shares of its common stock for issuance to directors, employees
and consultants under the Plan. The Plan is administered by the Board of
Directors. Vesting terms of the options range from immediately to
five years and no options will be exercisable for a period of more than ten
years.
All stock
options noted herein vest over three years and are exercisable for a period of
five years based on the date of grant. The Company values the options
granted to employees and directors using the Black Scholes option pricing model
at the date of grant. The Company values the options to consultants
at each reporting period under FAS 123(R) for non-employees using the Black
Scholes option pricing model. The assumptions used in the pricing
model include:
|
2008
|
2007
|
|
|
Dividend
yield
|
0%
|
0%
|
|
Expected
volatility
|
64.86%-75.68%
|
118.02%
|
|
Risk
free interest rate
|
1.62%
- 3.07%
|
3.97%
- 4.05%
|
|
Expected
lives
|
3
years
|
3
years
|
|
(i)
|
On
September 11, 2007, the Company granted a total of 1,200,000 stock options
at an exercise price of $2.50 per share. 1,000,000 options were
granted to the Company’s CEO and 100,000 options were granted to each of
two directors. These options have a fair value of $1.74-$1.78
per option granted.
|
|
(ii)
|
On
September 11, 2007, the Company granted 50,000 stock options at an
exercise price of $2.50 per share to a consultant. These
options have a fair value of $0.37 per option granted at December 31,
2008.
|
|
(iii)
|
On
October 1, 2007, the Company granted to its Chief Operating Officer
(“COO”) 1,500,000 options at an exercise price of $2.04 per
share. These options have a fair value of $1.45 per option
granted. All of these options were forfeited subsequent to year
end.
|
|
(iv)
|
On
January 1, 2008, the Company granted to its Chief Corporate Development
Officer (“CCDO”) 1,000,000 options at an exercise price of $2.06 per
share. These options have a fair value of $1.05 per option
granted.
|
|
(v)
|
On
January 7, 2008, the Company granted to its Vice President, Finance (“VP
Finance”) 150,000 options at an exercise price of $1.98 per
share. These options have a fair value of $1.01 per option
granted.
|
|
(vi)
|
On
March 14, 2008, the Company granted to a director 100,000 options at an
exercise price of $2.49 per share. These options have a fair
value of $1.21 per option granted.
|
|
(vii)
|
On
May 27, 2008, the Company granted to its Vice President, General Counsel
(“VP GC”) 125,000 options at an exercise price of $3.10 per
share. These options have a fair value of $1.45 per option
granted.
|
|
(viii)
|
Between
January 1, 2008 and December 31, 2008, the Company granted to its
full-time corporate directors a total of 425,000 options at a range of
exercise prices between $2.06 and $3.30 per share. These
options have a fair value of between $1.05 and $1.66 per option
granted. 25,000 of these options were forfeited during 2008,
and an additional 100,000 options were forfeited subsequent to year
end.
|
F-21
|
Live
Current Media Inc.
(formerly
Communicate.com Inc.)
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2008
|
Form
10-K - 2008
|
NOTE
10 – SHARE CAPITAL (continued)
d) Stock
Options (continued)
|
(ix)
|
Between
January 1, 2008 and December 31, 2008, the Company granted to its
full-time employees a total of 290,000 options at a range of exercise
prices between $0.65 and $3.10 per share. These options have a
fair value of between $0.30 and $1.45 per option
granted. 17,500 of these options have been forfeited during
2008, and an additional 92,500 options were forfeited subsequent to year
end.
|
|
(x)
|
Between
January 1, 2008 and December 31, 2008, the Company granted to consultants
a total of 70,000 options at exercise prices ranging from $2.06 to $2.49
per share. All of these options were forfeited during
2008.
|
The
Company recognizes stock-based compensation expense over the requisite service
period of the individual grants, which generally equals the vesting period.
FAS 123(R) requires forfeitures to be estimated at the time of grant and
revised, if necessary, in subsequent periods if actual forfeitures differ from
those estimates. Due to recent economic developments, the Company has
experienced a high level of forfeitures during the fourth quarter of 2008 and
subsequent to year end. The Company assesses forfeiture rates for
each class of grantees; executive management and directors, corporate directors,
and general staff members. Executive management and directors are
relatively few in number and turnover is considered remote, therefore the
Company estimates forfeitures for this class of grantees to be
10%. Corporate directors are high level senior staff members with a
forfeiture rate of 25% and general staff members have a slightly higher
forfeiture rate due to higher average turnover rates at 35%. Estimate
of forfeitures is reviewed on an annual basis. Stock-based compensation is
expensed on a straight-line basis over the requisite service
period.
The fair
value of these options at December 31, 2008 of $6,142,660 (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 year ended December 31, 2008
of $2,111,354 (2007 - $428,028) and included in management fees and employee
salaries expense.
A summary
of the option activity under the 2007 Plan during 2007 and 2008 is presented
below:
|
Options
|
Shares
|
Weighted
Average
Exercise
Price
$
|
Intrinsic
Value
$
|
|||||||||
|
Options
outstanding, January 1, 2007
|
- | - | - | |||||||||
|
Granted
|
2,750,000 | 2.25 | 0.37 - 1.78 | |||||||||
|
Exercised
|
- | - | - | |||||||||
|
Cancelled
or expired
|
- | - | - | |||||||||
|
Options
outstanding, December 31, 2007
|
2,750,000 | 2.25 | 0.37 - 1.78 | |||||||||
|
Granted
|
2,160,000 | 2.34 | 0.30 - 1.66 | |||||||||
|
Exercised
|
- | - | - | |||||||||
|
Cancelled
or expired
|
112,500 | 2.29 | 1.05 | |||||||||
|
Options
outstanding, December 31, 2008
|
4,797,500 | 2.29 | 0.30 - 1.78 | |||||||||
|
Options
vested or expected to vest at December 31, 2008
|
2,750,000 | $ | 2.25 | 0.37 - 1.78 | ||||||||
|
Weighted
average remaining life
|
3.90
Years
|
|||||||||||
F-22
|
Live
Current Media Inc.
(formerly
Communicate.com Inc.)
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2008
|
Form
10-K - 2008
|
NOTE
10 – SHARE CAPITAL (continued)
e) Common
Stock Purchase Warrants
2008
On May 1,
2008, the Company issued 50,000 common stock share purchase warrants with an
exercise price of $2.33 to its investor relations firm in connection with a
services agreement. The warrants expire May 1, 2010. The
Company valued these options using the Black Scholes option pricing model using
the following assumptions: no dividend yield; expected volatility rate of
69.27%; risk free interest rate of 2.37% and an expected life of 2 years
resulting in a fair value of $0.91 per option granted, and a total fair value of
$45,500.
In
connection with the private placement in November 2008, the Company issued
1,627,344 warrants for the purchase of one-half share of the Company’s common
stock with an exercise price of $0.78 expiring November 19, 2010 and 1,627,344
warrants for the purchase of one-half share of the Company’s common stock with
an exercise price of $0.91 expiring November 19, 2011.
2007
On June
11, 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.
As of
December 31, 2008, 4,304,688 warrants to purchase the Company’s common stock
remain outstanding as follows:
|
Weighted
|
||||||||||
|
Outstanding
|
Average
Exercise
|
Date
of
|
||||||||
|
Warrants
|
Price
|
Expiry
|
||||||||
|
Warrants
outstanding, January 1, 2007
|
- | $ | - | |||||||
|
Granted
June 11, 2007
|
1,000,000 | 1.25 |
June
10, 2009
|
|||||||
|
Cancelled
or expired
|
- | - | ||||||||
|
Warrants
outstanding, December 31, 2007
|
1,000,000 | 1.25 | ||||||||
|
Granted
May 1, 2008
|
50,000 | 2.33 |
May
1, 2010
|
|||||||
|
Granted
November 19, 2008
|
1,627,344 | 0.78 |
November
19, 2010
|
|||||||
|
Granted
November 19, 2008
|
1,627,344 | 0.91 |
November
19, 2011
|
|||||||
|
Cancelled
or expired
|
- | - | ||||||||
|
Warrants
exercisable December 31, 2008
|
4,304,688 | $ | 0.96 | |||||||
|
Weighted
average remaining life
|
1.92
Years
|
|||||||||
NOTE 11 – DOMAIN NAME LEASES AND SALES
On
January 17, 2008, the Company entered into an agreement to lease one domain name
to an unrelated third party for CDN$200,000. The terms of the
agreement provide for the receipt of this amount in five irregular lease
payments over a two-year term. The first payment of CDN$25,000 was
due on January 17, 2008 (the “Effective Date”), CDN$45,000 was due 3 months
after the Effective Date, CDN$80,000 was due 6 months after the Effective Date,
CDN$25,000 is due 1 year after the Effective Date, and CDN$25,000 is due 2 years
after the Effective Date. The Company will lease the domain name to
the third party exclusively during the term of the agreement. Title
and rights to the domain name will be transferred to the purchaser only when
full payment is received at the end of the lease term. If the third
party defaults on any payments, the agreement terminates, funds received to date
are forfeited by the lessee, and rights to the domain name return to the
Company. This transaction was recorded as a sales-type lease in
2008. The investment in a sales-type lease of $163,963 was recorded
on the balance sheet on a net basis after the lease payments received to
date. The gain of $168,206 was recorded at the present value of the
lease payments over the term, net of the cost of the domain name, at an implicit
rate of 6%. Payments have been collected to date according to the
terms of the agreement.
F-23
|
Live
Current Media Inc.
(formerly
Communicate.com Inc.)
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2008
|
Form
10-K - 2008
|
NOTE 11 – DOMAIN NAME LEASES AND SALES (continued)
On
December 31, 2008, the Company entered into an agreement to sell one domain name
to an unrelated third party for CDN$500,000. The terms of the
agreement provided for the receipt of CDN$476,190 on December 31, 2008 and the
balance of CDN$23,810 by March 31, 2009. The title of the domain name
transferred to the buyer at December 31, 2008 and collection of the balance is
reasonably assured, therefore the disposal and resulting gain of $330,623 was
recorded on December 31, 2008.
There
were no sales of domain names in the 2007 fiscal year.
NOTE
12 – OTHER EXPENSES
In 2008,
the Company incurred various restructuring costs of
$708,804. These included approximately $168,400 in severance payments
to the former Chief Financial Officer (“CFO”), $25,700 in consulting fees to the
former CFO to aid with transition of the new management team, $317,100 in
signing bonuses to the new Chief Corporate Development Officer and the new Vice
President Finance, additional severance of $53,600 paid to full time employees,
$39,800 in costs related to changing the Company name and rebranding, $31,700 in
valuation costs relating to the first quarter share issuance of DHI shares to
the Company, $45,000 in financing costs relating to transactions with investment
bankers that are no longer being pursued, and $27,300 in some final windup costs
related to the FT disposition in late 2007.
In 2007,
the Company incurred costs relating to restructuring, recruiting and relocating
expenses associated with attracting the new management team totaling
$637,730. Such costs included a $205,183 severance payment to the
former Chief Executive Officer, $30,558 in consulting fees to the former Chief
Executive Officer, a $205,183 signing bonus to the new President and Chief
Operating Officer, $196,806 of general legal costs associated with the
preparation of employment agreements, severance agreements and stock option
agreements.
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.
As at
December 31, 2008, the Company and its US subsidiaries have net operating loss
carryforwards of approximately $4,138,000 and capital loss carryforwards of
$120,000 that result in deferred tax assets. The Company’s Canadian
subsidiaries have non capital loss carryforwards of approximately $6,353,000
that result in deferred tax assets. These loss carryforwards will
expire, if not utilized, through 2028. The Company’s subsidiary DHI
also has approximately $896,300 in undepreciated capital costs relating to
property and equipment that have not been amortized for tax
purposes. The costs may be amortized in future years as
necessary to reduce taxable income. Management believes that the
realization of the benefits from these deferred tax assets is uncertain and
accordingly, a full deferred tax asset valuation allowance has been provided and
no deferred tax asset benefit has been recorded.
F-24
|
Live
Current Media Inc.
(formerly
Communicate.com Inc.)
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2008
|
Form
10-K - 2008
|
NOTE
13 – INCOME TAXES (continued)
The
Company’s actual income tax provisions differ from the expected amounts
determined by applying the appropriate combined effective tax rate to the
Company’s net income before taxes. The significant components of these
differences are as follows:
|
2008
|
2007
|
|||||||
|
Income
(Loss) before income taxes
|
$ | (10,006,456 | ) | $ | (2,017,948 | ) | ||
|
Combined
corporate tax rate
|
35.0% | 34.1% | ||||||
|
Expected
corporate tax recovery (expense)
|
3,502,260 | 688,524 | ||||||
|
Effective
foreign tax rate adjustment
|
(158,446 | ) | - | |||||
|
Increase
(decrease) resulting from:
|
||||||||
|
Non-taxable
gain on disposal
|
- | 146,937 | ||||||
|
Effect
of tax rate changes
|
(239,819 | ) | (339,265 | ) | ||||
|
Reduction
in future tax benefits related to Auctomatic
|
(219,980 | ) | - | |||||
|
Reduction
in future tax benefits related to intangible assets
|
(1,038,825 | ) | - | |||||
|
Non-taxable
portion of domain name sales
|
154,637 | - | ||||||
|
Stock
based compensation
|
(684,073 | ) | (146,043 | ) | ||||
|
Non-deductible
items and other
|
(120,007 | ) | 7,736 | |||||
|
Exchange
adjustment to foreign denominated future tax assets
|
(153,388 | ) | 348,690 | |||||
|
Change
in valuation allowance due to disposal of subsidiary
|
- | (271,460 | ) | |||||
|
Change
in valuation allowance
|
(1,042,359 | ) | (435,119 | ) | ||||
|
Provision
for income taxes
|
$ | - | $ | - | ||||
The tax
effects of temporary differences that give rise to significant components of
future income tax assets and liabilities are as follows:
|
2008
|
2007
|
|||||||
|
Deferred
income tax assets:
|
||||||||
|
Operating
losses available for future periods
|
$ | 3,099,956 | $ | 752,303 | ||||
|
Property
and equipment in excess of net book value
|
- | 477,792 | ||||||
|
Intangible
assets in excess of net book value
|
- | 882,952 | ||||||
|
Other
differences
|
14,408 | - | ||||||
| 3,114,364 | 2,113,047 | |||||||
|
Deferred
income tax liabilities
|
||||||||
|
Property
and equipment in excess of net book value
|
(28,325 | ) | - | |||||
|
Intangible
assets in excess of net book value
|
(210,552 | ) | - | |||||
|
Other
differences
|
- | (279,920 | ) | |||||
| 2,875,487 | 1,833,127 | |||||||
|
Valuation
allowance
|
(2,875,487 | ) | (1,833,127 | ) | ||||
|
Net
deferred income tax assets
|
$ | - | $ | - | ||||
F-25
|
Live
Current Media Inc.
(formerly
Communicate.com Inc.)
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2008
|
Form
10-K - 2008
|
NOTE
14 – SEGMENTED INFORMATION
The
Company’s eCommerce operations have historically been conducted in three
business segments, Domain 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.
During
2008, the Company began offering international shipping on its Perfume.com
website. The operations from Perfume.com are included as the
eCommerce Products business segment. The sales generated from regions
other than North America have been immaterial during the year, and therefore no
geographic segment reporting is required for 2008.
Revenues,
operating profits and net identifiable assets by business segments are as
follows:
|
For the year ended December 31,
2008
|
||||||||||||||||
|
eCommerce
|
eCommerce
|
Total
|
||||||||||||||
|
Advertising
|
Products
|
Services
|
||||||||||||||
| $ | $ | $ | $ | |||||||||||||
|
Revenue
|
93,141 | 9,271,692 | - | 9,364,833 | ||||||||||||
|
Segment
Loss From Operations
|
(2,828,239 | ) | (5,171,774 | ) | - | (8,000,013 | ) | |||||||||
|
As
at December 31, 2008
|
$ | $ | $ | $ | ||||||||||||
|
Total
Assets
|
1,665,723 | 5,942,565 | - | 7,608,288 | ||||||||||||
|
Intangible
Assets
|
1,398,417 | 189,046 | - | 1,587,463 | ||||||||||||
|
For the year ended December 31,
2007
|
||||||||||||||||
|
eCommerce
|
eCommerce
|
Total
|
||||||||||||||
|
Advertising
|
Products
|
Services
|
||||||||||||||
| $ | $ | $ | $ | |||||||||||||
|
Revenue
|
449,613 | 8,133,125 | 480,591 | 9,063,329 | ||||||||||||
|
Segment
Loss From Operations
|
(658,409 | ) | (1,586,411 | ) | (169,508 | ) | (2,414,328 | ) | ||||||||
|
As
at December 31, 2007
|
$ | $ | $ | $ | ||||||||||||
|
Total
Assets
|
1,384,718 | 8,196,489 | - | 9,581,207 | ||||||||||||
|
Intangible
Assets
|
1,384,718 | 260,343 | - | 1,645,061 | ||||||||||||
The
reconciliation of the segment profit to net income as reported in the
consolidated financial statements is as follows:
|
2008
|
2007
|
|||||||
|
Segment
Loss From Operations
|
$ | (8,000,013 | ) | $ | (2,414,328 | ) | ||
|
Non-recurrring
income
|
||||||||
|
Global
Cricket Venture expenses
(Note 5)
|
(2,476,255 | ) | - | |||||
|
Net
proceeds from sales-type lease of domain names
|
498,829 | - | ||||||
|
Accretion
expense
|
(96,700 | ) | - | |||||
|
Interest
and investment income
|
67,683 | 119,574 | ||||||
|
Gain
on Disposal of Investment of FrequentTraveler.com Inc.
|
276,805 | |||||||
|
Net
loss for the year
|
$ | (10,006,456 | ) | $ | (2,017,949 | ) | ||
Substantially
all property and equipment and intangible assets are located in
Canada.
F-26
|
Live
Current Media Inc.
(formerly
Communicate.com Inc.)
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2008
|
Form
10-K - 2008
|
NOTE
15 – COMMITMENTS
Premise
Lease
Effective
October 1, 2007 the Company leased its office in Vancouver, Canada from an
unrelated party for a 5-year period from October 1, 2007 to September 30,
2012. Pursuant to the terms of the lease agreement, the Company is
committed to basic rent payments expiring September 30, 2012 as
follows.
|
CDN
$
|
|
|
2009
|
116,188
|
|
2010
|
121,531
|
|
2011
|
126,873
|
|
2012
|
98,159
|
The
Company will also be responsible for common costs currently estimated to be
equal to approximately 43% of basic rent.
Cricket
Venture
The 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.
|
BCCI
USD$
|
IPL
USD$
|
TOTAL
USD
$
|
|
|
2009
|
2,625,000
|
1,625,000
|
4,275,000
|
|
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
|
Although
no formal amendment to the MOU has been executed, the parties have agreed to
decrease the amount owing to the BCCI on October 1, 2009 of $750,000 was
eliminated entirely. The amounts due to the IPL have not
changed. The commitment schedule above reflects the original
commitments according to the MOUs, not including any of the parties’
renegotiations. 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.
NOTE
16– CONTINGENCY
A former
Chief Executive Officer of DHI commenced a legal action against DHI on March 9,
2000 for wrongful dismissal and breach of contract. He is seeking, at
a minimum, 18.39% of the outstanding shares of DHI, specific performance of his
contract, special damages in an approximate amount of $30,000, aggravated and
punitive damages, interest and costs. On June 1, 2000, DHI filed a Defense and
Counterclaim against this individual claiming damages and special damages for
breach of fiduciary duty and breach of his employment contract. The outcome of
these legal actions is currently not determinable and as such the amount of
loss, if any, resulting from this litigation is presently not
determinable. To date, there has been no further action taken by the
plaintiff since the filing of the initial legal action on March 9,
2000.
F-27
|
Live
Current Media Inc.
(formerly
Communicate.com Inc.)
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2008
|
Form
10-K - 2008
|
NOTE
17 – RELATED PARTY TRANSACTIONS
The
Company issued shares of common stock to related parties pursuant to private
placements in 2007 and 2008 as follows:
2008
On
November 19, 2008, we closed a private placement financing in which Mr. Hampson
invested $126,750. Mr. Hampson received 195,000 restricted shares of
common stock, two-year warrants to purchase 97,500 common shares at an exercise
price of $0.78, and three-year warrants to purchase 97,500 common shares at an
exercise price of $0.91.
On
November 19, 2008, we closed a private placement financing in which Jonathan
Ehrlich, our then President and Chief Operating Officer, invested
$25,000. Mr. Ehrlich received 38,461 restricted shares of common
stock, two-year warrants to purchase 19,230 common shares at an exercise price
of $0.78, and three-year warrants to purchase 19,230 common shares at an
exercise price of $0.91.
On
November 19, 2008, we closed a private placement financing in which Mark
Melville, our Chief Corporate Development Officer, invested
$35,000. Mr. Melville received 53,846 restricted shares of common
stock, two-year warrants to purchase 26,923 common shares at an exercise price
of $0.78, and three-year warrants to purchase 26,923 common shares at an
exercise price of $0.91.
2007
On
September 24, 2007 we closed a $5,100,000 private placement financing in which
Mr. Hampson invested $110,000. Mr. Hampson received 55,000 restricted
shares of our common stock.
On June
11, 2007, the Board of Directors of Live Current issued 1,000,000 shares of
common stock and warrants to purchase up to 1,000,000 additional shares of
restricted common stock at the price of $1.25 effective until June 10, 2009 to
Hampson Equities Ltd., a company owned and controlled by C. Geoffrey Hampson,
our Chief Executive Officer, pursuant to a subscription agreement dated June 1,
2007. The amount of the subscription was $1,000,000.
The
Company has not entered into any other significant related party transactions
with individuals or companies either owned or subject to significant influence
by management, directors, and principal shareholders.
NOTE
18 – SUBSEQUENT EVENTS
Employment
Severance Agreement
Pursuant
to the terms and conditions of an employment severance agreement dated February
4, 2009 (the “COO Severance Agreement”) between the Company and its former
President and Chief Operating Officer (“COO”), the COO resigned as the Company’s
President and Chief Operating Officer and as an officer of the Company’s
subsidiaries effective January 31, 2009. The Company has agreed to
pay the COO CDN$600,000, which consists of a severance allowance in the amount
of CDN$298,000 and an accrued special bonus in the amount of CDN$250,000, less
any and all applicable government withholdings and deductions, as well as other
benefits in the amount of CDN$52,000. The severance allowance and
other benefits will be paid over a period of 12 months. The accrued
special bonus was expensed in 2008 when it became due and is included in bonuses
payable at the year end. The other benefits were owing to the COO
before his resignation. The payment of the net amount of the accrued
special bonus is to be converted to equity and paid in restricted shares of the
Company’s common stock over a period of 12 months. The number of
shares of common stock to be issued for each payment will be computed using the
closing price of the common stock on the 15th day of
each month or, in the event that the 15th day is
not a trading day, on the trading day immediately before the 15th day of
the month. The Company has expensed the severance allowance in the
first quarter of 2009.
F-28
|
Live
Current Media Inc.
(formerly
Communicate.com Inc.)
Notes
to the Consolidated Financial Statements
For
the year ended December 31, 2008
|
Form
10-K - 2008
|
NOTE
18 – SUBSEQUENT EVENTS (continued)
Stock
Issuances
On
January 2, 2009, the Company issued 15,000 shares to the investor relations firm
that was engaged to provide investor relations services to the
Company. This was the Company’s final share issuance to this investor
relations firm. The agreement has been terminated.
On
January 8, 2009, the Company entered into an agreement whereby $120,776 of its
accounts payable were extinguished in exchange for the issuance of 345,075
shares of its common stock. As a result of this agreement, 172,538
shares were issued on January 22, 2009 and 172,537 shares were issued on
February 20, 2009.
Termination
of Agreement
In
January 2009, the Company terminated the investor relations contract with the
investor relations firm that had been engaged in 2008.
Stock
Option Plan
In
January 2009, 1,692,500 stock options were forfeited.
On March
25, 2009, a total of 115,000 stock options were granted to five of its full-time
employees at an exercise price of $0.30 per share.
On March
25, 2009, our Board of Directors reduced the exercise price of all outstanding
stock options granted pursuant to the Live Current Media Inc. Stock Incentive
Plan to $0.65. These options are held by our officers, directors,
employees, consultants and agents.
Sales
of Domain Names
In
February and March of 2009, the Company sold two domain names to third party
purchasers. One domain name was sold for $1.25 million, to be paid in
irregular instalments between February 2009 and February 2010. The
other domain name was sold for $400,000, to be paid in one full instalment in
March 2009.
NOTE
19 – COMPARATIVE FIGURES
Certain
comparative figures have been reclassified to conform to the basis of
presentation adopted in the current period.
F-29