Company Quick10K Filing
Live Current Media
Price0.00 EPS-0
Shares35 P/E-0
MCap0 P/FCF-0
Net Debt-0 EBIT-0
TEV-0 TEV/EBIT3
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-09-30 Filed 2020-11-13
10-Q 2020-06-30 Filed 2020-08-14
10-Q 2020-03-31 Filed 2020-05-15
10-K 2019-12-31 Filed 2020-03-31
10-Q 2019-09-30 Filed 2019-11-14
10-Q 2019-06-30 Filed 2019-08-14
10-Q 2019-03-31 Filed 2019-05-15
10-K 2018-12-31 Filed 2019-04-01
10-Q 2018-09-30 Filed 2018-11-14
10-Q 2018-06-30 Filed 2018-08-14
10-Q 2018-03-31 Filed 2018-05-16
10-Q 2010-09-30 Filed 2010-11-15
10-Q 2010-06-30 Filed 2010-08-16
10-Q 2010-03-31 Filed 2010-05-14
10-K 2009-12-31 Filed 2010-03-29
8-K 2020-01-29
8-K 2019-03-21
8-K 2018-12-07
8-K 2018-11-28
8-K 2018-09-10

LIVC 10Q Quarterly Report

Part I - Financial Information
Item 1: Financial Statements.
Note 1 - Nature of Business and Basis of Presentation
Note 2 - Restatement of Consolidated Financial Statements
Note 3 - Summary of Significant Accounting Policies
Note 4 - Financial Instruments
Note 5 - Non-Controlling Interest
Note 6 - Global Cricket Venture
Note 7 - Merger Agreement
Note 8 - Property & Equipment
Note 9 - Website Development Costs
Note 10 - Deferred Lease Inducements
Note 11 - Common Stock
Note 12 - Domain Name Leases and Sales
Note 13 - Other Expenses
Note 14 - Income Taxes
Note 15 - Segmented Information
Note 16 - Commitments
Note 17- Contingency
Note 18- Related Party Transactions
Note 19 - Subsequent Events
Note 20 - Comparative Figures
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3: Quantitative and Qualitative Disclosures About Market Risk
Item 4T: Controls and Procedures.
Part II - Other Information
Item 1: Legal Proceedings.
Item 1A: Risk Factors.
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3: Defaults Upon Senior Securities.
Item 4: Removed and Reserved.
Item 5: Other Information.
Item 6: Exhibits.
EX-31.1 lcm_10q-ex3101.htm
EX-31.2 lcm_10q-ex3102.htm
EX-32.1 lcm_10q-ex3201.htm

Live Current Media Earnings 2010-03-31

Balance SheetIncome StatementCash Flow

10-Q 1 lcm_10q-033110.htm LIVE CURRENT MEDIA INC. lcm_10q-033110.htm
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

x     QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2010 or

o     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission File Number 000-29929

LIVE CURRENT MEDIA INC.
(Exact name of registrant as specified in its charter)
 
Nevada
88-0346310
(State or other jurisdiction of
incorporation or organization)
(IRS Employer
Identification Number)

375 Water Street, Suite 645, Vancouver, British Columbia, V6B 5C6

 (604) 453-4870

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. o Yes  o No The registrant is not yet subject to this requirement.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o
Accelerated filer o
Non-accelerated filer o  (Do not check if a smaller reporting company)
Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes  þ  No
 
 
 

 
 
APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
 
Common Stock 24,026,180 shares outstanding
$.001 Par Value as of May 12, 2010
             
 
 
 
 
 
2

 
 
LIVE CURRENT MEDIA INC.
REPORT ON FORM 10-Q
QUARTER ENDED MARCH 31, 2010
TABLE OF CONTENTS
 
PART I. Financial Information  
     
 Item 1.  Unaudited Financial Statements 4
     
  Consolidated Balance Sheets as of March 31, 2010 and December 31, 2009 5
     
  Consolidated Statements of Operations for the periods ended March 31, 2010 and March 31, 2009 6
     
  Consolidated Statement of Stockholders’ Equity for the periods ended March 31, 2010 and December 31, 2009 7
     
  Consolidated Statements of Cash Flows for the periods ended March 2010 and March 31, 2009 8
     
  Notes to the Consolidated Financial Statements 9
     
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 30
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 47
     
Item 4T. Controls and Procedures 47
     
PART II. Other Information  
     
Item 1. Legal Proceedings 48
     
Item 1A. Risk Factors 48
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 48
     
Item 3. Defaults Upon Senior Securities 48
     
Item 4. Removed and Reserved  48
     
Item 5. Other Information 48
     
Item 6. Exhibits 49
     
Signatures 50
     
Certifications   
 
 
 
       
 
3

 
 
PART  I – FINANCIAL INFORMATION

Item 1: Financial Statements.
 
 
LIVE CURRENT MEDIA INC.

 
CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010


 
 
 
 
CONSOLIDATED BALANCE SHEETS 5
   
CONSOLIDATED STATEMENTS OF OPERATIONS 6
   
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) 7
   
CONSOLIDATED STATEMENTS OF CASH FLOWS 8
   
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 9
 
 
4

 

LIVE CURRENT MEDIA INC.
 
CONSOLIDATED BALANCE SHEETS
 
Expressed In U.S. Dollars
 
(Going Concern - See Note 1)
 
             
   
March 31, 2010
   
December 31, 2009
 
ASSETS
           
Current
           
Cash and cash equivalents
  $ 390,217     $ 413,700  
Accounts receivable (net of allowance for doubtful accounts of $Nil)
    187,575       600,390  
Prepaid expenses and deposits
    176,369       148,697  
Inventory
    28,179       28,714  
Current portion of receivable from sales-type lease (Note 12)
    -       23,423  
Total current assets
    782,340       1,214,924  
                 
Property & equipment (Note 8)
    216,699       231,327  
Website development costs (Note 9)
    191,759       217,883  
Intangible assets
    963,133       963,133  
Goodwill (Notes 5 and 7)
    66,692       66,692  
Total Assets
  $ 2,220,623     $ 2,693,959  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
               
Current
               
Accounts payable and accrued liabilities
  $ 963,254     $ 1,161,241  
Deferred gains of amounts regarding Global Cricket Venture (Note 6)
    -       500,000  
Bonuses payable
    196,880       158,466  
Due to shareholders of Auctomatic (Note 7)
    58,664       118,664  
Convertible notes to shareholders of Auctomatic (Note 7)
    429,500       429,500  
Deferred revenue
    52,676       43,240  
Current portion of deferred lease inducements (Note 10)
    20,138       20,138  
Total current liabilities
    1,721,112       2,431,249  
                 
Deferred income tax (Note 14)
    125,207       125,207  
Deferred lease inducements (Note 10)
    30,207       35,241  
Warrants (Note 11e)
    94,398       250,710  
Total Liabilities
    1,970,924       2,842,407  
                 
STOCKHOLDERS' EQUITY (DEFICIT)
               
Common stock (Note 11)
               
Authorized: 50,000,000 common shares, $0.001 par value
               
Issued and outstanding:
               
24,026,180 common shares (December 31, 2009 - 24,026,180)
    15,335       15,335  
Additional paid-in capital
    16,918,874       16,595,072  
Accumulated deficit
    (16,703,130 )     (16,787,208 )
Total Live Current Media Inc. stockholders' equity (deficit)
    231,079       (176,801 )
Non-controlling interest
    18,620       28,353  
Total Stockholders' Equity (Deficit)
    249,699       (148,448 )
Total Liabilities and Stockholders' Equity
  $ 2,220,623     $ 2,693,959  
 
Commitments and Contingency (Notes 16 and 17)
Subsequent Events (Note 19)

See accompanying notes to consolidated financial statements
 
 
5

 

LIVE CURRENT MEDIA INC.
 
CONSOLIDATED STATEMENTS OF OPERATIONS
 
Expressed In U.S. Dollars
 
   
   
Three Months
Ended
   
Three Months
Ended
 
   
March 31, 2010
   
March 31, 2009
 
         
(As Restated -
See Note 2)
 
SALES
           
Health and beauty eCommerce
  $ 873,959     $ 1,720,167  
Domain name advertising
    17,197       24,453  
Miscellaneous and other income
    17,078       7,762  
 Total Sales
    908,234       1,752,382  
                 
COSTS OF SALES
               
Health and beauty eCommerce
    630,846       1,386,619  
Total Costs of Sales (excluding depreciation and amortization as shown below)
    630,846       1,386,619  
                 
GROSS PROFIT
    277,388       365,763  
                 
OPERATING EXPENSES
               
Amortization and depreciation
    16,370       98,166  
Amortization of website development costs (Note 9)
    26,124       32,562  
Corporate general and administrative
    109,882       361,123  
ECommerce general and administrative
    76,661       80,220  
Management fees and employee salaries
    698,351       1,193,595  
Corporate marketing
    84       3,771  
ECommerce marketing
    79,799       111,422  
Other expenses (Note 13)
    -       264,904  
Total Operating Expenses
    1,007,271       2,145,763  
                 
NON-OPERATING INCOME (EXPENSES)
               
Gain on settlement of amounts due regarding Global Cricket Venture (Note 6)
    250,000       250,000  
Gain from sales and sales-type lease of domain names (Note 12)
    600,000       617,933  
Accretion interest expense (Note 7)
    -       (40,000 )
 Interest expense
    (10,594 )     -  
Interest and investment income
    297       890  
Foreign exchange gain (loss)
    (35,475 )     34,769  
Total Non-Operating Income
    804,228       863,592  
                 
CONSOLIDATED NET INCOME (LOSS)
    74,345       (916,408 )
                 
ADD: NET (INCOME) LOSS ATTRIBUTABLE TO
               
NON-CONTROLLING INTEREST
    9,733       -  
                 
NET INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) FOR THE
         
PERIOD ATTRIBUTABLE TO LIVE CURRENT MEDIA INC.
  $ 84,078     $ (916,408 )
                 
INCOME (LOSS) PER SHARE - BASIC AND DILUTED
               
Basic Net Income (Loss) attributable to Live Current Media Inc. common stockholders
  $ 0.00     $ (0.04 )
Weighted Average Number of Common Shares Outstanding - Basic
    24,005,471       22,509,120  
                 
Diluted Net Income (Loss) attributable to Live Current Media Inc. common stockholders
  $ 0.00     $ (0.04 )
Weighted Average Number of Common Shares Outstanding - Diluted
    30,155,159       22,509,120  
 
See accompanying notes to consolidated financial statements
 
 
6

 
 
LIVE CURRENT MEDIA INC.
 
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
 
Expressed In U.S. Dollars
 
   
                                           
               
Live Current Media Inc. Stockholders
             
   
Common stock
   
Additional Paid-in Capital
   
Accumulated Deficit
   
Total Stockholders' Equity (Deficit)
   
Non-Controlling Interest
   
Total
Equity (Deficit)
 
   
Number of Shares
 
Amount
                               
Balance, December 31, 2008 (As Restated - See Note 2)
    23,546,370     $ 14,855     $ 14,757,932     $ (12,777,195 )   $ 1,995,592     $ -     $ 1,995,592  
Stock-based compensation (Note 11d)
    -       -       1,702,519       -       1,702,519       -       1,702,519  
Issuance of 15,000 common shares to investor relations firm (Note 11b)
    15,000       15       5,685       -       5,700       -       5,700  
Extinguishment of accounts payable (Note 11b)
    372,898       373       129,028       -       129,401       -       129,401  
Issuance of 91,912 common shares per the merger agreement with Auctomatic (Note 7)
    91,912       92       (92 )     -       -       -       -  
Net loss and comprehensive loss
    -       -       -       (4,010,013 )     (4,010,013 )     28,353       (3,981,660 )
Balance, December 31, 2009
    24,026,180       15,335       16,595,072       (16,787,208 )     (176,801 )     28,353       (148,448 )
Stock-based compensation (Note 11d)
    -       -       323,802       -       323,802       -       323,802  
Net income and comprehensive income
    -       -       -       84,078       84,078       (9,733 )     74,345  
Balance, March 31, 2010
    24,026,180     $ 15,335     $ 16,918,874     $ (16,703,130 )   $ 231,079     $ 18,620     $ 249,699  
 
 

 
See accompanying notes to consolidated financial statements
 
 
 
 
 
7

 
 
LIVE CURRENT MEDIA INC.
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Expressed In U.S. Dollars
 
   
   
Three Months
Ended
   
Three Months
Ended
 
   
March 31, 2010
   
March 31, 2009
 
         
(As Restated -
See Note 2)
 
OPERATING ACTIVITIES
           
Net income (loss) for the period
  $ 74,345     $ (916,408 )
Non-cash items included in net income (loss):
               
Gain on settlement of amounts due to Global Cricket Venture (Note 6)
    (250,000 )     (250,000 )
Gain from sales and sales-type lease of domain names
    (600,000 )     (617,933 )
Accretion interest expense
    -       40,000  
Stock-based compensation
    323,802       610,343  
Warrants
    (156,312 )     84,809  
Issuance of common stock for services (Note 11b)
    -       5,700  
Amortization and depreciation
    37,460       125,693  
Change in operating assets and liabilities:
               
Accounts receivable
    412,815       (6,453 )
Prepaid expenses and deposits
    (27,672 )     17,398  
Inventory
    535       26,661  
Accounts payable and accrued liabilities
    (197,987 )     (990,519 )
Bonuses payable
    38,414       8,919  
Deferred revenue
    9,436       (41,760 )
Cash flows used in operating activities
    (335,164 )     (1,903,550 )
                 
INVESTING ACTIVITIES
               
Proceeds from sale of domain names
    -       400,000  
Commissions on sale of domain names
    -       (41,870 )
Proceeds from sales-type lease of domain names
    393,423       313,423  
Commissions on sales-type lease of domain names
    (20,000 )     -  
Cash consideration for Auctomatic (Note 7)
    (60,000 )     -  
Purchases of property & equipment
    (3,963 )     (2,704 )
Proceeds on disposals of property & equipment
    2,221       -  
Website development costs (Note 9)
    -       (25,231 )
Cash flows from investing activities
    311,681       643,618  
                 
Net decrease in cash and cash equivalents
    (23,483 )     (1,259,932 )
                 
Cash and cash equivalents, beginning of period
    413,700       1,832,520  
Cash and cash equivalents, end of period
  $ 390,217     $ 572,588  
                 
See accompanying notes to consolidated financial statements
               
                 
SUPPLEMENTAL INFORMATION
               
Cash paid during the period for:
               
Interest
  $ 10,594     $ -  
Income taxes
  $ -     $ -  
 
 
 
8

 
 
Live Current Media Inc.
Notes to the Consolidated Financial Statements
For the three months ended March 31, 2010

NOTE 1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION


Nature of business
Live Current Media Inc. (the “Company” or “Live Current”) was incorporated under the laws of the State of Nevada on October 10, 1995 under the name “Troyden Corporation” and changed its name on August 21, 2000 from Troyden Corporation to “Communicate.com Inc.”.  On May 30, 2008, the Company changed its name from Communicate.com Inc. to Live Current Media Inc. after obtaining formal shareholder approval to do so at the Annual General Meeting in May 2008.

The Company’s principal operating subsidiary, Domain Holdings Inc. (“DHI”), was incorporated under the laws of British Columbia on July 4, 1994 under the name “IMEDIAT Digital Creations Inc.”.  On April 14, 1999, IMEDIAT Digital Creations, Inc. changed its name to “Communicate.com Inc.” and was redomiciled from British Columbia to the jurisdiction of Alberta.  On April 5, 2002, Communicate.com Inc. changed its name to Domain Holdings Inc.  DHI has 62,635,383 shares of common stock currently issued and outstanding.  61,478,225 shares, or approximately 98.2% of the outstanding shares, are held by Live Current.

Through DHI, the Company builds consumer Internet experiences around its portfolio of domain names.  DHI’s current business strategy is to develop, or to seek partners to develop, its domain names to include content, commerce and community applications.  During 2009 and the first quarter of 2010, DHI has been actively developing the Perfume.com website, providing eCommerce for fragrance and other health and beauty products.  DHI develops content and sells advertising services on other domains held for future development.  Before August 2009, the Company was also developing Cricket.com, a media-rich consumer sports experience.  On August 25, 2009, the Company sold the domain name and assigned to an unrelated third party all of the rights, title, and interest in and to the original Memorandum of Understanding (“MOU”) with the Indian Premier League (“IPL”).  Refer to Note 6.

DHI owns 100% of 0778229 B.C. Ltd. (“Importers”), Acadia Management Corp. (“Acadia”), and a dormant company, 612793 B.C. Ltd. (“612793”).  Acadia’s assets and liabilities were assigned to DHI in October 2008, and that company was dissolved and removed from the registrar of companies of British Columbia on January 21, 2009.

On March 13, 2008, the Company incorporated a wholly owned subsidiary in the state of Delaware, Communicate.com Delaware, Inc. (“Delaware”).  This subsidiary was incorporated in relation to the Auctomatic transaction. Refer to Note 7.  In April, 2010, the Company changed the name of Communicate.com Delaware Inc. to Perfume.com Inc.

On August 8, 2008, the Company also formed a wholly-owned subsidiary in Singapore, LCM Cricket Ventures Pte. Ltd. (“LCM Cricket Ventures”).  This company holds 50.05% of Global Cricket Venture Pte. Ltd. (“Global Cricket Venture” or “GCV”).

Basis of presentation
The consolidated financial statements are presented in United States dollars and are prepared in accordance with accounting principles generally accepted in the United States.

The accompanying unaudited condensed consolidated financial statements of Live Current Media Inc. have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim reporting including the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. These statements do not include all disclosures for annual audited financial statements required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) and should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

The Company believes these consolidated financial statements reflect all adjustments (consisting only of normal, recurring adjustments) that are necessary for a fair presentation of the financial position and results of operations for the periods presented. Results of operations for the interim periods presented are not necessarily indicative of results to be expected for the year. Certain prior period amounts have been reclassified to conform to the current period presentation.
 
 
9

 
 
Live Current Media Inc.
Notes to the Consolidated Financial Statements
For the three months ended March 31, 2010
 
NOTE 1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION (continued)


Going Concern
The consolidated financial statements have been prepared on a going concern basis which assumes that the Company will be able to realize assets and discharge liabilities in the normal course of business for the foreseeable future. During the quarter ended March 31, 2010, the Company generated a consolidated net income of $74,345 (Q1 of 2009 – consolidated net loss of $916,408) and realized a negative cash flow from operating activities of $335,164 (Q1 of 2009 - $1,903,550).  At March 31, 2010, there is an accumulated deficit of $16,703,130 (December 31, 2009 - $16,787,208) and a working capital deficiency of $938,772 (December 31, 2009 - $1,216,325).

The Company's ability to continue as a going-concern is in substantial doubt as it is dependent on the continued financial support from its investors, the ability of the Company to obtain financing (whether through debt or equity), the ability of the Company to use its common stock to pay for liabilities as it has in certain instances in the past, and the attainment of profitable operations.   The outcome of these matters is dependant on factors outside of the Company’s control and cannot be predicted at this time.

These financial statements do not include any adjustments relating to the recoverability or classification of assets or the amounts or classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

The Company has established a plan to continue its current business operations and overcome its financial difficulties.  The Company expects to achieve an improved financial position and enhanced liquidity by establishing and carrying out a plan of recovery as discussed in Note 1 of the Company’s audited financial statements for the year ended December 31, 2009 as filed in the Company’s Annual Report on Form 10-K.

NOTE 2 – RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS

 
Correction of an error in comparative periods:

The Company determined that its original consolidated financial statements as at and for the three month period ended March 31, 2009, and as at and for the years ended December 31, 2008 and 2007 (the “Original Financial Statements”) contained errors.  These errors, which are described below, affected the financial position, results of operations and cash flows for the comparative period ended March 31, 2009.

A. Deferred income tax liability related to indefinite life intangible assets:

The Company’s intangible assets, comprised of its domain names, have book values in excess of their tax values.  The Original Financial Statements considered the taxable temporary differences associated with these indefinite life intangible assets in reducing the valuation allowance associated with its loss carryforwards.  This was an incorrect application of GAAP.  A deferred tax liability should have been recognized for these taxable temporary differences.  Correction of this error resulted in the recognition of a deferred tax liability of $206,370 as at March 31, 2009.  There was an immaterial effect to the consolidated statements of operations for the quarter ended March 31, 2009.

B. Non-Controlling Interest:

The Company determined that it should have recorded $66,692 of goodwill and an increase to non-controlling interest liability associated with the exchange of $3,000,000 of amounts due from a subsidiary for additional common stock in 2008.  See Note 5.  Prior to recognizing the non-controlling interest liabilities, the non-controlling interest’s share of subsidiary losses in 2008 and 2007 was limited to the non-controlling interest liability.  There was no effect to the non-controlling interest at March 31, 2009 or for the three month period then ended.

C. Management Compensation:

The financial statements for the quarter ended March 31, 2009 had an overaccrual of $72,741 in bonuses payable and expensed during the quarter for two CDN$100,000 special bonuses to be paid on January 1, 2009 and January 1, 2010 to the Company’s current President and Chief Corporate Development Officer pursuant to his employment agreement. These special bonuses are not discretionary, but will only be paid if he remains employed as an officer of the Company on the dates payable.
 
 
10

 
 
Live Current Media Inc.
Notes to the Consolidated Financial Statements
For the three months ended March 31, 2010
 
NOTE 2 – RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS (continued)


D. Estimated life of stock options:

The Company originally estimated the life of its stock options as equal to the vesting period for these options, 3 years.  The estimated life should have been 3.375 years, resulting in an increase of $155,500 to the Company’s stock-based compensation expense in the quarter ended March 31, 2009.

E. Other:

(i)  
Expense accruals

The Company discovered an accrual and cutoff error in its recorded accounting fees, resulting in an underaccrual of accounts payable and accounting expense (included in Corporate General and Administrative expenses) of $83,271 in the quarter ended March 31, 2009.

(ii)
Gain on sale of domain name

The Company failed to record website development costs attributable to a domain name sold in 2008.  As a result, the gain on sale of domain names in the quarter ended March 31, 2009 was understated by $37,408 and was adjusted accordingly.

F. Classification of warrants issued in November 2008 private placement:

In November 2008, the Company raised $1,057,775 of cash by selling 1,627,344 units consisting of one share of the Company’s common stock and two warrants, each for the purchase of a half share of common stock.  The offering price was $0.65 per unit.  The estimated fair value of the warrants was presented as equity in the Original Financial Statements.  The warrants contained provisions which could require their redemption in cash in certain circumstances which may not all be within the Company’s control.  The fair value of the warrants therefore should have been recorded as a liability, with future changes to fair value reported as either income or expense in the period in which the change in fair value occurs.  At March 31, 2009, the fair value of the warrants was $242,704.  The Company recorded an increase to the liability of $84,809 at March 31, 2009 and the corresponding expense was recorded as an increase to corporate general and administrative expense.

G. Shares issued in connection with the merger with Auctomatic:

(i)  
Valuation of shares issued as purchase consideration

The Auctomatic merger closed on May 22, 2008.  The original estimate of the fair value of the share purchase consideration attributable to the acquisition was based on the trading value of the shares around March 25, 2008.  However, the Merger Agreement had an adjustment provision regarding the number of shares to be issued, such that the shares should have been valued with reference to the May 22, 2008 closing date as opposed to the announcement date of March 25, 2008.  Using the average share price around the closing date, an additional $110,746 should have been recorded as additional paid-in capital and goodwill at March 31, 2009.

(ii)  
Shares issued to Auctomatic founders

As part of the merger, the Company agreed to distribute 413,604 shares of its common stock payable on the first, second, and third anniversaries of the Closing Date (the “Distribution Date”) to the Auctomatic founders subject to their continuing employment with the Company or a subsidiary on each Distribution Date.  These shares, which were not accounted for in the Auctomatic purchase, were not properly accounted for as compensation to the Auctomatic founders for their continued employment with the Company.  The Company should have recorded $68,330 in related stock-based compensation expense during the quarter ended March 31, 2009.

H. Financial Statement Classification of Amounts Payable to the BCCI and IPL:

In order to provide clarity, the Company also classified separately on its consolidated balance sheets and consolidated statements of operations the $750,000 of amounts payable at March 31, 2009 to the Board of Control for Cricket in India (“BCCI”) and the DLF Indian Premier League (“IPL”).
 
 
11

 
 
Live Current Media Inc.
Notes to the Consolidated Financial Statements
For the three months ended March 31, 2010
 
NOTE 2 – RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS (continued)

 
I. Tax Impact:

Exclusive of Item A, none of the above adjustments gave rise to an increase or decrease in the Company’s tax position.

The effect of the adjustments by financial statement line item to the December 31, 2008 consolidated financial statements are disclosed in detail within the amended and restated consolidated financial statements for the year ended December 31, 2008, which are included in the Company’s Annual Report on Form 10-K as filed with the Securities & Exchange Commission on March 31, 2009, and subsequently amended on September 14, 2009 and on October 26, 2009.

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


The following is a summary of significant accounting policies used in preparation of these consolidated financial statements:

Principles of consolidation
The consolidated financial statements include the accounts of the Company, its wholly owned subsidiary Delaware, its wholly-owned subsidiary LCM Cricket Ventures, its 98.2% interest in its subsidiary DHI, DHI’s wholly owned subsidiaries Importers and 612793, and LCM Cricket Ventures’ 50.05% interest in Global Cricket Venture (“GCV”).  All intercompany balances and transactions are eliminated on consolidation.

Use of estimates
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of intangible assets, fair value measurement, related party transactions, stock based compensation, and determination and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and for the periods that the consolidated financial statements are prepared. Actual results could differ from these estimates.

Business combinations
On the acquisition of a subsidiary, the purchase method of accounting is used whereby the purchase consideration is allocated to the identifiable assets and liabilities on the basis of fair value at the date of acquisition.  The Company considers critical estimates involved in determining any amount of goodwill, and tests for impairment of such goodwill, as disclosed in its goodwill accounting policy below.

Foreign currency transactions
The consolidated financial statements are presented in United States dollars.  The functional currency of the Company is the United States dollar.  In accordance with ASC 830, Foreign Currency Matters, the foreign currency financial statements of the Company’s subsidiaries are translated into U.S. dollars.  Monetary assets and liabilities are translated using the foreign exchange rate that prevailed at the balance sheet date.  Revenue and expenses are translated at weighted average rates of exchange during the period and stockholders’ equity accounts and certain other historical cost balances are translated by using historical exchange rates.  There are no resulting exchange gains and losses that are required to be presented as cumulative foreign currency translation gains (losses) within other accumulated comprehensive income (loss).  There was no effect to comprehensive income (loss) related to the share conversion with DHI.

Transactions denominated in foreign currencies are remeasured at the exchange rate in effect on the respective transaction dates and gains and losses are reflected in the consolidated statements of operations.

Income (loss) per share
Basic income (loss) per share is computed by dividing income (loss) for the period by the weighted average number of common shares outstanding for the period.  Diluted income (loss) per share reflects the potential dilution of securities by including other potential common stock in the weighted average number of common shares outstanding for a period and is not presented where the effect is anti-dilutive.  The other potential common stock includes 2,845,000 options and 3,304,688 warrants as disclosed in Note 11.
 
 
12

 
 
Live Current Media Inc.
Notes to the Consolidated Financial Statements
For the three months ended March 31, 2010
 
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)


Comprehensive income (loss)
Comprehensive income (loss) includes all changes in equity of the Company during a period except those resulting from investments by shareholders and distributions to shareholders.  Comprehensive income (loss) includes net income (loss) and other comprehensive income (loss) (“OCI”).  The major components included in OCI are cumulative translation adjustments arising on the translation of the financial statements of self-sustaining foreign operations and unrealized gains and losses on financial assets classified as available-for-sale. The Company has no self-sustaining foreign operations or unrealized gains or losses on financial assets classified as available-for-sale.

Revenue recognition
Revenues and associated costs of goods sold from the on-line sales of products, currently consisting primarily of fragrances and other beauty products, are recorded upon delivery of products and determination that collection is reasonably assured.  The Company records inventory as an asset for items in transit as title does not pass until received by the customer.  All associated shipping and handling costs are recorded as cost of goods sold upon delivery of products.

Web advertising revenue consists primarily of commissions earned from the referral of visitors from the Company’s websites to other parties.  The amount and collectability of these referral commissions is subject to uncertainty; accordingly, revenues are recognized when the amount can be determined and collectability can be reasonably assured.  In accordance with FASB Accounting Standards Codification (“ASC”) 605-45-45, Revenue Recognition - Principal Agent Considerations, the Company records web advertising revenues on a gross basis.

Gains from the sale of domain names, whose carrying values are recorded as intangible assets, consist primarily of funds earned for the transfer of rights to domain names that are currently in the Company’s control.  Revenues have been recognized when the sale agreement is signed, the price is fixed and agreed upon by all parties, and the collectability of the proceeds is reasonably assured.  In the three months ended March 31, 2010, there were no outright sales of domain names.  In the year ended December 31, 2009, there were eight sales of domain names.  Collectability of the amounts owing on these sales is reasonably assured and therefore accounted for as sales in the period the transactions occurred.

Gains from the sales-type leases of domain names, whose carrying values are recorded as intangible assets, consist primarily of funds earned over a period of time for the transfer of rights to domain names that are currently in the Company’s control.  When collectability of the proceeds on these transactions is reasonably assured, the gain on sale is accounted for as a sales-type lease in the period the transaction occurs.  In the year ended December 31, 2009, there were sales-type leases for three domain names where collectability of future payments owing on sale were not reasonably assured.  Therefore, the gains were recorded based only on the amounts that were reasonably assured.  One of these contracts was breached during the year, however there was no effect to the financial statements.  See also Note 12.

Cash and cash equivalents
The Company considers all highly liquid instruments, with original maturity dates of three months or less at the time of issuance, to be cash equivalents.

Accounts receivable and allowance for doubtful accounts
The Company’s accounts receivable balance consists primarily of amounts receivable on a sales-type lease of domain names, goods and services taxes (GST) receivable, advertising revenues receivable and support service revenues receivable.  Per the Company’s review of open accounts and collection history, the accounts receivable balances are reasonably considered to be collectible and therefore no allowance for doubtful accounts has been reflected at March 31, 2010 or the 2009 year end.

Inventory
Inventory is recorded at the lower of cost or market using the first-in first-out (FIFO) method.  The Company maintains little or no inventory of perfume which is shipped from the supplier directly to the customer.  The inventory on hand as at March 31, 2010 is recorded at cost of $28,179 (December 31, 2009 - $28,714) and represents inventory in transit from the supplier to the customer.
 
 
13

 
 
Live Current Media Inc.
Notes to the Consolidated Financial Statements
For the three months ended March 31, 2010
 
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)


Property & equipment
These assets are stated at cost. Minor additions and improvements are charged to operations, and major additions are capitalized. Upon retirement, sale or other disposition, the cost and accumulated depreciation are eliminated from the accounts, and a gain or loss is included in operations.

Amortization for equipment is computed using the declining balance method at the following annual rates:
 
Office Furniture and Equipment   20%
Computer Equipment      30%
Computer Software    100%
 
Amortization for leasehold improvements is based on a straight-line method calculated over the term of the lease.  Auction software was amortized straight line over the life of the asset and was written off at June 30, 2009.  Other additions are amortized on a half-year basis in the year of acquisition.

Website development costs
The Company has adopted the provisions of ASC 350-50-25, Website Development Costs, whereby costs incurred in the preliminary project phase are expensed as incurred; costs incurred in the application development phase are capitalized; and costs incurred in the post-implementation operating phase are expensed as incurred.  Website development costs are stated at cost less accumulated amortization and are amortized using the straight-line method over its estimated useful life.  Upgrades and enhancements are capitalized if they result in added functionality which enables the software to perform tasks it was previously incapable of performing.  See also Note 9.

Intangible assets
The Company has adopted the provisions of ASC 350, Intangibles – Goodwill and Other, which revises the accounting for purchased goodwill and intangible assets. Under ASC 350, intangible assets with indefinite lives are no longer amortized and are tested for impairment annually.  The determination of any impairment would include a comparison of estimated future operating cash flows anticipated during the remaining life with the net carrying value of the asset as well as a comparison of the fair value to book value of the Company.

The Company’s intangible assets, which consist of its portfolio of generic domain names, have been determined to have an indefinite life and as a result are not amortized.  Management has determined that there is no impairment of the carrying value of intangible assets at March 31, 2010.

Goodwill
Goodwill represents the excess of acquisition cost over the fair value of the net assets of acquired entities.  In accordance with ASC 350-20, Goodwill, the Company is required to assess the carrying value of goodwill annually or whenever circumstances indicate that a decline in value may have occurred, utilizing a fair value approach at the reporting unit level.  A reporting unit is the operating segment, or a business unit one level below that operating segment, for which discrete financial information is prepared and regularly reviewed by segment management.

The goodwill impairment test is a two-step impairment test.  In the first step, the Company compares the fair value of each reporting unit to its carrying value.  The Company determines the fair value of its reporting units using a discounted cash flow approach.  If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that reporting unit, goodwill is not impaired and the Company is not required to perform further testing.  If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then the Company must perform the second step in order to determine the implied fair value of the reporting unit’s goodwill and compare it to the carrying value of the reporting unit’s goodwill.  The activities in the second step include valuing the tangible and intangible assets and liabilities of the impaired reporting unit based on their fair value and determining the fair value of the impaired reporting unit’s goodwill based upon the residual of the summed identified tangible and intangible assets and liabilities.
 
 
14

 
 
Live Current Media Inc.
Notes to the Consolidated Financial Statements
For the three months ended March 31, 2010
 
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 
Goodwill (continued)
In accordance with ASC 350-20 and the Company’s policy to assess the carrying value of goodwill annually as noted above, the Company performed this assessment at the December 31, 2009 fiscal year end.  At that date, the Company determined that the business acquired was never effectively integrated into the reporting unit it was assigned to, Perfume.com.  Since the benefits of the acquired goodwill were never realized by the rest of the reporting unit, and the use of the other aspects of the business acquired have ended, the Company has determined that an impairment charge of $2,539,348 relating to the goodwill acquired pursuant to the merger with Auctomatic was required.  See also Note 7.  The balance of $66,692 of goodwill relates to the issuance of shares of DHI in exchange for intercompany debt in early 2008.  See also Note 5.

Deferred Revenue
Revenue that has been received but does not yet qualify for recognition under the Company's policies is reflected as either deferred revenue or long-term deferred revenue.

Deferred Lease Inducements
Lease inducements, including rent free periods, are deferred and accounted for as a reduction of rent expense over the term of the related lease on a straight-line basis.

Advertising Costs
The Company recognizes advertising expenses in accordance with ASC 720-35, Advertising Costs. As such, the Company expenses the costs of producing advertisements at the time production occurs or the first time the advertising takes place and expenses the cost of communicating advertising in the period during which the advertising space or airtime is used.  Internet advertising expenses are recognized as incurred based on the terms of individual agreements, and are generally either a commission for traffic driven to the Website that generates a sale, or a referral fee based on the number of clicks on keywords or links to its Website generated during a given period.  Total advertising expense of $79,883 for the quarter ended March 31, 2010 (quarter ended March 31, 2009 - $115,193) is included in “Corporate Marketing” and “eCommerce Marketing” on the Company’s consolidated statements of operations.

Stock-based compensation
Beginning on July 1, 2007, the Company began accounting for stock options under the provisions of ASC 718, Stock Compensation, which requires the recognition of the fair value of stock-based compensation. Under the fair value recognition provisions for ASC 718, stock-based compensation cost is estimated at the grant date based on the fair value of the awards expected to vest and recognized as expense ratably over the requisite service period of the award. The Company has used the Black-Scholes valuation model to estimate the fair value of its stock-based awards which requires various judgmental assumptions including estimating stock price volatility and expected life. The Company’s computation of expected volatility is based on a combination of historical and market-based volatility. In addition, the Company considers many factors when estimating expected life, including types of awards and historical experience. If any of the assumptions used in the Black-Scholes valuation model change significantly, stock-based compensation expense may differ materially in the future from that recorded in the current period.

In August 2007, the Company’s Board of Directors approved an Incentive Stock Option Plan to make available 5,000,000 shares of common stock for the grant of stock options, including incentive stock options.  Incentive stock options may be granted to employees of the Company, while non-qualified stock options may be granted to employees, officers, directors, consultants, independent contractors and advisors of the Company, provided such consultants, independent contractors and advisors render bona-fide services not in connection with the offer and sale of securities in a capital-raising transaction or promotion of the Company’s securities.  On March 25, 2009, the Board of Directors approved a reduction in the exercise price of Stock Option grants previously made under the 2007 Incentive Stock Option Plan.  No other terms of the plan or the grants were modified.  See also Note 11(d).

The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with ASC 718 and the conclusions reached by ASC 505-50.  Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable.  The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services as defined by ASC 505-50.
 
 
15

 
 
Live Current Media Inc.
Notes to the Consolidated Financial Statements
For the three months ended March 31, 2010
 
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 
Non-Controlling Interest
The consolidated financial statements include the accounts of DHI (and its subsidiaries).  All intercompany accounts and transactions have been eliminated upon consolidation. The Company records non-controlling interest which reflects the 1.8% portion of the earnings of DHI and its subsidiaries allocable to the holders of the minority interest.

Income taxes
On January 1, 2007, the Company adopted the following new accounting policy related to income tax.  The Company began accounting for income tax under the provisions of ASC 740-10.  ASC 740-10 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with ASC 740-10 and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  ASC 740-10 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company and its subsidiaries are subject to U.S. federal income tax and Canadian income tax, as well as income tax of multiple state and local jurisdictions. Based on the Company’s evaluation, the Company has concluded that there are no significant uncertain tax positions requiring recognition in the Company’s financial statements. The Company’s evaluation was performed for the tax years ended December 31, 2003 to 2009, the tax years which remain subject to examination by major tax jurisdictions as of December 31, 2009, as well as the quarter ended March 31, 2010.  The Company may from time to time be assessed interest or penalties by major tax jurisdictions, although any such assessments historically have been minimal and immaterial to the Company’s financial results.  In the event the Company has received an assessment for interest and/or penalties, it has been classified in the financial statements as selling, general and administrative expense.

Recently Issued Accounting Pronouncements

Accounting Standards Update (“ASU”) 2010-09
In February 2010, the FASB issued ASU 2010-09, Subsequent Events (Topic 855), amending ASC 855. ASU 2010-09 removes the requirement for an SEC filer to disclose a date relating to its subsequent events in both issued and revised financial statements.  ASU 2010-09 also eliminates potential conflicts with the SEC’s literature.  Most of ASU 2010-09 is effective upon issuance of the update. The Company adopted ASU 2010-09 in February 2010, and its adoption did not have a material impact on the Company’s financial reporting and disclosures.

Accounting Standards Update (“ASU”) 2010-06
In January 2010, the FASB issued ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820), Improving Disclosures about Fair Value Measurements, amending ASC 820. ASU 2010-06 requires entities to provide new disclosures and clarify existing disclosures relating to fair value measurements.  The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. The Company is currently evaluating the impact of ASU 2010-06, but does not expect its adoption to have a material impact on the Company’s financial position or results of operations.

Accounting Standards Update (“ASU”) 2009-13
In October 2009, the FASB issued ASU 2009-13, Revenue Recognition (Topic 605), Multiple-Deliverable Revenue Arrangements amending ASC 605. ASU 2009-13 requires entities to allocate revenue in an arrangement using estimated selling prices of the delivered goods and services based on a selling price hierarchy. ASU 2009-13 eliminates the residual method of revenue allocation and requires revenue to be allocated using the relative selling price method. ASU 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. The Company is currently evaluating the impact of ASU 2009-13, but does not expect its adoption to have a material impact on the Company’s financial position or results of operations.
 
 
 
16

 
 
Live Current Media Inc.
Notes to the Consolidated Financial Statements
For the three months ended March 31, 2010
 
NOTE 4 – FINANCIAL INSTRUMENTS


Interest rate risk exposure
The Company currently has limited exposure to any fluctuation in interest rates.

Foreign exchange risk
The Company is subject to foreign exchange risk for sales and purchases denominated in foreign currencies. Foreign currency risk arises from the fluctuation of foreign exchange rates and the degree of volatility of these rates relative to the United States dollar. The Company does not actively manage this risk.

Concentration of credit risk
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents, trade accounts receivable and receivable from sales-type lease.  The Company limits its exposure to credit loss by placing its cash and cash equivalents on deposit with high credit quality financial institutions. Receivables arising from sales to customers are generally immaterial and are not collateralized. Management regularly monitors the financial condition of its customers to reduce the risk of loss.

Fair values of Financial Instruments
As described in Note 3, the Company adopted all provisions of ASC 820 as of January 1, 2009.  ASC 820 defines fair value, establishes a consistent framework for measuring fair value, and expands disclosures for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. ASC 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.

As a basis for considering such assumptions, ASC 820 establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:

Level 1 - observable inputs such as quoted prices in active markets for identical assets and liabilities;

Level 2 - observable inputs such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, other inputs that are observable, or can be corroborated by observable market data; and

Level 3 - unobservable inputs for which there are little or no market data, which require the reporting entity to develop its own assumptions.

This hierarchy requires the Company to minimize the use of unobservable inputs and to use observable market data, if available, when estimating fair value. The fair value of warrants using the following inputs at March 31, 2010 is:
 
Fair Value Measurements at Reporting Date Using
 
Total
   
Quoted Prices in Active
Markets for Identical Assets
(Level 1)
   
Significant Other
Observable Inputs
(Level 2)
   
Significant
Unobservable Inputs
(Level 3)
 
                     
$94,398     -     $94,398     -  
 
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, receivable from sales-type lease, accounts payable, bonuses payable, amounts due to shareholders of Auctomatic, and warrants.  The Company believes that the recorded values of all of its financial instruments approximate their fair values because of their nature and respective durations.
 
 
17

 
 
Live Current Media Inc.
Notes to the Consolidated Financial Statements
For the three months ended March 31, 2010

NOTE 5 – NON-CONTROLLING INTEREST


The Company currently holds 98.2% of the issued and outstanding shares of its principal operating subsidiary, DHI.  During Q1 2008, DHI issued 40,086,645 shares to Live Current at fair value in exchange for a conversion of intercompany debt of $3,000,000, therefore diluting the non-controlling interest by 3.3%. This conversion was accounted for using the purchase method resulting in an increase to goodwill of $66,692.

The 2009 income of DHI has resulted in a balance of $28,353 in the Non-Controlling Interest (“NCI”) at December 31, 2009.  The loss for the first quarter of 2010 of DHI has resulted in a balance of $18,620 in the NCI at March 31, 2010.

NOTE 6 – GLOBAL CRICKET VENTURE


On April 17, 2008, the Company signed a Memorandum of Understanding (“MOU” or “Original MOU”) with each of the Board of Control for Cricket in India (“BCCI”) and the DLF Indian Premier League (“IPL”).  The MOUs, which would have been preliminary to a final agreement, started the Company’s planned exploitation of its cricket.com domain name.  Certain other subsidiaries and ventures were incorporated or formed to further this business opportunity.  However, none of these companies were used for that purpose or had significant assets or operations.

In 2009 up to the date of transfer of the original MOU on August 20, 2009 as disclosed below, the Company incurred $452,307 in furtherance of this plan which were included in corporate marketing, management fees and employee salaries, and corporate general and administrative expenses.  As the plan to exploit cricket.com was in its early stages, all expenditures were charged to operations.

On August 20, 2009, GCV transferred and assigned to an unrelated third party, Mauritius, all of the rights, title, and interest in and to the Original MOU with the IPL, as the Original MOU was amended by the Novation Agreement that was signed on March 31, 2009.  Pursuant to this agreement, Mauritius also agreed to assume and be liable for all past and future obligations and liabilities of GCV arising from the original MOU, as it was amended by the Novation.  Mauritius made the $750,000 payment as required under the Novation Agreement during Q3 of 2009, therefore Live Current was released from all accrued liabilities under the BCCI MOU.

The Company also agreed to sell the domain name cricket.com, along with the associated website, content, copyrights, trademarks, etc, to Mauritius, for consideration of four equal payments of $250,000. The first three instalments of $250,000 were received by March 31, 2010. The cricket.com domain name remains the property of the Company until all payments have been made. In order to facilitate the transfer of the cricket.com website, the Company agreed to provide Mauritius with support services (including the services of Mark Melville) for six months (the “Transition Period”). In exchange for the support services, Mauritius agreed to the payment of certain expenses related to the support services. The Transition Period ended February 20, 2010. Subsequent to the end of the Transition Period, the Company and Mauritius verbally agreed to extend the services agreement and to continue paying Mr. Melville’s salary on a month to month basis.

The Company has accounted for this transaction under ASC 605-25, Multiple Element Arrangements.  As a result, the gain on the sales type lease of cricket.com, the gain on settlement upon assignment and assumption of amounts due under the Novation Agreement, as well as the support services to be provided by the Company to Mauritius during the Transition Period, are to be recognized over the six month Transition Period, or from September 2009 to February 2010.  At the year end, the Company recorded the first and second $250,000 instalments in its analysis under ASC 605-25.  As a result, during the year ended December 31, 2009, the Company recognized four months’ gain on settlement of the amounts owing under the Novation Agreement.  During the quarter ended March 31, 2010, the Company recognized the remaining two month’s gain on settlement as summarized below.
 
Settlement of amounts due regarding Global Cricket Venture  
 
$
750,000
       
Less: 2009 Recognized gain on settlement 
   
(500,000
)
     
           
$
250,000
 
2009 Gain on sales-type lease of cricket.com  
 
$
500,000
         
Less: 2009 Recognized gain on sales-type lease of cricket.com
   
(250,000
)
       
             
250,000
 
Deferred gains of amounts regarding Global Cricket Venture at December 31, 2009            $ 500,000  
Less: 2009 Recognized gain on sales-type lease of cricket.com 
         
 
(500,000
)
                 
Deferred gains of amounts regarding Global Cricket Venture at March 31, 2010            $ 0  
 

 
18

 
 
Live Current Media Inc.
Notes to the Consolidated Financial Statements
For the three months ended March 31, 2010
 
NOTE 6 – GLOBAL CRICKET VENTURE (continued)


During the year ended December 31, 2009, the Company recognized four months’ gain on the first instalment and one month’s gain on the second instalment received for the sales-type lease of cricket.com. During the first quarter of 2010, the Company reported the remaining two months’ gain on the first instalment and the remaining two months’ gain on the second instalment.  During this period, the Company also reported the third instalment of $250,000 in full as a gain on domain sale, as the term of the multiple elements services agreement had ended.  As a result, the Company reported $500,000 in gains relating to the sale of cricket.com during the first quarter of 2010.  Since the collectability of the remaining instalment is not reasonably assured, it has not been reflected in the consolidated financial statements.

NOTE 7 – MERGER AGREEMENT

 
On March 25, 2008, the Company through its wholly owned subsidiary, Delaware, entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Entity, Inc., a Delaware corporation (“Auctomatic”).  The Merger Agreement was consummated on May 22, 2008 (the “Closing Date”).  The consideration was payable as follows: (i) 340,001 shares, or 34%, of the common stock and (ii) $1,200,000 less $152,939 in assumed liabilities.  An additional 246,402 shares of common stock were issued and were to be distributed in equal amounts to the Auctomatic shareholders on each of the first, second and third anniversaries of the Closing Date. The remaining $800,000 of the total cash consideration was to be distributed on the first anniversary of the Closing Date.  All amounts of cash and common stock were to be distributed pro rata among the Auctomatic Stockholders.

The distribution of the remaining 413,604 shares of the common stock payable on the first, second and third anniversary of the Closing Date to the Auctomatic founders was subject to their continuing employment with the Company on each Distribution Date.  As these shares were contingent on future employment, they were considered contingent consideration and were accounted for under ASC 718 as stock-based compensation.

During the first quarter of 2009, one of the founders resigned from Live Current, and therefore the distribution of 137,868 shares of the common stock on the anniversary dates was no longer payable.  During the second quarter of 2009, 91,912 of the remaining 275,736 shares were issued to the two founders who remained with the Company.  The Company negotiated a termination of the employment of these two founders in August 2009.  The remaining 183,824 shares of common stock payable under the Merger Agreement on the second and third anniversaries to these two Auctomatic founders contingent on employment were forgone pursuant to the separation agreements with these two individuals.  See also Note 11(d).

At May 22, 2008, the fair value of the amounts payable in cash to shareholders of Auctomatic on the first anniversary of the closing date was $640,000.  The fair value discount was accreted in full by the first anniversary date, May 22, 2009.  As a result, the $800,000 of the amounts payable in cash to the shareholders of Auctomatic due on the first anniversary of the closing date had been accrued by the Company.  The funds due to the Auctomatic shareholders at this date were not paid by the Company as required.

In August 2009, the Company issued convertible notes to twelve of the eighteen Auctomatic shareholders covering $424,934 of the total $800,000.  These convertible notes are interest bearing at 10% per annum, with such interest accruing as of May 22, 2009 and payable quarterly in arrears.  The convertible notes mature on May 22, 2010.
 
Convertible Notes to Shareholders of Auctomatic
     
Convertible notes issued August 21, 2009
  $ 424,934  
Interest accrued May 22, 2009 – December 31, 2009
    25,845  
Interest paid up to December 31, 2009
    (21,279 )
         
Balance, December 31, 2009
  $ 429,500  
Interest accrued January 1 – March 31, 2010
    10,594  
Interest paid up to March 31, 2010
    (10,594 )
         
Balance, March 31, 2010
  $ 429,500  
 
 
 
19

 

Live Current Media Inc.
Notes to the Consolidated Financial Statements
For the three months ended March 31, 2010
 
NOTE 7 – MERGER AGREEMENT (continued)


Also in August 2009, as noted above, the Company reached an agreement with the remaining two founders of Auctomatic to terminate their employment.  Under their separation agreements, the Company repaid the amounts owed to them under the Merger Agreement at a 10% discount to face value as discussed below.  The Company also recorded $60,000 of severance costs in Q3 of 2009 due to them under their employment agreements.  The severance costs were reimbursed pursuant to the Cricket agreements as discussed in Note 6.  In consideration of these payments, these individuals have each agreed to forfeit their rights to 91,912 shares of Live Current common stock that were due to be issued to each of them in May 2010 and May 2011 under the Merger Agreement.

The amounts owing to the two founders of Auctomatic pursuant to the Merger Agreement totalled $334,224 prior to their separation agreement.  These amounts were discounted at 10% to face value in August 2009 and a gain on restructure of the Auctomatic payable of $29,201 was recorded in the statements of operations during the third quarter of 2009.  Payments of $75,200 were made against the amounts owing to the founders upon execution of the separation agreements.  The agreements provided for the balance of the payments to be made on October 1, 2009, with simple interest accruing on unpaid amounts after October 1, 2009 at 10% per annum.  Amounts owing to the other four of the eighteen shareholders of Auctomatic who did not take part in the convertible note offering total $40,841.
 
Due to Shareholders of Auctomatic
     
Amounts payable to Auctomatic founders
  $ 334,224  
Amounts paid to Auctomatic founders
    (227,200 )
Amounts payable to other Auctomatic shareholders
    40,841  
Gain on restructure of Auctomatic payable
    (29,201 )
         
Balance, December 31, 2009
  $ 118,664  
Amounts paid to Auctomatic founders
    (60,000 )
         
Balance, March 31, 2010
  $ 58,664  

At December 31, 2009, the Company recognized an impairment charge of the goodwill acquired pursuant to the merger of $2,539,348 as noted above.

NOTE 8 – PROPERTY & EQUIPMENT


March 31, 2010
 
Cost
   
Accumulated Amortization
   
Net Book Value
 
Office Furniture and Equipment
  $ 167,464     $ 63,431     $ 104,033  
Computer Equipment
    118,483       71,374       47,109  
Computer Software
    27,276       27,276       -  
Leasehold Improvements
    143,981       78,424       65,557  
    $ 457,204     $ 240,505     $ 216,699  

December 31, 2009
 
Cost
   
Accumulated Amortization
   
Net Book Value
 
Office Furniture and Equipment
  $ 167,464     $ 57,956     $ 109,508  
Computer Equipment
    119,737       69,167       50,570  
Computer Software
    27,276       27,276       -  
Leasehold Improvements
    142,498       71,249       71,249  
 
  $ 456,975     $ 225,648     $ 231,327  

At June 30, 2009, the Company analyzed the potential for impairment of the auction software that was acquired pursuant to the Merger Agreement.  At this date, the Company considered the significant changes that were made to the direction and to staffing within the Company.  The lack of a strategy, plans, or use for the Auction software a year subsequent to the acquisition of the software indicated impairment of the asset at the end of the second quarter of 2009.  Therefore, the Company believed that the auction software was impaired and has written off the net book value of the asset of $590,973 at that date.
 
 
20

 

Live Current Media Inc.
Notes to the Consolidated Financial Statements
For the three months ended March 31, 2010
 
NOTE 9 – WEBSITE DEVELOPMENT COSTS


Website development costs are related to infrastructure development of various websites that the Company operates.  Website maintenance, training, data conversion and business process reengineering costs are expensed in the period in which they are incurred.  Costs incurred in the application development phase are capitalized, and when the related websites reach the post-implementation operating phase, the Company begins amortizing these costs on a straight-line basis over 36 months beginning in the month following the implementation of the related websites.
 
 
 
March 31,
2010
   
December 31,
2009
 
Website Development Costs
  $ 359,929     $ 359,929  
Less: Accumulated Amortization
    (168,170 )     (142,046 )
    $ 191,759     $ 217,883  

The Company did not capitalize any website development costs in the first quarter of 2010 (year ended December 31, 2009 - $47,804) and recorded $26,124 in accumulated amortization during the quarter (year ended December 31, 2009 - $123,395).

NOTE 10 – DEFERRED LEASE INDUCEMENTS

 
 
 
March 31,
2010
   
December 31, 2009
 
Deferred Lease Inducements
  $ 50,345     $ 55,379  
Less: Current Portion
    (20,138 )     (20,138 )
    $ 30,207     $ 35,241  

NOTE 11 – 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 March 31, 2010, there were 24,026,180 (December 31, 2009 – 24,026,180) shares issued and outstanding.

2010

There have been no share issuances to date in 2010.

2009

On January 2, 2009, the Company issued 15,000 shares with a value of $5,700 to the investor relations firm that was engaged to provide investor relations services to the Company.  This was the Company’s final share issuance to this investor relations firm.  The agreement has since been terminated.

On January 8, 2009, the Company entered into an agreement whereby $120,776 of its accounts payable was extinguished in exchange for the issuance of 345,075 shares of its common stock.  As a result of this agreement, 172,538 shares were issued on January 22, 2009 and 172,537 shares were issued on February 20, 2009.

On April 9, 2009, the Company entered into an agreement whereby $8,625 of its accounts payable was extinguished in exchange for the issuance of 27,823 shares of its common stock.  These shares were issued on April 14, 2009.

On June 19, 2009, the Company issued 45,956 shares of its common stock to each of the two remaining Auctomatic founders for a total of 91,912 shares pursuant to the Merger Agreement as discussed in Note 7.
 
 
21

 
 
Live Current Media Inc.
Notes to the Consolidated Financial Statements
For the three months ended March 31, 2010
 
NOTE 11 – COMMON STOCK (continued)


c) 
Reserved

Auctomatic

At December 31, 2008, the Company had reserved 413,604 shares of common stock for future issuance and distribution in relation to the May 22, 2008 merger with Auctomatic. These shares were to be issued to the Auctomatic founders in three equal instalments on the three anniversary dates of the consummation of the merger contingent on their continued employment with the Company pursuant to the terms of the Merger Agreement. In the first quarter of 2009, one of the Auctomatic founders resigned from the Company. As a result, 137,868 shares reserved for distribution to this individual were released and are no longer payable.    In the second quarter of 2009, the Company issued 91,912 shares to the remaining two Auctomatic founders pursuant to the Merger Agreement as noted above.

In August 2009, the Company reached an agreement with the remaining two founders of Auctomatic to terminate their employment.  The shares of common stock contingent on their continued employment with the Company were forgone pursuant to separation agreements signed with the two individuals.  Therefore, at December 31, 2009, there are no further reserved shares for future issuance and distribution to the Auctomatic founders. See also Note 7 and Note 11(d).

Former President

Effective January 31, 2009, the Company’s former President and Chief Operating Officer resigned.  Pursuant to his separation agreement, the Company was required to pay an accrued special bonus in the amount of CDN$250,000 less any statutory deductions.  This amount was included in accounts payable and accrued liabilities at that time.  The net payment of this bonus was to be converted to equity and paid as restricted shares of the Company’s common stock.

On November 13, 2009 the Company entered into a second amendment to the separation agreement noted above.  Pursuant to the second amendment, the severance allowance remaining to be paid and all additional benefits owed to Mr. Ehrlich as of November 16, 2009 in the gross amount of $109,375 were to be paid in a lump sum payment less all applicable withholdings, rather than over a period of 10 remaining months.  Furthermore, Mr. Ehrlich waived the CDN$250,000 in net monthly equity payments that the Company was obligated to pay him under the initial separation agreement, and accepted $20,000 cash, less all applicable withholdings, in lieu thereof.

d) 
Stock Options

The Board of Directors and stockholders approved the 2007 Stock Incentive Plan and adopted it on August 21, 2007 (the “Plan”).  The Company has reserved 5,000,000 shares of its common stock for issuance to directors, employees and consultants under the Plan.  The Plan is administered by the Board of Directors.  Vesting terms of the options range from immediately to five years and no options will be exercisable for a period of more than ten years.

All stock options noted herein vest over three years and are exercisable for a period of five years based on the date of grant.  The Company historically valued the options granted to employees and directors using the Black Scholes option pricing model at the date of grant.  The Company values the options to consultants at each reporting period under ASC 718 for non-employees using the Black Scholes option pricing model.  The assumptions used in the pricing model include:
 
 
2010
2009
 
Dividend yield
0%
0%
Expected volatility
97.02%-124.52%
97.02%-124.52%
Risk free interest rate
1.29%-1.70%
1.29%-1.70%
Expected lives
3.375 years
3.375 years
 
 
 
22

 
 
Live Current Media Inc.
Notes to the Consolidated Financial Statements
For the three months ended March 31, 2010
 
NOTE 11 – COMMON STOCK (continued)


d)  
Stock Options (continued)

 
(i) 
On March 25, 2009, the Board of Directors approved a reduction of the exercise price of stock option grants made prior to this date.  As a result, all grants issued prior to March 25, 2009 currently have an exercise price of $0.65.  The stock option grants included in the repricing initially had exercise prices between $0.65 and $3.30.  The incremental value of $213,895 relating to the fair values at the date of the reduction in price has been included in the first quarter of 2009 expense.

 
(ii) 
On March 25, 2009, the Company granted to its full-time employees a total of 115,000 options at an exercise price of $0.30 per share.  These options have a fair value of $0.19 per option granted.  In 2009, 100,000 options were forfeited.

 
(iii) 
On April 8, 2009, the Company granted to one of its full-time employees a total of 5,000 options at an exercise price of $0.35 per share.  These options have a fair value of $0.23 per option granted.

 
(iv) 
On May 28, 2009, the Company granted to one of its full-time employees a total of 5,000 options at an exercise price of $0.30 per share.  These options have a fair value of $0.21 per option granted.

 
(v) 
On September 1, 2009, the Company granted to two of its full-time corporate directors a total of 75,000 stock options at an exercise price of $0.22 per share.  These options have a fair value of $0.16 per option granted.

 
(vi) 
On November 30, 2009, the Company granted to one of its full-time employees a total of 15,000 options at an exercise price of $0.16 per share.  These options have a fair value of $0.12 per option granted.

The Company recognizes stock-based compensation expense over the requisite service period of the individual grants.  ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Due to recent economic developments, the Company has experienced a high level of forfeitures during late 2008 and early 2009. The Company assesses forfeiture rates for each class of grantees; executive management and directors, corporate directors, and general staff members.  Executive management and directors are relatively few in number and turnover is considered remote, therefore the Company estimates forfeitures for this class of grantees to be 10%. Corporate directors are high level senior staff members with a forfeiture rate of 25% and general staff members have a higher forfeiture rate due to higher average turnover rates at 35%. Estimate of forfeitures is reviewed on an annual basis. Stock-based compensation is expensed on a straight-line basis over the requisite service period.

The fair value of these options at March 31, 2010 of $5,045,969 (year ended December 31, 2009 - $5,013,896) will be recognized on a straight-line basis over a vesting term of 3.375 years and an expense has been recognized in the quarter ended March 31, 2010 of $323,802 (year ended December 31, 2009 - $1,596,847) and included in management fees and employee salaries expense.
 
On May 22, 2008, the Company reserved 413,604 shares of common stock for future issuance and distribution in relation to the merger with Auctomatic.  These shares were to be issued to the Auctomatic founders in equal instalments on the three subsequent anniversary dates of the merger contingent on their continued employment with the Company pursuant to the terms of the Merger Agreement.  As these shares were contingent on future employment, they were considered contingent consideration and are required to be accounted for under ASC 718 as stock-based compensation.  During the first quarter of 2009, 137,868 of these shares were forfeited.  During the second quarter of 2009, 91,912 of these shares were issued out of treasury.  During the third quarter of 2009, the remaining 183,824 shares were forfeited.  See also Note 7 and Note 11(c).  Before August 2009, the shares were valued using the Black Scholes option pricing model at the date of grant using a 3 year term and a 33% forfeiture rate.  Beginning in August 2009, the shares were valued using a 100% forfeiture rate as all of the founders had forfeited their shares.

The fair value of these shares at the time of forfeiture, July 31, 2009, of $1,077,773 was recognized on a straight-line basis over a vesting term of 3 years at date of grant and accordingly, an expense was recognized in the year ended December 31, 2009 of $160,955 and included in management fees and employee salaries expense.  In August 2009, the forfeiture rate changed to 100% and therefore at December 31, 2009, the fair value was $0.  As a result, there was no related expense in the quarter ended March 31, 2010.
 
 
 
23

 
 
Live Current Media Inc.
Notes to the Consolidated Financial Statements
For the three months ended March 31, 2010
 
NOTE 11 – COMMON STOCK (continued)


d) 
Stock Options (continued)

A summary of the option activity under the 2007 Plan during 2009 and 2010 to date is presented below:

 
Options
 
Shares
Weighted Average
Exercise Price
$
Weighted Average Fair Value
$
Options outstanding, December 31, 2009
  2,845,000
         0.63
        1.38
Granted
-
-
-
Exercised
-
-
-
Forfeited or expired
-
-
-
Options outstanding, March 31, 2010
  2,845,000
         0.63
1.38
       
Options vested at March 31, 2010
 2,776,110
    0.64
 1.39
       
Aggregate Intrinsic Value
$0
   
Weighted average remaining life
2.70 Years
   

e) 
Common Stock Purchase Warrants

On June 11, 2007, the Company issued 1,000,000 shares of common stock and 1,000,000 common stock share purchase warrants to a company owned and controlled by the Company’s Chief Executive Officer in exchange for $1,000,000 cash.  The warrants expired June 10, 2009.

On May 1, 2008, the Company issued 50,000 common stock share purchase warrants with an exercise price of $2.33 to its investor relations firm in connection with a services agreement.  The warrants expire May 1, 2010.  The Company valued these warrants using the Black Scholes option pricing model using the following assumptions: no dividend yield; expected volatility rate of 69.27%; risk free interest rate of 2.37% and an expected life of 2 years resulting in a fair value of $0.91 per warrant granted, and a total fair value of $45,500.
 
In connection with the private placement in November 2008, the Company issued 1,627,344 warrants, each for the purchase of one-half share of the Company’s common stock, with an exercise price of $0.78 expiring November 19, 2010 and 1,627,344 warrants, each for the purchase of one-half share of the Company’s common stock, with an exercise price of $0.91 expiring November 19, 2011.  The Company valued the warrants expiring November 19, 2010 using the Black Scholes option pricing model using the following assumptions: no dividend yield; expected volatility rate of 75.24%; risk free interest rate of 1.09% and an expected life of 1 year.  This resulted in a fair value of $0.09 per warrant.  The Company valued the warrants expiring November 19, 2011 also using the Black Scholes option pricing model using the following assumptions: no dividend yield; expected volatility rate of 70.53%, risk free interest rate of 1.36% and an expected life of 2 years.  This resulted in a fair value of $0.10 per warrant.  The total fair value of both warrants at March 31, 2010 was $94,398 (December 31, 2009 - $250,710).  The warrants issued are contingently redeemable in cash in certain circumstances which may not all be within the Company’s control.  As a result, the accounting treatment for the warrants falls under ASC 815-40-25, and their fair value upon issue of $157,895 was recorded as a liability.  Any future changes to the fair value of the warrants will be adjusted to the statement of operations in the period in which the change in fair value occurs.  During the year ended December 31, 2009, the increase to the fair value of the warrants was $92,815 which was charged against corporate general and administrative expenses during the year.  During the quarter ended March 31, 2010, the decrease to the fair value of the warrants was $156,312 which was charged to corporate general and administrative expenses during the period.
 

 
 
24

 
 
Live Current Media Inc.
Notes to the Consolidated Financial Statements
For the three months ended March 31, 2010
 
NOTE 11 – COMMON STOCK (continued)


e) 
Common Stock Purchase Warrants (continued)

As of December 31, 2009 and March 31, 2010, 3,304,688 warrants to purchase the Company’s common stock remain outstanding as follows:
 
   
Weighted
 
Warrants
Outstanding
Average
Date of
   
Exercise Price
Expiry
   
$
 
Warrants outstanding, December 31, 2007
1,000,000
1.25
June 10, 2009
Granted May 1, 2008
50,000
2.33
  May 1, 2010
Granted November 19, 2008
1,627,344
0.78
  November 19, 2010
Granted November 19, 2008
1,627,344
0.91
  November 19, 2011
Warrants outstanding and exercisable
         December 31, 2008
4,304,688
0.96
 
Granted
-
-
 
Cancelled or expired
(1,000,000)
1.25
 
Warrants outstanding and exercisable
         December 31, 2009 and March 31, 2010
3,304,688
0.89
 
       
Weighted average remaining life
1.11 Years
   

NOTE 12 – DOMAIN NAME LEASES AND SALES 


2010

The Company did not enter into any agreements to sell or lease any of its domain names during the first quarter of 2010.

2009

In December 2009, the Company sold two domain names for $152,700 net of commission and the purchase prices were paid in full upon the execution of the agreement.  The resulting $122,327 in net gain was reported in the fourth quarter of 2009.

In December 2009 (the “Effective Date”), the Company entered into an agreement to lease two domain names to an unrelated third party for $400,000 less 10% commission.  The terms of the agreement provided for the receipt of this amount in irregular lease payments to be received by May 2010.  The first payment of $40,000 less half of the commission was due upon execution of the agreement, and three instalments of $120,000 each (less commission) are due on March 31, 2010, April 30, 2010, and May 31, 2010.  The Company will lease the domain name to the purchaser exclusively during the term of the agreement.  Title and rights to the domain name will be transferred to the purchaser only when full payment is received at the end of the lease term.  If the purchaser defaults on any payments, the agreement would terminate, funds received to date would be forfeited by the purchaser, and rights to the domain name would return to the Company.  Due to the uncertainty regarding the collectability of the funds in the future, only the first payment received was recorded as a gain on sale of a domain name during the fourth quarter of 2009.  The second payment due on March 31, 2010 was collectible and therefore recorded as a gain on sale of a domain name during the first quarter of 2010.

In August 2009, the Company sold the domain name www.cricket.com.  Due to the uncertainty regarding the collectability of the funds receivable under the sale agreement in the future, the Company recognized the first instalment of $250,000 received during the third quarter of 2009 and recognized the second instalment of $250,000 during the fourth quarter of 2009.  These amounts were included in the Company’s analysis under ASC 605-25 as disclosed in Note 6.  Therefore four/sixths of the first instalment of $250,000, or $166,667, and one/third of the second instalment of $250,000, or $83,333, were recorded as a gain on sales-type lease of a domain name during the 2009 year.  The Company reported the remaining two/sixths of the first instalment of $250,000, or $83,333, and the remaining two/thirds of the second instalment of $250,000, or $166,667, during the first quarter of 2010.  During this period, the Company also reported the third instalment of $250,000 in full as a gain on domain sale, as the term of the multiple elements services agreement had ended.  As a result, the Company reported $500,000 in gains relating to the sale of cricket.com during the first quarter of 2010.
 
 
25

 
 
Live Current Media Inc.
Notes to the Consolidated Financial Statements
For the three months ended March 31, 2010
 
NOTE 12 – DOMAIN NAME LEASES AND SALES (continued) 


2009 (continued)

In July 2009, the Company sold three domain names for $725,000 less 10% commission and the purchase prices were paid in full upon the execution of each agreement.  The resulting $374,887 in net gain was reported in the third quarter of 2009.

On April 15, 2009, the Company sold one domain name to an unrelated third party for $400,000 less 10% commission, resulting in a $261,934 net gain in the second quarter of 2009.

On February 27, 2009 (the “Effective Date”), the Company entered into an agreement to lease one domain name to an unrelated third party for $1,250,000.  The terms of the agreement provided for the receipt of this amount in irregular lease payments over a one-year term.  The first payment of $225,000 was due within 7 days of the Effective Date, $65,000 was due on each of the first to the fifth monthly anniversaries of the Effective Date, $100,000 was due on each of the sixth to the ninth monthly anniversaries of the Effective Date, and $300,000 was due on the first year anniversary of the Effective Date.  The Company was to lease the domain name to the purchaser exclusively during the term of the agreement.  Title and rights to the domain name would be transferred to the purchaser only when full payment was received at the end of the lease term.  If the purchaser defaulted on any payments, the agreement would terminate, funds received to date would be forfeited by the purchaser, and rights to the domain name would return to the Company.  Due to the uncertainty regarding the collectability of the funds in the future, only the amounts received were recorded as a gain on sale of a domain name.  During Q1 of 2009, a resulting gain of $290,000 was recorded based on the payments received.  During Q2 of 2009, a resulting gain of $65,000 was recorded based on the payment received in April 2009.  In May 2009, the purchaser breached the agreement.  As a result, the purchaser forfeited the total of $355,000 that had already been paid to the Company as of that date and that was recorded as a gain on sales-type lease of domain name.  Under the terms of the agreement, the Company retained the funds and the domain name.  In August 2009, the Company subsequently sold this domain name to an unrelated third party for $1,100,000 less $110,000 in commission and the purchase price was paid in full upon the execution of the agreement. The resulting gain of $740,000 was reported as a gain on sale of domain name in the third quarter of 2009.

On February 24, 2009, the Company sold one domain name to an unrelated third party for $400,000, resulting in a gain of $327,933 in the first quarter of 2009.

NOTE 13 – OTHER EXPENSES


During Q1 of 2009, the Company incurred various restructuring costs of $264,904 consisting of severance payments to the former President and Chief Operating Officer and to other staff terminated in the first quarter as a result of restructuring the Company’s staffing requirements.  There were no such charges in Q1 of 2010.

NOTE 14 – INCOME TAXES


The Company’s subsidiaries, DHI, Importers, and 612793 are subject to federal and provincial taxes in Canada.  The Company and its subsidiary, Delaware, are subject to United States federal and state taxes.

As at March 31, 2010 and December 31 2009, the Company and its US subsidiaries have net operating loss carryforwards from previous tax years of approximately $4,320,900 and capital loss carryforwards of $120,000 that result in deferred tax assets.  The Company’s Canadian subsidiaries have non capital loss carryforwards of approximately $7,552,600 that result in deferred tax assets.  These loss carryforwards will expire, if not utilized, through 2029.  The Company’s subsidiary DHI also has approximately $417,500 in undepreciated capital costs relating to property and equipment that have not been amortized for tax purposes.  The costs may be amortized in future years as necessary to reduce taxable income.  Management believes that the realization of the benefits from these deferred tax assets is uncertain and accordingly, a full deferred tax asset valuation allowance has been provided and no deferred tax asset benefit has been recorded.

The Company has a deferred tax liability related to potential taxes owing on potential gains on disposal of our domain name intangible assets.  GAAP does not permit taxable temporary differences associated with indefinite life intangible assets to be considered as evidence to otherwise reduce a valuation allowance associated with deductible timing differences in the same entity.  The Company has recorded a related deferred tax liability in its consolidated financial statements of $125,207 at March 31, 2010 and December 31, 2009.  The deferred tax recovery during the year ended December 31, 2009 was $81,163.  There was no deferred tax recovery during the quarter ended March 31, 2010.
 
 
26

 
 
Live Current Media Inc.
Notes to the Consolidated Financial Statements
For the three months ended March 31, 2010
 
NOTE 15 – SEGMENTED INFORMATION


In 2009 and to date in 2010, the Company’s operations were conducted in two business segments: eCommerce Products, and Advertising and Other.

During 2008, the Company began offering international shipping on its Perfume.com website.  The operations of Perfume.com are included as the eCommerce Products business segment.  The sales generated from regions other than North America have been immaterial during the quarter ended March 31, 2010 as well as during the year ended December 31, 2009, and therefore no geographic segment reporting is required.

Revenues, operating profits and net identifiable assets by business segments are as follows:
 
For the quarter ended March 31, 2010
 
   
Advertising
   
eCommerce
   
Total
 
   
& Other
   
Products
       
 
  $      
$
     
$
 
Revenue
  34,275      
873,959
     
908,234
 
Segment Loss
  (195,804    
(534,079
)
   
(729,883
)
                       
As at March 31, 2010
  $      
$
     
$
 
Total Assets
  1,577,002      
643,621
     
2,220,623
 
Intangible Assets
  804,284      
158,849
     
963,133
 
 
 
For the quarter ended March 31, 2009 (as restated)
 
   
Advertising
   
eCommerce
   
Total
 
   
& Other
   
Products
       
 
  $      
$
     
$
 
Revenue
  32,215      
1,720,167
     
1,752,382
 
Segment Loss
  (790,977    
(989,023
)
   
(1,780,000
)
                       
As at March 31, 2009
  $      
$
     
$
 
Total Assets
  2,023,457      
4,270,912
     
6,294,369
 
Intangible Assets
  1,398,418      
158,849
     
1,557,267
 
  
The reconciliation of the segment loss from operations to net loss as reported in the consolidated financial statements is as follows:

   
For the quarter
ended
March 31, 2010
 
   
  For the quarter
ended
March 31, 2009
(As Restated)
 
Segment Loss
 
$
(729,883
)
 
$
(1,780,000
)
Non-Operating Income (Expenses)
               
Gain on settlement of amounts due regarding Global Cricket Venture
   
250,000
     
250,000
 
Gains from sales and sales-type lease of domain names
   
600,000
     
617,933
 
Accretion expense
   
-
 
   
(40,000
)
Interest expense
   
(10,594
)
   
-
 
Interest and investment income
   
297
     
890
 
Foreign exchange loss
   
(35,475
)
   
34,769
 
Net income (loss) before taxes for the period
 
$
74,345
 
 
$
(916,408
)
  
Substantially all property and equipment and intangible assets are located in Canada at March 31, 2010.
 
 
27

 
 
Live Current Media Inc.
Notes to the Consolidated Financial Statements
For the three months ended March 31, 2010
 
NOTE 16 – 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 $
 
Remainder of 2010
    91,482  
2011
    126,873  
2012
    98,159  
 
The Company will also be responsible for common costs currently estimated to be equal to approximately 71% of basic rent.

Global Cricket Venture

On March 31, 2009, the Company, its subsidiary GCV, the BCCI and the IPL amended the MOUs.  The Company and the BCCI jointly entered into a Termination Agreement, pursuant to which the MOU with the BCCI (“BCCI MOU”) was terminated.  The agreement constitutes full and final settlement of any and all historic and future outstanding obligations due from Live Current under the BCCI MOU.  Per the Termination Agreement, Live Current was to be released from all accrued liabilities under the BCCI MOU after the $750,000 payment was made under the Novation Agreement described below.

The Company, GCV and the BCCI, on behalf of the IPL, entered into a Novation Agreement with respect to the MOU with the IPL (“IPL MOU”).  The responsibility for this payment was assumed by, and the benefits associated with the MOU formerly held by the Company were transferred to, GCV.  The IPL MOU’s payment schedule was also amended.

These terms were further renegotiated in August 2009 whereby GCV transferred and assigned to an unrelated third party, Mauritius, all of the rights, title, and interest in and to the IPL MOU, as amended by the Novation Agreement.  Mauritius made the $750,000 payment as required under the Novation Agreement during Q3 of 2009, therefore Live Current was released from all accrued liabilities under the BCCI MOU.  In order to facilitate the transfer of the Cricket.com website, the Company agreed to provide Mauritius with support services for a period of no more than 6 months, although this period has been extended on a month-to-month basis.  In exchange for the support services, Mauritius has agreed to the payment of certain expenses related to the support services.  Refer to Note 6.

NOTE 17– 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.

NOTE 18– RELATED PARTY TRANSACTIONS


2010

The Company has not entered into any new related party transactions during the first quarter of 2010.
 
 
 
28

 
 
Live Current Media Inc.
Notes to the Consolidated Financial Statements
For the three months ended March 31, 2010

NOTE 18– RELATED PARTY TRANSACTIONS (continued)


2009

On March 1, 2009, the Company began charging $6,000 per month to a company controlled by its Chief Executive Officer, who is Chief Executive Officer of both companies.  Live Current was providing this company with IT, administrative, and marketing support.  Effective January 1, 2010, the Company no longer provided marketing support and therefore the arrangement was modified to $3,500 per month. This arrangement allows Live Current to share its resources while earning revenues for support services.

On November 10, 2009, the Company’s Board of Directors approved an Amendment to the Employment Agreement (the “Amendment”) of the Company’s Chief Executive Officer (“CEO”).  The Amendment modified the CEO’s base salary in that effective as of February 1, 2009, his base salary decreased to $120,000.  The Amendment recognizes that the salary related to $80,000 owing for his services from February 1, 2009 to September 30, 2009 had remained unpaid, and this amount was to be converted to shares of the Company’s common stock.  The effect of the decrease in salary for the period of February 1 to September 30, 2009 was reflected in the Company’s interim financial statements ended September 30, 2009.

On December 28, 2009, the Company’s Board of Directors approved a Second Amendment to the Employment Agreement (the “Second Amendment”) of the CEO.  The Second Amendment decreased the unpaid salary that had been deferred for the period of February 1, 2009 to September 30, 2009 to $72,000.  It also modified the method of payment of the deferred salary, and approved this amount to be paid in cash, less any and all statutory deductions, instead of by way of shares of the Company’s common stock.  The effects of the decrease of the salary payable, as well as the subsequent payment, were reflected in the Company’s financial statements for the year ended December 31, 2009.

NOTE 19 – SUBSEQUENT EVENTS


Subsequent to quarter end, the Company entered into an agreement to lease one of its domain names to an unrelated third party for $165,000 less $15,000 in commission.  The terms of the agreement provided for the receipt of the net amount of $150,000 to be paid in equal instalments due April 15, 2010, May 15, 2010 and June 15, 2010.  The Company will lease the domain name to the purchaser exclusively during the term of the agreement.  Title and rights to the domain name will be transferred to the purchaser only when full payment is received at the end of the lease term.  If the purchaser defaults on any payments, the agreement would terminate, funds received to date would be forfeited by the purchaser, and rights to the domain name would return to the Company.

NOTE 20 – COMPARATIVE FIGURES


Certain comparative figures have been reclassified to conform to the basis of presentation adopted in the current period.

 
 
 
 
 
 
 
 
29

 
 
Item 2: Management’s discussion and analysis of financial condition and results of operations

(a) 
Forward Looking Statements

The Company makes forward-looking statements in this report and may make such statements in future filings with the Securities and Exchange Commission. The Company may also make forward-looking statements in its press releases or other public shareholder communications. Its forward-looking statements are subject to risks and uncertainties and include information about its expectations and possible or assumed future results of operations. When management uses any of the words “believes”, “expects”, “anticipates”, “estimates” or similar expressions, it is making forward-looking statements.

While management believes that our forward-looking statements are reasonable, you should not place undue reliance on any such forward-looking statements, which speak only as of the date made.  Because these forward-looking statements are based on estimates and assumptions that are subject to significant business, economic and competitive uncertainties, many of which are beyond management’s control or are subject to change, actual results could be materially different. Factors that might cause such a difference include, without limitation, the following: the Company’s inability to generate sufficient cash flows to meet its current liabilities, its potential inability to retain qualified management, sales and customer service personnel, the potential for an extended decline in sales as a result of the recession in the U.S., the possible failure of revenues to offset additional costs associated with any changes in our business model, the potential lack of acceptance by consumers of business websites we create in the future, the Company’s potential inability to create new businesses around domain names, the potential loss of customer or supplier relationships, the potential failure to receive or maintain necessary regulatory approvals, the extent to which competition may negatively affect prices and sales volumes or necessitate increased sales or marketing expenses, and the other risks and uncertainties set forth in this report.

Other factors not currently anticipated by management may also materially and adversely affect our results of operations.  Except as required by applicable law, management does not undertake any obligation to publicly release any revisions which may be made to any forward-looking statements to reflect events or circumstances occurring after the date of this report.
 
Readers of this report should not rely solely on the forward-looking statements and should consider all risks and uncertainties throughout this report, as well as those discussed under “Item 1 Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2009.

The following discussion should be read in conjunction with our interim consolidated financial statements and their explanatory notes, which are included in Item 1.

(b) 
Business Overview

Through our subsidiary, Domain Holdings Inc. (“DHI”), we own more than 900 domain names.  We intend to build consumer internet experiences based on the generic domains within our portfolio of domain names,  by developing a portfolio of operating businesses either by ourselves or by entering into arrangements with businesses that operate in the product or service categories that are described by the domain name assets we own.  These domain names span several consumer and business-to-business categories including health and beauty (such as Perfume.com), and sports and recreation (such as Karate.com and Boxing.com).  We believe that we can develop and sustain businesses based on these intuitive domain names in part because of the significant amount of search and direct type-in traffic they receive.  One of the best ways to ensure sites are found through search is to have a powerful domain name asset that creates value through low-cost customer acquisition.

We also own a number of .cn (China) domain names.  We believe that the .cn domain names could have significant value as the internet market in China develops.  We also have a number of non-core “bound.com” domain names that we may choose to develop that cover expansive categories of interest such as shoppingbound.com, pharmacybound.com and vietnambound.com.
 
 
30

 
 
We have organized our operations into two principal segments:  (1) ECommerce Products, which we refer to in this discussion as “health and beauty”, and (2) Advertising.  Currently, almost all of the revenues we earn are generated from our main health and beauty website, Perfume.com.  Through this website, we sell brand name fragrances and skin care products directly to consumers (eCommerce).  Our sports and recreation websites generate revenues through the sale of online advertising space to advertisers; we offer “pay per click” and display advertising on various websites in our portfolio, as well as through partnerships with third-party advertising networks.

Perfume.com sells 100% authentic products and provides customers with a satisfaction guarantee.  While we are currently using a single supplier to ship customer orders, we are not dependent on that supplier for the products that we sell.  The products are supplied by various wholesale suppliers located in the United States and new suppliers can be utilized by simply turning on their electronic inventory feeds.  In 2008, we began shipping our 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, with the greatest portion of these sales being made in Canada and the United Kingdom, were immaterial for the 2008 and 2009 fiscal years and therefore are not disclosed separately.

Our Perfume.com website has historically sold brand name fragrances, including women’s perfume, men’s cologne, and skin care products, direct to consumers at discounted prices well below their Manufacturer's Suggested Retail Price (“MRSP”).  Recently, the website underwent a transition to a luxury brand site where product is sold at full price.  The website has been re-targeted to appeal to the luxury brand conscious consumer who is seeking original and targeted content and products.  The new targeted customer is very different from those that frequent the many discount perfume websites available. We are now targeting customers which we believe are likely to revisit a site that provides them with quality and value throughout their entire online experience.  As a result of this change in strategy and new target market, the old perfume.com email list that consists of mostly price sensitive buyers is now largely ineffective.  We are building a new list with current customers, however this process will take time.  Meanwhile, we believe that mail marketing is the most effective sales strategy.  This change in strategy, together with the recession in the U.S. which we believe has adversely affected consumer discretionary spending, has resulted in a 48% decrease in revenue and a 24% decrease in dollar value of gross margin compared to the same period last year.  The gross margin percentage, however, has increased from 20.8% to 30.5% in the same period.  Since the implementation of the new pricing model occurred in the middle of the quarter, management expects that this percentage will increase further over time.  Management believes that any drop in sales relating to the new pricing model is temporary as the customer base is re-built.  Management also believes that the new targeted customer will be one to whom other luxury products can be sold.  We believe this may prove valuable to us in the future, if we decide to expand our product offerings on this website or develop other businesses around other luxury products.
 
The Company is considering segregating the Perfume.com business from its other website businesses, which do not involve retail sales. In order to segregate the business, management plans to move the domain names related to Perfume.com and its other brand-related assets into one of the Company's wholly-owned subsidiaries. This transfer is still being reviewed by management and there is no assurance that it will be completed.
 
We presently employ thirteen full-time and four part-time employees, as well as one consultant.  Our principal office is located at #645-375 Water Street, Vancouver, British Columbia.  We also lease an office at 12201 Tukwila Intl. Blvd, Suite 200, Tukwila, Washington.

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.  Both our sales and our ability to raise capital have been negatively impacted as a result of the current recession in the U.S., and we expect this to continue for at least the short-term.

During 2008, 2009, and the period ended March 31, 2010, our revenues were not sufficient to support our operations.  We do not expect to make significant progress this year in better aligning costs with gross margins generated from operations but will continue to generate losses from operations for the foreseeable future.  Since the end of the 2008 fiscal year, there have been many challenges in raising capital through the sale of our securities and these challenges are on-going.  Financing opportunities have become more expensive and difficult to find.  Furthermore, if we attempted to raise funds through the sale of our securities, the steep decline in the price of our common stock would result in significant dilution to our current stockholders.  As a result, management sold some of our non-core domain names to raise funds.  From January 1, 2009 through December 31, 2009, we sold ten domain names, not including our cricket.com domain name, for a total of nearly $3.2 million.  Management may elect to sell additional non-core domain names if needed should the opportunity arise.  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 2011.
 
 
31

 
 
In 2008, we had a significant net loss and significant cash outflows.  In late 2008 and early 2009 we instituted cost-cutting measures, which continue to this date, including layoffs of staff and the termination of consulting and investor relations contracts.  In addition, our Chief Executive Officer amended his employment agreement to reduce his annual base salary from CDN$300,000 to CDN$120,000 effective February 1, 2009.  Furthermore, he agreed that the eight months of salary payable between February 1 and September 30, 2009, which totalled CDN$80,000, would be decreased to CDN$72,000 and the payment was deferred until the end of 2009.  As a result of these efforts, our net cash outflows have begun to decrease.

For the immediate future, we do not anticipate independently developing technologies, processes, products or otherwise engaging in research, development or similar activities.  Instead, if we find these activities to be necessary to our business, we intend to enter into relationships with strategic partners who conduct such activities.

RECENT DEVELOPMENTS

Karate.com

On May 15, 2009 (the “Effective Date”), we signed an agreement (“LLC Agreement”) with Domain Strategies, Inc., an internet development and management company, and Develep, a partnership, to jointly establish a limited liability company (“Karate, LLC”) for the purpose of developing, managing and monetizing our Karate.com domain name.  This partnership will provide management focus and resources to efficiently monetize the domain name.  Pursuant to the LLC Agreement, we will contribute the domain name, Karate.com, to Karate, LLC and will receive a 55% interest of Karate, LLC, plus a liquidation and withdrawal preference.  The Board of Directors of Karate, LLC will have equal representation from all parties with Domain Strategies and Develep having primary responsibility for the management of day-to-day operations including site design, employment relationships, vendors, customer acquisition and maintenance and relationships with potential strategic partners.  On the second anniversary of the Effective Date, we have the right to withdraw from Karate, LLC for any reason.  We also have the right to withdraw from Karate, LLC at any time on or before the third anniversary of the Effective Date if we are required at any time to make a capital contribution, or if our equity interest in Karate, LLC has been or will be diluted in any way.  In the event we are the terminating party, ownership of the domain name www.karate.com will revert back to us, however Domain Strategies will have the right but not the obligation to purchase the domain name www.karate.com for $1 million within 60 days of termination.  The website went live during Q3 of 2009.  We have made no capital contributions to date.  Domain Strategies, Inc. is maintaining the website.

Exit from Cricket

On March 31, 2009 the Company, Global Cricket Ventures Pte. Ltd., a subsidiary of the Company (sometimes referred to in this report as “GCV”), and the Board of Control for Cricket in India (“BCCI”) entered into a Novation Agreement (the “Novation”) pursuant to which GCV was granted all of the Company’s rights, and assumed all of the Company’s obligations, under the Memorandum of Understanding (the “Original Agreement”) dated April 16, 2008 that had been executed by the Company and the BCCI, acting for and on behalf of its separate subcommittee unit known as the Indian Premier League.

On August 25, 2009 GCV entered into an Assignment and Assumption Agreement (the “Assignment”) with Global Cricket Ventures Limited (Mauritius) (“Mauritius”), an entity unrelated to the Company or its affiliates.  The Assignment is dated August 20, 2009.  Pursuant to the Assignment, GCV transferred and assigned to Mauritius all of GCV’s right, title and interest in and to the Original Agreement, as amended by the Novation, and Mauritius accepted the assignment and assumed and agreed to be liable for all past and future obligations and liabilities of GCV arising under, pursuant to or in connection with the Original Agreement, as amended by the Novation.

In conjunction with the Assignment, on August 25, 2009, DHI entered into the Cricket.com Lease and Transfer Agreement (the “Lease”) with Mauritius.  The Lease is dated August 20, 2009.  Pursuant to the Lease, DHI leased to Mauritius the cricket.com domain name, the cricket.com website (the “Website”), and certain support services in exchange for the payment of $1 million (the “Purchase Price”) plus the expenses described below.  The Purchase Price is to be paid in 4 equal installments, each of $250,000.  The first installment was received subsequent to the execution of the Lease, the second and third instalments have been received by March 2010, and the remaining installment is to be paid in May 2010.  Upon the payment of the final installment and the expenses described below, DHI will assign to Mauritius all rights, title and interest in the Website, the cricket.com domain name and the registration thereof, all trademarks, services marks and logos that incorporate the term cricket.com and the goodwill (if any) associated with the foregoing.
 
 
32

 
 
In order to facilitate the transfer of the Website, DHI agreed to provide Mauritius with support services for a period of no more than 6 months (the “Transition Period”).  In exchange for the support services, Mauritius agreed to the payment of certain expenses related to the support services including (i) direct costs incurred by DHI for maintaining the Website, (ii) rent and overhead costs in the amount of $2,500 per month, (iii) employee related costs, and (iv) severance costs (not to exceed $60,000) related to the termination of employees whose employment was to be terminated as a result of the transfer of the Website.  The payments for support services noted above have been received, including the $60,000 severance costs.  In addition, Mauritius agreed that, prior to the expiration of the Transition Period, it would either enter into an employment agreement with Mark Melville, the Company’s President and Chief Corporate Development Officer, or pay any severance costs related to his termination without cause (with the exception of special bonus payments), in accordance with the terms of his employment agreement with the Company.  These two agreements resulted in our full exit from the Cricket business with the exception of interim support services which we have agreed to provide for a period of six months.  The Transition Period ended February 20, 2010.  Subsequent to the end of the Transition Period, the Company and Mauritius verbally agreed to extend the services agreement and Mauritius agreed to continue paying Mr. Melville’s salary on a month to month basis.

Entity Inc. (“Auctomatic”)

At the end of the second quarter of 2009, we determined that the auction software acquired through the merger with Auctomatic was impaired.  As a result, we recorded an impairment loss of $590,973 at that date.

In August 2009, we reached an agreement with twelve of the eighteen Auctomatic shareholders to convert $424,934 of the $800,000 payable to them into convertible notes bearing interest at 10%. The payment due date is May 22, 2010.  The Company is currently seeking to renegotiate the payment date and the interest rate through the issuance of new non-convertibles notes.

Also in August 2009, we reached an agreement with the remaining two founders of Auctomatic to terminate their employment.  Under their severance agreements, we agreed to pay the amounts owed under the Merger Agreement at a 10% discount to face value.  We are paying these amounts in instalments.  During Q3 of 2009, we also paid them a total of $60,000 of severance costs due pursuant to the terms of their employment agreements.  These severance costs were recovered through the agreement for support services described above.  In consideration of these payments, these individuals have each agreed to forfeit their rights to 91,912 shares of Live Current common stock that were due to be issued to each of them in May 2010 and May 2011 under the Merger Agreement.

RESTATEMENT OF FINANCIAL STATEMENTS

Correction of an error in comparative periods:

On June 18, 2009, we were advised by Ernst & Young, LLP, then our independent registered public accounting firm, that our consolidated financial statements for the quarter ended March 31, 2009, as well as the consolidated financial statements for the years ended December 31, 2008 and 2007 contained errors.  Based on the foregoing, C. Geoffrey Hampson, the Company’s Chief Executive Officer and Chief Financial Officer, concluded that these financial statements should no longer be relied upon.  These errors, which are described below, affected opening balances as at December 31, 2007 and the financial position, results of operations and cash flows for the comparative periods ended March 31, 2009 and December 31, 2008.  For a full discussion of the effect of the restatement, refer to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, as well as our related disclosure in Amendments No.1 and No. 2 to our Form 10-K, as filed with the Securities and Exchange Commission on September 14, 2009 and October 26, 2009, respectively.
 
A. Deferred income tax liability related to indefinite life intangible assets:

The Company’s intangible assets, comprised of its domain names, have book values in excess of their tax values.  The December 31, 2008 financial statements considered the taxable temporary differences associated with these indefinite life intangible assets in reducing the valuation allowance associated with its loss carryforwards.  This was an incorrect application of GAAP.  A deferred tax liability should have been recognized for these taxable temporary differences.  Correction of this error resulted in the recognition of a deferred tax liability of $206,370 as at March 31, 2009 and as at December 31, 2008.  There was an immaterial effect to the consolidated statements of operations for the quarter ended March 31, 2009.
 
 
33

 

B. Non-Controlling Interest:

The Company discovered an error in its continuity of non-controlling interest in our subsidiaries as at January 1, 2007, resulting in a $100,676 increase to the opening non-controlling interest liability and deficit.

The Company determined that it should have recorded $66,692 of goodwill and an increase to non-controlling interest liability associated with the exchange, in 2008, of $3,000,000 due from a subsidiary for shares of the subsidiary’s common stock.  See Note 5 to our interim consolidated financial statements.

Prior to recognizing the non-controlling interest liabilities as described in the preceding two paragraphs, the non-controlling interest’s share of subsidiary losses in 2008 was limited to the non-controlling interest liability.  There was no effect to the non-controlling interest at March 31, 2009, or for the quarter then ended.

C. Management Compensation:

The March 31, 2009 financial statements overaccrued $72,741 in bonuses payable and expense, for two CDN$100,000 special bonuses to be paid on January 1, 2009 and January 1, 2010 to our current President and Chief Corporate Development Officer pursuant to his employment agreement. These special bonuses are not discretionary, but will only be paid if he remains employed as an officer of the Company on the dates payable.  The effect to the consolidated balance sheets at December 31, 2008 was an underaccrual of bonuses payable of $119,045.

D. Estimated life of stock options:

The Company originally estimated the life of its stock options as equal to the vesting period for these options, 3 years.  The estimated life should have been 3.375 years, resulting in an increase of $155,500 to stock-based compensation expense in the quarter ended March 31, 2009.

E. Other

(i)  
Expense accruals

The Company discovered an accrual and cutoff error in its recorded accounting fees, resulting in an underaccrual of accounts payable and accounting expense (included in Corporate General and Administrative expenses) of $83,271 in the quarter ended March 31, 2009.  The error resulted in an overaccrual of accounts payable and accounting expense (included in Corporate General and Administrative expenses) of $19,521 in the year ended December 31, 2008.
 
(ii)  
Gain on sale of domain name

The Company failed to record website development costs attributable to a domain name sold in 2008, reducing website development costs and gain on sale of domain names by $37,408 in the year ended December 31, 2008.  As a result, a corresponding decrease to the gain on sale of domain names in the quarter ended March 31, 2009 was made.  There was no effect to the consolidated balance sheet as at March 31, 2009.

F. Classification of warrants issued in November 2008 private placement:

In November 2008, the Company raised $1,057,775 of cash by selling 1,627,344 units consisting of one share of the Company’s common stock and two warrants, each for the purchase of a half share of common stock.  The offering price was $0.65 per unit.  The estimated fair value of the warrants was $157,895 and was presented as equity in the financial statements for the fiscal year ended December 31, 2008.  The warrants contained provisions which could require their redemption in cash in certain circumstances which may not all be within the Company’s control.  The fair value of the warrants therefore should have been recorded as a liability, with future changes to fair value reported as either income or expense in the period in which the change in fair value occurs.  There were no changes to the fair value of the warrants between the November 2008 issue date and December 31, 2008.
 
 
34

 
 
At March 31, 2009, the fair value of the warrants was $242,704.  The Company recorded an increase to the liability of $84,809 at March 31, 2009 and the corresponding expense was recorded as an increase to corporate general and administrative expense.

G. Shares issued in connection with the merger with Auctomatic:

(i)  
Valuation of shares issued as purchase consideration

The Auctomatic merger closed on May 22, 2008.  The original estimate of the fair value of the share purchase consideration attributable to the acquisition was based on the trading value of the shares around March 25, 2008.  However, the Merger Agreement had an adjustment provision regarding the number of shares to be issued, such that the shares should have been valued with reference to the May 22, 2008 closing date as opposed to the announcement date on March 25, 2008.  Using the average share price around the closing date, an additional $110,746 should have been recorded as additional paid-in capital and goodwill during the year ended December 31, 2008 and the quarter ended March 31, 2009.

(ii)  
Shares issued to Auctomatic founders

As part of the merger with Auctomatic, the Company agreed to distribute 413,604 shares of its common stock payable on the first, second, and third anniversaries of the Closing Date (the “Distribution Date”) to the Auctomatic founders subject to their continuing employment with the Company or a subsidiary on each Distribution Date.  These shares, which were not accounted for in the Auctomatic purchase, also were not properly accounted for as compensation to the Auctomatic founders for their continued employment with the Company.  The related stock-based compensation expense that should have been recorded in the quarter ended March 31, 2009 was $68,330.

H. Financial Statement Classification of Amounts Payable to the BCCI and IPL:

In order to provide clarity, the Company also classified separately on its consolidated balance sheets and consolidated statements of operations the $750,000 in amounts payable as at March 31, 2009 and $1,000,000 as at December 31, 2008 to the BCCI and IPL.

I. Tax Impact:

Exclusive of Item A, none of the above adjustments gave rise to an increase or decrease in the Company’s tax position.
 
 
 
 
 
 
35

 
 
(c) 
Selected Financial Data

The following selected financial data was derived from our unaudited interim consolidated financial statements for the quarter ended March 31, 2010.  The information set forth below should be read in conjunction with our financial statements and related notes included elsewhere in this report.
 
Expressed in US Dollars
 
Three Months
Ended
   
Three Months
Ended
 
   
March 31, 2010
   
March 31, 2009
 
         
(As Restated)
 
SALES
           
Health and beauty eCommerce
  $ 873,959     $ 1,720,167  
Domain name advertising
    17,197       24,453  
Miscellaneous income
    17,078       7,762  
Total Sales
    908,234       1,752,382  
                 
COSTS OF SALES
               
Health and Beauty eCommerce
    630,846       1,386,619  
Total Costs of Sales (excluding depreciation and amortization as shown below)
    630,846       1,386,619  
                 
GROSS PROFIT
    277,388       365,763  
                 
OPERATING EXPENSES
               
Amortization and depreciation
    16,370       98,166  
Amortization of website development costs
    26,124       32,562  
Corporate general and administrative
    109,882       361,123  
ECommerce general and administrative
    76,661       80,220  
Management fees and employee salaries
    698,351       1,193,595  
Corporate marketing
    84       3,771  
ECommerce marketing
    79,799       111,422  
Other expenses
    -       264,904  
Total Operating Expenses
    1,007,271       2,145,763  
                 
NON-OPERATING INCOME (EXPENSES)
               
Gain on settlement of amounts due regarding Global Cricket Venture
    250,000       250,000  
Gain from sales and sales-type lease of domain names
    600,000       617,933  
Accretion interest expense
    -       (40,000 )
Interest expense
    (10,594 )     -  
Interest and investment income
    297       890  
Foreign exchange gain (loss)
    (35,475 )     34,769  
Total Non-Operating Income
    804,228       863,592  
                 
CONSOLIDATED NET INCOME (LOSS)
    74,345       (916,408 )
                 
ADD: NET (INCOME) LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST
    9,733       -  
                 
NET INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) FOR
               
THE PERIOD ATTRIBUTABLE TO LIVE CURRENT MEDIA INC.
  $ 84,078     $ (916,408 )
                 
INCOME (LOSS) PER SHARE - BASIC AND DILUTED
               
Basic Net Income (Loss) attributable to Live Current Media Inc. common stockholders
  $ 0.00     $ (0.04 )
Weighted Average Number of Common Shares Outstanding - Basic
    24,005,471       22,509,120  
                 
Diluted Net Income (Loss) attributable to Live Current Media Inc. common stockholders
  $ 0.00     $ (0.04 )
Weighted Average Number of Common Shares Outstanding - Diluted
    30,155,159       22,509,120