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 - Summary of Significant Accounting Policies
Note 3 - Financial Instruments
Note 4 - Restructuring of Subsidiary and Operations
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
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3: Quantitative and Qualitative Disclosures About Market Risk
Item 4: 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-10.1 livecurrent_10q-ex1001.htm
EX-10.2 livecurrent_10q-ex1002.htm
EX-10.3 livecurrent_10q-ex1003.htm
EX-10.4 livecurrent_10q-ex1004.htm
EX-31.1 livecurrent_10q-ex3101.htm
EX-31.2 livecurrent_10q-ex3102.htm
EX-32.1 livecurrent_10q-ex3201.htm

Live Current Media Earnings 2010-09-30

Balance SheetIncome StatementCash Flow

10-Q 1 livecurrent_10q-093010.htm LIVE CURRENT MEDIA INC. livecurrent_10q-093010.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 September 30, 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)

780 Beatty Street, Suite 307, Vancouver, British Columbia, V6B 2M1 Canada

 (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 30,392,316 shares outstanding
$.001 Par Value as of November 15, 2010
 


 
 
 
 
LIVE CURRENT MEDIA INC.
REPORT ON FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2010
TABLE OF CONTENTS
 
 
    Page
     
PART I.
Financial Information 3
     
Item 1. Unaudited Financial Statements 3
     
 
Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009
4
  Consolidated Statements of Operations for the periods ended September 30, 2010 and September 30, 2009 5
  Consolidated Statement of Stockholders’ Equity for the periods ended September 30, 2010 and December 31, 2009 6
 
Consolidated Statements of Cash Flows for the periods ended September 30, 2010 and September 30, 2009
7
  Notes to the Consolidated Financial Statements  8
     
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
31
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk  46
     
Item 4.  Controls and Procedures  46
     
PART II.  Other Information 48
     
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
 
 
                   
 
2

 


PART I – FINANCIAL INFORMATION

Item 1: Financial Statements.
 
 
 
 
LIVE CURRENT MEDIA INC.
 
CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010


 
 
CONSOLIDATED BALANCE SHEETS
 
CONSOLIDATED STATEMENTS OF OPERATIONS
 
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 
 
3

 
 
LIVE CURRENT MEDIA INC.
CONSOLIDATED BALANCE SHEETS
Expressed In U.S. Dollars
(Going Concern - See Note 1)
             
   
September 30, 2010
   
December 31, 2009
 
ASSETS
           
Current
           
Cash and cash equivalents
  $ 273,721     $ 413,700  
Accounts receivable (net of allowance for doubtful accounts of $Nil)
    102,154       600,390  
Prepaid expenses and deposits
    189,766       148,697  
Inventory
    14,274       28,714  
Current portion of receivable from sales-type lease (Note 12)
    -       23,423  
Total current assets
    579,915       1,214,924  
                 
Property & equipment (Note 8)
    174,442       231,327  
Website development costs (Note 9)
    240,641       217,883  
Intangible assets
    727,771       963,133  
Goodwill (Notes 5 and 7)
    66,692       66,692  
Total Assets
  $ 1,789,461     $ 2,693,959  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
               
Current
               
Accounts payable and accrued liabilities
  $ 874,217     $ 1,161,241  
Deferred gains of amounts regarding Global Cricket Venture (Note 6)
    -       500,000  
Severance payable
    68,287       -  
Bonuses payable
    20,245       158,466  
Due to former shareholders of Domain Holdings Inc. (Note 4)
    32,741       -  
Due to shareholders of Auctomatic (Note 7)
    40,841       118,664  
Convertible notes to shareholders of Auctomatic (Note 7)
    296,642       429,500  
Current portion of notes to shareholders of Auctomatic (Note 7)
    51,475       -  
Deferred revenue
    21,152       43,240  
Current portion of deferred lease inducements (Note 10)
    20,138       20,138  
Total current liabilities
    1,425,738       2,431,249  
                 
Deferred income tax (Note 14)
    94,610       125,207  
Deferred lease inducements (Note 10)
    20,138       35,241  
Warrants (Note 11e)
    9,165       250,710  
Long-term portion of notes to shareholders of Auctomatic (Note 7)
    64,859       -  
Other long-term liabilities
    17,022       -  
Total Liabilities
    1,631,532       2,842,407  
                 
STOCKHOLDERS' EQUITY (DEFICIT)
               
Common stock (Note 11)
               
Authorized: 50,000,000 common shares, $0.001 par value
               
Issued and outstanding:
               
30,392,316 common shares (December 31, 2009 - 24,026,180)
    21,701       15,335  
Common stock purchase warrants (Note 11e)
    258,825       -  
Additional paid-in capital
    17,615,065       16,595,072  
Accumulated deficit
    (17,737,662 )     (16,787,208 )
Total Live Current Media Inc. stockholders' equity (deficit)
    157,929       (176,801 )
Non-controlling interest (Note 5)
    -       28,353  
Total Stockholders' Equity (Deficit)
    157,929       (148,448 )
Total Liabilities and Stockholders' Equity
  $ 1,789,461     $ 2,693,959  
 
Commitments and Contingency (Notes 16 and 17)
Subsequent Events (Note 19)
 
See accompanying notes to consolidated financial statements
 
 
4

 
 
CONSOLIDATED STATEMENTS OF OPERATIONS
 
Expressed In U.S. Dollars
 
   
   
Three Months
Ended
   
Three Months
Ended
   
Nine Months
Ended
   
Nine Months
Ended
 
   
September 30, 2010
   
September 30, 2009
   
September 30, 2010
   
September 30, 2009
 
SALES
                       
Health and beauty eCommerce
  $ 624,088     $ 1,498,265     $ 2,173,479     $ 4,881,614  
Sponsorship revenues
    -       218,672       -       218,672  
Domain name advertising
    4,342       19,345       27,076       66,715  
Miscellaneous and other income
    1,543       21,454       34,028       48,022  
Total Sales
    629,973       1,757,736       2,234,583       5,215,023  
                                 
COSTS OF SALES
                               
Health and beauty eCommerce
    364,004       1,183,479       1,396,041       3,885,845  
Total Costs of Sales (excluding depreciation and amortization as shown below)
    364,004       1,183,479       1,396,041       3,885,845  
                                 
GROSS PROFIT
    265,969       574,257       838,542       1,329,178  
                                 
OPERATING EXPENSES
                               
Amortization and depreciation
    14,803       21,314       45,719       217,726  
Amortization of website development costs (Note 9)
    26,124       28,967       78,373       95,036  
Corporate general and administrative
    316,943       138,409       707,348       676,064  
ECommerce general and administrative
    111,764       63,461       251,329       217,348  
Management fees and employee salaries
    376,977       760,631       1,588,715       2,950,887  
Corporate marketing
    2,324       4,042       2,438       14,036  
ECommerce marketing
    76,962       107,678       265,924       334,065  
Other expenses (Note 13)
    -       -       144,240       264,904  
Total Operating Expenses
    925,897       1,124,502       3,084,086       4,770,066  
                                 
NON-OPERATING INCOME (EXPENSES)
                               
Gain on settlement of amounts due regarding Global Cricket Venture (Note 6)
    -       125,000       250,000       375,000  
Gain from sales and sales-type lease of domain names (Note 12)
    21,583       1,156,554       1,041,421       2,101,421  
Accretion interest expense (Note 7)
    -       -       -       (63,300 )
Interest expense
    (8,590 )     (10,723 )     (29,348 )     (15,251 )
Interest and investment income
    8       3       306       1,558  
Impairment of Auction Software (Note 8)
    -       -       -       (590,973 )
Foreign exchange loss
    (12,226 )     (88,058 )     (2,822 )     (79,357 )
Loss on disposal of property and equipment
    (2,778 )     -       (13,492 )     -  
Gain on restructure of Auctomatic payable
    -       29,201       -       29,201  
Total Non-Operating Income (Expenses)
    (2,003 )     1,211,977       1,246,065       1,758,299  
                                 
NET INCOME (LOSS) BEFORE TAXES
    (661,931 )     661,732       (999,479 )     (1,682,589 )
                                 
Deferred tax (expense) recovery (Note 14)
    4,994       64,732       30,597       77,214  
                                 
CONSOLIDATED NET INCOME (LOSS)
    (656,937 )     726,464       (968,882 )     (1,605,375 )
                                 
ADD: NET (INCOME) LOSS ATTRIBUTABLE TO
                               
NON-CONTROLLING INTEREST
    6,600       (23,337 )     18,428       (12,385 )
                                 
NET INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) FOR THE
                               
PERIOD ATTRIBUTABLE TO LIVE CURRENT MEDIA INC.
  $ (650,337 )   $ 703,127     $ (950,454 )   $ (1,617,760 )
                                 
INCOME (LOSS) PER SHARE - BASIC AND DILUTED
                               
Basic Net Income (Loss) attributable to Live Current Media Inc. common stockholders
  $ (0.03 )   $ 0.03     $ (0.04 )   $ (0.07 )
Weighted Average Number of Common Shares Outstanding - Basic
    25,187,591       23,593,205       25,187,591       23,593,205  
                                 
Diluted Net Income (Loss) attributable to Live Current Media Inc. common stockholders
  $ (0.03 )   $ 0.03     $ (0.04 )   $ (0.07 )
Weighted Average Number of Common Shares Outstanding - Diluted
    25,187,591       26,011,464       25,187,591       23,593,205  
 
See accompanying notes to consolidated financial statements
 
 
5

 
 
LIVE CURRENT MEDIA INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Expressed In U.S. Dollars
                                                 
                                                 
               
Live Current Media Inc. Stockholders
             
                                           
   
Common stock
   
Common Stock Purchase Warrants
   
Additional
Paid-in Capital
   
Accumulated Deficit
   
Total Stockholders' Equity (Deficit)
   
Non-Controlling Interest
   
Total Equity (Deficit)
 
   
Number of
Shares
   
Amount
                                     
Balance, December 31, 2008
    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 )
Issuance of 416,136 common shares to an officer (Note 11b)
    416,136       416       -       41,655       -       42,071       -       42,071  
Private Placement of 5,950,000 units at $0.15 per share (Note 11b and Note 11e)
    5,950,000       5,950       258,825       330,225       -       595,000       -       595,000  
Share issue costs (Note 11b)
    -       -       -       (4,170 )     -       (4,170 )     -       (4,170 )
Stock-based compensation (Note 11d)
    -       -       -       675,099       -       675,099       -       675,099  
Net loss and comprehensive loss
    -       -       -       -       (950,454 )     (950,454 )     (18,428 )     (968,882 )
Repurchase of shares from non-controlling shareholders (Notes 4 and 5)
    -       -       -       (22,816 )     -       (22,816 )     (9,925 )     (32,741 )
Balance, September 30, 2010
    30,392,316     $ 21,701     $ 258,825     $ 17,615,065     $ (17,737,662 )   $ 157,929     $ -     $ 157,929  
 
See accompanying notes to consolidated financial statements
 
 
 
 
 
 
 
 
6

 
 
LIVE CURRENT MEDIA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Expressed In U.S. Dollars
 
   
Nine Months
Ended
   
Nine Months
Ended
 
   
September 30, 2010
   
September 30, 2009
 
OPERATING ACTIVITIES
           
Net loss for the period
  $ (968,882 )   $ (1,605,375 )
Non-cash items included in net income (loss):
               
Deferred tax recovery (Note 14)
    (30,597 )     (77,214 )
Gain on settlement of amounts due to Global Cricket Venture (Note 6)
    (250,000 )     (375,000 )
Gain on restructure of Auctomatic payable
    -       (29,201 )
Impairment of Auction Software (Note 8)
    -       590,973  
Loss on disposal of property and equipment
    13,492       -  
Gain from sales and sales-type lease of domain names
    (1,041,421 )     (2,101,421 )
Accretion interest expense
    -       63,300  
Interest expense
    29,348       15,251  
Stock-based compensation
    675,099       1,416,160  
Revaluation of warrants
    (241,545 )     (18,275 )
Issuance of common stock for services (Note 11b)
    -       5,700  
Amortization and depreciation
    108,989       297,658  
Change in operating assets and liabilities:
               
Accounts receivable
    498,236       (128,274 )
Prepaid expenses and deposits
    (41,069 )     (53,572 )
Inventory
    14,440       23,936  
Accounts payable and accrued liabilities
    (287,024 )     (1,169,274 )
Severance payable
    68,287       -  
Bonuses payable
    (96,150 )     (204,127 )
Deferred revenue
    (22,088 )     (47,744 )
Other current and long-term liabilities
    17,022       -  
Cash flows used in operating activities
    (1,553,863 )     (3,396,499 )
                 
INVESTING ACTIVITIES
               
Proceeds from sale of domain names
    60,000       2,623,128  
Commissions on sale of domain names
    -       (262,500 )
Proceeds from sales-type lease of domain names
    1,048,423       628,423  
Commissions on sales-type lease of domain names
    (35,000 )     -  
Cash consideration for Auctomatic (Note 7)
    (123,694 )     (139,010 )
Purchases of property & equipment
    (7,699 )     (5,995 )
Proceeds on disposals of property & equipment
    5,374       -  
Website development costs (Note 9)
    (124,350 )     (43,662 )
Cash flows from investing activities
    823,054       2,800,384  
                 
FINANCING ACTIVITIES
               
Proceeds from sale of common stock (net of share issue costs)
    590,830       -  
Cash flows from financing activities
    590,830       -  
                 
Net decrease in cash and cash equivalents
    (139,979 )     (596,115 )
                 
Cash and cash equivalents, beginning of period
    413,700       1,832,520  
Cash and cash equivalents, end of period
  $ 273,721     $ 1,236,405  
                 
See accompanying notes to consolidated financial statements
               
                 
SUPPLEMENTAL INFORMATION
               
Cash paid during the period for:
               
Interest
  $ 24,055     $ -  
Income taxes
  $ -     $ -  
                 
Non-cash investing and financing activities
               
Cancellation of convertible notes (Note 7)
  $ 138,494     $ -  
Value of shares issued to officer for bonus payable (Note 18)
  $ 42,071     $ -  
 
 
 
7

 
 
Live Current Media Inc.
Notes to the Consolidated Financial Statements
For the nine months ended September 30, 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.  Until September 28, 2010, DHI had 62,635,383 shares of common stock issued and outstanding.  61,478,225 shares, or approximately 98.2% of the outstanding shares, were held by Live Current.  On this date, DHI held a special meeting of its shareholders and approved the consolidation of all issued and outstanding common shares in the capital of DHI on a 1,000,000:1 basis and the repurchase by DHI of any fractional common shares resulting from the consolidation.  As a result of this consolidation, DHI has 61 common shares issued and outstanding, owned 100% by Live Current.  See also Note 4.  DHI is actively developing the Perfume.com website, providing eCommerce for fragrance and other health and beauty products. 

On March 13, 2008, the Company incorporated a wholly owned subsidiary in the state of Delaware, Communicate.com Delaware, Inc.  On April 21, 2010, the Company changed the name of Communicate.com Delaware, Inc. to Perfume.com Inc. (Perfume Inc.). This subsidiary was incorporated in relation to the Auctomatic transaction.  Refer to Note 7.

Through DHI, the Company also builds consumer Internet experiences around its portfolio of domain names.  DHI’s current business strategy is to develop, or to seek partners to develop, its domain names to include content, commerce and community applications.  DHI 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 owned 100% of Acadia Management Corp. (“Acadia”), 612793 B.C. Ltd. (“612793”), as well as DHI 0778229 B.C. Ltd. (“Importers”).  Acadia’s assets and liabilities were assigned to DHI in October 2008, and that company was dissolved and removed from the register of companies of British Columbia on January 21, 2009.  612793 was removed from the register of companies of British Columbia on April 13, 2009.  Importers’ assets and liabilities were assigned to DHI in July 2010, and that company was dissolved and removed from the register of companies of British Columbia on July 26, 2010.

On August 8, 2008, the Company also formed a wholly-owned subsidiary in Singapore, LCM Cricket Ventures Pte. Ltd. (“LCM Cricket Ventures”).  This company held 50.05% of Global Cricket Venture Pte. Ltd. (“Global Cricket Venture” or “GCV”) until the disposal of its GCV shares effective December 8, 2009.

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 (“U.S. GAAP”).

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 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.
 
 
 
8

 
 
Live Current Media Inc.
Notes to the Consolidated Financial Statements
For the nine months ended September 30, 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 its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company has generated a consolidated net loss of $656,937 for the three months ended and $968,882 for the nine months ended September 30, 2010 respectively (a consolidated net income of $726,464 and a consolidated net loss of $1,605,375 for the three months ended and nine months ended September 30, 2009 respectively).  The Company realized a negative cash flow from operating activities of $1,553,863 for the nine months ended September 30, 2010 ($3,396,499 for the nine months ended September 30, 2009).  At September 30, 2010 there is an accumulated deficit of $17,737,662 (December 31, 2009 - $16,787,208) and a working capital deficiency of $845,823 (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 dependent 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 expects to improve its financial position and enhance its liquidity by focusing on the development of its Perfume.com business and generating cash by financing through debt or equity and selling domain names if necessary.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


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

Principles of consolidation
The consolidated financial statements include the accounts of the Company, its wholly owned subsidiary Perfume Inc., its wholly owned subsidiary LCM Cricket Ventures, and until September 28, 2010 its 98.2% interest in its subsidiary DHI and after September 28, 2010 its 100% interest in DHI.  All intercompany balances and transactions are eliminated on consolidation.

Use of estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of intangible assets, fair value measurements, 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.

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 the period and is not presented where the effect is anti-dilutive.  The other potential common stock includes 2,520,000 options and 9,204,688 warrants as disclosed in Note 11.
 
 
9

 
 
Live Current Media Inc.
Notes to the Consolidated Financial Statements
For the nine months ended September 30, 2010

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)


Foreign currency transactions
The consolidated financial statements are presented in United States dollars.  The functional currency of the Company is 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 loss.  There was no effect to comprehensive loss related to the share conversion with DHI.

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

Comprehensive 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 the goods are 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.  Gains are 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.  During the nine months ended September 30, 2010, there was one outright sale of a domain name.  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.  During the nine months ended September 30, 2010, there was one sales-type lease for one domain name which was recorded in full as all installment payments were all received during the period.  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 as they were collectible during 2010.  All of the installments for these domain names were received by June 30, 2010 and the gains on these sales were recorded in full by that date.   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.
 
 
 
10

 
 
Live Current Media Inc.
Notes to the Consolidated Financial Statements
For the nine months ended September 30, 2010
 
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)


Accounts receivable and allowance for doubtful accounts
The Company’s accounts receivable balance consists primarily of amounts receivable on a sale of a domain name, goods and services taxes (GST) and harmonized sales taxes (HST) receivable, and advertising 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 September 30, 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 September 30, 2010 is recorded at cost of $14,274 (December 31, 2009 - $28,714) and represents inventory in transit from the supplier to the customer.

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

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

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

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 September 30, 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.
 
 
11

 
 
Live Current Media Inc.
Notes to the Consolidated Financial Statements
For the nine months ended September 30, 2010

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)


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

In accordance with ASC 350-20 and the Company’s policy to assess the carrying value of goodwill annually as noted above, the Company performed this assessment at the December 31, 2009 fiscal year end.  At that date, the Company determined that the business acquired was never effectively integrated into the reporting unit it was assigned to, Perfume.com.  Since the benefits of the acquired goodwill were never realized by the rest of the reporting unit, and the use of the other aspects of the business acquired have ended, the Company has determined that an impairment charge of $2,539,348 relating to the goodwill acquired pursuant to the merger with Auctomatic was required.  See also Note 7.  The balance of $66,692 of goodwill relates to the issuance of shares of DHI in exchange for intercompany debt in early 2008.  See 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 $79,286 for the three months and $268,362 for the nine months ended September 30, 2010, respectively ($111,617 for the three months and $348,101 for the nine months ended September 30, 2009 respectively) is included in “Corporate Marketing” and “eCommerce Marketing” on the Company’s consolidated statements of operations.

Non-controlling interest
The consolidated financial statements include the accounts of Perfume Inc., and DHI (and its subsidiaries).  All intercompany accounts and transactions have been eliminated upon consolidation.  The Company has recorded 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 until the repurchase of fractional shares from non-controlling shareholders on September 28, 2010.  After this date, there is no longer any non-controlling interest.  See Notes 4 and 5.

Stock-based compensation
Beginning on July 1, 2007, the Company began accounting for stock options under the provisions of ASC 718, Stock Compensation, which require 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.
 
 
12

 
 
Live Current Media Inc.
Notes to the Consolidated Financial Statements
For the nine months ended September 30, 2010
 
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)


Stock-based compensation (continued)
In August 2007, the Company’s Board of Directors approved a stock incentive plan to make available 5,000,000 shares of common stock for the grant of stock options, including incentive stock options.  Incentive stock options may be granted to 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 stock incentive 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.

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.  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”) 2010-13
In April 2010, the FASB issued ASU 2010-13, Compensation – Stock Compensation (Topic 718), amending ASC 718. ASU 2010-13 clarifies that a share-based payment award with an exercise price denominated in the currency of a market in which the entity’s equity securities trade should not be classified as a liability if it otherwise qualifies as equity.  ASU 2010-13 also improves GAAP by improving consistency in financial reporting by eliminating diversity in practice.  ASU 2010-13 is effective for interim and annual reporting periods beginning after December 15, 2010.  The Company is currently evaluating the impact of ASU 2010-13, but does not expect its adoption to have a material impact on the Company’s financial reporting and disclosures.

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.  Its adoption did not have a material impact on the Company’s financial reporting and disclosures.
 
 
 
13

 
 
Live Current Media Inc.
Notes to the Consolidated Financial Statements
For the nine months ended September 30, 2010
 
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)


Recently Issued Accounting Pronouncements (continued)

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 adopted ASU 2010-06 during the March 2010 quarter.  Its adoption did not 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.

NOTE 3 – FINANCIAL INSTRUMENTS


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

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

Concentration of credit risk
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents, trade accounts receivable and a receivable from a 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 2, the Company adopted all provisions of ASC 820, as amended by ASU 2010-06, 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 a 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
 
 
14

 
 
Live Current Media Inc.
Notes to the Consolidated Financial Statements
For the nine months ended September 30, 2010
 
NOTE 3 – FINANCIAL INSTRUMENTS (continued)


Fair values of Financial Instruments (continued)

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 September 30, 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)
 
                     
$9,165     -     $9,165      -  
 
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, severance payable, bonuses payable, amounts due to former shareholders of DHI, amounts due to shareholders of Auctomatic, convertible notes due to shareholders of Auctomatic, notes due to shareholders of Auctomatic, and warrants.  The Company believes that the recorded values of all of its financial instruments approximate their fair values because of their nature and respective durations.

NOTE 4 – RESTRUCTURING OF SUBSIDIARY AND OPERATIONS


Until September 28, 2010, DHI had 62,635,383 shares of common stock issued and outstanding, of which 61,478,225 shares, or approximately 98.2% of the outstanding shares, were held by Live Current.  On this date, DHI held a special meeting of its shareholders and approved the consolidation of all issued and outstanding common shares in the capital of DHI on a 1,000,000:1 basis and the repurchase by DHI of any fractional common shares resulting from the consolidation.  As a result of this consolidation, DHI has 61 common shares issued and outstanding, all owned by Live Current.  See also Note 5.  The repurchase of fractional common shares from former DHI shareholders totals an accrued amount of $32,741 that has been included in the consolidated financial statements as Due to Former Shareholders of DHI.  See Note 5.

NOTE 5 – NON-CONTROLLING INTEREST


Per Note 4, until September 28, 2010, the Company held 98.2% of the issued and outstanding shares of its then principal operating subsidiary, DHI.  The consolidation of the issued and outstanding common shares in the capital of DHI on this date resulted in the Company holding 100% of DHI at September 28, 2010.

The balance of the non-controlling interest (“NCI”) at December 31, 2009 was $28,353 due to DHI’s 2009 income.  DHI’s loss for the period ended September 28, 2010 resulted in a balance of $18,428 in NCI at September 28, 2010.  At this date, DHI repurchased the fractional common shares owned by the minority shareholders.  As a result, DHI owes the prior minority shareholders $32,741 for their fractional common shares, and at September 28, 2010, there is no longer any balance in the NCI as there are no longer any minority shareholders of DHI.

The goodwill of $66,692 remains on the balance sheet as it resulted from the 2008 conversion of intercompany debt between DHI and Live Current accounted for using the purchase method.
 
 
15

 
 
Live Current Media Inc.
Notes to the Consolidated Financial Statements
For the nine months ended September 30, 2010
 
NOTE 6 – GLOBAL CRICKET VENTURE


On April 16, 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 expenses 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 sold the domain name cricket.com, along with the associated website, content, copyrights, trademarks, and related assets, to Mauritius, for consideration of four equal payments of $250,000.  All of these installments were received by June 30, 2010.  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 until April 1, 2010.

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 provided by the Company to Mauritius during the Transition Period, were recognized over the six month Transition Period, or from September 2009 to February 2010.  At the 2009 year end, the Company recorded the first two $250,000 installments 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.  There was no effect to the consolidated financial statements after March 31, 2010.
 
 
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: 2010 Recognized gain on sales-type lease of cricket.com              (500,000
                 
Deferred gains of amounts regarding Global Cricket Venture at September 30, 2010
          $ -  
 
 
During the year ended December 31, 2009, the Company recognized four months’ gain on the first installment and one month’s gain on the second installment 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 installment and the remaining two months’ gain on the second installment.  During this period, the Company also reported the third installment 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 installment was not reasonably assured until it was received, it was reflected in the consolidated financial statements in the second quarter of 2010.  Therefore, the cricket.com domain name was transferred to the buyer and was disposed of in the consolidated financial statements at June 30, 2010.  The consolidated financial statements for the nine month period ended September 30, 2010 include a gain on disposal of cricket.com of $700,623.  The consolidated financial statements for the year ended December 31, 2009 included a gain on disposal of cricket.com of $250,000.
 
 
16

 
 
Live Current Media Inc.
Notes to the Consolidated Financial Statements
For the nine months ended September 30, 2010
 
NOTE 7 – MERGER AGREEMENT


On March 25, 2008, the Company through its wholly owned subsidiary, Perfume Inc., entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Entity, Inc. (“Auctomatic”).  The Merger Agreement was consummated on May 22, 2008 (the “Closing Date”).  The consideration was paid as follows: (i) 340,001 shares of the Company’s 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 (the “Convertible Note Holders”) covering $424,934 of the total $800,000.  These convertible notes were interest bearing at 10% per annum, with such interest accruing as of May 22, 2009 and payable quarterly in arrears.  The convertible notes matured on May 22, 2010.  The interest payments payable quarterly were paid, however no payments of principal on these convertible notes have been made.

On May 26, 2010, the Company completed an offer to the twelve Convertible Note Holders.  Seven of the Convertible Note Holders accepted the offer (the “New Note Holders”).  The New Note Holders agreed to the cancellation of their convertible notes, which represented a total principal amount of $138,494, and accepted new promissory notes (the “May 2010 Notes”) in place of their convertible notes.  The May 2010 Notes require the Company to make payments of principal plus 8% interest over a period of three years.  The payments of principal and interest will be made in 12 equal installments on a quarterly basis, beginning on June 1, 2010.  Any unpaid principal and accrued interest must be paid on the maturity date, which is May 22, 2013.  The principal amount may be prepaid by the Company, in whole or in part, at any time or from time to time, without premium or penalty due. There is no convertible feature to these notes.  The remaining five Convertible Note Holders did not accept the offer of new notes.  The Company has continued to accrue interest at 10% per annum per the terms of the convertible notes.  The breakdown of the amounts due to the Convertible Note Holders and the New Note Holders at September 30, 2010 is as follows:

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  
Interest accrued April 1 – June 30, 2010
    9,036  
Interest paid up to June 30, 2010
     (10,592
Convertible notes cancelled May 26, 2010
    (138,494 )
         
Balance, June 30, 2010
    289,450  
Interest accrued July 1 – September 30, 2010
    7,192  
Balance, September 30, 2010
  $ 296,642  
 
 
 
17

 
 
Live Current Media Inc.
Notes to the Consolidated Financial Statements
For the nine months ended September 30, 2010
 
NOTE 7 – MERGER AGREEMENT (continued)


Notes to Shareholders of Auctomatic
 
Notes issued May 26, 2010
  $ 138,494  
Interest accrued May 26, 2010 – June 30, 2010
    1,104  
Principal payments made up to June 30, 2010
    ( 12,565 )
Interest paid up to June 30, 2010
    ( 303 )
Balance, June 30, 2010
    126,730  
         
Interest accrued July 1, 2010 – September 30, 2010      2,473  
Principal payments made up to September 30, 2010
    ( 11,130 )
Interest paid up to September 30, 2010
    ( 1,739 )
Balance, September 30, 2010
  $ 116,334  
         
Consists of:
       
    Current portion
  $ 51,475  
    Long-term portion
    64,859  
    $ 116,334  

Due to Shareholders of Auctomatic

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 paid 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 as detailed below.

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
    ( 77,823 )
Balance, September 30, 2010
  $ 40,841  

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.
 
 
18

 
 
Live Current Media Inc.
Notes to the Consolidated Financial Statements
For the nine months ended September 30, 2010

NOTE 8 – PROPERTY & EQUIPMENT


September 30, 2010
 
Cost
   
Accumulated Amortization
   
Net Book Value
 
Office Furniture and Equipment
  $ 169,247     $ 74,516     $ 94,731  
Computer Equipment
    56,479       27,973       28,506  
Leasehold Improvements
    143,981       92,776       51,205  
    $ 369,707     $ 195,265     $ 174,442  

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  

The computer software that existed at December 31, 2009 related to cricket.com.  During the second quarter of 2010, all assets related to the sale of cricket.com, which was completed in the quarter, were disposed of at net book value, including the computer software, which resulted in no gain or loss on disposal.

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.

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.

 
 
September 30,
2010
   
December 31,
2009
 
Website Development Costs
  $ 437,843     $ 359,929  
Less: Accumulated Amortization
    (197,202 )     (142,046 )
    $ 240,641     $ 217,883  

The Company capitalized website development costs of $124,350 in the nine months ended September 30, 2010 (year ended December 31, 2009 - $47,804) and recorded $78,374 in accumulated amortization during the nine months ended September 30, 2010 (year ended December 31, 2009 - $123,395).  The Company expensed website development costs of $46,436 and corresponding accumulated amortization of $23,218 related to a domain name that was sold during the period.

NOTE 10 – DEFERRED LEASE INDUCEMENTS


 
 
 
September 30,
2010
   
December 31,
2009
 
Deferred Lease Inducements
  $ 40,276     $ 55,379  
Less: Current Portion
    (20,138 )     (20,138 )
    $ 20,138     $ 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.
 
 
19

 
 
Live Current Media Inc.
Notes to the Consolidated Financial Statements
For the nine months ended September 30, 2010
 
NOTE 11 – COMMON STOCK


b) 
Issued

At September 30, 2010, 30,392,316 (December 31, 2009 – 24,026,180) shares were issued and outstanding.

2010

On June 25, 2010, the Company issued 416,136 shares of its common stock with a value of $42,071 to one of its officers, pursuant to a Settlement Agreement and Release as disclosed in Note 18.

On July 23, 2010, the Company completed the first closing of an offering of units.  Each unit consisted of 50,000 shares of our common stock and a 2 year warrant to purchase 50,000 shares of our common stock at an exercise price of $0.15 per share.  The purchase price for each unit was $5,000.  As a result of this offering, the Company sold 74 units to 6 investors and issued a total of 3,700,000 shares of its common stock for gross proceeds of $370,000.  See Note 11(e).

On August 4, 2010, the Company completed the second and final closing to the offering of units.  As a result of the second closing, the Company sold 45 units to 6 investors and issued a total of 2,250,000 shares of its common stock for gross proceeds of $225,000.  Total share issue costs paid in relation to these two closings were $4,170.  See Note 11(e).

2009

On January 2, 2009, the Company issued 15,000 shares of its common stock 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.

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 installments on the three anniversary dates of the consummation of the merger, contingent on the continued employment of the founders 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 issuable.  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).
 
 
20

 
 
Live Current Media Inc.
Notes to the Consolidated Financial Statements
For the nine months ended September 30, 2010

NOTE 11 – COMMON STOCK (continued)


c) 
Reserved (continued)

Former President

Effective January 31, 2009, Jonathan Ehrlich, 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 the Company’s former President and Chief Operating Officer 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, he 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
141.57%
97.02%-124.52%
Risk free interest rate
0.90%
1.29%-1.70%
Expected lives
3.375 years
3.375 years

 
 
(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 now 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 was expensed in the first quarter of 2009.

 
(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 and to date in 2010, 10,000 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.
 
 
 
21

 
 
Live Current Media Inc.
Notes to the Consolidated Financial Statements
For the nine months ended September 30, 2010
 
NOTE 11 – COMMON STOCK (continued)


d) 
Stock Options (continued)

 
(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.  To date in 2010, 25,000 options were forfeited.

 
(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.

 
(vii) 
On August 11, 2010, the Company granted to one of its full-time executives a total of 1,000,000 stock options at an exercise price of $0.10 per share.  These options have a fair value of $0.08 per option.

 
(viii) 
On August 11, 2010, the Company granted to two of its full-time employees a total of 35,000 stock options at an exercise price of $0.10 per share.  These options have a fair value of $0.08 per option.

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 September 30, 2010 of $4,711,387 (year ended December 31, 2009 - $5,013,896) is recognized on a straight-line basis over a vesting term of 3.375 years and an expense has been recognized in the nine months ended September 30, 2010 of $675,099 (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 installments 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 the date of grant and accordingly, an expense was recognized in the year ended December 31, 2009 of $105,672 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 has been no related expense in 2010.
 
 
 
22

 
 
Live Current Media Inc.
Notes to the Consolidated Financial Statements
For the nine months ended September 30, 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
    1,035,000       0.10       0.08  
Exercised
    -       -       -  
Forfeited or expired
    (1,360,000 )     0.64       1.28  
Options outstanding, September 30, 2010
    2,520,000       0..41       0.90  
                         
Options vested at September 30, 2010
    1,399,584       0.64       1.53  
                         
Aggregate Intrinsic Value
  $ 0                  
Weighted average remaining life
 
3.24 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 on 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 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.  The warrants expired on May 1, 2010.
 
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 June 30, 2010 was $43,397 (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 are 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 nine month period ended September 30, 2010, the decrease to the fair value of the warrants was $241,545 which was charged to corporate general and administrative expenses during the period.  The fair value of the warrants at September 30, 2010 is $9,165.

On July 23, 2010, the Company completed the first closing of a private placement.  Each unit consisted of the right to purchase 50,000 shares of common stock and a warrant to purchase 50,000 shares of common stock at an exercise price of $0.15 per share.  The warrants have a term of 2 years.  Each unit was sold at a price of $5,000 and the Company raised a total of $370,000.  As a result of this offering, the Company issued a total of 3,700,000 shares of common stock and warrants for the purchase of 3,700,000 shares of common stock.  These warrants were valued using the Black Scholes option pricing model with the following assumptions: no dividend yield; expected volatility rate of 175.92%; risk-free interest rate of 3.66% and a term of 2 years.  This resulted in a fair value of $160,950 for these warrants, which has been included in equity in the consolidated financial statements.
 
 
 
23

 
 
Live Current Media Inc.
Notes to the Consolidated Financial Statements
For the nine months ended September 30, 2010
 
NOTE 11 – COMMON STOCK (continued)


e) 
Common Stock Purchase Warrants (continued)

On August 4, 2010, the Company completed the second and final closing to the offering of units.  As a result of the second closing, the Company raised $225,000 and issued a total of 2,250,000 shares of common stock and warrants for the purchase of 2,250,000 shares of common stock.  These warrants were valued using the Black Scholes option pricing model with the following assumptions: no dividend yield; expected volatility rate of 175.92%; risk-free interest rate of 3.66% and a term of 2 years.  This resulted in a fair value of $97,875 for these warrants, which has been included in equity in the consolidated financial statements.

As of September 30, 2010, 9,204,688 warrants (December 31, 2009 - 3,304,688 warrants) to purchase the Company’s common stock remain outstanding as follows:
 
         
Weighted
 
 
       
Average
 
         
Exercise Price
 
Warrants
  Outstanding     $  
Warrants outstanding, December 31, 2007
    1,000,000       1.25  
Granted May 1, 2008
    50,000       2.33  
Granted November 19, 2008
    1,627,344       0.78  
Granted November 19, 2008
    1,627,344       0.91  
Warrants outstanding and exercisable
         December 31, 2008
    4,304,688       0.96  
Granted
    -       -  
Cancelled or expired
    (1,000,000 )     1.25  
Warrants outstanding and exercisable
         December 31, 2009
    3,304,688       0.87  
Granted
    5,950,000       0.15  
Cancelled or expired
    (50,000 )     2.33  
Warrants outstanding and exercisable
         September 30, 2010
    9,204,688       0.40  
                 
Weighted average remaining life
 
1.40 Years
         

As of September 30, 2010, the expiry dates of the warrants outstanding are as follows:

     
Exercise Price
 
 
Outstanding    
$
  Date of Expiry
  1,627,344       0.78  
  November 19, 2010
  1,627,344       0.91  
  November 19, 2011
  3,700,000       0.15  
July 23, 2012
  2,250,000       0.15  
August 4, 2012
               
  9,204,688            

NOTE 12 – DOMAIN NAME LEASES AND SALES

 
2010

On April 6, 2010, 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 net amount of $150,000 to be paid in equal installments due April 15, 2010, May 15, 2010 and June 15, 2010.  The Company leased the domain name to the purchaser exclusively during the term of the agreement.  Title and rights to the domain name were transferred to the purchaser when full payment was received at the end of the lease term.  All installments were received and the Company transferred the domain name during the quarter ended June 30, 2010.
 
 
24

 
 
Live Current Media Inc.
Notes to the Consolidated Financial Statements
For the nine months ended September 30, 2010
 
NOTE 12 – DOMAIN NAME LEASES AND SALES (continued) 


2010 (continued)

On September 28, 2010, the Company entered into an agreement to sell one of its domain names to an unrelated third party for $60,000.  The collectability of the funds were reasonably assured at quarter end, therefore $60,000 was reported as an accounts receivable at September 30, 2010, and a gain of $21,583 was reported in the third 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 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 installments of $120,000 each (less commission) were due on March 31, 2010, April 30, 2010, and May 31, 2010.  The Company agreed to lease the domain name to the purchaser exclusively during the term of the agreement.  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, as it was received after quarter end, and therefore recorded as a gain on sale of a domain name during the first quarter of 2010.  The third and final payments were received during the second quarter of 2010 and therefore recorded as a gain in full during the period.

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 installment of $250,000 received during the third quarter of 2009 and recognized the second installment of $250,000 during the fourth quarter of 2009.  This second installment was not received by year end, however collectability of the funds was reasonably assured and therefore reported in the calculation of the gain at year end.  These amounts were included in the Company’s analysis under ASC 605-25 as disclosed in Note 6.  Therefore four-sixths of the first installment of $250,000, or $166,667, and one-third of the second installment 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 installment of $250,000, or $83,333, and the remaining two-thirds of the second installment of $250,000, or $166,667, during the first quarter of 2010.  During this period, the Company also reported the third installment 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.

In July 2009, the Company sold three domain names for $725,000 less 10% commission.  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.  The first three payments were received during the first two quarters of 2009, and therefore $355,000 was recorded as a gain on sales-type lease of domain name in the consolidated financial statements.  In May 2009, the purchaser breached the agreement.  As a result, the purchaser forfeited the $355,000 that had already been paid to the Company as of that date.  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.
 
 
 
25

 
 
Live Current Media Inc.
Notes to the Consolidated Financial Statements
For the nine months ended September 30, 2010

NOTE 12 – DOMAIN NAME LEASES AND SALES (continued) 


2009 (continued)

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 the second quarter of 2010, the Company incurred $144,240 in severance costs payable to its former VP General Counsel and its former VP Finance as a result of an additional restructuring of the Company’s staffing requirements.  There were no similar costs in the third quarter of 2010.  In the first quarter of 2009, the Company incurred similar 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 a restructuring of the Company’s staffing requirements.

NOTE 14 – INCOME TAXES


The Company’s operating subsidiary DHI, as well as its subsidiary Importers (until its wind up in 2010), are subject to federal and provincial taxes in Canada.  The Company and its subsidiary, Perfume Inc., are subject to United States federal and state taxes.

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

The Company has a deferred tax liability related to potential taxes owing on potential gains on disposal of our domain name intangible assets.  U.S. 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 $94,610 at September 30, 2010 ($125,207 – at December 31, 2009).  The deferred tax recovery during the nine months ended September 30, 2010 was $30,597 (year ended December 31, 2009 - $81,163).

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 nine months ended September 30, 2010 as well as during the year ended December 31, 2009, and therefore no geographic segment reporting is required.
 
 
 
 
 
26

 
 
Live Current Media Inc.
Notes to the Consolidated Financial Statements
For the nine months ended September 30, 2010
 
NOTE 15 – SEGMENTED INFORMATION (continued)


Revenues, operating profits and net identifiable assets by business segments are as follows:
 
   
Advertising
   
eCommerce
       
   
& Other
   
Products
    Total  
For the nine months ended September 30, 2010
    $       $       $  
Revenue
    61,104       2,173,479       2,234,583  
Segment Loss
    (860,782 )     (1,384,762 )     (2,245,544 )
                         
As at September 30, 2010
    $       $       $  
Total Assets
    1,162,780       626,681       1,789,461  
Intangible Assets
    568,922       158,849       727,771  
                         
                         
   
Advertising
   
eCommerce
       
   
& Other
   
Products
    Total  
For the nine months ended September 30, 2009
    $       $       $  
Revenue
    333,409       4,881,614       5,215,023  
Segment Loss
    (1,017,954 )     (2,422,934 )     (3,440,888 )
                         
As at September 30, 2009
    $       $       $  
Total Assets
    1,772,290       921,669       2,693,959  
Intangible Assets
    804,284       158,849       963,133  

The reconciliation of the segment loss from operations to net loss as reported in the consolidated financial statements is as follows:
 
   
For the 
nine months
ended
   
For the 
nine months
ended
 
   
September 30,
2010
   
September 30,
2009
 
Segment Loss
  $ (2,245,544 )   $ (3,440,888 )
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
    1,041,421       2,101,421  
Accretion expense
    -       (63,300 )
Interest expense
    (29,348 )     (15,251 )
Interest and investment income
    306       1,558  
Foreign exchange gain
    (2,822     (79,357
Loss of disposal of property and equipment
    (13,492 )     -  
Gain on restructure of Auctomatic payable       -        29,201  
Impairment of auction software
    -       (590,973 )
Net income (loss) before taxes for the period
  $ (999,479