PART I – FINANCIAL INFORMATION
Item 1: Financial Statements.
| CONSOLIDATED BALANCE SHEETS |
| CONSOLIDATED STATEMENTS OF OPERATIONS |
| CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) |
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| 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 |
| 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 |
| 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 |
| 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 | $ | - |
| Office Furniture and Equipment | 20 | % |
| Computer Equipment | 30 | % |
| Computer Software | 100 | % |
| 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 | - |
| 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 | $ | - |
| 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 |
| 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 |
| 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 |
| 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 |
| September 30, 2010 | December 31, 2009 |
| Website Development Costs | $ | 437,843 | $ | 359,929 |
| Less: Accumulated Amortization | (197,202 | ) | (142,046 | ) |
| $ | 240,641 | $ | 217,883 |
| September 30, 2010 | December 31, 2009 |
| Deferred Lease Inducements | $ | 40,276 | $ | 55,379 |
| Less: Current Portion | (20,138 | ) | (20,138 | ) |
| $ | 20,138 | $ | 35,241 |
| a) | Authorized |
| b) | Issued |
| c) | Reserved |
| c) | Reserved (continued) |
| d) | Stock Options |
| 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. |
| 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. |
| d) | Stock Options (continued) |
| 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 |
| e) | Common Stock Purchase Warrants (continued) |
| 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 |
| 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 |
| 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 |
| 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 | ) | $ | (1,682,589 | ) |
| CDN $ |
| Remainder of 2010 | 6,010 |
| 2011 | 25,375 |
| 2012 | 22,036 |

30
Item 2: Management’s discussion and analysis of financial condition and results of operations
(a) Forward Looking Statements
The Company makes forward-looking statements in this report and may make such statements in future filings with the Securities and Exchange Commission. The Company may also make forward-looking statements in its press releases or other public shareholder communications. Its forward-looking statements are subject to risks and uncertainties and include information about its expectations and possible or assumed future results of operations. When management uses any of the words “believes”, “expects”, “anticipates”, “estimates” or similar expressions, it is making forward-looking statements.
While management believes that our forward-looking statements are reasonable, you should not place undue reliance on any such forward-looking statements, which speak only as of the date made. Because these forward-looking statements are based on estimates and assumptions that are subject to significant business, economic and competitive uncertainties, many of which are beyond management’s control or are subject to change, actual results could be materially different. Factors that might cause such a difference include, without limitation, the following: the Company’s inability to generate sufficient cash flows to meet its current liabilities, its potential inability to retain qualified management, sales and customer service personnel, the potential for an extended decline in sales as a result of the recession in the U.S., the possible failure of revenues to offset additional costs associated with any changes in our business model, including our planned change from a discount to a luxury website, the potential lack of acceptance by consumers of business websites we create in the future, the Company’s potential inability to create new businesses around domain names, the potential loss of customer or supplier relationships, the potential failure to receive or maintain necessary regulatory approvals, if needed, the extent to which competition may negatively affect prices and sales volumes or necessitate increased sales or marketing expenses, and the other risks and uncertainties set forth in this report.
Other factors not currently anticipated by management may also materially and adversely affect our results of operations. Except as required by applicable law, management does not undertake to publicly release revisions to any forward-looking statements to reflect events or circumstances occurring after the date of this report.
Readers of this report should not rely solely on the forward-looking statements and should consider all risks and uncertainties throughout this report, as well as those discussed under “Item 1 Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2009.
The following discussion should be read in conjunction with our interim consolidated financial statements and their explanatory notes, which are included in Item 1.
(b) Business Overview
Through our subsidiary, Domain Holdings Inc. (“DHI”), we own more than 900 domain names covering a range of categories including health and beauty, sports and leisure, “bound.com” domain names such as Shoppingbound.com, Pharmacybound.com and Vietnambound.com, and “.cn” (China) domain names.
We generate almost all of our revenues from Perfume.com. Through our website at www.perfume.com, we sell brand name fragrances and skin care products directly to consumers. Some of our other websites generate nominal revenues from the sale of “pay-per-click” advertising.
Perfume.com sells 100% authentic products and provides customers with a satisfaction guarantee. While we are currently using two suppliers to ship customer orders, we are not dependent on those suppliers for the products that we sell. The products are supplied by various wholesale suppliers located in the United States and new suppliers can be utilized by simply turning on their electronic inventory feeds. In 2008, we began shipping our Perfume.com products to selected international markets. Until then, we shipped only to delivery addresses located in the United States. Sales to non-U.S. locations, mostly to addresses in Canada and the United Kingdom, have been immaterial since 2008 and are not disclosed separately.
Our Perfume.com website has historically sold brand name fragrances and skin care products directly to consumers at discounted prices well below their manufacturers’ suggested retail prices (“MSRP”). Recently, our former management decided to implement a new business plan of selling products only at MSRP and to redesign our website just as we headed into our busiest selling season. Our sales continued to decline under this plan and our former management’s direction. As we do not have the financial resources to fully execute this business plan, we have suspended it and intend to re-focus the business on the discount model while we assess previous management’s MSRP model and re-formulate our business plan.
31
Our products are described in detail on our website. We offer our products through an easily navigated website within a transaction-secure environment accepting the usual modes of secure credit card payments, PayPal and Google Checkout. Products can also be ordered using our toll-free telephone number.
We employ seven full-time salaried employees, four hourly employees, and one consultant in addition to our chief executive officer. Our principal office is located at #307-780 Beatty Street, Vancouver, British Columbia. We also lease an office at 350 Clark Drive, Mt Olive, New Jersey. This lease will terminate at the end of February 2011. We do not intend to renew this lease.
During 2008, 2009, and the nine month period ended September 30, 2010, our revenues were not sufficient to support our operations. We expect to make significant progress by cutting costs but will continue to generate losses from operations for the foreseeable future. Since the end of the 2008 fiscal year, there have been many challenges in raising capital through the sale of our securities and these challenges are on-going. Financing opportunities have become more expensive and difficult to find. As a result, management sold some of our non-core domain names to raise funds. In 2009, we sold eleven domain names, including Cricket.com, for almost $4.2 million. In the first three quarters of 2010 we sold two domain names for $210,000. We may elect to sell more non-core domain names if the opportunity arises. The proceeds from any future sales will help meet our working capital needs as we work to achieve positive cash flows.
In 2008, we had a significant net loss and significant cash outflows. In late 2008 and early 2009 we instituted cost-cutting measures, which continue to this date. These include laying off staff and terminating consulting and investor relations contracts. As a result of these efforts, our net cash outflows are continuing to decrease.
Our former chief executive officer amended his employment agreement to reduce his annual base salary from CDN$300,000 to CDN$120,000 effective February 1, 2009, agreed that the eight months of salary payable between February 1 and September 30, 2009, which totalled CDN$80,000, would be decreased to CDN$72,000, and further reduced his salary on July 23, 2010 to CDN$1 per year. He resigned on October 14, 2010.
For the immediate future, we do not anticipate independently developing technologies, processes, products or otherwise engaging in research, development or similar activities. Instead, if we find these activities to be necessary to our business, we intend to enter into relationships with strategic partners who conduct such activities.
RECENT DEVELOPMENTS
Changes in Management and Board of Directors
The annual meeting of our stockholders was held on Tuesday, October 12, 2010. The final voting results for each of the proposals submitted to the vote of our stockholders were certified by the independent inspector of elections on Friday, October 15, 2010. The vote resulted in the election of a new board consisting of seven directors as of October 15, 2010: David Jeffs, Susan Jeffs, Cameron Pan, John da Costa, Carl Jackson, Adam Rabiner and Amir Vahabzadeh. C. Geoffrey Hampson resigned as our chief executive officer on October 14, 2010. On October 15, 2010, the new board appointed David Jeffs as our chief executive officer, chief financial officer, secretary and treasurer of the Company. He was subsequently appointed to replace C. Geoffrey Hampson as an officer of our subsidiaries.
Mr. Jeffs has agreed to accept compensation of $1 per year and the recovery of his out-of-pocket expenses until he has determined our financial condition and re-formulated our business plan.
Unit Offering
On July 23, 2010 we completed the first closing of an offering of units. Each unit consisted of 50,000 shares of our common stock and a warrant to purchase 50,000 shares of our common stock at an exercise price of $0.15 per share for two years. Each unit was sold for $5,000. As a result of this offering, we raised $370,000 and issued 3,700,000 shares of our common stock and warrants for the purchase of 3,700,000 shares of our common stock.
On August 4, 2010 we completed the second and final closing to the offering of units. As a result of the second closing, we raised $225,000 and issued 2,250,000 shares of common stock and warrants for the purchase of 2,250,000 shares of common stock.
32
The units have not been registered under the Securities Act of 1933 and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements.
Perfume.com
At the end of the third quarter, our former management decided to transfer Perfume.com and all of the assets and business associated with it to a wholly owned subsidiary, Perfume.com Inc., a Delaware company that was formed for the purpose of merging with Auctomatic. None of the assets had been transferred by the time that our new management assumed office on October 15, 2010. As we do not have the financial resources to execute the business plan for which this transaction was structured, the parties have rescinded the transaction as of September 28, 2010 and are reviewing the options in conjunction with the formulation of a new business plan.
Reverse Stock Split in Domain Holdings Inc.
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. The repurchase of fractional common shares from former DHI shareholders resulted in our accrual of $32,741 due to the former shareholders of DHI, which has been adjusted to the NCI and to our additional paid-in capital during the quarter. See Note 5 to our consolidated financial statements.
Exit from Karate LLC
On May 15, 2009, we signed an agreement with Domain Strategies, Inc., an internet development and management company, and Develep, a partnership, to jointly establish Karate, LLC for the purpose of developing, managing and monetizing our Karate.com domain name. After additional consultation with Domain Strategies, Inc. and Develep, we agreed to discontinue this venture and on August 11, 2010, we signed a termination agreement pursuant to which the Karate.com domain name was returned to us. Karate, LLC is being dissolved.
Auctomatic
In August 2009, we reached an agreement with 12 of the 18 Auctomatic shareholders to convert $424,934 of the $800,000 payable to them into convertible notes (the “Convertible Notes”) bearing interest at 10% (the “Note Holders”). The payment due date was May 22, 2010. We have not yet repaid the Convertible Notes, however Note Holders representing a principal amount of $138,494 cancelled their Convertible Notes in exchange for new notes as disclosed below. We still owe the individuals who did not cancel their Convertible Notes principal of $286,440 plus accrued interest.
The remaining five Auctomatic shareholders, who represent a total principal amount of $375,066 of the original $800,000, did not accept this offer. The majority of this balance, or approximately $334,000, was owing to two founders of Auctomatic. In August 2009, we reached an agreement with these individuals to terminate their employment with us. Under their severance agreements, we agreed to pay the amounts owed to them as at August 2009 at a 10% discount to face value. We paid these amounts in installments. During the third quarter of 2009, we also paid them a total of $60,000 of severance costs due pursuant to the terms of their employment agreements. These severance costs were recovered through the agreement for support services described above. In consideration of these payments, these individuals 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 original agreement. As a result, we owe the other four Auctomatic shareholders $40,841 at September 30, 2010.
On May 26, 2010 we completed an offer to the Note Holders. Seven of the Note Holders accepted the offer and are referred to in this report as 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 us to make payments of principal plus 8% interest over a period of three years in 12 equal quarterly installments, beginning on June 1, 2010. We have paid the June 1, 2010 and September 1, 2010 installments. Any unpaid principal and accrued interest must be paid on the maturity date, which is May 22, 2013. We can prepay the principal amount, in whole or in part, at any time or from time to time, without premium or penalty due.
33
(c) Selected Financial Data
The following selected financial data were derived from our unaudited interim consolidated financial statements for the period ended September 30, 2010. The information set forth below should be read in conjunction with our financial statements and related notes included elsewhere in this report.
| Expressed in US Dollars | Three Months Ended | Three Months Ended | 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 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 | 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 | - | - | 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 | - | 125,000 | 250,000 | 375,000 |
| Gain from sales and sales-type lease of domain names | 21,583 | 1,156,554 | 1,041,421 | 2,101,421 |
| Accretion interest expense | - | - | - | (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 | - | - | - | (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 | 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 |

34
| BALANCE SHEET DATA |
| September 30, 2010 | December 31, 2009 |
| Assets |
| Current Assets | $ | 579,915 | $ | 1,214,924 |
| Property & equipment | 174,442 | 231,327 |
| Website development costs | 240,641 | 217,883 |
| Intangible assets | 727,771 | 963,133 |
| Goodwill | 66,692 | 66,692 |
| Total Assets | $ | 1,789,461 | $ | 2,693,959 |
| Liabilities |
| Current Liabilities | $ | 1,425,738 | $ | 2,431,249 |
| Deferred income tax | 94,610 | 125,207 |
| Deferred lease inducements | 20,138 | 35,241 |
| Warrants | 9,165 | 250,710 |
| Long-term portion of notes to shareholders of Auctomatic | 64,859 | - |
| Other long-term liabilities | 17,022 | - |
| Total Liabilities | 1,631,532 | 2,842,407 |
| Stockholders' Equity (Deficit) |
| Common Stock | 21,701 | 15,335 |
| Common stock purchase warrants | 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 | - | 28,353 |
| Total Stockholders' Equity (Deficit) | 157,929 | (148,448 | ) |
| Total Liabilities and Stockholders' Equity | $ | 1,789,461 | $ | 2,693,959 |

(d) Results of Operations
Sales and Costs of Sales
Quarter over Quarter Analysis
Overall, combined sales in the third quarter of 2010 totaled $629,973 compared to combined sales of $1,757,736 in the third quarter of 2009, a decrease of 64.2%. This significant decrease was almost entirely driven by the decrease in sales at Perfume.com, as well as the fact that the third quarter of 2009 included $218,672 in sponsorship revenues that we do not expect to recur. Overall, our Perfume.com sales represented 99.1% of total revenues in the third quarter of 2010, compared to 97.4% of total revenues, not including sponsorship revenues, in the third quarter of 2009. As noted in the discussion titled “Health and Beauty eCommerce Sales” below, sales declined due to the changes we made to our website, the reduction in the number of products offered, and the increases in our prices as we began implementing our new marketing strategy in early 2010.
Costs of sales were $364,004 in the third quarter of 2010 compared to $1,183,479 during the third quarter of 2009, a decrease of 69.2%, consistent with the decline in revenues as noted above. This resulted in an overall gross margin in the third quarter of 2010 of $265,969, or 42.2%, compared to a gross margin of $574,257, or 32.7% including sponsorship revenues and $355,585, or 23.1% not including sponsorship revenues in the third quarter of 2009. This increase in the overall gross margin in the third quarter of 2010 over the third quarter of 2009 is primarily due to former management’s focus on increasing product sale prices and decreasing discounts on our Perfume.com website as discussed below.
Period over Period Analysis
Total sales reported for the year to date at September 30, 2010 decreased by $2,980,440, or 57.2%, including sponsorship revenues, over the same period of 2009. The decrease excluding sponsorship revenues was $2,761,768, or 55.3%. The decrease was primarily due to former management’s change in strategy in March 2010 that resulted in a decline in Perfume.com revenues. The decrease in costs of sales period over period of $2,489,804, or 64.1% is also consistent with the decline in our eCommerce business, which yielded higher gross margins for the period. Overall gross margin in the nine months ended September 30, 2010 was 37.5% compared to 25.5% including sponsorship revenues and 22.2% excluding sponsorship revenues in the same period last year.
35
Health and Beauty eCommerce Sales
Our Perfume.com sales result from the sale of fragrances and designer skin care products. Our health and beauty eCommerce product sales through our Perfume.com website accounted for nearly all of our eCommerce sales since 2008 and we expect that this will continue in the short term. While our margins have improved, our sales have declined dramatically due to former management’s strategy of decreasing the number of products offered, limiting discounts, and increasing our prices as it began implementing its new business plan in March 2010. We intend to review these policies and develop a business plan that seeks to increase sales and contain costs.
The following tables summarize our revenues and margins from the sale of health and beauty products during each quarter since January 1, 2009.
| Quarter Ended | Total Quarterly Sales | Average Daily Sales |
| March 31, 2010 | $ | 873,959 | $ | 9,711 |
| June 30, 2010 | 675,432 | 7,422 |
| September 30, 2010 | 624,088 | 6,784 |
| Fiscal Year-to-Date 2010 | $ | 2,173,479 | $ | 7,961 |
| March 31, 2009 | $ | 1,720,167 | $ | 19,113 |
| June 30, 2009 | 1,663,182 | 18,277 |
| September 30, 2009 | 1,498,265 | 16,285 |
| December 31, 2009 | 2,334,865 | 25,379 |
| Fiscal Year 2009 | $ | 7,216,479 | $ | 19,771 |
| Quarterly Gross | Quarterly Gross |
| Quarter Ended | Margins | Margin % |
| March 31, 2010 | $ | 243,113 | 27.8% |
| June 30, 2010 | 274,241 | 40.6% |
| September 30, 2010 | 260,084 | 41.7% |
| Fiscal Year-to-Date 2010 | $ | 777,438 | 35.8% |
| March 31, 2009 | $ | 333,548 | 19.4% |
| June 30, 2009 | 347,435 | 20.9% |
| September 30, 2009 | 314,786 | 21.0% |
| December 31, 2009 | 543,705 | 23.3% |
| Fiscal Year 2009 | $ | 1,539,474 | 21.3% |

Perfume.com revenues decreased to $624,088 in the third quarter of 2010 compared to $1,498,265 in the third quarter of 2009. Daily sales averaged $6,784 in the third quarter of 2010 compared to $16,285 per day in the third quarter of 2009. This decrease was due to former management’s shift in strategy away from discount pricing to full retail pricing. In 2008 and 2009, we focused on increasing revenues through pay-per-click advertising and the aggressive use of coupons and discounts which resulted in a decrease in our gross margin ratios. In 2009, the strategy changed to increase gross margins by limiting the use of discounts and coupons, and to increase the sales prices of products on our website in small increments. At the end of the first quarter of 2010, we altered the strategy and increased the selling prices to full MSRP. As a result, our margins increased, but our revenues declined substantially.
Our costs of shipping and purchases totaled $364,004 in the third quarter of 2010 as compared to $1,183,479 in the third quarter of 2009. This produced a gross margin of $260,084 or 41.7% in the third quarter of 2010, an increase of over 20 compared to $314,786 or 21.0% in the third quarter of 2009.
36
Period over Period Analysis
Perfume.com revenues decreased by 55.5% to $2,173,479 in the nine months ended September 30, 2010 from $4,881,614 in the same period of 2009. Daily sales of $7,961 in the first three quarters of 2010 are down from daily sales of $17,816 in the first three quarters of 2009. This decrease was due to former management’s shifting its focus to increasing gross margins at the expense of gross revenues by increasing its sales prices to MSRP. We do not expect to continue this strategy.
Our costs of shipping and purchases decreased by 64.1% to $1,396,041 in the nine months ended September 30, 2010 from $3,885,845 in the same period of 2009. This resulted in a gross margin during the first three quarters of 2010 of $777,438 or 35.8% compared to $995,769 or 20.4% in the first three quarters of 2009, a gain of over 15 percentage points for the period. Although our Perfume.com revenues decreased by over $2.7 million period over period, the dollar value of our gross margins only decreased by $218,331.
Over the next several quarters, management intends to seek equilibrium between sales prices and costs of sales for a healthier margin and an increase in sales rather than a decrease.
Advertising
Quarter over Quarter Analysis
In the third quarter of 2010, we generated advertising revenues of $4,342 compared to $19,345 in the third quarter of 2009, a decrease of $15,003 or 77.6%. Advertising revenues have decreased every quarter since 2008 primarily as a result of the termination of a large advertising contract in early 2008 due to its restrictive conditions, but also as a result of the sale of domain names from which we received advertising revenues. In the third quarter of 2010, advertising accounted for less than 1% of total revenues, a slight decrease compared to 1.1% of total revenues in the third quarter of 2009. We expect that advertising revenues will continue to account for a small percentage of total revenues in the next few quarters.
Period over Period Analysis
During the nine months ended September 30, 2010, our advertising revenues were $27,076 compared to $66,715 in the same period of 2009, a decrease of 59.4%. These revenues accounted for 1.2% of total revenues during the period ended September 30, 2010 consistent with 1.3% during the same period in 2009. As noted above, we have sold many of the domain names that earned advertising revenues during the last two years.
Sponsorship Revenues
In the third quarter of 2009, we collected revenues from sponsorships related to past cricket tournaments, totaling $218,672, that we earned under prior agreements relating to the Cricket.com website. We had no similar revenues in 2010.
Miscellaneous Income
In early 2009, we implemented a new cost-sharing arrangement with a related party whereby we would earn $6,000 per month for providing administrative, technical, and other services. Effective January 2010, the arrangement was reduced to $3,500 per month, and effective July 2010, it was further reduced to $1,500 per month. This arrangement ended effective August 31, 2010. This income was included in miscellaneous and other income on our consolidated statements of operations.
Domain Name Leases and Sales
By selling some of our domain names, we have raised funds in order to provide liquidity. We continue to evaluate expressions of interest from domain name buyers, and to search for other domain names that would complement either the advertising or eCommerce businesses. We completed 11 sales or sales-type leases of domain names in 2009, and one sales-type lease and one sale of a domain name in the nine months ended September 30, 2010.
General and Administrative
General and administrative expenses consist of costs for general and corporate functions, including facility fees, travel, telecommunications, investor relations, insurance, merchant charges, and professional fees. The following tables summarize our total general and administrative expenses, and the breakdown of our corporate and eCommerce general and administrative expenses during each quarter since January 1, 2009.
37
| Corporate | eCommerce | Total | As a % of |
| Quarter Ended | G&A | G&A | G&A* | Total Sales |
| March 31, 2010 | $ | 109,882 | $ | 76,661 | $ | 186,543 | 20.5% |
| June 30, 2010 | 280,523 | 62,904 | 343,427 | 49.3% |
| September 30, 2010 | 316,943 | 111,764 | 428,707 | 68.1% |
| Fiscal Year-to-Date 2010 Totals | $ | 707,348 | $ | 251,329 | $ | 958,677 | 42.9% |
| March 31, 2009 (as restated) | $ | 361,123 | $ | 80,220 | $ | 441,343 | 25.2% |
| June 30, 2009 | 176,532 | 73,668 | 250,200 | 14.7% |
| September 30, 2009 | 138,409 | 63,461 | 201,870 | 13.1% | ** |
| December 31, 2009 | 327,987 | 101,806 | 429,793 | 18.0% | ** |
| Fiscal Year 2009 Totals | $ | 1,004,051 | $ | 319,155 | $ | 1,323,206 | 17.9% | ** |

**Excluding Cricket.com sponsorship revenues
Quarter over Quarter Analysis
In the third quarter of 2010, we recorded total general and administrative expense of $428,707 or 68.1% of total sales as compared to $201,870 or 13.1% of total sales in the third quarter of 2009, not including any effect from sponsorship revenues, an increase of $226,837 or 112.4%. This total includes corporate and eCommerce related general and administrative costs. Although this quarter saw substantial general and administrative expenses, we expect general and administrative expenses to decrease as a percentage of revenue as the eCommerce business grows and as continued efforts are made to cut costs, and we expect to maintain general and administrative costs well below 20% of total sales.
Corporate general and administrative costs of $316,943 have increased from $138,409 in the third quarter of 2009 by $178,534, or 129%. Included in corporate general and administrative costs in the third quarter of 2010 were legal costs of approximately $167,700 that were incurred in relation to the consolidation of DHI shares, research and documentation required regarding the potential transfer of the Perfume assets from our Canadian subsidiary to our US subsidiary, and increased SEC filings relating to our annual general meeting. This accounted for most of the increase of our corporate general and administrative costs. Most of our expenses such as office rent, automobile expenses, financing, meals and entertainment, domain name renewals, office supplies, telephone and travel and accommodations decreased by approximately $79,700. However, these savings were offset by increased costs in the third quarter of 2010 over the third quarter of 2009 of approximately $7,800 in software costs and $48,300 in accounting costs. The revaluation of warrants to fair value at quarter end resulted in an increase to the expense in the third quarter of 2010 of approximately $35,500. We have also seen the Canadian dollar strengthen in 2010 against the US dollar, which has contributed to the increase in expenses reported in corporate general and administrative, since these expenses, such as rent expense are incurred in Canadian dollars. In total, corporate general and administrative expenses accounted for 50.3% of total revenues in the third quarter of 2010, although excluding the additional legal fees during the quarter of $167,700, these expenses accounted for just 23.7% of revenues, compared to 11.5% in the third quarter of 2009. Management expects that these expenses will continue to decrease as we continue to cut costs, as most of the increases to these expenses during the quarter are non-recurring. We believe that these expenses should account for approximately 20% of total sales.
ECommerce general and administrative costs, which totaled $111,764 in the third quarter of 2010, increased by $48,303, or 76.1%, over the third quarter of 2009 primarily due to a $24,000 increase in travel and accommodation costs resulting from establishing offices in New York and New Jersey as well as start-up costs relating to the change to our business strategy, an increase of $8,100 in office supplies which related primarily to supplying the new offices, an $18,900 increase in outsourced costs to maintain the servers for Perfume.com, an $11,100 increase in domain renewal costs, and an $8,900 increase in telephone expenses. These increases in costs were offset by a $23,700 decrease in merchant fees. These expenses represented 17.9% of eCommerce sales in the third quarter of 2010 compared to 4.2% in the third quarter of 2009. Although the expenses increased as a percentage of eCommerce revenues quarter over quarter and the expenses during the third quarter of 2010 were higher than usual, management expects the actual expenses to decrease in the future primarily due to overall cost cutting measures.
Period over Period Analysis
In the nine months ended September 30, 2010, we recorded total general and administrative expense of $958,677 or 42.9% of total sales as compared to $893,412 or 17.9% of total sales in the same period of 2009, an increase of $65.265 or 7.3%. Management has actively curtailed spending since early 2009, and expects this trend to continue throughout the remainder of the year. However, the increases during the period are primarily due to increased legal costs incurred in the proxy contest related to the annual general meeting.
38
Corporate general and administrative costs in the nine months ended September 30, 2010 of $707,348 have increased by $31,284, or 4.6%, compared to $676,064 spent in the same period of 2009. We incurred an increase of approximately $340,200 in legal and accounting costs, primarily due to legal costs and SEC filings relating to the proxy contest. Other increases in these expenses were attributed to increases of approximately $11,400 in IT consulting, $8,200 in insurance premiums, and $20,000 in costs relating to our preparation for our annual general meeting. These higher costs were offset by decreases of $27,000 in automobile expenses, $24,000 in financing costs and $16,800 in meals and entertainment. The decreases in these expenses were due to management’s focus in 2009 and 2010 on cutting costs as well as the decrease in the number of persons we employed in the last year. In addition, some significant costs that were expensed during the nine months ended September 30, 2009, including approximately $30,000 in payments made in cash and common stock for investor relations services, $21,095 in expenses related to our Cricket venture, as well as an additional $11,600 in sponsorship commission expenses, did not exist in 2010. The fair value revaluation of our warrants at quarter end caused a decrease in corporate general and administrative expenses of $223,300. We have also seen the Canadian dollar strengthen in 2010 against the US dollar. This has contributed to the increase in expenses reported in the corporate general and administrative category, as many of these expenses are incurred in Canadian dollars. These expenses accounted for 31.7% of total revenues in the period ended September 30, 2010, compared to 13.0% in the same period of 2009.
ECommerce general and administrative costs, which totaled $251,329 in the nine months ended September 30, 2010, increased by $33,981, or15.6%, over the $217,348 expensed in the same period of 2009. During the first three quarters of 2010, we had increases of $18,900 in outsourced IT maintenance costs, $14,200 in telephone expense, $16,400 in-office related expenses, $7,000 in domain renewal costs and $44,800 in travel, accommodation, and meals and entertainment costs related to the change in our business strategy. We also reduced, period over period, $67,900 in merchant fees due to decreased sales in 2010. Again, the strengthening Canadian dollar in 2010 affected our accounts. These expenses represented 11.6% of eCommerce sales in the period ended September 30, 2010 compared to 4.5% in the same period of 2009.
Management Fees and Employee Salaries
The following table details the breakdown of our management fees and employee salaries expense during each quarter since January 1, 2009.
| Total | Accrued | Stock-Based | Normalized |
| Quarter Ended | Expense | Bonuses | Compensation | Expense |
| March 31, 2010 | $ | 698,351 | $ | 9,555 | $ | 323,802 | $ | 364,994 |
| June 30, 2010 | 513,387 | - | 201,088 | 312,299 |
| September 30, 2010 | 376,977 | - | 150,209 | 226,768 |
| Fiscal Year-to-Date 2010 Totals | $ | 1,588,715 | $ | 9,555 | $ | 675,099 | $ | 904,061 |
| March 31, 2009 (as restated) | $ | 1,193,595 | $ | 8,919 | $ | 610,342 | $ | 574,334 |
| June 30, 2009 | 996,661 | 10,427 | 452,487 | 533,747 |
| September 30, 2009 | 760,631 | 12,177 | 353,331 | 395,123 |
| December 31, 2009 | 632,401 | 7,898 | 286,359 | 338,144 |
| Fiscal Year 2009 Totals | $ | 3,583,288 | $ | 39,421 | $ | 1,702,519 | $ | 1,841,348 |

Quarter over Quarter Analysis
In the third quarter of 2010, we incurred total management fees and staff salaries of $376,977 compared to $760,631 in the third quarter of 2009. This amount includes stock-based compensation of $150,209 in the third quarter of 2010 and $353,331 in the third quarter of 2009. Stock-based compensation expense has continued to decrease due to the termination of several employees over the last 18 to 24 months. The management fees and staff salaries expense in the third quarter of 2009 also includes $12,177 in accrued special bonuses. Excluding the amounts for bonuses and stock-based compensation, normalized management fees and employee salaries expense in the third quarter of 2010 was $226,768 compared to $395,123 in the third quarter of 2009. This decrease of $168,355, or 42.6%, over the third quarter of 2009 was primarily due to the fact that we terminated several employees prior to the end of the second quarter of 2010. We have successfully cut these expenses substantially compared to 2008 and 2009, and we expect these expenses to continue to decrease substantially during the remainder of the year.
Management fees and staff salaries, excluding stock-based compensation and accrued bonuses, have been consistently decreasing quarter over quarter in 2009 and 2010. These expenses represented 36.0% of total revenues in the third quarter of 2010 as compared to 25.7% in the third quarter of 2009, without any reference to sponsorship revenues. The percentage increase is due to the substantial decrease quarter over quarter in revenues. The decreasing trend to these expense amounts is a result of lay-offs and other active measures to cut costs. We expect to continue these measures through 2010.
39
Period over Period Analysis
During the nine months ended September 30, 2010, we incurred total management fees and staff salaries of $1,588,715 compared to $2,950,887 in the comparative period of 2009, a decrease of 46.2%. This amount includes stock-based compensation of $675,099, which is less than half of the stock-based compensation expensed in the same period of 2009 of $1,416,160. The 2010 period also includes $9,555 in accrued amounts for special bonuses to management compared to $31,523 in the first three quarters of 2009. Excluding these amounts, normalized management fees and employee salaries expense was $904,061 in the nine months ended September 30, 2010 compared to $1,503,204 in the same period of 2009, resulting in a decrease of 39.9% period over period. This decrease was primarily due to the fact that we terminated several employees in early 2009 and 2010, as well as decreased costs related to our activities in Cricket. Cricket related expenses included in management fees and salaries in the nine month period ended September 30, 2009 were $424,425, while there were no such expenses in 2010. In August 2009, we terminated our activities related to the Cricket venture.
Marketing
We generate internet traffic through paid search, email and affiliate marketing. We pay marketing costs related to search and email in order to drive traffic to our various websites. We pay our affiliates sales commissions if they deliver traffic to Perfume.com that results in a successful sale.
| Corporate | eCommerce | Total | As a % of |
| Quarter Ended | Marketing | Marketing | Marketing | Total Sales |
| March 31, 2010 | $ | 85 | $ | 79,799 | $ | 79,884 | 8.8% |
| June 30, 2010 | 29 | 109,163 | 109,192 | 15.7% |
| September 30, 2010 | 2.438 | 76.962 | 79.286 | 12.6% |
| Fiscal Year-to-Date 2010 Totals | $ | 2,438 | $ | 265,924 | $ | 268,362 | 12.0% |
| March 31, 2009 (as restated) | $ | 3,771 | $ | 111,422 | $ | 115,193 | 6.6% |
| June 30, 2009 | 6,221 | 114,965 | 121,186 | 7.1% |
| September 30, 2009 | 4,044 | 107,678 | 111,722 | 7.3% | ** |
| December 31, 2009 | - | 246,266 | 246,266 | 10.3% | ** |
| Fiscal Year 2009 Totals | $ | 14,036 | $ | 580,331 | $ | 594,367 | 8.0% | ** |

Quarter over Quarter Analysis
We acquire internet traffic by pay-per-click, email and affiliate marketing. In the third quarter of 2010, we incurred total marketing expenses of $79,286, or 12.6% of total revenues, compared to $111,720, or 6.4% of total revenues in the third quarter of 2009.
Included in this total were corporate marketing expenses of $2,324 in the third quarter of 2010 compared to $4,042 in the third quarter of 2009. These amounts have remained consistently low throughout 2009 and 2010, and are expected to remain low in the near future. In the third quarter of 2009, expenses related to Cricket totaled $6,787.
ECommerce marketing expenses in the third quarter of 2010 were $76,962, or 12.3% of eCommerce sales, compared to $107,678, or 7.2%, in the third quarter of 2009. These expenses have been semi-consistent since mid-2008 due to increased effective email marketing campaigns for Perfume.com, but also have been decreasing due to management’s attempts at cutting costs. The increase in the percentage of eCommerce marketing expenses over eCommerce sales has increased only because revenues have declined significantly quarter over quarter. We believe that customer acquisition is the key to accelerating growth, and direct, measurable marketing vehicles like search, email, and affiliates account for the largest part of these marketing expenditures.
Period over Period Analysis
During the first three quarters of 2010, we incurred $268,362 in total marketing costs, or 12.0% of total revenues, compared to $348,101, or 7.0% of total revenues in the same period of 2009.
Included in this total was $2,438 in corporate marketing expenses in the 2010 period compared to $14,036 in the 2009 period, a decrease of $11,598. This decrease was due to a reduction of nearly $13,000 in public relations services, offset by an increase of $1,400 in general advertising costs compared to 2009. Corporate marketing costs in both periods account for a small percentage of total revenues.
40
ECommerce marketing expenses during the nine month period ended September 30, 2010 were $265,924 compared to $334,065 in the comparative period in 2009. The decrease of $68,141 or 20.4% period over period was due to decreases of approximately $100,000 in pay-per-click advertising and $35,100 in affiliate advertising campaigns and comparison shopping advertising, offset by increases of $31,200 for analytic software and $34,500 in content development, blogging, and other such eCommerce related advertising on the Perfume.com website as management continues to explore cost-effective ways to drive revenues and traffic. ECommerce marketing costs in the first three quarters of 2010 accounted for 12.0% of eCommerce sales compared to 6.4% in the first three quarters of 2009. We reasonably expect eCommerce marketing costs to remain less than 10% of eCommerce sales once the eCommerce business grows and revenues begin to scale.
Our website’s search rankings currently perform adequately however we believe that targeted keywords advertising at opportune times will bring additional traffic to Perfume.com.
Other Expenses
There were no other expenses in the third quarter of 2010. During the second quarter of 2010, we incurred $144,240 in severance costs payable to our former vice president general counsel and our former vice president of finance as a result of additional restructuring of our staffing requirements. In the first quarter of 2009, we incurred similar restructuring costs of $264,904 consisting of severance payments to our former president and chief operating officer and to other staff terminated in the first quarter as a result of restructuring our staffing requirements. We had no such expenses during the remainder of 2009.
Global Cricket Venture
We incurred $227,255 in the first quarter of 2009, $155,968 in the second quarter of 2009, and $68,774 in the third quarter of 2009 relating to Global Cricket Venture, sometimes referred to in this report as “GCV”. We ceased incurring such costs after August 2009 when we entered into an agreement to sell Cricket.com, as discussed below. These costs relate to, but are not limited to, expenditures for business development, travel, marketing, consulting, and salaries. As such, the costs have been reported as $6,787 of corporate marketing, $424,425 of management fees and employee salaries, and $21,095 of corporate general and administrative expenses.
On March 31, 2009, the Company, GCV, the BCCI and the IPL amended the various memoranda of understanding (“MOUs”) that we had entered into on April 16, 2008. The Company and the BCCI jointly entered into a Termination Agreement, which terminated the BCCI Memorandum. On the same date, the Company, GCV and the BCCI, on behalf of the IPL, entered into a Novation Agreement with respect to the IPL Memorandum. Under the Novation Agreement, the combined $1 million that we owed to the BCCI and the IPL at December 31, 2008 was reduced to $500,000, consisting of $125,000 owed to the BCCI and $375,000 owed to the IPL. We accounted for our financial obligations to the BCCI and IPL based on the schedule of payments included in the MOUs by accruing individual payments as liabilities based on the payment schedule, and expensed such payments in the related period as a current expense as the minimum guaranteed payments owing to the BCCI and IPL had no future benefit to the Company. The responsibility for this payment was assumed by, and the benefits associated with the MOU formerly held by the Company were transferred to, GCV through the Novation Agreement. During the first quarter of 2009, the Company also accrued the payment of $625,000 that it was due to pay to the BCCI on January 1, 2009. As a result of the Novation Agreement, the consolidated financial statements for the year ended December 31, 2009 reflected a gain on settlement of GCV related payments of $750,000.
Subsequently, in August 2009, GCV transferred and assigned to an unrelated third party (“Mauritius”) all of its interest in the original MOU with the IPL, as amended by the Novation Agreement that was signed on March 31, 2009. Pursuant to this agreement, Mauritius assumed the liability of all past and future obligations and liabilities of GCV arising from the original MOU, as amended by the Novation Agreement. As a result, Mauritius assumed and paid the $750,000 that we owed to the BCCI and IPL during the third quarter of 2009.
We also agreed to sell the Cricket.com domain name, along with the associated website, content, copyrights, trademarks, etc., to Mauritius for consideration of four equal payments of $250,000 each. In order to facilitate the transfer of the cricket.com website, we agreed to provide Mauritius with support services for 6 months, from September 2009 to February 2010 (the “Transition Period”). In exchange for the support services, Mauritius agreed to pay certain expenses related to the support services. The Cricket.com domain name remained the property of the Company until all payments were received. At December 31, 2009, collectability of the two installments receivable in February and May 2010 was not reasonably assured, therefore we recognized the first two $250,000 installments in 2009 in our calculation of the gain on sales-type lease of Cricket.com as discussed below. By June 30, 2010, collectability of the remaining two installments was assured, and we recorded the gain on sales-type lease and the disposal of the domain name in the second quarter of 2010.
41
We accounted for these transactions under ASC 605-25, Multiple Element Arrangements. Using this guidance, we recognized 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 we provided during the Transition Period, over the Transition Period. As a result, we recognized four-sixths of the gain on settlement of the amounts owing under the Novation Agreement, four-sixths of the gain on sales-type lease of the first installment received for Cricket.com, and one-third of the gain on sales-type lease of the second installment received for Cricket.com during 2009. We recognized the remaining two-sixths of the gain on settlement of the amounts owing under the Novation Agreement, two-sixths of the gain on sales-type lease of the first installment received for Cricket.com, and two-thirds of the gain on sales-type lease of the second installment received for Cricket.com during the first quarter of 2010. We also recognized the third installment in full as a gain on sales-type lease during the first quarter of 2010, and the final installment in full as a gain on sales-type lease during the second quarter of 2010. Refer to Note 6 in our interim consolidated financial statements attached.
These two agreements resulted in our full exit from the cricket business at the end of the Transition Period on February 20, 2010, although we continued to provide the support services until April 30, 2010.
(e) Liquidity and Capital Resources
We generate revenues from the sale of third-party products over the Internet, "pay-per-click" advertising, and by selling advertising on media rich websites with relevant content. However, during 2008, 2009 and the nine months ended September 30, 2010, our revenues were not adequate to support our operations. In order to conserve cash, we paid certain service providers with shares of our common stock during those years, and we continue to explore opportunities to do so in 2010. We also sold or leased some of our domain name assets in order to generate cash.
On July 23, 2010 we completed the first closing of an offering of units. Each unit consisted of 50,000 shares of our common stock and a two-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. We sold 74 units to 6 accredited investors and raised $370,000.
On August 4, 2010 we completed the second and final closing of the unit offering when we sold another 45 units to 6 investors and raised $225,000.
In November 2008, we completed an offering of units consisting of one share of our common stock and a two-year warrant exercisable for the purchase of a half share of common stock at $0.78 per share, and a three-year warrant exercisable for the purchase of a half share of common stock at $0.91 per share. We sold 1,627,344 units at $0.65 per unit and raised $1,057,775.
At September 30, 2010, our current liabilities exceeded our current assets resulting in a working capital deficiency of $984,111, compared to a working capital deficiency of $1,216,325 at the fiscal year ended December 31, 2009. During the three months ended September 30, 2010, we incurred a net loss of $656,937 compared to a net income of $726,464 during the three months ended September 30, 2009. During the nine months ended September 30, 2010, we incurred a net loss of $968,882 and a decrease in cash of $139,979 compared to a net loss of $1,605,375 and a decrease in cash of $596,115 for the same nine months of last year. From the beginning of the fiscal year to September 30, 2010, we increased our accumulated deficit to $17,737,662 from $16,787,208 and have stockholders’ equity of $157,929 at the end of the third quarter of 2010 compared to stockholders’ deficit of $148,448 at the end of 2009. Operating Activities Operating activities in the nine months ended September 30, 2010 resulted in cash outflows of $1,553,863 after the loss of the period and adjustments for non-cash items, the most significant of which were the stock-based compensation expensed during the period of $675,099, the decrease in accounts receivable of $498,236, offset by the revaluation of warrants of $241,545, the decrease in accounts payable and accrued liabilities of $287,024, the gain from the sales and sales-type lease of domain names of $1,041,421 and the gain on settlement of amounts due to Global Cricket Venture of $250,000. In the nine months ended September 30, 2009, cash outflows of $3,396,499 were primarily due to the loss of the period adjusted by the gain from sales and sales-type lease of domain names of $2,101,421 and the decrease in accounts payable and accrued liabilities of $1,169,274, offset by stock-based compensation expensed during the period of $1,416,160 and the impairment of auction software of $590,973. 42 Investing Activities Investing activities during the nine months ended September 30, 2010 generated cash inflows of $823,054, primarily due to $1,073,423 in net proceeds after commissions received from the sale and sales-type lease of domain names during the period, offset by cash outflows paid to the former Auctomatic shareholders of $123,694, as well as $124,350 paid for website development costs. During the nine months ended September 30, 2009, we generated cash inflows of $2,800,384 primarily due to $2,989,051 in net proceeds after commissions received from the sale and sales-type lease of domain names, offset by amounts paid in relation to Auctomatic of $139,010. Financing Activities Financing activities during the nine months ended September 30, 2010 generated $590,830 in proceeds from the sale of our common stock, net of share issue costs. We had no financing activities in the nine months ended September 30, 2009. Future Operations At quarter end, as well as at the end of 2009 and 2008, we had a working capital deficiency. In addition, for over the past two fiscal years we have experienced substantial losses. We expect to continue to incur losses in the coming quarters, albeit smaller than in previous quarters, even though costs have been reduced through lay-offs and restructuring. We may also seek to explore new business opportunities, including the partnering, building or acquiring of a distribution center or warehouse in the United States to enhance our fragrance fulfillment capability and improve gross margins. These acquisitions may require additional cash beyond what is currently available and such funds may be raised by future equity or debt financings, and through the sale of non-core domain name assets. We are working toward increasing cash flows through cost cutting measures, renegotiating or terminating obligations and, when necessary, selling domain names, however there is no certainty that these actions will generate sufficient cash flows to support our activities in the future in view of changing market conditions. During the 2010 fiscal year, we expect to continue spending significant funds on marketing costs, which we believe will translate into higher revenue growth. There is no certainty that the profit margins we may generate going forward, even if we are also successful in raising working capital, will be sufficient to offset the anticipated marketing costs and other expenditures and will result in net cash outflow for the 2010 fiscal year. We have curtailed some operations and growth activities in an effort to reduce costs and preserve our cash. We have sold selected domain names in order to address short term liquidity needs. We sold or leased 11 domain names in 2009, including the name “Cricket.com” for approximately $4.2 million. We sold two names for $210,000 in 2010 and may have to sell more to meet our working capital needs and provide operating capital over the next 12 months. There can be no assurances that we will be able to sell domain names on terms acceptable to us or that any such sales will provide us with enough cash to meet our operating expenses. We have prepared our interim September 30, 2010 consolidated financial statements on a going concern basis, which assumes that we will be able to realize assets and discharge liabilities in the normal course of business for the foreseeable future. Our ability to continue as a going concern is in substantial doubt as it depends on the continued financial support of our investors, our ability to sell more non-core domain names, our ability to generate cash through future debt or equity financings, and the attainment of profitable operations. The outcome of our operations and fundraising efforts depends in part on factors and sources beyond our control that cannot be predicted with certainty. Access to future debt or equity financing is not assured and we may not be able to enter into arrangements with financing sources on acceptable terms, if at all. The financial statements do not include any adjustments relating to the recoverability or classification of assets or the amounts or classification of liabilities that might be necessary should we be unable to continue as a going concern. We expect to improve our financial position and enhance our liquidity by focusing on the development of our Perfume.com business and generating cash by financing through debt or equity, as well as selling domain names if necessary. We have no current plans to purchase any significant property and equipment. Off-Balance Sheet Arrangements As of September 30, 2010, we did not have any off-balance sheet arrangements, including any outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We have off-balance sheet commitments as disclosed in the notes to the interim consolidated financial statements included in Item 1 to this Report. We do not engage in trading activities involving non-exchange traded contracts. 43 (f) Application of Critical Accounting Policies Basis of presentation Our interim consolidated financial statements and accompanying notes are prepared in accordance with United States generally accepted accounting principles (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 our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2009. We believe that 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 do not necessarily indicate the results to be expected for the year. Certain prior-period amounts have been reclassified to conform to the current-period presentation. Preparing financial statements requires that we make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by our application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions is critical to an understanding of our operating results and financial position. Principles of consolidation The consolidated financial statements include our accounts, our wholly owned subsidiary Perfume Inc., our wholly owned subsidiary LCM Cricket Ventures, and our 98.2% interest in our subsidiary DHI until September 28, 2010 and our 100% interest in DHI after September 28, 2010. All significant intercompany balances and transactions are eliminated on consolidation. Business Combinations When we acquire a subsidiary, we use the purchase method of accounting whereby the purchase consideration is allocated to the identifiable assets and liabilities on the basis of fair value at the date of acquisition. We consider critical estimates involved in determining any amount of goodwill, and test for impairment of such goodwill as disclosed in our goodwill accounting policy below. 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. We record inventory as an asset for items in transit as title does not pass until received by the customer. All associated shipping and handling costs are recorded as cost of goods sold upon delivery of products. Web advertising revenue consists primarily of commissions earned from the referral of visitors from our 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, we record 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 in our control. Gains are recognized when the sale agreement is signed and the collectability of the proceeds is reasonably assured. In the nine months ended September 30, 2010, we sold one domain name. In 2009, we sold 11 domain names, including Cricket.com. As the collectability of the amounts owing on these sales was reasonably assured, we recorded these sales when they 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 in our 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 in which the transaction occurs. In the nine months ended September 30, 2010, we entered into one sales-type lease for one domain name. In 2009, we entered into one sales-type lease of a domain name where collectability of future payments owing on this sale were not reasonably assured. Therefore, the gains were recorded based only on the amounts that were reasonably assured. We received all of the installments for these domain names by the end of the second quarter of 2010 and the gains on these sales were recorded in full by that date. See also Note 12 to our consolidated financial statements. 44 Stock-Based Compensation Beginning July 1, 2007, we began accounting for stock options under the provisions of ASC 718, Stock Compensation, which requires the recognition of the fair value of stock-based compensation. Under the fair value recognition provisions for ASC 718, stock-based compensation cost is estimated at the grant date based on the fair value of the awards expected to vest and is recognized as expense ratably over the requisite service period of the award. We have used the Black-Scholes valuation model to estimate fair value of our stock-based awards which require various judgmental assumptions including estimating price volatility and expected life. Our computation of expected volatility is based on a combination of historic and market-based implied volatility. In addition, we consider many factors when estimating expected life, including types of awards and historical experience. If any of these assumptions used in the Black-Scholes valuation model change significantly, stock-based compensation expense may differ materially in the future from what is recorded in the current period. In August 2007, our board of directors approved a stock incentive plan to make available 5,000,000 shares of common stock to be awarded as restricted stock awards or stock options, in the form of incentive stock options to be granted to our employees, and non-qualified stock options to be granted to our employees, officers, directors, consultants, independent contractors and advisors, provided such consultants, independent contractors and advisors render bona-fide services not in connection with the offer and sale of securities in a capital-raising transaction or promotion of our securities. Our shareholders approved the stock incentive plan at the 2008 annual general meeting. We account 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. On March 25, 2009, our 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. Inventory Inventory is recorded at the lower of cost or market using the first-in first-out method. We maintain little or no inventory of perfume, which is shipped from the supplier directly to the customer. The inventory on hand as at 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. Website Development Costs We 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 the website’s estimated useful life. Upgrades and enhancements are capitalized if they result in added functionality which enables the software to perform tasks it was previously incapable of performing. Intangible Assets We adopted the provision of ASC 350, Intangibles - Goodwill and Other, which revises the accounting for purchased goodwill and intangible assets. Under ASC 350, goodwill and intangible assets with indefinite lives are no longer amortized and are tested for impairment annually. The determination of any impairment would include a comparison of estimated future operating cash flows anticipated during the remaining life with the net carrying value of the asset as well as a comparison of the fair value to book value. Our intangible assets, which consist of our portfolio of generic domain names, have been determined to have an indefinite life and as a result are not amortized. Management has determined that there is no impairment of the carrying value of intangible assets at September 30, 2010. 45 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, we are required to assess the carrying value of goodwill annually or whenever circumstances indicate that a decline in value may have occurred, utilizing a fair value approach at the reporting unit level. A reporting unit is the operating segment, or a business unit one level below that operating segment, for which discrete financial information is prepared and regularly reviewed by segment management. The goodwill impairment test is a two-step impairment test. In the first step, we compare the fair value of each reporting unit to its carrying value. We determine the fair value of our reporting units using a discounted cash flow approach. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that reporting unit, goodwill is not impaired and we are not required to perform further testing. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then we must perform the second step in order to determine the implied fair value of the reporting unit’s goodwill and compare it to the carrying value of the reporting unit’s goodwill. The activities in the second step include valuing the tangible and intangible assets and liabilities of the impaired reporting unit based on their fair value and determining the fair value of the impaired reporting unit’s goodwill based upon the residual of the summed identified tangible and intangible assets and liabilities. In accordance with ASC 350-20 and our policy of assessing the carrying value of goodwill annually as noted above, we performed this assessment at the December 31, 2009 fiscal year end. At that date, we 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 ended, we determined that the goodwill was impaired and recorded an impairment charge of $2,539,348 relating to the goodwill acquired pursuant to the merger with Auctomatic. The balance of $66,692 of goodwill relates to the issuance of shares of DHI in exchange for intercompany debt in early 2008. See also Notes 4 and 5 to our consolidated financial statements included in this report. At September 30, 2010, as nothing indicated that our remaining goodwill had declined in value, we conducted no further testing and recorded no impairment charge. (g) Recent Accounting Pronouncements See Item 1 of Part 1, “Financial Statements – Note 2 – Summary of Significant Accounting Policies – Recently Issued Accounting Pronouncements”. (h) Subsequent Events Please see the discussion of the Unit Offering and Management Changes in the section above titled “Recent Developments”.
Item 3: Quantitative and Qualitative Disclosures about Market Risk
Not required.
Item 4: Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of September 30, 2010, we carried out an evaluation, under the supervision of and with the participation of our former chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosures.
46
Based on that evaluation, our chief executive officer and chief financial officer has concluded that as of September 30, 2010, our disclosure controls and procedures were not effective at the reasonable assurance level because, due to the small size of our accounting department, our internal control policies and procedures are not formally documented. This deficiency was brought to our attention by an independent consultant that we retained to assist us with strengthening our controls and procedures and our internal controls over financial reporting. Written documentation of our policies and procedures is required for our disclosure controls and procedures to be effective.
Management is in the process of preparing formal documentation of our control policies and procedures in an attempt to remediate this deficiency.
Changes in Internal Controls
During the quarter covered by this report, there was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
47
PART II - OTHER INFORMATION
Item 1: Legal Proceedings.
We were served with a complaint that was filed on May 14, 2010 in the Circuit Court of Cook County, Illinois County Department, Chancery Division. The case is titled “David Jeffs and Richard Jeffs, derivatively on behalf of Live Current Media, Inc. (plaintiffs) vs. C. Geoffrey Hampson, James Taylor, Mark Benham and Boris Wertz (defendants) and Live Current Media, Inc. (nominal defendant)”. On October 22, 2010, we took over as plaintiff in the complaint. We allege, among other matters, that (i) the defendants breached their fiduciary duties of loyalty, trust, good faith and due care by failing to properly supervise Mr. Hampson and (ii) that Mr. Hampson breached his fiduciary duties and his employment agreement, and defrauded the Company, by failing to devote the time necessary to manage our business and failing to disclose to the members of the former board his activities relating to other businesses. The plaintiffs asked the Court for compensatory damages of no less than $50 million, punitive damages and attorney’s fees and costs of bringing the action.
On June 17, 2010, four stockholders commenced a legal action against us seeking an injunction from the Second Judicial District Court of the State of Nevada ordering the election of directors at a special meeting of the Company’s stockholders. On August 26, 2010, the parties stipulated and the Nevada court ordered that an annual general meeting be held on October 12, 2010. The meeting was held as ordered.
Item 1A: Risk Factors.
As a smaller reporting company we are not required to provide this information.
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds.
During the quarter of the fiscal year covered by this report, (i) we did not modify the instruments defining the rights of our shareholders, and (ii) no rights of any shareholders were limited or qualified by any other class of securities.
On July 23, 2010 we completed the first closing of an offering of units. Each unit consisted of 50,000 shares of our common stock and a two-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. We sold 74 units to six accredited investors for $370,000.
On August 4, 2010 we completed the second and final closing of the unit offering. We sold 45 units to six investors, 2 of which were unaccredited, for $225,000.
We relied on Rule 506 of Regulation D promulgated under the Securities Act of 1933 to make the offer inasmuch as all but 2 of the investors were accredited investors and the securities were sold without any form of general solicitation or general advertising. The 2 unaccredited investors were our employees, occupied a status relative to us that afforded them effective access to the information registration would otherwise provide and received the information required to be given them by Rule 502(b) of Regulation D.
Item 3: Defaults Upon Senior Securities.
On March 25, 2008, we and our wholly owned subsidiary, Perfume Inc., entered into an Agreement and Plan of Merger with Entity, Inc., a Delaware corporation (commonly referred to as “Auctomatic”), and the shareholders of Auctomatic. The merger was consummated on May 22, 2008. As part of the merger transaction, we issued 18 promissory notes representing a total principal amount of $800,000 (the “Original Notes”) to the Auctomatic shareholders. On August 21, 2009 we filed a Current Report on Form 8-K disclosing that we had reached an agreement with 12 of the Auctomatic shareholders, who collectively held Original Notes having a total principal amount of $424,934 (the “Note Holders”). The Note Holders agreed to accept new convertible promissory notes (the “Convertible Notes”) in lieu of the cash payment that was due on May 22, 2009 pursuant to the terms the Original Notes. Six holders of the Original Notes, which represented a total principal amount of $375,066, did not accept this offer. We have not paid the principal and accrued interest owed to these six holders as of November 15, 2010.
On May 26, 2010 we completed an offer to the Note Holders. Seven of the Note Holders accepted the offer and are referred to in this report as 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 in place of their Convertible Notes. The remaining five Note Holders did not accept the new promissory notes and we have not paid the principal and accrued interest that we owe them, which total $300,173 as of November 15, 2010.
Item 4: Removed and Reserved.
Item 5: Other Information.
During the quarter of the fiscal year covered by this report, we reported all information that was required to be disclosed in a report on Form 8-K.
48
Item 6: Exhibits.
| EXHIBIT | DESCRIPTION |
| 3.1 | Articles of Incorporation (1) |
| 3.2 | Bylaws (2) |
| 3.3 | Certificate of Amendment to the Articles of Incorporation (3) |
| 3.4 | Text of Amendment to the Bylaws (4) |
| 3.5 | Text of Amendment to the Bylaws (5) |
| 10.1 | Employment Agreement effective as of July 23, 2010 between Live Current Media Inc. and Paul W. Morrison* |
| 10.2 | Form of Unit Purchase Agreement (July/August 2010)* |
| 10.3 | Form of Warrant Agreement issued in conjunction with Unit Offering (July/August 2010)* |
| 10.4 | Form of Unit Purchase Agreement (July/August 2010-Unaccredited Investors)* |
| 31.1 | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer* |
| 31.2 | Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer and Principal Accounting Officer * |
| 32.1 | Section 906 Certificate of Chief Executive Officer, Principal Financial Officer and Principal Accounting Officer * |

* Filed herewith.
| (1) | Previously filed as Exhibit 2(a) to Live Current Media Inc.’s Registration Statement on Form 10-SB as filed on March 10, 2000 and incorporated herein by this reference. |
| (2) | Previously filed as Exhibit 2(b) to Live Current Media Inc.’s Registration Statement on Form 10-SB as filed on March 10, 2000 and incorporated herein by this reference. |
| (3) | Previously filed as Exhibit 3.3 to Live Current Media Inc.’s Quarterly Report on Form 10-QSB for period ended September 30, 2007 as filed on November 19, 2007 and incorporated herein by this reference. |
| (4) | Previously filed as Exhibit 3.4 to Live Current Media Inc.’s Current Report on Form 8-K as filed on August 22, 2007 and incorporated herein by this reference. |
| (5) | Previously filed as Exhibit 10.1 to Live Current Media Inc.’s Current Report on Form 8-K as filed on June 2, 2010 and incorporated herein by this reference. |

49
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| LIVE CURRENT MEDIA INC. |
| Dated: November 15, 2010 | By: | /s/ David Jeffs |
| Name: | David Jeffs |
| Title: | Chief Executive Officer |

| Dated: November 15, 2010 | By: | /s/ David Jeffs |
| Name: | David Jeffs |
| Title: | Chief Financial Officer |

50

Question: If the company raises more equity during the current fiscal year by selling additional units at the same price as it did previously, how many additional units will the company need to sell in order to fully pay back the total principal amount owed to the Original Note Holders and the total principal and accrued interest owed to the remaining five Note Holders, assuming the fund raised is only used to pay off these debts?

Python solution:
def solution():
     #Define variables name and value
     unpaid_principal_Original_Notes = 375066
     unpaid_total_to_remaining_note_holders = 300173
     total_debt = unpaid_principal_Original_Notes + unpaid_total_to_remaining_note_holders
     unit_price = 5000

     #Do math calculation to get the answer
     answer = total_debt / unit_price
     return answer


Answer: 135.0478