UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





Form
10-Q





x     QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE


SECURITIES
EXCHANGE ACT OF 1934





For the
quarterly period ended March 31, 2008


or





o      TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES
EXCHANGE ACT OF 1934





For the
transition period from ______ to ______





Commission
File Number 000-29929





COMMUNICATE.COM
INC.


(Exact
name of registrant as specified in its charter)




Nevada
            88-0346310(State or other
      jurisdiction of
              incorporation  or  organization)
            (IRS
      Employer
              Identification
      Number)




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





(604)
453-4870




Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.


Yes o   No þ




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





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




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












APPLICABLE
ONLY TO CORPORATE ISSUERS





State the
number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date.




Common
    Stock
            21,446,623 shares
      outstanding$.001 Par
      Value
            as of May 15,
      2008





Transitional
Small Business Disclosure Format (Check one):  Yes o   No x




2




COMMUNICATE.COM
INC.


REPORT
ON FORM 10-Q


QUARTER
ENDED MARCH 31, 2008


TABLE
OF CONTENTS







PagePART
      I.
            Financial
      InformationItem 1.
            Unaudited Financial
      Statements
            4Consolidated
      Balance Sheets as of March 31, 2008 and December 31, 2007
            F-2Consolidated
      Statements of Operations for the periods ended March 31, 2008 and March
      31, 2007
            F-3Consolidated
      Statement of Stockholders’ Equity for the periods ended March 31, 2008 and
      March 31, 2007
            F-4Consolidated
      Statements of Cash Flows for the periods ended March 31, 2008 and March
      31, 2007
            F-5Notes to the
      Consolidated Financial Statements
            F-6Item
      2.
            Management's
      Discussion and Analysis or Plan of Operation
            4Item
    3.
            Quantitative and
      Qualitative Disclosures About Market Risk
            14Item
    4T.
            Controls and
      Procedures
            14PART
      II.
            Other
    InformationItem
    1.
            Legal
      Proceedings
            14Item
    1A.
            Risk
    Factors
            14Item 2.
            Unregistered Sales
      of Equity Securities and Use of Proceeds
            14Item
    3.
            Defaults Upon Senior
      Securities
            14Item
    4.
            Submission of
      Matters to a Vote of Security Holders
            14Item 5.
            Other
      Information
            15Item 6.
            Exhibits
            15Signatures
            
            16Certifications




3




PART  I
– FINANCIAL INFORMATION








Item 1: Financial
Statements.





The
response to Item 1 has been submitted as a separate section of this Report
beginning on page F-1.




Item 2:
Management’s discussion and analysis or plan of operation





Statements included in this
management’s discussion and analysis of financial condition and results of
operations, and in future filings by the company with the securities and
exchange commission, in the company’s press releases and in oral statements made
with the approval of an authorized executive officer which are not historical or
current facts are “forward-looking statements” and are subject to certain risks
and uncertainties that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. You are
cautioned not to place undue reliance on any such forward-looking statements,
which speak only as of the date made. The following important factors, among
others, in some cases have affected and in the future could affect the company’s
actual results and could cause the company’s actual financial performance to
differ materially from that expressed in any forward-looking statement:
(i) the extremely competitive conditions that currently exist in the market
for companies similar to the company and (ii) lack of resources to maintain
the company’s good standing status and requisite filings with the securities and
exchange commission. The foregoing list should not be construed as exhaustive
and the company disclaims any obligation subsequently to revise any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events. The following discussion should be read in conjunction with our
financial statements and their explanatory notes included as part of this
quarterly report.





(a)           Forward
Looking Statements





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





To the
extent it is entitled, the Company claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995 for all of its forward-looking statements. While management believes
that our forward-looking statements are reasonable, you should not place undue
reliance on any such forward-looking statements, which speak only as of the date
made. Because these forward-looking statements are based on estimates and
assumptions that are subject to significant business, economic and competitive
uncertainties, many of which are beyond management’s control or are subject to
change, actual results could be materially different. Factors that might cause
such a difference include, without limitation, the following: the Company’s
inability to generate sufficient cash flows to meet its current liabilities, its
potential inability to hire and retain qualified management, sales and customer
service personnel, the potential for an extended decline in sales, the possible
failure of revenues to offset additional costs associated with any changes in
business model, the potential lack of product acceptance, its potential
inability to introduce new products to the market, the potential failure of
customers to meet purchase commitments, the potential loss of customer
relationships, the potential failure to receive or maintain necessary regulatory
approvals, the extent to which competition may negatively affect prices and
sales volumes or necessitate increased sales or marketing expenses, the timing
of and proceeds from the sale of restricted securities it holds and the other
risks and uncertainties set forth in this report.





Other
factors not currently anticipated by management may also materially and
adversely affect our results of operations. Except as required by applicable
law, management does not undertake any obligation to publicly release any
revisions which may be made to any forward-looking statements to reflect events
or circumstances occurring after the date of this report.




4




(b)           Business
Overview





Through
our majority-owned subsidiary, Domain Holdings, Inc. (“DHI”), the Company
monetizes its large portfolio of domain names.  A number of these
domain names generate high amounts of internet traffic because of, among other
things, their generic description of a specific product or services category.
DHI owns, builds and operates websites around these domain names, which span
several consumer and business-to-business categories including health &
beauty (such as Perfume.com), sports and recreation (such as Cricket.com and
Boxing.com), travel (such as Brazil.com and Vietnam.com), and global trade
(importers.com). These websites generate revenue by selling products (eCommerce)
and/or selling space to advertisers.





The
Company currently holds 98.2% (December 31, 2007 – 94.9%) of its principal
operating subsidiary’s, DHI’s, outstanding shares.  During the
quarter, DHI issued 40,086,645 shares to Communicate in exchange for a
conversion of Intercompany debt of $3,000,000.





Revenue
is primarily generated through online commerce and
advertising.  ECommerce revenues are derived from the sales of
fragrances to consumers online at our Perfume.com domain site.  The
Company generates advertising revenue by selling “pay per click” and display
advertising on its websites.  Prior to November 12, 2007, the Company
also sold travel services through its majority-owned subsidiary
FrequentTraveller.com Inc. (“FT”).





Due to
poor operating results and cash flows, the Company’s relationship with FT was
terminated effective November 12, 2007. On the same date, the Company entered
into an Asset Purchase Agreement (“APA”) with FT whereby the Company acquired
all of the tangible and intangible assets associated or used in connection with
the operation of FT’s travel business, exclusive of all cash and real property
for a total consideration for (a) the 8,000,000 shares of FT owned by the
Company; and (b) the cancellation of $261,833 of debt owed FT to the Company
resulting in a gain on disposal of the investment of $276,805. As such, the
Company has acquired all rights associated with the operation of the
FrequentTraveller.com website. As at November 12, 2007, FT is no longer a
subsidiary.





Management
believes that it can develop and sustain businesses based on the foundation of
the generic, intuitive domain names it owns, in part because of the significant
numbers of visitors that are attracted to websites utilizing those names.
Management has begun to integrate all aspects of the ways in which consumers
interact with the internet today by building the Company’s domain names into
subject-specific DestinationHubsTM. This business strategy will see the company’s
premium properties built into engaging destination sites, to be monetized
through advertising revenue as well as commerce transactions.





In prior
years, the Company acquired a number of .cn (China) domain names through a
lottery-allocation to enhance and add value to its travel related and
trade-directory domains, as well as a portfolio of second and third tier .com
domain names, such as shoppingbound.com, pharmacybound.com and vietnambound.com.
Management believes that its large range of domain names will drive strong
Internet traffic, which can benefit both its retail and advertising revenue
growth. In particular, management feels that the .cn domain names could have
significant value as the eCommerce and internet advertising markets develop in
China over the coming years.





The
Company anticipates that it will, in the coming years, independently develop
in-house capabilities with respect to technology, processes, and products, and
will otherwise engage in research and development or similar activities around
the concept of monetizing the portfolio of domain names. In addition to the
above, the Company plans to engage in arrangements with its strategic partners
and outside suppliers.





The
Company presently employs seventeen full-time employees, two part-time
employees, and nine consultants. Effective October 1, 2007, the Company entered
into a new five-year office lease and occupies approximately 5,400 square feet
of office space in Vancouver, British Columbia.  The Company also
leases an office at 200 First Avenue West, Suite 400, Seattle, WA 98119 for a
nominal amount per month.




5




(c)           Selected
Financial Data





The
following selected financial data was derived from the Company’s unaudited
interim consolidated financial statements. The information set forth below
should be read in conjunction with the Company’s financial statements and
related notes included elsewhere in this
report.





(Expressed
      in U.S. dollars)Three
      Months ended
              March
      31, 2008
              (unaudited)
            
            
            Three
      Months ended
              March
      31, 2007
              (unaudited)SALESHealth
      and Beauty eCommerce
            
            $
            1,824,369
            
            
            $
            1,416,924Other
      eCommerce
            
            
            455
            
            
            
            204,420Domain
      name leasing and advertising
            
            
            27,836
            
            
            
            69,901Total
      Sales
            
            
            1,852,660
            
            
            
            1,691,245COST
      OF SALESHealth
      and Beauty eCommerce
            
            
            1,489,691
            
            
            
            1,107,408Other
      eCommerce
            
            
            552
            
            
            
            196,404Total
      Cost of Sales
            
            
            1,490,243
            
            
            
            1,303,812GROSS
      PROFIT
            
            
            362,417
            
            
            
            387,433EXPENSESAmortization
      and depreciation
            
            
            15,266
            
            
            
            3,263Corporate
      general and administrative
            
            
            447,895
            
            
            
            135,940ECommerce
      general and administrative
            
            
            169,813
            
            
            
            16,689Management
      fees and employee salaries
            
            
            1,073,546
            
            
            
            188,539Corporate
      marketing
            
            
            26,459
            
            
            
            -ECommerce
      marketing
            
            
            149,187
            
            
            
            90,389Expenses
      related to Cricket.com
            
            
            55,317
            
            
            
            -Other
      expenses
            
            
            629,856
            
            
            
            -Total
      Expenses
            
            
            2,567,339
            
            
            
            434,820LOSS
      BEFORE OTHER ITEMS
            
            
            (2,204,922
            )
            
            
            (47,387
            )Net
      proceeds from sales-type lease of domain names
            
            
            168,206
            
            
            
            -Interest
      and investment income
            
            
            42,498
            
            
            
            18,615NET
      LOSS AND COMPREHENSIVE LOSS FOR THE PERIOD
            
            $
            (1,994,218
            )
            
            $
            (28,772
            )BASIC
      AND DILUTED LOSS PER SHARE
            
            $
            (0.10
            )
            
            $
            (0.00
            )WEIGHTED
      AVERAGE NUMBER OF COMMONSHARES
      OUTSTANDING – BASIC AND DILUTED
            
            
            19,970,334
            
            
            
            17,786,339





6








BALANCE SHEET
      DATA
            
            At March
              31, 2008
              (unaudited)
            
            
            At December
              31, 2007
              (audited)Current
      Assets
            
            $
            5,353,567
            
            
            $
            7,760,349Deferred
      acquisition costs
            
            
            121,265
            
            
            
            -Long-term
      portion of investment in sales-type lease
            
            
            23,423
            
            
            
            -Fixed
      Assets
            
            
            314,600
            
            
            
            175,797Web
      Development Costs
            
            
            147,025
            
            
            
            -Intangible
      Assets
            
            
            1,625,881
            
            
            
            1,645,061Total
      Assets
            
            $
            7,585,761
            
            
            $
            9,581,207Current
      Liabilities
            
            $
            1,351,599
            
            
            $
            1,829,936Deferred
      lease inducements
            
            
            70,483
            
            
            
            75,518Total
      Liabilities
            
            
            1,422,082
            
            
            
            1,905,454Common
      Stock
            
            
            12,456
            
            
            
            12,456Additional
      Paid in Capital
            
            
            10,671,119
            
            
            
            10,188,975Accumulated
      Deficit
            
            
            (4,519,896
            )
            
            
            (2,525,678
            )Total
      Stockholders’ Equity
            
            
            6,163,679
            
            
            
            7,675,753Total
      Liabilities and Stockholders’ Equity
            
            $
            7,585,761
            
            
            $
            9,581,207




(d)           Results
of Operations




Sales
and Costs of Sales




Overall,
combined sales in Q1 of 2008 totalled $1,852,660 versus $1,691,245 in Q1 of
2007, an increase of 9.5%. However, Q1 of 2007 included significant revenues of
$202,350 from the Frequent Traveler (“FT”) relationship that was terminated in
November 2007.  Without considering these revenues, the increase in
overall revenues was $363,765, or over 21.5% compared to Q1 of 2007. Most of
this increase was driven by a large increase in sales on Perfume.com as noted
below. Overall, Health & Beauty eCommerce product sales, primarily made up
of Perfume.com sales, represented 98.5% of total revenues in Q1 of 2008,
compared to 95% of total revenues in both Q1 and Q4 of 2007, not including any
influence from the FT revenues.





Costs of
sales were $1,490,243 in Q1 of 2008 compared to $1,303,812 during Q1 of 2007, an
increase of 14.3%.  Some of this increase is due to costs of sales
attributable to FT.  Since the relationship with FT ended in 2007, the
increase of costs of sales in Q1 of 2008 over Q1 of 2007 without the FT
influence was 34.4%.  This increase is due to a higher volume of
eCommerce sales compared to Q1 of 2007 at higher product costs in Q1 of
2008.





Overall
gross margin in Q1 of 2008 was 19.6% compared to a gross margin of 22.9% in Q1
of 2007.  Without any influence from FT sales and costs of sales, the
gross margin in Q1 of 2007 is 25.5%. This decrease in the overall gross margin
is due primarily to increased prices for products charged by our vendors in our
eCommerce business, as well as decreased advertising revenues which provide
nearly 100% gross margins.





eCommerce
Sales





The
Company’s primary eCommerce sales are a result of directly marketing and selling
consumable goods to customers at Perfume.com.





In Q1 of
2008, the combined retail sites excluding FT revenues generated sales of
$1,824,824 compared to $1,418,994 in Q1 of 2007. This resulted in average sales
of approximately $20,053 per day in Q1 of 2008 compared to $15,767 per day in Q1
of 2007. Comparable quarterly sales in Q1 of 2008 have increased compared to Q1
of 2007 by 28.6%. Management believes that the significant quarter over
quarter increases demonstrate continued strong sales potential of this business
segment. Cost of purchases and shipping totalled $1,490,243 in Q1 of 2008 versus
$1,108,562 in Q1 of 2007. This produced a gross margin of $334,581 or 18.3%in Q1
of 2008 compared to $310,432 or 21.9% in Q1 of 2007. Gross profit margin in Q1
2008 has decreased compared to Q1 of 2007 due primarily to increased product
costs and aggressive discounts provided to customers as a part of Management’s
focus on growth. While Management plans to maintain this profit margin, there is
no certainty that such result can be maintained throughout the year or continue
into the foreseeable future.




7




ECommerce
product sales in Q1 of 2008 have decreased 51% compared to Q4 of 2007, however
the high sales in Q4 of 2007 was due to the seasonal influence of the holiday
season.





In Q1 of
2007, the Company through its subsidiary FT generated eCommerce service sales of
$202,350 at a cost of $195,250. In that quarter, the travel operation incurred a
net loss of $51,705, excluding the minimum royalty of $37,500 to Domain Holdings
Inc., and an accumulated deficit of $990,941 since its inception in October
2002. Effective November 12, 2007, the Company unwound its relationship with
travel business subsidiary FT pursuant to an Asset Purchase Agreement (“APA”)
between the Company and FT as noted above. FT had an accumulated deficit of
$1,152,145 at November 12, 2007. During 2007, there was no requirement to record
any non-controlling interest in the share of loss in FT.





Advertising





In Q1 of
2008, the Company generated advertising revenues of $27,836 compared to $69,901
in Q1 of 2007, a decrease of 60.2%. Management terminated its primary
advertising contract in early 2008 because its restrictive conditions limited
monetization in the medium and long term. In Q1 of 2008, advertising accounted
for only 1.5% of total revenues, compared to 4.7% of total revenues in Q1 of
2007.  Advertising revenues are expected to continue to account for a
small percentage of total revenues in the next few quarters as Management
investigates new monetization opportunities with vendors, and realigns to
increase advertising options available on the Company’s properties. In the
medium-term, Management expects advertising revenues to be an important part of
overall revenue.





Domain
Name Leases and Sales





In Q1 of
2008, the Company entered into an agreement with an unrelated third party for a
sales-type lease of surrey.com for $200,000CAD.  The terms of the
lease agreement provide for five lease payments over a term of two
years.  Title and rights to the domain name will be transferred to the
purchaser only when full payment is received.  Payments received per
the agreement are forfeited if the contract is terminated or if subsequent
payments do not comply with the agreement.  The present value of the
lease payments are reflected as revenues in Q1 2008.  The investment
in the sales-type lease is reflected on a net basis after the receipt of the
first lease payment.There were no sales of
domain names in Q1 of 2008 or the 2007 fiscal year.  Currently,
Management continues to evaluate expression of interest from domain name buyers,
however there is no plan to sell any of the domain names. The Company continues
to look at acquiring certain other domain names that would complement either the
advertising or eCommerce businesses.  Management believes that the
portfolio of domain names will continue to appreciate in value over time, and to
date it has not been necessary to raise additional capital through
divestiture.





General
and Administrative





In Q1 of
2008, the Company recorded total general and administrative expense of $617,708
or 33.3% of total sales as compared to $152,629 or 9.0% of total sales in Q1 of
2007, an increase of over 300%. This total includes corporate and eCommerce
related general and administrative costs.





Corporate
general and administrative costs of $447,895 have increased over Q1 of 2007 by
$311,955, specifically a result of an increase in accounting and legal fees of
approximately $146,000 over Q1 of 2007 due to increased corporate activity and
SEC filings, increased travel and entertainment costs relating to investor
relations and new corporate activity of approximately $153,000, as well as
increased rent in our new office and increased foreign currency for expenses in
Canadian dollars which has gained against the US dollar compared to last
year.




8




General
and administrative costs specific with the eCommerce business of $169,813
increased by $153,124 primarily due to increased recruiting costs to attract
talented and experienced employees of approximately $150,000 during the
quarter.  These expenses represented 9.3% of total eCommerce sales in
Q1 of 2008 compared to 1.2% of total eCommerce sales in Q1 of 2007, not
including eCommerce revenues for FT.com.  This is reasonable given
Management’s focus on growing the eCommerce business in 2008. Management expects
these expenses to increase as total eCommerce revenue increases but expects to
maintain eCommerce general and administrative costs below 10% of eCommerce
sales.





Total
general and administrative expenses in Q1 of 2008 were 38.0% higher than the
expenses of $447,478 in Q4 of 2007.  Comparatively, these expenses in
Q4 of 2007 represented 11.3% of total revenues.  Management expects
general and administrative expenses to increase as revenues and corporate
activity increase but will attempt to maintain these costs below 10% of total
sales on an annualized basis.





Management
Fees and Employee Salaries





In Q1 of
2008, the Company incurred management fees and staff salaries of $1,073,546
compared to $188,539 in Q1 of 2007. This amount includes stock based
compensation of $482,144.  Excluding these amounts, management fees
and employee salaries expense of $591,402 was an increase of over 213% quarter
over quarter. Management fee and salary costs increased in Q1 of 2008 compared
to the same period in 2007 in part as a result of hiring a new management team
beginning in June 2007. The addition of a Chief Executive Officer and Chief
Operating Officer in mid to late 2007, a new Chief Corporate Development Officer
and Vice President Finance in early 2008, as well as some additional key
employees all contributed to a larger expense in Q1 of 2008. Compensation
commensurate with the calibre of the new management team as well as the addition
of more employees and consultants in marketing, technology, product management
and customer service have contributed significantly to this increase. This
investment in the future of the Company matches the quality of the assets. The
tightened job market and the appreciating Canadian dollar indicate that
recruitment costs will continue to be high into the foreseeable future. In
addition to these new members of executive management, additional senior
employees will be added in 2008.





Compared
to the previous quarter, in Q4 of 2007, management fees and staff salaries of
$884,998 were recorded. This amount includes stock-based compensation of
$365,180.  Excluding this amount, management fees were $519,818. The
increase in Q1 of 2008 over Q4 of 2007 is 13.8%.  This increase
represents an investment in the future of the Company as additional key
management and employees joined the team.





Management
fees and staff salaries, excluding stock-based compensation, represented 31.9%
of total revenues in Q1 of 2008 compared to 11.1% in Q1 of
2007.  Given the caliber of current management, employees and
consultants, it is reasonable to maintain salaries expense at approximately 30%
of revenues for the next two subsequent quarters.





Marketing





The
Company acquires internet traffic by paying-for-clicks, email and affiliate
marketing. In Q1 of 2008, the Company incurred total marketing expenses of
$175,646.  In this total, $26,459 were corporate marketing expenses
related to the public relations around repositioning the Company’s
business.  ECommerce marketing expenses in Q1 of 2008 were $149,187 or
8.2% of eCommerce sales compared to $90,389 or 6.4% of eCommerce sales in Q1 of
2007, not including FT eCommerce revenues as noted above.  Marketing
expenses have been growing substantially during 2007 and 2008, and were $460,074
or 12% of eCommerce sales in Q4 of 2007. Management expects marketing costs to
increase over the next several fiscal quarters as management repositions
Perfume.com and invests in new customer acquisitions.  Management
believes that customer acquisition is the key to accelerated growth, and related
costs to target and attract new customers are expected to be the largest part of
these increased marketing costs. The increase in Q1 of 2008 is in line with
Management’s expectations.





The
Company’s websites’ search rankings currently perform adequately however
management believes targeted keywords advertising at opportune times will bring
additional traffic to its retail domain sites. Management believes that the
increased advertising expenditures were a major contributing factor to increased
revenues in Q1 of 2008.




9




Expenses
related to Cricket.com


During Q1
of 2008, the Company incurred various costs relating to establishing the
Memorandum of Understanding signed in April 2008 with the Board of Control for
Cricket in India (BCCI) and the DLF Indian Premier League (IPL). During the
quarter, these costs included $17,125 in consulting fees and $38,192 in travel
expenses that were incurred in order to pursue this opportunity with the BCCI
and IPL.  There were no such costs in Q1 of 2007.  Refer to
Note 16 to the unaudited interim consolidated financial statements.
 
 Other
Expenses
 
 During Q1
of 2008, the Company incurred various unusual and one-time costs relating to
restructuring, the recruiting and relocating costs associated with attracting
the new management team.  In Q1 of 2008, such costs included severance
payments to our former Chief Financial Officer of $168,429, $25,657 in
consulting fees to our former Chief Financial Officer, $317,109 in signing
bonuses to our new Chief Corporate Development Officer and our new Vice
President Finance, a severance payment of $53,582 to one of our full time
employees, $39,778 in costs related to changing the Company name and rebranding,
and $25,301 in some final windup costs related to the FT disposition in late
2007.  There were no such costs in Q1 of 2007.  However, in
Q4 of 2007, such costs included a $205,183 severance payment to our former Chief
Executive Officer, $30,558 in consulting fees to our former Chief Executive
Officer, a $205,183 signing bonus to our new President and Chief Operating
Officer, $196,806 of general legal costs associated with the preparation of
employment agreements, severance agreements and stock option
agreements.




(e)           Liquidity
and Capital Resources





The
Company generates revenues from (i) the sale of third-party products and
services by means of eCommerce over the Internet; (2) "pay-per-click"
advertising revenue; (3) selling advertising on media rich websites with
relevant content; and (4) the trading of domain name assets.





As at
March 31, 2008, the Company had current assets in excess of current liabilities
resulting in a positive working capital of $4,001,968 as compared to a working
capital of $5,930,413 at the fiscal year ending December 31, 2007. During the
three-months ended March 31, 2008, the Company had a net loss of $1,994,218 and
a decrease in cash of $2,469,500, compared to net loss of $28,772 and a decrease
in cash of $757,846 for the same three-month period of last year. From the
beginning of the fiscal year to March 31, 2008, the Company has increased its
accumulated deficit to $4,519,896 from $2,525,678 and has stockholders’ equity
of $6,163,679.




Operating
Activities




Operating
activities in Q1 of 2008 resulted in cash outflows of $1,960,163 after
adjustments for non-cash items, the most significant of which are the gain from
the sales-type lease of a domain name of $169,070, the stock-based compensation
expensed during the year of $482,144 and the decrease in accounts payable and
accrued liabilities of $333,637 partially due to the payment of fiscal year end
accrued audit and legal fees. In Q1 of 2007, cash outflows of $275,334 were
primarily due to the decrease in accounts payable and accrued liabilities of
$235,960 during the quarter.




Investing
Activities




Investing
activities in Q1 of 2008 generated cash outflows of $509,337, as the Company
invested approximately $154,000 in the purchase of property and equipment,
mostly consisting of furniture and equipment for our new office location, as
well as $147,000 into website development. Investing activities in the quarter
also included proceeds of $24,287 from a sales-type lease for
surrey.com.  In Q1 of 2007, cash from investing activities used
$482,512 to purchase “available for sale” securities, which were all
subsequently sold in the 2007 fiscal year end.




Financing
Activities




Financing
activities in Q1 of 2008 and Q1 of 2007 generated no cash inflows or
outflows.




10




Future
Operations





While
Management believes it has made significant progress in enhancing its liquidity,
there is no certainty that the improvements can continue in view of changing
market conditions, technological innovations and legal and regulatory
requirements. For 2008, Management expects to expend some of its cash in
additional marketing costs, which it believes will translate into higher revenue
growth. Management also plans to attract and retain additional talent for new
and existing management and staff positions in order to execute on its business
plan for 2008.  There is no certainty that the profit margins the
Company may generate will be sufficient to offset the anticipated marketing and
salary expenditures and may result in net cash outflow for 2008.





While the
Company has positive working capital, its currently reported quarter has
experienced a loss. Management expects to continue to incur losses in the coming
quarters as planned general and administrative and marketing expenditures
increase. Management believes that the Company has sufficient cash and will
generate sufficient working capital allowing it to continue to operate over the
next twelve months. However, if the operating losses continue and exceed plan,
the Company may be required to seek additional capital from external sources.
The Company may also seek to explore new business opportunities, including the
building or acquisition of a distribution center or warehouse in the United
States to enhance its fragrance fulfillment capability and improve gross
margins. These acquisitions may require additional cash beyond what is available
and such funds may be raised by way of equity and/or debt financing, and through
the sale of non-strategic domain name assets. However, access to such funds is
not assured and Management may not be able to enter into arrangements with
potential lenders or raise the required funds from such financings. If unable to
raise adequate funds as needed, Management may seek other alternatives including
approaching current shareholders or curtailing some activities to better match
short term outlays with current cash resources.





The
Company has no current plans to purchase any significant property and
equipment.





Off-Balance
Sheet Arrangements





As of
March 31, 2008, we did not have any off-balance sheet arrangements, including
any outstanding derivative financial instruments, off-balance sheet guarantees,
interest rate swap transactions or foreign currency contracts.  Our
Company does not engage in trading activities involving non-exchange traded
contracts.





(f)           Application
of Critical Accounting Policies





Our
consolidated financial statements and accompanying notes are prepared in
accordance with United States generally accepted accounting
principles.  Preparing financial statements requires management to
make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue, and expenses. These estimates and assumptions are affected
by management's application of accounting policies.  We believe that
understanding the basis and nature of the estimates and assumptions involved
with the following aspects of our consolidated financial statements is critical
to an understanding of our operating results and financial
position.





Revenue
Recognition





Revenues,
and associated costs of goods sold, from the on-line sales of products,
currently consisting primarily of fragrances and other beauty products, are
recorded upon shipment of products and determination that collection is
reasonably assured. The Company does not record inventory as an asset because
all products sold are delivered to the customer on a “just-in-time” basis by
inventory suppliers.  All associated shipping and handling costs are
recorded as cost of goods sold.





Revenue
from the sale of domain names, whose carrying values are recorded as intangible
assets, consists primarily of funds earned for the transfer of rights to domain
names that are currently in the Company’s control. Collectibility of revenues
generated are usually subject to a high level of uncertainty; accordingly
revenues are recognized only as received.  There were no sales of
domain names in Q1 of 2008 or the fiscal year ended December 31,
2007.





Revenue
from the sales-type leases of domain names, whose carrying values are recorded
as intangible assets, consists primarily of funds earned over a period of time
for the transfer of rights to domain names that are currently in the Company’s
control. Collectibility of these revenues generated are reasonably assured and
therefore accounted for as a sales-type lease in the period the transaction
occurs.  In January 2008, the Company entered into an agreement with
an unrelated third party for a sales-type lease of surrey.com for
$200,000CAD.  The terms of the lease agreement provide for five lease
payments over a term of two years.  Title and rights to the domain
name will be transferred to the purchaser only when full payment is
received.  Payments received per the agreement are forfeited if the
contract is terminated or if subsequent payments do not comply with the
agreement.  The present value of the lease payments are reflected as
revenues in Q1 2008.  The investment in the sales-type lease is
reflected on a net basis after the receipt of the first lease
payment.




11




Web
advertising revenue consists primarily of commissions earned from the referral
of visitors to the Company’s sites to other parties. The amount and
collectibility of these referral commissions is subject to uncertainty;
accordingly, revenues are recognized when the amount can be determined and
collectibility can be reasonably assured. In accordance with Emerging Issues
Task Force (“EITF”) 99-19, “Reporting Revenue Gross as a Principal versus Net as
an Agent,” the Company records web advertising revenue net of service
costs.





Until the
disposal of the Company’s shares in FrequentTraveller.com Inc., revenues from
the sales of travel products, including tours, airfares and hotel reservations,
where the Company acted as the merchant of record and had inventory risk, were
recorded on a gross basis. Customer deposits received prior to ticket issuance
or 30-days prior to travel were recorded as deferred revenue. Where the Company
did not act as the merchant of record and had no inventory risk, revenues were
recorded at the net amounts, without any associated cost of revenue in
accordance with EITF 99-19.





Stock-Based
Compensation





During
the third quarter of 2007, we implemented the following new critical accounting
policy related to our stock-based compensation. Beginning July 1, 2007, we began
accounting for stock options under the provisions of Financial Accounting
Standards No,123 (revised 2004), “Share-Based Payment” (“FAS 123(R)”), which
requires the recognition of the fair value of stock-based compensation. Under
the fair value recognition provisions for FAS 123(R), stock-based compensation
cost is estimated at the grant date based on the fair value of the awards
expected to vest and is recognized as expense ratably over the requisite service
period of the award. We have used the Black-Scholes valuation model to estimate
fair value of our stock-based awards which require various judgmental
assumptions including estimating price volatility and expected life. Our
computation of expected volatility is based on a combination of historic and
market-based implied volatility. In addition, we consider many factors when
estimating expected life, including types of awards and historical experience.
If any of these assumptions used in the Black-Scholes valuation model change
significantly, stock-based compensation expense may differ materially in the
future from what is recorded in the current period.





In August
2007, the Company’s board of directors approved a Stock Incentive Plan to make
available 5,000,000 shares of common stock to be awarded as restricted stock
awards or stock options, in the form of incentive stock options (“ISO”) or
non-qualified stock options to be granted to employees of the Company, and other
stock options to be granted to employees, officers, directors, consultants,
independent contractors and advisors of the Company, provided such consultants,
independent contractors and advisors render bona-fide services not in connection
with the offer and sale of securities in a capital-raising transaction or
promotion of the Company’s securities.





The
Company accounts for equity instruments issued in exchange for the receipt of
goods or services from other than employees in accordance with SFAS No. 123(R)
and the conclusions reached by the EITF in Issue No. 96-18.  Costs are
measured at the estimated fair market value of the consideration received or the
estimated fair value of the equity instruments issued, whichever is more
reliably measurable.  The value of equity instruments issued for
consideration other than employee services is determined on the earliest of a
performance commitment or completion of performance by the provider of goods or
services as defined by EITF 96-18.





Intangible
Assets





The
Company has adopted the provision of the SFAS No. 142, “Goodwill and Intangible
Assets”, which revises the accounting for purchased goodwill and intangible
assets. Under SFAS No. 142, goodwill and intangible assets with indefinite lives
are no longer amortized and are tested for impairment annually. The
determination of any impairment would include a comparison of estimated future
operating cash flows anticipated during the remaining life with the net carrying
value of the asset as well as a comparison of the fair value to book value of
the Company.





The
Company’s intangible assets, which consist of its portfolio of generic domain
names, have been determined to have an indefinite life and as a result are not
amortized.  Management has determined that there is no impairment of
the carrying value of intangible assets at March 31, 2008.




12




Website
Development Costs





The
Company has adopted the provisions of EITF No. 00-2, "Accounting for Web Site
Development Costs," whereby costs incurred in the preliminary project phase are
expensed as incurred; costs incurred in the application development phase are
capitalized; and costs incurred in the post-implementation operating phase are
expensed as incurred.  Website development costs are stated at cost
less accumulated amortization and are amortized using the straight-line method
over its estimated useful life.  Costs are capitalized during the
application development phase.  Upgrades and enhancements are
capitalized if they result in added functionality which enables the software to
perform tasks it was previously incapable of performing. The costs are related
to infrastructure development of various websites that the Company operates. In
previous periods, costs qualifying for capitalization were immaterial and
therefore were expensed as incurred. Website maintenance, training, data
conversion and business process reengineering costs are expensed in the period
in which they are incurred.





In Q1 of
2008, $147,025 in website development costs incurred in the application
development phase were capitalized.  No amortization has been recorded
in Q1 of 2008 as the websites have not yet reached the post-implementation
operating phase.




(g)           Recent
Accounting Pronouncements





SFAS
160


In
December 2007, the FASB issued SFAS No. 160 “Noncontrolling Interests in
Consolidated Financial Statements”, and simultaneously revised SFAS 141
“Business Combinations”.  This Statement applies prospectively to
business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December
15, 2008, which, for the Company, would be the fiscal year beginning January 1,
2009. An entity may not adopt the policy before the transitional
date.  The Company is currently assessing the impact of SFAS No. 160
and the revision of SFAS 141 on its financial position and results of
operations.





SFAS
159


In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities". This Statement permits entities to
choose to measure many financial assets, financial liabilities, and certain
other items at fair value, with the objective of improving financial reporting
by mitigating volatility in reported earnings caused by measuring related assets
and liabilities differently without having to apply complex accounting
provisions. Most of the provisions of SFAS No. 159 apply only to entities that
elect the fair value option. The provisions of SFAS No. 159 were adopted January
1, 2008. The Company elected the Fair Value Option for its financial assets and
liabilities, however, the adoption of SFAS No. 159 had no material impact on the
Company’s interim consolidated financial statements.





SFAS
157


In
September 2006, the FASB issued SFAS No. 157, "Fair Value Measures". This
Statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles (GAAP), expands disclosures about
fair value measurements, and applies under other accounting pronouncements that
require or permit fair value measurements. SFAS No. 157 does not require any new
fair value measurements. However, the FASB anticipates that for some entities,
the application of SFAS No. 157 will change current practice. The effective date
of SFAS No. 157 has been deferred on February 12, 2008 to become effective for
financial statements issued for fiscal years beginning after November 15, 2008,
which for the Company would be the fiscal year beginning January 1, 2009. The
Company is currently assessing the impact of SFAS No. 157 on its financial
position and results of operations.




13




Item
3:Quantitative and Qualitative
Disclosures About Market Risk





Not
required.





Item 4T: Controls and
Procedures.





Disclosure
Controls and Procedures





C.
Geoffrey Hampson, the Company’s Chief Executive Officer and Principal Financial
Officer has evaluated the effectiveness of the Company’s disclosure controls and
procedures (as such term is defined in Rules 13a-15 and 15d-15 under the
Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the
period covered by this quarterly report (the “Evaluation
Date”).  Based on such evaluation, he has concluded that, as of the
Evaluation Date, the Company’s disclosure controls and procedures are effective
in alerting the Company on a timely basis to material information required to be
included in its reports filed or submitted under the Exchange Act.





Changes
in Internal Controls





During
the quarter covered by this report, there were no changes in the Company’s
internal controls or, to the Company’s knowledge, in other factors that have
materially affected, or are reasonably likely to materially affect, these
controls and procedures subsequent to the date the Company carried out this
evaluation.




PART
II - OTHER INFORMATION





Item 1. Legal
Proceedings.





The
Company is not aware of any pending or threatened material legal proceedings
during the quarter other than those disclosed in the quarterly financial
statements.





Item
1A:   Risk Factors.





Not
required.





Item 2. Unregistered Sales
of Equity Securities and Use of Proceeds.





During
the quarter of the fiscal year covered by this report, (i) the Company did not
modify the instruments defining the rights of its shareholders, (ii) no rights
of any shareholders were limited or qualified by any other class of securities,
and (iii) the Company did not sell any unregistered equity securities.





Item 3. Defaults Upon Senior
Securities.





During
the quarter of the fiscal year covered by this report, no material default has
occurred with respect to any indebtedness of the Company.  Also,
during this quarter, no material arrearage in the payment of dividends has
occurred.





Item 4. Submission of
Matters to a Vote of Security Holders.





No matter
was submitted to a vote of security holders, through the solicitation of proxies
or otherwise, during the three months of the fiscal year covered by this
report.




14




Item 5. Other
Information.





During
the quarter of the fiscal year covered by this report, the Company reported all
information that was required to be disclosed in a report on Form
8-K.





Item 6.
Exhibits.





(A)Index to andDescription of
Exhibits.





EXHIBIT
            DESCRIPTIONF-1
            Financial
      Statements.31
            Section
      302 Certification of Chief Executive Officer and Principal Financial
      Officer32
            Section
      906 Certificate of Chief Executive Officer and Principal Financial
      Officer





15





SIGNATURES





In
accordance with the requirements of the Exchange Act, Registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.










COMMUNICATE.COM
      INC.Dated:  May 15,
      2008
            By: /s/
      C. Geoffrey
      HampsonName:  C.
      Geoffrey HampsonTitle:CEO
      and Chairman of the Board(Principal Executive Officer)Dated:  May 15,
      2008
            By:
      /s/ C. Geoffrey
      HampsonName:  C.
      Geoffrey HampsonTitle:   CEO and
      Chairman of the Board(Principal Financial Officer)




16












Financial
      Statements
            F-1





























COMMUNICATE.COM
INC.


CONSOLIDATED
FINANCIAL STATEMENTS


MARCH
31, 2008


(UNAUDITED)
















REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





CONSOLIDATED
BALANCE SHEETS





CONSOLIDATED
STATEMENTS OF OPERATIONS





CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY





CONSOLIDATED
STATEMENTS OF CASH FLOWS





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




F-1




COMMUNICATE.COM
INC.


CONSOLIDATED
BALANCE SHEETS






(Expressed in
      U.S. dollars)March 31,
      2008
            
            
            December
      31, 2007(unaudited)
            
            
            (audited)ASSETSCurrentCash
      and cash equivalents
            
            $
            4,905,745
            
            
            $
            7,375,245Accounts
      receivable (net of allowance of doubtful accounts of nil)
            
            
            142,220
            
            
            
            138,930Prepaid
      expenses and deposits
            
            
            165,062
            
            
            
            246,174Current
      portion of investment in sales-type lease (Note
    15)
            
            
            140,540
            
            
            
            -Total
      current assets
            
            
            5,353,567
            
            
            
            7,760,349Long-term
      portion of investment in sales-type lease (Note
    15)
            
            
            23,423
            
            
            
            -Deferred
      acquisition costs (Note
      14)
            
            
            121,265
            
            
            
            -Property
      & equipment (Note
      5)
            
            
            314,600
            
            
            
            175,797Web
      development costs
            
            
            147,025
            
            
            
            -Intangible
      assets
            
            
            1,625,881
            
            
            
            1,645,061Total
      Assets
            
            $
            7,585,761
            
            
            $
            9,581,207LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrentAccounts
      payable and accrued liabilities
            
            $
            1,311,817
            
            
            $
            1,756,719Deferred
      revenue
            
            
            19,644
            
            
            
            53,079Current
      portion of deferred lease inducements (Note
6)
            
            
            20,138
            
            
            
            20,138Total
      current liabilities
            
            
            1,351,599
            
            
            
            1,829,936Deferred
      lease inducements (Note
      6)
            
            
            70,483
            
            
            
            75,518Total
      Liabilities
            
            
            1,422,082
            
            
            
            1,905,454STOCKHOLDERS’
      EQUITYCommon
      stock (Note
      7)Authorized:
      50,000,000 common shares, $0.001 par valueIssued
      and outstanding:21,446,623
      common shares (December 31, 2007 – 21,446,623)
            
            
            12,456
            
            
            
            12,456Additional
      paid-in capital
            
            
            10,671,119
            
            
            
            10,188,975Accumulated
      deficit
            
            
            (4,519,896
            )
            
            
            (2,525,678
            )Total
      Stockholders’ Equity
            
            
            6,163,679
            
            
            
            7,675,753Total
      Liabilities and Stockholders’ Equity
            
            $
            7,585,761
            
            
            $
            9,581,207





Commitments
and Contingency (Notes 10 and
11)




See
accompanying notes to consolidated financial statements





On
Behalf of The Board







Director
            
            Director




F-2




COMMUNICATE.COM
INC.


CONSOLIDATED
STATEMENTS OF OPERATIONS


(UNAUDITED)








(Expressed
      in U.S. dollars)Three
      Months ended
              March
      31, 2008
              (unaudited)
            
            
            Three
      Months ended
              March
      31, 2007
              (unaudited)SALESHealth
      and Beauty eCommerce
            
            $
            1,824,369
            
            
            $
            1,416,924Other
      eCommerce
            
            
            455
            
            
            
            204,420Domain
      name leasing and advertising
            
            
            27,836
            
            
            
            69,901Total
      Sales
            
            
            1,852,660
            
            
            
            1,691,245COST
      OF SALESHealth
      and Beauty eCommerce
            
            
            1,489,691
            
            
            
            1,107,408Other
      eCommerce
            
            
            552
            
            
            
            196,404Total
      Cost of Sales
            
            
            1,490,243
            
            
            
            1,303,812GROSS
      PROFIT
            
            
            362,417
            
            
            
            387,433EXPENSESAmortization
      and depreciation
            
            
            15,266
            
            
            
            3,263Corporate
      general and administrative
            
            
            447,895
            
            
            
            135,940ECommerce
      general and administrative
            
            
            169,813
            
            
            
            16,689Management
      fees and employee salaries
            
            
            1,073,546
            
            
            
            188,539Corporate
      marketing
            
            
            26,459
            
            
            
            -ECommerce
      marketing
            
            
            149,187
            
            
            
            90,389Expenses
      related to Cricket.com (Note
    12)
            
            
            55,317
            
            
            
            -Other
      expenses (Note
      13)
            
            
            629,856
            
            
            
            -Total
      Expenses
            
            
            2,567,339
            
            
            
            434,820LOSS
      BEFORE OTHER ITEMS
            
            
            (2,204,922
            )
            
            
            (47,387
            )Net
      proceeds from sales-type lease of domain names (Note
    15)
            
            
            168,206
            
            
            
            -Interest
      and investment income
            
            
            42,498
            
            
            
            18,615NET
      LOSS AND COMPREHENSIVE LOSS FOR THE PERIOD
            
            $
            (1,994,218
            )
            
            $
            (28,772
            )BASIC
      AND DILUTED LOSS PER SHARE
            
            $
            (0.10
            )
            
            $
            (0.00
            )WEIGHTED
      AVERAGE NUMBER OF COMMONSHARES
      OUTSTANDING – BASIC AND DILUTED
            
            
            19,970,334
            
            
            
            17,786,339





See accompanying notes to
consolidated financial statements





F-3




COMMUNICATE.COM
INC.


CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY


(UNAUDITED)







(Expressed
in U.S. dollars)





Common
      stockNumber
      of Shares
            
            
            Amount
            
            
            Additional
              Paid-in
      Capital
            
            
            Accumulated
      Deficit
            
            
            TotalBalance,
      December 31, 2006
            
            
            17,836,339
            
            
            
            8,846
            
            
            
            3,605,579
            
            
            
            (507,729
            )
            
            
            3,106,696Issuance
      of 60,284 common shares at $0.98 per share in lieu of accrued bonuses to
      officers
            
            
            60,284
            
            
            
            60
            
            
            
            59,018
            
            
            
            -
            
            
            
            59,078Issuance
      of 1,000,000 common shares at $1.00 per share to CEO
            
            
            1,000,000
            
            
            
            1,000
            
            
            
            999,000
            
            
            
            -
            
            
            
            1,000,000Private
      Placement of 2,550,000 common shares at $2.00 per share
            
            
            2,550,000
            
            
            
            2,550
            
            
            
            5,097,450
            
            
            
            -
            
            
            
            5,100,000Share
      issue costs
            
            
            -
            
            
            
            -
            
            
            
            (100
            )
            
            
            -
            
            
            
            (100
            )Stock-based
      compensation
            
            
            -
            
            
            
            -
            
            
            
            428,028
            
            
            
            -
            
            
            
            428,028Total
      comprehensive loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (2,017,949
            )
            
            
            (2,017,949
            )Balance,
      December 31, 2007
            
            
            21,446,623
            
            
            $
            12,456
            
            
            $
            10,188,975
            
            
            $
            (2,525,678
            )
            
            $
            7,675,753Stock-based
      compensation
            
            
            -
            
            
            
            -
            
            
            
            482,144
            
            
            
            -
            
            
            
            482,144Total
      comprehensive loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (1,994,218
            )
            
            
            (1,994,218
            )Balance,
      March 31, 2008
            
            
            21,446,623
            
            
            $
            12,456
            
            
            $
            10,671,119
            
            
            $
            (4,519,896
            )
            
            $
            6,163,679




See accompanying notes to
consolidated financial statements




F-4




COMMUNICATE.COM
INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(UNAUDITED)








(Expressed
      in U.S. dollars)Three
      Months ended
              March
      31, 2008
              (unaudited)
            
            
            Three
      Months ended
              March
      31, 2007
              (unaudited)OPERATING
      ACTIVITIESNet
      loss for the period
            
            $
            (1,994,218
            )
            
            $
            (28,772
            )Non–cash
      items included in net loss:Return
      of restricted cash
            
            
            -
            
            
            
            20,000Gain
      from sales-type lease of domain name
            
            
            (169,070
            )Stock-based
      compensation
            
            
            482,144
            
            
            
            -Amortization
      of deferred lease inducements
            
            
            (5,035
            )
            
            
            -Amortization
      and depreciation
            
            
            15,266
            
            
            
            3,263Changes
      in operating assets and liabilities:Accounts
      receivable
            
            
            (3,290
            )
            
            
            9,274Prepaid
      expenses
            
            
            81,112
            
            
            
            (43,139
            )Accounts
      payable and accrued liabilities
            
            
            (333,637
            )
            
            
            (235,960
            )Deferred
      revenue
            
            
            (33,435
            )
            
            
            -Cash
      flows used in operating activities
            
            
            (1,960,163
            )
            
            
            (275,334
            )INVESTING
      ACTIVITIESProceeds
      from disposal (Purchase of) available for sale securities
            
            
            -
            
            
            
            (482,512
            )Net
      proceeds from sales-type lease
            
            
            24,287
            
            
            
            -Accrued
      expenses relating to deferred acquisition costs
            
            
            (111,265
            )
            
            
            -Deferred
      acquisition costs
            
            
            (121,265
            )
            
            
            -Purchase
      of property and equipment
            
            
            (154,069
            )
            
            
            -Web
      development costs
            
            
            (147,025
            )
            
            
            -Cash
      flows used in investing activities
            
            
            (509,337
            )
            
            
            (482,512
            )Net
      increase in cash and cash equivalents
            
            
            (2,469,500
            )
            
            
            (757,846
            )Cash
      and cash equivalents, beginning of period
            
            
            7,375,245
            
            
            
            2,105,340Cash
      and cash equivalents, end of period
            
            $
            4,905,745
            
            
            $
            1,347,494




See
accompanying notes to consolidated financial statements




F-5




Communicate.com Inc.


Notes to Consolidated Financial
Statements




NOTE
1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION





Nature
of business


Communicate.com
Inc. (“the Company”) through its subsidiary, Domain Holdings Inc. (“DHI”), owns
a portfolio of generic domain names.  DHI’s current business strategy
is to develop or to seek partners to develop its domain names to include
content, commerce and community applications.  DHI is currently
developing websites on two domain names; one that provides e-commerce for
fragranceand
other health and beauty products, and another that will be a media rich consumer
experience on a sports related website where the revenue model is based on paid
advertising.  DHIdevelops
content and sells advertising services on the domains held forfuture
development.




On March
13, 2008, the Company incorporated a wholly owned subsidiary in the state of
Delaware, Communicate.com Delaware, Inc. (“Delaware”).  The new
subsidiary has been incorporated in relation to the Auctomatic transaction.
Refer to Note 14.  The Company’s subsidiary, DHI, owns 100% of 0778229
B.C. Ltd. (“Importers”), Acadia Management Corp. (“Acadia”), and a dormant
company 613784 B.C. Ltd. (“613784”).




As at
December 31, 2006, the Company owned 50.4% of the outstanding shares in
FrequentTraveller.com Inc. (“FT”), a Nevada private company incorporated on
October 29, 2002.  FT was a full service travel agency that catered to
Internet-based customers seeking tours and other travel services.  On
November 12, 2007, the Company disposed of its controlling interest in FT and at
the end of 2007 no longer had any ownership in FT.  Refer to Note
4.





On March
26, 2008, the Company announced its intention to change its legal name to “Live
Current Media Inc.” and will seek  formal shareholder approval to do
so later in 2008.  Pending shareholder approval, Communicate.com Inc.
will be doing business as "Live Current Media Inc."





Basis
of presentation


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





NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





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





Principles
of consolidation


The
consolidated financial statements include the accounts of the Company, its
wholly owned subsidiary Delaware, its 98.2% (December 31, 2007 - 94.9%) interest
in its subsidiary DHI and DHI’s wholly owned subsidiaries Importers, Acadia, and
613784.  The comparative figures in 2007 include its 50.4% interest in
FT (from January 1, 2007 until the sale of the Company’s controlling interest in
FT on November 12, 2007).  All significant intercompany balances and
transactions are eliminated on consolidation.





Use
of estimates


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





Revenue
recognition


Revenues,
and associated costs of goods sold, from the on-line sales of products,
currently consisting primarily of fragrances and other beauty products, are
recorded upon shipment of products and determination that collection is
reasonably assured. The Company does not record inventory as an asset because
all products sold are delivered to the customer on a “just-in-time” basis by
inventory suppliers.  All associated shipping and handling costs are
recorded as cost of goods sold.





F-6





Communicate.com Inc.
 Notes to Consolidated Financial
Statements
  NOTE 2
– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)




Revenue
recognition (continued)


Web
advertising revenue consists primarily of commissions earned from the referral
of visitors to the Company’s sites to other parties. The amount and
collectibility of these referral commissions is subject to uncertainty;
accordingly, revenues are recognized when the amount can be determined and
collectibility can be reasonably assured. In accordance with Emerging Issues
Task Force (“EITF”) 99-19, “Reporting Revenue Gross as a Principal versus Net as
an Agent,” the Company records web advertising revenue net of service
costs.





Until the
disposal of the Company’s shares in FrequentTraveller.com Inc. on November 12,
2007, revenues from the sales of travel products, including tours, airfares and
hotel reservations, where the Company acts as the merchant of record and has
inventory risk, were recorded on a gross basis. Customer deposits received prior
to ticket issuance or 30-days prior to travel were recorded as deferred revenue.
Where the Company did not act as the merchant of record and had no inventory
risk, revenues were recorded at the net amounts, without any associated cost of
revenue in accordance with EITF 99-19.  See also Note 4.





Revenue
from the sale of domain names, whose carrying values are recorded as intangible
assets, consists primarily of funds earned for the transfer of rights to domain
names that are currently in the Company’s control. Collectibility of revenues
generated are usually subject to a high level of uncertainty; accordingly
revenues are recognized only as received.  There were no sales of
domain names in Q1 of 2008 or the fiscal year ended December 31,
2007.





Revenue
from the sales-type leases of domain names, whose carrying values are recorded
as intangible assets, consists primarily of funds earned over a period of time
for the transfer of rights to domain names that are currently in the Company’s
control. Collectibility of these revenues generated are reasonably assured and
therefore accounted for as a sales-type lease in the period the transaction
occurs.  In January 2008, the Company entered into an agreement with
an unrelated third party for a sales-type lease of surrey.com for
$200,000CAD.  The terms of the lease agreement provide for five lease
payments over a term of two years.  Title and rights to the domain
name will be transferred to the purchaser only when full payment is
received.  Payments received per the agreement are forfeited if the
contract is terminated or if subsequent payments do not comply with the
agreement.  The present value of the lease payments are reflected as
revenues in Q1 2008.  The investment in the sales-type lease is
reflected on a net basis after the receipt of the first lease
payment.





Foreign
currency transactions


The
consolidated financial statements are presented in United States
dollars.  The functional currency of the Company is United States
dollars.  In accordance with SFAS No. 52, “Foreign Currency
Translation”, the foreign currency financial statements of the Company’s
subsidiaries are translated into U.S. dollars.  Monetary assets and
liabilities are translated using the foreign exchange rate that prevailed at the
balance sheet date.  Revenue and expenses are translated at weighted
average rates of exchange during the year and stockholders’ equity accounts and
certain other historical cost balances are translated by using historical
exchange rates.  Any resulting exchange gains and losses are presented
as cumulative foreign currency translation gains (losses) within other
accumulated comprehensive income (loss).





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





Cash
and cash equivalents


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





F-7





Communicate.com Inc.
 Notes to Consolidated Financial
Statements
  NOTE 2
– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)





Property & Equipment


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





Amortization
for equipment is computed using declining balance method at the following annual
rates:






Office Furniture and
      Equipment
            20%Computer
      Equipment
            30%Computer
      Software
            100%





Amortization
for leasehold improvements is computed on a straight-line method calculated over
the term of the lease.  Additions are amortized on a half-year basis
in the year of acquisition.





Intangible
assets


The
Company has adopted the provision of the SFAS No. 142, “Goodwill and Intangible
Assets”, which revises the accounting for purchased goodwill and intangible
assets. Under SFAS No. 142, goodwill and intangible assets with indefinite lives
are no longer amortized and are tested for impairment annually. The
determination of any impairment would include a comparison of estimated future
operating cash flows anticipated during the remaining life with the net carrying
value of the asset as well as a comparison of the fair value to book value of
the Company.





The
Company’s intangible assets, which consist of its portfolio of generic domain
names, have been determined to have an indefinite life and as a result are not
amortized.  Management has determined that there is no impairment of
the carrying value of intangible assets at March 31, 2008.





Deferred
Revenue


Revenue
that has been received but does not yet qualify for recognition under the
Company's policies is reflected as either deferred revenue or long-term deferred
revenue. As at March 31, 2008 the Company recorded current deferred revenue of
$19,644 (December 31, 2007 – $53,079).





Deferred
Lease Inducements


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





Website
development costs


The
Company has adopted the provisions of EITF No. 00-2, "Accounting for Web Site
Development Costs," whereby costs incurred in the preliminary project phase are
expensed as incurred; costs incurred in the application development phase are
capitalized; and costs incurred in the post-implementation operating phase are
expensed as incurred.  Website development costs are stated at cost
less accumulated amortization and are amortized using the straight-line method
over its estimated useful life.  Costs are capitalized during the
application development phase.  Upgrades and enhancements are
capitalized if they result in added functionality which enables the software to
perform tasks it was previously incapable of performing. The costs are related
to infrastructure development of various websites that the Company operates. In
previous periods, costs qualifying for capitalization were immaterial and
therefore were expensed as incurred. Website maintenance, training, data
conversion and business process reengineering costs are expensed in the period
in which they are incurred.





In Q1 of
2008, $147,025 in website development costs incurred in the application
development phase were capitalized.  No amortization has been recorded
in Q1 of 2008 as the websites have not yet reached the post-implementation
operating phase.





F-8




Communicate.com Inc.
 Notes to Consolidated Financial
Statements
  NOTE 2
– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)


Stock-based
compensation


During
the third quarter of 2007, the Company implemented the following new critical
accounting policy related to our stock-based compensation. Beginning on
July 1, 2007, the Company began accounting for stock options under the
provisions of Financial Accounting Standards No. 123 (revised 2004),
“Share-Based Payment” (FAS 123(R)), which requires the recognition of the
fair value of stock-based compensation. Under the fair value recognition
provisions for FAS 123(R), stock-based compensation cost is estimated at
the grant date based on the fair value of the awards expected to vest and
recognized as expense ratably over the requisite service period of the award.
The Company has used the Black-Scholes valuation model to estimate fair value of
its stock-based awards, which requires various judgmental assumptions including
estimating stock price volatility and expected life. The Company’s computation
of expected volatility is based on a combination of historical and market-based
volatility. In addition, the Company considers many factors when estimating
expected life, including types of awards and historical experience. If any of
the assumptions used in the Black-Scholes valuation model change significantly,
stock-based compensation expense may differ materially in the future from that
recorded in the current period.





In August
2007, the Company’s board of directors approved an Incentive Stock Option Plan
to make available 5,000,000 incentive stock options (“ISO”) to be granted to
employees of the Company, and other stock options to be granted to employees,
officers, directors, consultants, independent contractors and advisors of the
Company, provided such consultants, independent contractors and advisors render
bona-fide services not in connection with the offer and sale of securities in a
capital-raising transaction or promotion of the Company’s
securities.  See also Note 7.





The
Company accounts for equity instruments issued in exchange for the receipt of
goods or services from other than employees in accordance with SFAS No. 123R and
the conclusions reached by the EITF in Issue No. 96-18.  Costs are measured
at the estimated fair market value of the consideration received or the
estimated fair value of the equity instruments issued, whichever is more
reliably measurable.  The value of equity instruments issued for
consideration other than employee services is determined on the earliest of a
performance commitment or completion of performance by the provider of goods or
services as defined by EITF 96-18.




Earnings
per share


Basic
earnings per share are computed by dividing earnings for the period by the
weighted average number of common shares outstanding for the period. Fully
diluted earnings per share reflects the potential dilution of securities by
including other potential common stock in the weighted average number of common
shares outstanding for a period and is not presented where the effect is
anti-dilutive.





Comprehensive income
(loss)


Comprehensive
income (loss) includes all changes in equity except those resulting from
investments by owners and distributions to owners.





Recent
Adopted Accounting Pronouncements


In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities". This Statement permits entities to
choose to measure many financial assets, financial liabilities and certain other
items at fair value, with the objective of improving financial reporting by
mitigating volatility in reported earnings caused by measuring related assets
and liabilities differently without having to apply complex accounting
provisions. Most of the provisions of SFAS No. 159 apply only to entities that
elect the fair value option. The provisions of SFAS No. 159 were adopted January
1, 2008. The Company elected the Fair Value Option for its financial assets and
liabilities, however, the adoption of SFAS No. 159 had no material impact on the
Company’s interim consolidated financial statements.





F-9




Communicate.com Inc.
 Notes to Consolidated Financial
Statements
  NOTE 2
– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)


Recent
Accounting Pronouncements


In
December 2007, the FASB issued SFAS No. 160 “Noncontrolling Interests in
Consolidated Financial Statements”, and simultaneously revised SFAS 141
“Business Combinations”.  This Statement applies prospectively to
business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December
15, 2008, which, for the Company, would be the fiscal year beginning January 1,
2009. An entity may not adopt the policy before the transitional
date.  The Company is currently assessing the impact of SFAS No. 160
and the revision of SFAS 141 on its financial position and results of
operations.





In
September 2006, the FASB issued SFAS No. 157, "Fair Value Measures". This
Statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles (GAAP), expands disclosures about
fair value measurements, and applies under other accounting pronouncements that
require or permit fair value measurements. SFAS No. 157 does not require any new
fair value measurements. However, the FASB anticipates that for some entities,
the application of SFAS No. 157 will change current practice. The effective date
of SFAS No. 157 has been deferred on February 12, 2008 to become effective for
financial statements issued for fiscal years beginning after November 15, 2008,
which for the Company would be the fiscal year beginning January 1, 2009. The
Company is currently assessing the impact of SFAS No. 157 on its financial
position and results of operations.





NOTE
3 – FINANCIAL INSTRUMENTS





Interest
rate risk exposure


The
Company has limited exposure to any fluctuation in interest rates.





Foreign
exchange risk


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





Concentration
of credit risk


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





Fair
values of Financial Instruments


The
following disclosure of the estimated fair value of financial instruments is
made in accordance with the requirements of SFAS No. 107. “Disclosures about
Fair Value of Financial Instruments.” The Company has determined the estimated
fair value amounts by using available market information and appropriate
valuation methodologies. The fair value of financial instruments classified as
current assets or liabilities, including cash and cash equivalents, accounts
receivable, and accounts payable and accrued liabilities, are approximately
equal to their carrying value due to the short-term maturity of the
instruments.




F-10




Communicate.com Inc.
 Notes to Consolidated Financial
Statements
  NOTE 4
– NON-CONTROLLING INTEREST


The
Company currently holds 98.2% (December 31, 2007 – 94.9%) of its principal
operating subsidiary’s, DHI’s, outstanding shares.  During the
quarter, DHI issued 40,086,645 shares to Communicate at fair value in exchange
for a conversion of Intercompany debt of $3,000,000, therefore diluting the
non-controlling interest by 3.3%. This conversion was accounted for using the
purchase method.





As of
December 31, 2006, the Company owned a 50.4% controlling interest in
FrequentTraveller.com Inc. (“FT”) a private Nevada corporation incorporated on
October 29, 2002.  FT provided travel services to customers online and
by telephone to destinations encompassed by the geographic domain names owned by
the Company, pursuant to a domain lease agreement entered with FT, dated May 1,
2005 (the “Domain Lease Agreement”).  FT commenced operations in
November 2003.  On November 12, 2007, the Company sold its remaining
50.4% share holdings in FT via an Asset Purchase Agreement (“APA”).





As part
of this agreement the Domain Lease Agreement was cancelled for nil
consideration, and all ties with FT were severed. Intercompany debt of $265,000
was cancelled and the rights to use the domain names were returned to the
Company. The Company assumed no liabilities of FT going-forward.  The
resulting gain of $276,805 on the disposal of the subsidiary was booked as other
income. The following table summarizes the assets and liabilities foregone in
exchange for the Company’s shareholding.





AssetsCash
            
            $
            46,974Accounts
      Receivable
            
            
            7,570LiabilitiesAccount
      payable and accrued liabilities
            
            
            (176,312
            )Deferred
      Revenue
            
            
            (111,857
            )Loan
            
            
            (43,180
            )Net
      Liabilities
            
            $
            276,805


NOTE
5 – PROPERTY & EQUIPMENT




March
      31, 2008
            
            Cost
            
            
            Accumulated
      Amortization
            
            
            Net
      Book ValueOffice
      Furniture and Equipment
            
            $
            165,869
            
            
            $
            18,313
            
            
            $
            147,556Computer
      Equipment
            
            
            76,938
            
            
            
            39,767
            
            
            
            37,171Computer
      Software
            
            
            10,000
            
            
            
            1,250
            
            
            
            8,750Leasehold
      Improvements
            
            
            142,498
            
            
            
            21,375
            
            
            
            121,123$
            395,305
            
            
            $
            80,705
            
            
            $
            314,600





December
      31, 2007
            
            Cost
            
            
            Accumulated
      Amortization
            
            
            Net
      Book ValueOffice
      Furniture and Equipment
            
            $
            28.644
            
            
            $
            14,159
            
            
            $
            14,485Computer
      Equipment
            
            
            70,095
            
            
            
            37,031
            
            
            
            33,064Leasehold
      Improvements
            
            
            142,498
            
            
            
            14,250
            
            
            
            128,248$
            241,237
            
            
            $
            65,440
            
            
            $
            175,797


NOTE
6 – DEFERRED LEASE INDUCEMENTS




March
      31, 2008
            
            
            December
      31, 2007Deferred
      Lease Inducements
            
            $
            90,621
            
            
            $
            95,656Less:
      Current Portion
            
            
            (20,138
            )
            
            
            (20,138
            )$
            70,483
            
            
            $
            75,518




F-11




Communicate.com Inc.
 Notes to Consolidated Financial
Statements
  NOTE 7
– COMMON STOCK





a)    
Authorized





The
authorized capital of the Company consists of 50,000,000 common shares with a
par value of $0.001 per share. No other shares have been
authorized.





b)    
Issued





2007





On June
11, 2007, the Company issued 1,000,000 shares of common stock and 1,000,000
common stock share purchase warrants with an exercise price of $1.25 to a
company owned and controlled by the Company’s Chief Executive Officer (“CEO”) in
exchange for $1,000,000 cash.  The warrants expire June 10,
2009.





On May
24, 2007 the Company issued 60,284 shares of common stock to management in lieu
of $59,078 of bonuses payable.





During
September and October 2007 the Company accepted subscriptions from 11 accredited
investors pursuant to which the Company issued and sold 2,550,000 of the
Company’s shares of common stock, at a price of $2.00 per share for total gross
proceeds of $5,100,000 (the “Offering”).  The shares were issued pursuant
to the subscriptions as follows: 1,000,000 shares for $1,999,956 net cash
proceeds were issued before September 30, 2007, and the balance of 1,550,000
shares for net cash proceeds of $3,099,944, were issued in October
2007.  Pursuant to the terms of the Offering, the Company filed a
registration statement on Form SB-2 with the Securities and Exchange Commission
(the “Registration Statement”) before December 31, 2007 covering the resale of
the common stock (the “Registerable Securities”) sold.  The Company is
further required to use its reasonable best efforts to maintain the Registration
Statement effective for a period of (i) two years or (ii) until such time as all
the Registerable Securities are eligible for sale under Rule 144k of the
Securities Act of 1933, as amended.  The Offering was conducted in reliance
upon an exemption from registration under the Securities Act of 1933, as amended
(the "Securities Act"), including, without limitation, that under Section 506 of
Regulation D promulgated under the Securities Act. The securities were offered
and sold by the Company to accredited investors in reliance on Section 506 of
Regulation D of the Securities Act of 1933, as amended.





At March
31, 2008, there were 21,446,623 shares issued and outstanding.





c)   
 Stock Options





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





(i)    On
      September 11, 2007, the Company granted a total of 1,250,000 stock options
      to purchase the Company’s common shares at an exercise price of $2.50 per
      share to the following individuals:


i.
            1,000,000
      to the Company’s CEO;


ii.
            50,000
      to a consultant; and


iii.
            100,000
      each to two directors.





The
Company valued the options to the CEO and directors using the Black Scholes
option pricing model using the following assumptions: no dividend yield;
expected volatility rate of 118.22%; a risk free interest rate of 4.07% - 4.11%
and an expected life of 3 years resulting in a value of $1.74-$1.78 per option
granted.





The
Company is valuing the options to the consultant at each reporting period under
FAS 123(R) for non-employees using the Black Scholes option pricing model using
the following assumptions: no dividend yield; expected volatility rate of
73.34%; a risk free interest rate of 1.79% and an expected life of 3 years
resulting in a value of $1.78 per option granted.




F-12




Communicate.com Inc.
 Notes to Consolidated Financial
Statements
  NOTE 7
– SHARE CAPITAL (continued)





c)     Stock
Options (continued)





(ii)
            On
      October 1, 2007, the Company granted to its Chief Operating Officer
      (“COO”) 1,500,000 options to purchase the Company’s common stock at a
      price of $2.42 per share.  The Company valued these options
      using the Black Scholes option pricing model using the following
      assumptions: no dividend yield; expected volatility rate of 118.22%; risk
      free interest rate of 4.23% and an expected life of 3 years resulting in a
      value of $1.45 per option granted.





(iii)
            On
      January 1, 2008, the Company granted to its Chief Corporate Development
      Officer (“CCDO”) 1,000,000 options to purchase the Company’s common stock
      at a price of $2.06 per share.  The Company valued these options
      using the Black Scholes option pricing model using the following
      assumptions: no dividend yield; expected volatility rate of 75.66%; risk
      free interest rate of 3.07% and an expected life of 3 years resulting in a
      value of $1.05 per option granted.





(iv)
            On
      January 7, 2008, the Company granted to its Vice President, Finance (“VP
      Finance”) 150,000 options to purchase the Company’s common stock at a
      price of $1.98 per share.  The Company valued these options
      using the Black Scholes option pricing model using the following
      assumptions: no dividend yield; expected volatility rate of 75.68%; risk
      free interest rate of 2.76% and an expected life of 3 years resulting in a
      value of $1.01 per option granted.





(v)
            On
      March 14, 2008, the Company granted to a director 100,000 options to
      purchase the Company’s common stock at a price of $2.48 per
      share.  The Company valued these options using the Black Scholes
      option price model using the following assumptions: no dividend yield;
      expected volatility rate of 73.39%; risk free interest rate of 1.65% and
      an expected life of 3 years resulting in a value of $1.21 per option
      granted.





(vi)
            Between
      January 1, 2008 and March 31, 2008, the Company granted to its full-time
      employees a total of 290,000 options to purchase the Company’s common
      stock at a range of prices between $2.06 and $3.30 per
      share.  The Company valued these options using the Black Scholes
      option pricing model using the following assumptions: no dividend yield;
      expected volatility rate of between 73.34% and 75.66%; risk free interest
      rates of between 1.79% and 3.07% and an expected life of 3 years resulting
      in a value of between $1.05 and $1.66 per option
  granted.





(vii)
            Between
      January 1, 2008 and March 31, 2008, the Company granted to consultants a
      total of 70,000 options to purchase the Company’s common stock at prices
      ranging from $2.06 to $2.48 per share.  The Company is valuing
      these options at each reporting period under FAS 123(R) for non-employees
      using the Black Scholes option pricing model using the following
      assumptions: no dividend yield; expected volatility rate of 73.34%; risk
      free interest rates of 1.79% and an expected life of 3 years resulting in
      a value of $1.38 per option
granted.





All of
the options noted in (i) to (vii) vest over three years and are exercisable for
a period of five years based on the date of grant.  Management does
not expect any forfeitures to occur as over 90% of the options in question have
been granted to senior officers, senior employees and directors of the Company
who are not expected to leave in the near future.  This is the first
year of the Stock Option Plan and this assumption will be reassessed on an
annual basis.  The fair value of these options at March 31, 2008 of
$7,272,100 (December 31, 2007 - $4,396,000) will be recognized on a
straight-line basis over a vesting term of 3 years and accordingly, an expense
has been recognized in Q1 2008 of $482,144 (FYE 2007 - $428,028) and included in
management fees and employee salaries expense.




F-13




Communicate.com Inc.
 Notes to Consolidated Financial
Statements
  NOTE 7
– SHARE CAPITAL (continued)





c)    
Stock Options (continued)





A summary
of the option activity under the 2007 Plan as of March 31, 2008, and changes
during the three-month period then ended is presented below:




Options
            
            Shares
            
            
            Weighted
              Average
              Exercise
      Price
              $
            
            
            Intrinsic
              Value
              $Options
      outstanding, March 31, 2007
            
            
            -
            
            
            
            -
            
            
            
            -Granted
            
            
            2,750,000
            
            
            $
            2.25
            
            
            
            -Exercised
            
            
            -
            
            
            
            -
            
            
            
            -Cancelled
      or expired
            
            
            -
            
            
            
            -
            
            
            
            -Options
      outstanding, December 31, 2007
            
            
            2,750,000
            
            
            $
            2.25
            
            
            $
            1.74
      - 1.78Granted
            
            
            1,610,000
            
            
            $
            2.20Exercised
            
            
            -
            
            
            
            -
            
            
            
            -Cancelled
      or expired
            
            
            -
            
            
            
            -
            
            
            
            -Options
      outstanding, March 31, 2008
            
            
            4,360,000
            
            
            $
            2.23
            
            
            $
            1.33
      - 1.42Options
      vested or expected to vest at March 31, 2008
            
            
            -Options
      exercisable March 31, 2008
            
            
            -Exercise
      price
            
            $
            2.23Weighted
      average remaining life
            
            4.60
      Years




d)    
Common Stock Purchase Warrants





As of
March 31, 2008, 1,000,000 (Note 7(b)) warrants to purchase the Company’s common
stock remain outstanding as follows:





WeightedOutstanding
            
            
            Average
      Exercise
            
            Date
      ofWarrants
            
            
            Price
            
            ExpiryWarrants
      outstanding, March 31, 2007
            
            
            -
            
            
            
            -Granted
            
            
            1,000,000
            
            
            $
            1.25Cancelled
      or expired
            
            
            -
            
            
            
            -Warrants
      outstanding, December 31, 2007
            
            
            1,000,000
            
            
            $
            1.25Granted
            
            
            -
            
            
            
            -
            
            June
      10, 2009Cancelled
      or expired
            
            
            -
            
            
            
            -Warrants
      exercisable March 31, 2008
            
            
            1,000,000
            
            
            $
            1.25Exercise
      price
            
            $
            1.25Weighted
      average remaining life
            
            1.19
      Years




F-14




Communicate.com Inc.
 Notes to Consolidated Financial
Statements
  NOTE 8
– INCOME TAXES





The
Company’s subsidiaries, DHI, Acadia, Importers, and 613784 B.C. Ltd. are subject
to federal and provincial taxes in Canada and the Company and its subsidiary FT
(until the date of disposition on November 12, 2007) are subject to United
States federal and state taxes.





The
Company adopted the provisions of FIN 48, on January 1, 2007. FIN 48 clarifies
the accounting for uncertainty in income taxes recognized in an enterprise’s
financial statements in accordance with FASB Statement 109, “Accounting for
Income Taxes”, and prescribes a recognition threshold and measurement process
for financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The Company and its subsidiaries are
subject to U.S. federal income tax and Canadian income tax, as well as
income tax of multiple state and local jurisdictions. Based on the Company’s
evaluation, the Company has concluded that there are no significant uncertain
tax positions requiring recognition in the Company’s financial statements. The
Company’s evaluation was performed for the tax years ended December 31, 2001,
2002, 2003, 2004, 2005, 2006 and 2007, as well as the quarter ended March 31,
2008, the tax years which remain subject to examination by major tax
jurisdictions as of March 31, 2008.  The Company may from time to time be
assessed interest or penalties by major tax jurisdictions, although any such
assessments historically have been minimal and immaterial to the Company’s
financial results. In the event the Company has received an assessment for
interest and/or penalties, it has been classified in the financial statements as
selling, general and administrative expense.





As at the
last fiscal tax year December 31, 2007, the Company and its subsidiaries have
net operating loss carryforwards of approximately $2,507,000 that result in
deferred tax assets.  These loss carryforwards will expire, if not
utilized, through 2027.  The Company’s subsidiary DHI also has
approximately $1,592,000 in undepreciated capital costs relating to property and
equipment that have not been amortized for tax purposes.  The
Company’s subsidiaries Acadia and Importers also have approximately $2,943,000
combined in undepreciated capital costs relating to intangible assets that have
not been amortized for tax purposes.  The costs may be amortized in
future years as necessary to reduce taxable income.  Management
believes that the realization of the benefits from these deferred tax assets is
uncertain and accordingly, a full deferred tax asset valuation allowance has
been provided and no deferred tax asset benefit has been recorded.





NOTE
9 – SEGMENTED INFORMATION





The
Company’s eCommerce operations have historically been conducted in three
business segments, Domain Leasing and Advertising, eCommerce Products and
eCommerce Services. The business segment of eCommerce services ended upon the
termination of the Company’s relationship with FT on November 12,
2007.  Revenues, operating profits and net identifiable assets by
business segments are as follows:




F-15




Communicate.com Inc.
 Notes to Consolidated Financial
Statements
  NOTE 9
– SEGMENTED INFORMATION (continued)





For the Quarter Ended
      March 31, 2008Domain
      Leasing and
              Advertising
            eCommerce
              Products
            eCommerce
              Services
            Total$
            $
            $
            $Revenue
            27,836
            1,824,824
            -
            1,852,660Segment
      Loss
            (533,266)
            (1,671,656)
            -
            (2,204,922)As at March 31,
      2008
            $
            $
            $
            $Total
      Assets
            1,534,178
            6,051,583
            -
            7,585,761Intangible
      Assets
            1,373,515
            252,366
            -
            1,625,881





For the Quarter Ended
      March 31, 2007Domain
      Leasing and
              Advertising
            eCommerce
              Products
            eCommerce
              Services
            Total$
            $
            $
            $Revenue
            69,901
            1,416,924
            204,420
            1,691,245Segment
      Loss
            (34,399)
            32,016
            (45,004)
            (47,387)As at March 31,
      2007
            $
            $
            $
            $Total
      Assets
            1,389,395
            2,400,318
            -
            3,833,819Intangible
      Assets
            1,389,395
            252,366
            -
            1,645,061





The
reconciliation of the segment profit to net income as reported in the
consolidated financial statements is as follows:





For
      the Quarter
              Ended
      March 31,
              2008
              (unaudited)
            
            
            For
      the Quarter
              Ended
      March 31,
              2007
              (unaudited)$
            
            
            
            $Segment
      Loss
            
            
            (2,204,922
            )
            
            
            (47,387
            )Non-Recurring
      Income
            
            
            -
            
            
            
            -Net
      proceeds from sales-type lease of domain names
            
            
            168,206
            
            
            
            -Interest
      and Investment Income
            
            
            42,498
            
            
            
            18,615Net
      Loss for the period
            
            
            (1,994,218
            )
            
            
            (28,772
            )





Substantially
all property and equipment and intangible assets are located in
Canada.





NOTE
10 – COMMITMENTS





Effective
October 1, 2007 the Company leased its 5,400 square feet office in Vancouver,
Canada from an unrelated party for a 5-year period starting from October 1, 2007
to September 30, 2012.  Pursuant to the terms of the lease agreement,
the Company is committed to basic rent payments expiring September 30, 2012 as
follows.





CAD
      $2008
            83,4692009
            116,1882010
            121,5312011
            126,8732012
            98,159





The
Company will also be responsible for common costs currently estimated to be
equal to approximately 75% of basic rent.




F-16




Communicate.com Inc.
 Notes to Consolidated Financial
Statements
  NOTE 11
– CONTINGENCY





The
former Chief Executive Officer of DHI commenced a legal action against DHI on
March 9, 2000 for wrongful dismissal and breach of contract.  He is
seeking, at a minimum, 18.39% of the outstanding shares of DHI, specific
performance of his contract, special damages in an approximate amount of
$30,000, aggravated and punitive damages, interest and costs. On June 1, 2000,
DHI filed a Defence and Counterclaim against this individual claiming damages
and special damages for breach of fiduciary duty and breach of his employment
contract. The outcome of these legal actions is currently not determinable and
as such the amount of loss, if any, resulting from this litigation is presently
not determinable.  To date, there has been no further action taken by
the plaintiff since the filing of the initial legal action on March 9,
2000.


NOTE
12 – EXPENSES RELATED TO CRICKET.COM





During Q1
of 2008, the Company incurred various costs relating to establishing the
Memorandum of Understanding signed in April 2008 with the Board of Control for
Cricket in India (BCCI) and the DLF Indian Premier League (IPL). During the
quarter, these costs included $17,125 in consulting fees and $38,192 in travel
expenses that were incurred in order to pursue this opportunity with the BCCI
and IPL.  There were no such costs in Q1 of 2007.  Refer to
Note 16.
 
 NOTE
13 – OTHER EXPENSES





During Q1
of 2008, the Company incurred various restructuring costs relating to
establishing the new management team.  During the period, such costs
included severance payments to our former Chief Financial Officer of $168,429,
$25,657 in consulting fees to our former Chief Financial Officer, $317,109 in
signing bonuses to our new Chief Corporate Development Officer and our new Vice
President Finance, a severance payment of $53,582 to one of our full time
employees, $39,778 in costs related to changing the Company name and rebranding,
and $25,301 in some final windup costs related to the FT disposition in late
2007.  There were no such costs in Q1 of 2007.





NOTE
14 – MERGER AGREEMENT





On March
25, 2008, the Company and its wholly owned subsidiary, Communicate.com Delaware,
Inc. (“Delaware”) entered into an Agreement and Plan of Merger (the “Merger
Agreement”) with Entity, Inc., a Delaware corporation, (“Auctomatic”). The
Company believes that Auctomatic’s technology framework and toolset will
strengthen its commerce platform and Auctomatic’s team will dramatically enhance
the Company’s product and technology capability.





The
Merger Agreement is anticipated to close on May 23, 2008 (the “Closing
Date”).  In connection with the Merger Agreement, the stockholders of
Auctomatic shall receive in total (i) $2,000,000 cash minus certain assumed
liabilities and (ii) such number of shares of common stock of the Company equal
to $3,000,000 divided by the lower of (a) $3.00 per share or (b) the closing
price of the Company’s share on the Over the Counter Bulletin Board on the
business day immediately preceding the Closing Date, provided that the
denominator shall not be less than $2.50, in exchange for all the issued and
outstanding shares of Auctomatic.





The
consideration is payable on the Closing Date as follows: (i) 34% of the common
stock and (ii) $1,200,000.  The remaining 66% of the common stock
shall be distributed in equal amounts on each of the first, second and third
anniversary of the Closing Date. The remaining $800,000 of the total Cash
Consideration shall be distributed on the first anniversary of the Closing
Date.  All amounts of cash and common stock shall be distributed pro
rata among the Auctomatic Stockholders. The distribution of the common stock
payable on the first, second and third anniversary of the Closing Date to the
Founders is subject to their continuing employment with the Company or a
subsidiary on each Distribution Date.





As at
March 31, 2008, $121,265 of acquisition costs had been incurred and will be
deferred until the Closing Date, at which time these costs will be allocated to
the purchase price.




F-17




Communicate.com Inc.
 Notes to Consolidated Financial
Statements
  NOTE 15
– DOMAIN NAME LEASES AND SALES


On
January 17, 2008, the Company entered into an agreement to lease Surrey.com to
an unrelated third party for CAD$200,000.  The terms of the agreement
provide for the receipt of this amount in five irregular lease payments over a
two-year term.  The first payment of $25,000CAD was due on January 17,
2008 (the “Effective Date”), $45,000CAD is due 3 months after the Effective
Date, $80,000CAD is due 6 months after the Effective Date, $25,000CAD is due 1
year after the Effective Date, and $25,000CAD is due 2 years after the Effective
Date. The Company will lease the domain name to the third party exclusively
during the term of the agreement.  Title and rights to the domain name
will be transferred to the purchaser only when full payment is received at the
end of the lease term.  If the third party defaults on any payments,
the agreement terminates, funds received to date are forfeited by the lessee,
and rights to the domain name return to the Company.  This transaction
has been recorded as a sales-type lease in Q1 of 2008.  The investment
in a sales-type lease of $163,963 has been recorded on the balance sheet on a
net basis after the lease payments received to date.  Revenues of
$168,206 have been recorded at the present value of the lease payments over the
term, net of the cost of the domain name, at an implicit rate of
6%.





There
were no sales of domain names in Q1 of 2008 or the 2007 fiscal
year.





NOTE 16 – SUBSEQUENT
EVENTS


Memorandum
of Understanding


On April
18, 2008, the Company signed a Memorandum of Understanding (MOU) with the Board
of Control for Cricket in India (BCCI) and the DLF Indian Premier League
(IPL).  The Company will be the exclusive online provider of content
for the BCCI and IPL.  The ten-year agreement outlined in the MOU
includes extensive co-marketing and exclusive online content rights agreements
for the Company to build, launch and operate the official online destinations
for the BCCI and IPL. The BCCI will be guaranteed on a combined basis a minimum
of US $3 million annually and the IPL US $ 2 million annually through revenue
sharing agreements including percentages of advertising, sponsorship and
merchandising sales.  The Company is currently negotiating definitive
binding agreements to finalize the terms of the transaction.





NOTE
17 – COMPARATIVE FIGURES





In order
to provide more relevant data in Q1 of 2008, the Company has specifically
identified and reported eCommerce sales and costs of sales generated from the
operation of our Perfume.com and Body.com websites as “Health & Beauty
eCommerce”, and the eCommerce sales and costs of sales generated from the
operation of our other websites as “Other eCommerce”.  Other eCommerce
includes eCommerce services generated from FT in 2007, which are NIL in 2008.
The comparative figures for Q1 of 2008 have been reclassified in order to
conform to the current year’s consolidated financial statement
presentation.






F-18