UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.   20549





FORM
10-K








[
      X ]
            ANNUAL
      REPORT UNDER SECTION 13 0R 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For the
fiscal year ended  December
31, 2009





[    ]
            TRANSITION
      REPORT UNDER SECTION 13 0R 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For the
transition period from


Commission
file number  000-29929








LIVE
      CURRENT MEDIA INC.(Name
      of Small Business Issuer in its charter)








Nevada
            
            88-0346310(State
      or other jurisdiction of incorporation or organization)
            
            (I.R.S.
      Employer Identification No.)375
      Water Street, Suite 645, Vancouver, British Columbia
            
            V6B 5C6(Address
      of principal executive offices)
            
            (Zip
      Code)





Issuer’s
telephone number (604)
453-4870








Securities
registered pursuant to Section 12(b) of the Act:


Title
      of each class
            
            Name
      of each exchange on which registeredNone
            
            N/A








Securities
registered pursuant to Section 12(g) of the Act:





Common
      Stock - $0.001 par value(Title
      of Class)





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.


o Yes  x No





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.


o Yes  x No












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





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





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  o





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.




Large accelerated
      filer [  ]
            
            Accelerated
      filer [  ]Non-accelerated
      filer [  ] (Do not check if a smaller reporting
    company)
            
            Smaller reporting
      company [x]





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





State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of the
last business day of the registrant’s most recently completed second fiscal
quarter.  As of June 30, 2009, the aggregate market value of the
voting and non-voting common equity held by non-affiliates was
$6,284,368.





Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock, as of the latest practicable date.  As of March 22, 2010 the
registrant had 24,026,180 shares of common stock outstanding.





List
hereunder the following documents if incorporated by reference and the Part of
the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated:  (1) Any annual report to security holders; (2) Any
proxy or information statement; and (3) Any prospectus filed pursuant to Rule
424(b) or (c) under the Securities Act of 1933.  The listed documents
should be clearly described for identification purposes (e.g., annual report to
security holders for fiscal year ended December 24, 1980).











CONTENTS


PageForward-Looking
      Statements
            IPart
      1Item
      1
            
            Business
            1Item
      1A
            
            Risk
      Factors
            5Item
      1B
            
            Unresolved
      Staff Comments
            11Item
      2
            
            Properties
            11Item
      3
            
            Legal
      Proceedings
            11Item
      4
            
            Removed
      and Reserved
            11Part
      IIItem
      5
            
            Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
            11Item
      6
            
            Selected
      Financial Data
            13Item
      7
            
            Management’s
      Discussion and Analysis of Financial Condition and Results Of
      Operations
            13Item
      7A
            
            Quantitative
      and Qualitative Disclosures About Market Risk
            29Item
      8
            
            Financial
      Statements and Supplementary Data
            29Item
      9
            
            Changes
      In and Disagreements With Accountants on Accounting and Financial
      Disclosure
            29Item
      9A
            
            Controls
      and Procedures
            30Item
      9B
            
            Other
      Information
            31Part
      IIIItem
      10
            
            Directors,
      Executive Officers and Corporate Governance
            31Item
      11
            
            Executive
      Compensation
            34Item
      12
            
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
            39Item
      13
            
            Certain
      Relationships and Related Transactions and Director
      Independence
            42Item
      14
            
            Principal
      Accountant Fees and Services
            42Part
      IVItem
      15
            
            Exhibits,
      Financial Statement Schedules
            44Signatures
      and Certifications
            47Financial
      Statements
            F-1













Forward
Looking Statements





This
Annual Report on Form 10-K for the year ended December 31, 2009, including the
discussion of the business of Live Current Media Inc. (“Live Current”, the
“Company”, “we”, “us”, and “our”), management’s discussion and analysis of
financial condition and results of operations, as well as other sections of this
Annual Report contain “forward-looking” statements.  Certain
information contained or incorporated by reference in this Annual Report,
including the information set forth as to the future financial or operating
performance of Live Current, constitutes “forward-looking
statements”.  These statements may be identified by their use of words
like “plans”, “expect”, “aim”, “believe”, “projects”, “anticipate”, “intend”,
“estimate”, “will”, “should”, “could”, “contemplate”, “target”, “continue”,
“budget”, “may” and other similar expressions that indicate future events and
trends.  All statements, other than historical statements of fact,
that address expectations or projections about the future, including statements
about Live Current’s strategy for growth, product development, market position,
expenditures and financial results, are forward-looking statements.





Forward-looking
statements in this Form 10-K include but are not limited to statements regarding
(1) expectation that revenue will increase during fiscal 2010; (2) expectation
that our participant base will increase; (3) expectation of an increase in
future operating expenses; (4) expectation that the expansion of our participant
base will cause wages, marketing and promotional costs to increase; (5)
expectation that working capital needs for fiscal 2010 will be funded through
the equity capital markets and private financings; (6) expectation that an
increase in our participant base will lead to hiring of additional employees or
independent contractors; (7) expectation relating to the future developments of
content, features, and services to be provided on any of our websites, including
perfume.com; (8) uncertainty of utilizing deferred tax assets; and (9)
expectation that inflation will not have a material impact on future
operations.





These
forward-looking statements involve a number of risks and uncertainties,
including, but not limited to, the following: general economic conditions
particularly as they relate to demand for Live Current’s products and services;
changes in business strategy; competitive factors (including the introduction or
enhancement of competitive services); pricing pressures; changes in operating
expenses; fluctuation in foreign currency exchange rates; inability to attract
or retain consulting, sales and/or development talent; changes in customer
requirements; evolving industry standards; and other factors described in Live
Current’s filings with the Securities and Exchange Commission.  The
results that Live Current achieves may differ materially from any
forward-looking statements due to these risks and uncertainties.  The
forward-looking statements in this Form 10-K for the fiscal year ended December
31, 2009 are subject to risks and uncertainties that could cause actual results
to differ materially from the results expressed in or implied by the statements
contained in this report.





As a
result, the identification and interpretation of data and other information and
their use in developing and selecting assumptions from and among reasonable
alternatives requires the exercise of judgment.  To the extent that
the assumed events do not occur, the outcome may vary substantially from
anticipated or projected results, and accordingly, no opinion is expressed on
the achievability of those forward-looking statements.  No assurance
can be given that any of the assumptions relating to the forward-looking
statements are accurate.  All forward-looking statements are made as
of the date of filing of this Form 10-K and Live Current disclaims any duty to
update any such forward-looking statements.





The
following discussion should be read in conjunction with our consolidated
financial statements and their explanatory notes, which are included in this
Annual Report.













PART
I





Item
1.  Business





OVERVIEW





Live
Current Media Inc. was incorporated under the laws of the State of Nevada on
October 10, 1995 under the name “Troyden Corporation”.  We changed our
name on August 21, 2000 from Troyden Corporation to “Communicate.com Inc.”, and
again on May 30, 2008 to Live Current Media Inc.  Since August 4,
2008, our common stock has been quoted on the OTCBB under the symbol,
“LIVC”.





The
corporate website is located at www.livecurrent.com.  Information
included on the website is not a part of this Annual Report.





SUBSIDIARIES





We have 6
subsidiaries, but only one is currently significant to our
business.  Our principal operating subsidiary, Domain Holdings Inc.
(“DHI”), was incorporated under the laws of British Columbia on July 4, 1994
under the name “IMEDIAT Digital Creations Inc.”.  On April 14, 1999,
IMEDIAT Digital Creations, Inc. changed its name to “Communicate.com Inc.” and
was redomiciled from British Columbia to the jurisdiction of
Alberta.  On April 5, 2002, Communicate.com Inc. changed its name to
Domain Holdings Inc.  DHI has 62,635,383 shares of common stock
currently issued and outstanding.  61,478,225 shares, or approximately
98.2% of the outstanding shares, are held by Live Current.





On
December 31, 2005, DHI reorganized by transferring certain domain name assets
into its wholly owned subsidiary, Acadia Management Corp. (“Acadia”), a British
Columbia corporation incorporated on December 1, 2005.  In October
2008, the assets and liabilities of Acadia were assigned to DHI and Acadia was
subsequently dissolved in January 2009.  On December 31, 2006, DHI
transferred the domain name Importers.com to its wholly owned subsidiary 0778229
B.C. Ltd. (“Importers”), a British Columbia company incorporated on December 27,
2006.  DHI also has a dormant wholly owned subsidiary, 612793 B.C.
Ltd. (“612793”), which was incorporated on August 21, 2000.





On March
13, 2008, the Company incorporated a wholly owned subsidiary in the state of
Delaware, Communicate.com Delaware, Inc. (“Delaware”).  The new
subsidiary was incorporated to facilitate the merger with
Auctomatic.





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





A list of
the Company’s subsidiaries is attached as Exhibit 21.





OUR BUSINESS





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





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





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





1




ECommerce
Revenues





We
currently generate almost all of our eCommerce revenues through product sales on
Perfume.com.  We plan to continue to build Perfume.com eCommerce
revenues by expanding to more efficient distribution and fulfillment channels,
creating a more engaging consumer experience, and performing continued technical
improvements to the websites.  We will also continue to explore other
product-related revenue streams across our domain name portfolio.





Our
Perfume.com website sells brand name fragrances, including women’s perfume,
men’s cologne, and skin care products, direct to consumers in the United States
and select international markets.  Perfume.com sells 100% authentic
products and provides customers with a satisfaction guarantee.  While
we are currently using a single supplier to ship customer orders, we are not
dependent on that supplier for the products that we sell.  The
products are supplied by various wholesale suppliers located in the United
States and new suppliers can be utilized by simply turning on their electronic
inventory feeds.  In 2008, we began shipping our Perfume.com products
to selected international markets.  Until then, we shipped only to
delivery addresses located in the United States.  However, sales of
products shipped to non-U.S. locations, with the greatest portion of these sales
being made in Canada and the United Kingdom, were immaterial for the 2008 and
2009 fiscal years and therefore are not disclosed separately.





Our
products are described in detail on our website.  The products are
offered through an easily navigated website experience within a transaction
secure environment accepting the usual modes of secure credit card payments,
PayPal and Google Checkout.  Products can also be ordered using our
toll-free telephone number.





Advertising
Revenues





Over
time, we expect to continue to generate a small portion of revenues by selling
advertising either directly to advertisers or in partnership with third party
advertising networks.  Until early 2008, we had an arrangement with
Overture Services, Inc. (“Overture”) pursuant to which we were paid a fee for
referrals to sites with connections to Overture.  We terminated our
relationship with Overture effective February 29, 2008 in order to have more
flexibility to deploy advertising across our websites.  Currently,
many of our websites are part of the Google AdSense network of publishers which
generates advertising revenues and monetizes our properties.  Google
AdSense matches ads to our sites’ content and audiences, and depending on the
type of ad, we earn revenues from clicks or impressions.
The relationship with Google is a non-exclusive agreement and as
we develop our domain websites we may revisit direct relationships or other
third party advertising networks.





Importers.com
is a trade website that connects businesses around the world by providing tools
such as an email service and a searchable, online database which helps
facilitate communication between buyers and sellers.  Businesses
register on the website for free.  Once registered, buyers and
distributors can access information about manufacturers and wholesalers and vice
versa.  The information is grouped in product categories or may be
found via a search bar included on the website.  As long as both
parties are members, they may contact each other via e-mail.  The
website also provides useful information concerning international trade-related
issues such as customs clearance, transportation providers and trade development
organizations.  We earn advertising revenues from this
website.





Sale
and Lease of Domain Names





We own
more than 900 domain names.  We believe that there is high value in
building businesses around the domain names we own, however we recognize that
there are opportunities whereby selling or leasing them may be more valuable
than exploiting the ownership value of the names.  We also recognize
that selling some non-core domain names is an effective way to raise funds in a
non-dilutive manner.  Therefore, we have sold one name in December
2008 and ten more names in 2009, not including our cricket.com domain
name.  We continue to evaluate any offers received.  In the
future, we may buy domain names to complement our existing businesses in the
health and beauty, sports, travel and global trade categories. In 2007, there
were no sales of domain name assets.





RECENT
TRANSACTIONS





Karate.com





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






2





Entity
Inc. (“Auctomatic”)





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





In August
2009, we reached an agreement with twelve of the eighteen Auctomatic
shareholders to convert $424,934 of the $800,000 payable to them into
convertible notes bearing interest at 10%. The payment due date is May 22,
2010.





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





Exit
from Cricket





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





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





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





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






3





RESTATEMENT
OF FINANCIAL STATEMENTS





On June
18, 2009, we were advised by Ernst & Young, LLP, our independent registered
public accounting firm, that our consolidated financial statements for the
quarter ended March 31, 2009, as well as the consolidated financial statements
for the years ended December 31, 2008 and 2007, contained
errors.  Based on the foregoing, C. Geoffrey Hampson, the Company’s
Chief Executive Officer and Chief Financial Officer, concluded that these
financial statements should no longer be relied upon.  These errors
affected opening balances as at December 31, 2007 and the financial position,
results of operations and cash flows for the comparative period ended December
31, 2008.  Please also see Note 2 to our restated financial statements
for the period ended December 31, 2008, as well as our related disclosure in
Amendments No.1 and No. 2 to our Form 10-K as filed with the Securities and
Exchange Commission on September 14, 2009 and October 26, 2009,
respectively.  Refer to Item 7, Management’s Discussion and Analysis
of Financial Condition and Results of Operations, for afull discussion of the
effect of the restatement to our financial statements for the year ended
December 31, 2008.





COMPETITIVE CONDITIONS





Currently
almost all of our revenues are earned through our Perfume.com
website.  The fragrance eCommerce business is intensely
competitive.  Perfume.com’s current and potential competitors include
eCommerce sites specializing in fragrance products, other eCommerce sites
offering a wide variety of products including fragrances, and traditional brick
and mortar retailers with a high degree of brand awareness among consumers that
have expanded into online sales, including various department stores and
specialty health and beauty stores.  We believe that the principal
competitive factors in our Perfume.com business include price, selection, ease
of website use, fast and reliable fulfillment, strong customer service and
development of a trusted brand.  Many of our current competitors have
greater resources, more customers, longer operating histories and greater brand
recognition.  They may secure better terms from suppliers, have more
efficient distribution capability, and devote more resources to technology,
fulfillment and marketing.





In
addition, the Internet Corporation for Assigned Names and Numbers (“ICANN”) has
introduced, and has proposed the introduction of, additional new domain name
suffixes, which may be as or more attractive than the “.com” domain name
suffix.  New root domain names may have the effect of allowing the
entrance of new competitors at limited cost, which may further reduce the value
of our domain name assets.  We do not presently intend to acquire
domain names using newly authorized root domain names to match our existing
domain names, although we have certain .cn (China) root domain names to
complement our growth strategy.  ICANN regularly develops new domain
name suffixes that will have the result of making a number of domain names
available in different formats, many of which may be more attractive than the
formats held by us.





DEPENDENCE
ON ONE OR A FEW MAJOR CUSTOMERS





We do not
currently depend on one or a few customers for a significant portion of our
business.





PATENTS,
TRADEMARKS AND PROPRIETARY RIGHTS





On
November 16, 2007, we filed a trademark application with the US Patent &
Trademark Office (“USPTO”) for the mark "LIVE CURRENT".  A certificate
of registration was issued on October 14, 2008 and the mark was assigned
registration number 3,517,876.





On March
11, 2008, we filed a trademark application with the USPTO for the mark
"DESTINATIONHUB".  A certificate of registration was issued on
December 9, 2008 and the mark was assigned registration number
3,544,934.





We
currently do not own any patents and we are not a party to any license or
franchise agreements, concessions, or labor contracts arising from our
intellectual property.





All of
our online business web sites are copyrighted upon loading. “Livecurrent.com”
has been registered with ICANN.




While we
will consider seeking further protections for our intellectual property, we may
be unable to avail ourselves of protections under United States laws because,
among other things, our domain names are generic and intuitive. Consequently, we
will seek protection of our intellectual property only where we have determined
that the cost of obtaining protection, and the scope of protection provided,
results in a meaningful benefit to us.






4





EFFECT
OF EXISTING GOVERNMENTAL REGULATION





Our
business is subject to regulation at the federal, state and local
levels.  To date, we have not found it burdensome to comply with
regulatory requirements.  The enactment of new adverse regulation or
regulatory requirements, however, may have a negative impact upon us and our
business.





Licensing





Other
than business and operations licenses applicable to most commercial ventures, we
are not required to obtain any governmental approval for our business
operations.  There can be no assurance, however, that governmental
institutions will not, in the future, impose licensing or other requirements to
which we will be subject.  Additionally, as noted below, there are a
variety of laws and regulations that may, directly or indirectly, have an impact
on our business.





Privacy
Legislation and Regulations





Entities
engaged in operations over the internet, particularly relating to the collection
of user information, are subject to limitations on their ability to utilize such
information under federal and state legislation and regulation. In 2000, the
Gramm-Leach-Bliley Act required that the collection of identifiable information
regarding users of financial services be subject to stringent disclosure and
“opt-out” provisions. While this law and the regulations enacted by the Federal
Trade Commission and others relates primarily to information relating to
financial transactions and financial institutions, the broad definitions of
those terms may make the businesses entered into by the Company subject to the
provisions of the Act.  This may increase the cost of doing business
which may, in turn, reduce our revenues. Similarly, the Children On-line Privacy
and Protection Act (“COPPA”) imposes strict limitations on the ability of
internet ventures to collect information from minors. The impact of COPPA may be
to increase the cost of doing business on the internet and reduce potential
revenue sources. We may also be impacted by the USA Patriot Act, which requires
certain companies to collect and provide information to United States
governmental authorities. A number of state governments have also proposed or
enacted privacy legislation that reflects or, in some cases, extends the
limitations imposed by the Gramm-Leach-Bliley Act and COPPA. These laws may
further impact the cost of doing business on the internet and the attractiveness
of our inventory of domain names.





Advertising
Regulations





In
response to concerns regarding “spam” (unsolicited electronic messages),
“pop-up” web pages and other internet advertising, the federal government and a
number of states have adopted or proposed laws and regulations which would limit
the use of unsolicited internet advertisements. The cumulative effect of these
laws may be to limit the attractiveness of effecting sales on the internet, thus
reducing the value of our inventory of domain names.





Taxation





Currently,
the sale of goods and services on the internet is not subject to a uniform
system of taxation.  A number of states, as well as the federal
government, have considered enacting legislation that would subject internet
transactions to sales, use or other taxes.  Because there are a
variety of jurisdictions considering such actions, any attempt to tax internet
transactions could create uncertainty in the ability of internet-based companies
to comply with varying, and potentially contradictory,
requirements.  We cannot predict whether any of the presently proposed
schemes will be adopted, or the effect any of them would have on our
operations.





EMPLOYEES





We
presently employ 18 full-time and 5 part-time employees, as well as 1
consultant.





Item
1A.  Risk Factors





In
addition to the factors discussed elsewhere in this Annual Report, the following
risks and uncertainties could materially adversely affect our business,
financial condition and results of operations.  The current global
economic downturn amplifies many of these risks.  Additional risks and
uncertainties not presently known to us or that we currently deem immaterial
also may impair our business operations and financial condition.






5





Risks
Relating to Our Business





WE
GENERATED A NET LOSS OF $4,062,823 AND $10,103,137 BEFORE TAXES FOR THE YEARS
ENDED DECEMBER 31, 2009 AND DECEMBER 31, 2008, RESPECTIVELY.WE MAY BE UNABLE
TO CONTINUE AS A GOING CONCERN.





Our
consolidated financial statements have been prepared on a going concern basis
which assumes that we will be able to realize our assets and discharge our
liabilities in the normal course of business for the foreseeable future. We
generated a consolidated net loss before taxes of $4,062,823 for the year ended
December 31, 2009 compared to a consolidated net loss before taxes of
$10,103,137 during 2008.  We realized a negative cash flow from
operating activities of $4,210,644 during 2009 compared to $4,854,260 in
2008.  At December 31, 2009, we had an accumulated deficit of
$16,787,208 and a working capital deficiency of $1,216,325 compared to an
accumulated deficit of $12,777,195 and a working capital deficiency of
$3,199,931 at December 31, 2008. At December 31, 2009, we had a
stockholders’ deficit of $148,448 compared to a stockholders’ equity of
$1,995,592 at December 31, 2008.





Our
ability to continue as a going-concern is in substantial doubt as it is
dependent on a number of factors including, but not limited to, the receipt of
continued financial support from our investors, our ability to market and sell
domain name assets for cash, our ability to raise equity or debt financing as we
need it, and whether we will be able to use our securities to meet certain of
our liabilities as they become payable.  The outcome of these matters
is dependent on factors outside of our control and cannot be predicted at this
time.





FAILURE
TO MAINTAIN EFFECTIVE INTERNAL CONTROL OVER FINANCIAL REPORTING IN ACCORDANCE
WITH SECTION 404 OF THE SARBANES-OXLEY ACT OF 2002 MAY RESULT IN ACTIONS FILED
AGAINST US BY REGULATORY AGENCIES OR MAY RESULT IN A REDUCTION IN THE PRICE OF
OUR COMMON SHARES.





We are
required to maintain effective internal control over financial reporting under
the Sarbanes-Oxley Act of 2002 and related regulations. Any material weakness in
our internal control over financial reporting that needs to be addressed, or
disclosure of a material weakness in management’s assessment of internal control
over financial reporting, may reduce the price of our common shares because
investors may lose confidence in our financial reporting.  Our failure
to maintain effective internal control over financial reporting could also lead
to actions being filed against us by regulatory agencies.





In
connection with the audit of our consolidated financial statements for the year
ended December 31, 2008, we identified weaknesses in internal control over
financial reporting that were material weaknesses as defined by standards
established by the Public Company Accounting Oversight Board. We have restated
our financial statements for the years ended December 31, 2008 and 2007 and for
the period ended March 31, 2009 to correct the accounting treatment for these
errors.





A
material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the Company’s annual or interim financial
statements will not be prevented or detected on a timely basis. The material
weakness in our internal control over financial reporting as of December 31,
2008 and March 31, 2009 resulted from our failure to maintain effective
processes and controls over the accounting for and reporting of complex and
non-routine transactions. Specifically, we did not have an appropriate level of
technical knowledge, experience and training in the accounting for business
combinations, stock-based compensation, deferred income taxes, and financial
statement presentation.  This control deficiency resulted in the
restatement. While we believe that we have remediated the weaknesses in our
internal control over financial reporting, we cannot provide assurance that
these remediation attempts have been successful or that we will not be subject
to material weaknesses in the future.





CURRENTLY,
ALMOST ALL OF OUR REVENUES ARE GENERATED BY THE SALE OF HEALTH AND BEAUTY
PRODUCTS, PARTICULARLY PERFUME, OVER THE INTERNET.  THE EFFECTS OF THE
RECENT ECONOMIC DOWNTURN HAVE, AND MAY CONTINUE TO IMPACT OUR
BUSINESS, OPERATING RESULTS, OR FINANCIAL CONDITION.





The
recent economic downturn has caused disruptions and extreme volatility in global
financial markets, has increased rates of default and bankruptcy, and has
impacted consumer and business spending.  These developments have, and
may continue to negatively affect our business, operating results, or
financial condition.  For example, the downturn in consumer spending,
especially in the United States, has resulted in decreased sales of
our health and beauty products, since most of these products are not necessities
but are purchased with discretionary funds.  Furthermore, the
tightening credit market may make it impossible for us to obtain financing if it
is required.  We are not sure when this economic downturn will
end.





WE
BUILD BUSINESSES AROUND OUR DOMAIN NAME PORTFOLIO.  WE MAY NOT BE ABLE
TO PROTECT OUR DOMAIN NAMES, WHICH WOULD ADVERSELY AFFECT OUR BUSINESS, RESULTS
OF OPERATIONS AND FINANCIAL CONDITION.






6





We seek
to develop a portfolio of operating businesses either by ourselves or by
entering into arrangements with businesses that operate in the product or
service categories that are described by the domain name assets owned by our
subsidiary, DHI.  We may not be able to prevent third parties from
acquiring domain names that are confusingly similar to our domain names, which
could adversely affect our business.  Governmental agencies and their
designees generally regulate the acquisition and maintenance of internet
addresses. However, the regulation of internet addresses in the United States
and in foreign countries is subject to change.  As a result, we may
not be able to acquire or maintain relevant internet addresses in all countries
where we conduct business.  All of our online business websites are
copyrighted upon loading. “Livecurrent.com” is a registered domain name of
DHI.  While we will consider seeking further protection for our
intellectual property, we may be unable to avail ourselves of protection under
United States laws because, among other things, our domain names are generic and
intuitive. Consequently, we will seek protection of our intellectual property
only where we determine that the cost of obtaining protection and the scope of
protection provided result in a meaningful benefit to us.





CURRENTLY,
SUBSTANTIALLY ALL OF OUR REVENUES COME FROM OUR SALES OF HEALTH AND BEAUTY
PRODUCTS THROUGH OUR WEBSITE “PERFUME.COM”.  WE MAY NOT BE ABLE TO
COMPETE SUCCESSFULLY AGAINST OTHER RETAILERS OF SIMILAR PRODUCTS.





The
internet renders eCommerce inherently more competitive than bricks and mortar
and catalogue retail selling because of the low barriers to entry and the ease
with which consumers may comparison shop.





We
currently earn substantially all of our revenues from the sale of health and
beauty products through our website, “Perfume.com”.  The fragrance
eCommerce business is extremely competitive.  Perfume.com has many
current and potential competitors including specialized online fragrance
retailers, other eCommerce retailers selling a wide variety of products
including fragrances, and traditional brick and mortar retailers with a high
degree of brand awareness among consumers that have expanded into online sales
such as department stores and specialty health and beauty
stores.  Many of our current competitors have greater resources, more
customers, longer operating histories and greater brand
recognition.  They may secure better terms from suppliers, have more
efficient distribution capability, and devote more resources to technology,
fulfillment and marketing.  Increased competition may reduce our sales
and profits. We do not represent a significant presence in our industry and we
may not be able to compete effectively against other retailers of similar
products.





NEW
ROOT DOMAIN NAMES MAY HAVE THE EFFECT OF ALLOWING THE ENTRANCE OF NEW
COMPETITORS AT LIMITED COST, WHICH MAY REDUCE THE VALUE OF OUR DOMAIN NAME
ASSETS.





The
Internet Corporation for Assigned Names and Numbers (“ICANN”) has introduced,
and has proposed the introduction of, additional new domain name suffixes. We do
not presently intend to acquire domain names using newly authorized root domain
names to match our existing domain names, although we have certain .cn (China)
root domain names to complement our growth strategy. ICANN regularly develops
new domain name suffixes that may make a number of domain names available in
different formats, many of which may be more attractive than the formats held by
us and which may allow the entrance of new competitors at limited
cost.  New root domain names may reduce the value of our domain name
assets.





WE
ARE PLANNING TO EXPAND OUR BUSINESS.  OUR FAILURE TO MANAGE THE GROWTH
OF OUR BUSINESS EFFECTIVELY COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.





We seek
to develop a portfolio of operating businesses either by ourselves or by
entering into arrangements with businesses that operate in the product or
service categories that are described by our domain name assets.  For
example, we entered into an agreement with Domain Strategies, Inc., an internet
development and management company, and Develep, a partnership, to jointly
establish a limited liability company for the purpose of developing, managing
and monetizing our Karate.com domain name.  The success of our future
operating activities will depend upon our ability to expand our support system
to meet the demands of our growing business.  Any failure by our
management to effectively anticipate, implement, and manage changes required to
sustain our growth would have a material adverse effect on our business,
financial condition, and results of operations.  We cannot assure you
that we will be able to successfully operate acquired businesses, become
profitable in the future, or effectively manage any other change.





THE
LOSS OF CERTAIN KEY PERSONNEL COULD SIGNIFICANTLY HARM OUR BUSINESS, RESULTS OF
OPERATIONS AND FINANCIAL CONDITON.





Our
performance is substantially dependent upon the services of our executive
officers and other key employees, as well as on our ability to recruit, retain,
and motivate other officers and key employees. Competition for qualified
personnel is intense and there are a limited number of people with knowledge of
and experience in the ownership, development, and management of websites and
internet domain names.  The loss of services of any of our officers or
key employees, or our inability to hire and retain a sufficient number of
qualified employees, will harm our business. Specifically, the loss of Mr.
Hampson, our Chief Executive Officer and Chairman, and Ms. Chantal Iorio, our
Vice President Finance, would be detrimental.  We have employment
agreements with Mr. Hampson and Ms. Iorio that provide for their continued
service to us until June 1, 2012 and January 7, 2013 respectively.




7







WE
WILL NEED TO RAISE ADDITIONAL CAPITAL IN 2010.   IF WE ARE UNABLE
TO DO SO, OUR BUSINESS WILL BE ADVERSELY AFFECTED.





We will
be required to raise additional funds for operations in 2010 and intend to do so
primarily through the sale or lease of a few of our non-core domain
names.  It is possible that if we are unable to raise adequate funds
from the sale of these domain names, we will have to raise additional funds
through public or private financing, strategic relationships or other
arrangements to carry out our business. We cannot be certain that any financing
will be available on acceptable terms, or at all.  Equity financing
may be dilutive to the holders of our common stock, and debt financing, if
available, may involve restrictive covenants. Moreover, strategic relationships,
if necessary to raise additional funds, may require that we relinquish valuable
rights. If we need to raise additional capital but are unable to do so, we may
be required to curtail our operations.





OUR
EXECUTIVE OFFICERS, DIRECTORS AND MAJOR STOCKHOLDERS OWN A SIGNIFICANT
PERCENTAGE OF OUR VOTING SECURITIES.  OUR NON-MANAGEMENT STOCKHOLDERS
MAY HAVE NO EFFECTIVE VOICE IN OUR MANAGEMENT.





Our
current directors, officers and more than 5% stockholders, as a group,
beneficially own approximately 23.52% of our outstanding common stock. These
shareholders may be able to control matters requiring approval by our
stockholders, including the election of directors, mergers or other business
combinations.  Such concentrated control may also make it difficult
for our stockholders to receive a premium for their shares of our common stock
in the event we merge with a third party or enter into other types of
transactions that require stockholder approval.  Our non-management
stockholders may have no effective voice in our management.





WE MAY BE SUBJECT TO RECENTLY
ENACTED PRIVACY LEGISLATION AND REGULATION WHICH COULD REDUCE OUR POTENTIAL REVENUES AND
PROFITABILITY.





Entities
engaged in operations over the internet, particularly relating to the collection
of user information, are subject to limitations on their ability to utilize such
information under federal and state legislation and regulation.  In
2000, the Gramm-Leach-Bliley Act required that the collection of identifiable
information regarding users of financial services be subject to stringent
disclosure and “opt-out” provisions.  While this law and the
regulations enacted by the Federal Trade Commission and others relates primarily
to information relating to financial transactions and financial institutions,
the broad definitions of those terms may make the businesses entered into by the
Company and its strategic partners subject to the provisions of the Act, which
may, in turn, increase the cost of doing business and reduce our
revenues.  Similarly, the Children On-line Privacy and Protection Act
(“COPPA”) imposes strict limitations on the ability of internet ventures to
collect information from minors. The impact of COPPA may be to increase the cost
of doing business on the internet and reduce potential revenue
sources.  We may also be impacted by the USA Patriot Act, which
requires certain companies to collect and provide information to United States
governmental authorities. A number of state governments have also proposed or
enacted privacy legislation that reflects or, in some cases, extends the
limitations imposed by the
Gramm-Leach-Bliley Act and COPPA.  These laws may further impact the
cost of doing business on the internet.





ANY
ATTEMPT OF FEDERAL OR STATE GOVERNMENT TO TAX INTERNET TRANSACTIONS COULD CREATE
UNCERTAINTY IN OUR ABILITY TO COMPLY WITH VARYING, AND POTENTIALLY
CONTRADICTORY, REQUIREMENTS WHICH COULD NEGATIVELY IMPACT OUR BUSINESS, RESULTS
OF OPERATIONS, AND FINANCIAL CONDITION.





Currently,
the sale of goods and services on the internet is not subject to a uniform
system of taxation.  A number of states, as well as the federal
government, have considered enacting legislation that would subject internet
transactions to sales, use or other taxes.  Because there are a
variety of jurisdictions considering such actions, any attempt to tax internet
transactions could create uncertainty in the ability of internet-based companies
to comply with varying, and potentially contradictory,
requirements.  We cannot predict whether any of the presently proposed
schemes will be adopted.  We cannot predict the effect, if any, that
the adoption of such proposed schemes would have on our business with certainty;
however, they are likely to have a negative impact on our business, results of
operations or financial condition.





LAWS
MAY BE ADOPTED IN THE FUTURE REGULATING COMMUNICATIONS AND COMMERCE ON THE
INTERNET WHICH COULD HAVE A NEGATIVE IMPACT UPON OUR BUSINESS, RESULTS OF
OPERATIONS AND FINANCIAL CONDITION.






8





There are
currently few laws or regulations that specifically regulate communications,
access to, or commerce on the internet.  Governing bodies have, and
may continue to, adopt laws and regulations in the future that address issues
such as user privacy, pricing and the characteristics and quality of products
and services offered over the Internet.  For example, the
Telecommunications Act of 1996 sought to prohibit transmitting various types of
information and content over the internet.  Several telecommunications
companies have petitioned the Federal Communications Commission to regulate
internet service providers and on-line service providers in a manner similar to
long distance telephone carriers and to impose access fees on those
companies.  This could increase the cost of transmitting data over the
internet.  Moreover, it may take years to determine the extent to
which existing laws relating to issues such as intellectual property ownership,
libel and personal privacy are applicable to the internet.  Any new
laws or regulations relating to the internet or any new interpretations of
existing laws could have a negative impact on our business and add additional
costs to doing business on the internet.  Currently we have no
significant expenses associated with legal or regulatory
compliance.





WE
MAY BE EXPOSED TO LIABILITY FOR INFRINGING INTELLECTUAL PROPERTY RIGHTS OF OTHER
COMPANIES WHICH COULD RESULT IN SUBSTANIAL COSTS TO US IN THE DEFENSE OF PATENT,
COPYRIGHT OR TRADEMARK INFRINGEMENT SUITS.





Our
success will, in part, depend on our ability to operate without infringing on
the proprietary rights of others.  Although we have conducted searches
and are not aware of any patents, trademarks or copyrights upon which our domain
names or their use might infringe, and the majority of our portfolio of domain
names is generic in nature, we cannot be certain that infringement has not or
will not occur.  We could incur substantial costs, in addition to the
great amount of time lost, in defending any patent, copyright or trademark
infringement suits or in asserting any patent, copyright or trademark rights, in
a suit with another party.





Risks Relating to Ownership of Our
Securities





OUR
COMMON STOCK IS CONSIDERED A “PENNY STOCK”. THE APPLICATION OF THE “PENNY STOCK”
RULES TO OUR COMMON STOCK COULD LIMIT THE TRADING AND LIQUIDITY OF THE COMMON
STOCK, ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK AND INCREASE THE
TRANSACTION COSTS TO SELL THOSE SHARES.





Our
common stock is a “low-priced” security or “penny stock” under rules promulgated
under the Securities Exchange Act of 1934, as amended. In accordance with these
rules, broker-dealers participating in transactions in low-priced securities
must first deliver a risk disclosure document which describes the risks
associated with such stocks, the broker-dealer’s duties in selling the stock,
the customer’s rights and remedies and certain market and other information.
Furthermore, the broker-dealer must make a suitability determination approving
the customer for low-priced stock transactions based on the customer’s financial
situation, investment experience and objectives. Broker-dealers must also
disclose these restrictions in writing to the customer, obtain specific written
consent from the customer, and provide monthly account statements to the
customer. The effect of these restrictions will likely decrease the willingness
of broker-dealers to make a market in our common stock, will decrease liquidity
of our common stock and will increase transaction costs for sales and purchases
of our common stock as compared to other securities.





THE
STOCK MARKET IN GENERAL HAS EXPERIENCED VOLATILITY THAT OFTEN HAS BEEN UNRELATED
TO THE OPERATING PERFORMANCE OF LISTED COMPANIES. THESE BROAD FLUCTUATIONS MAY
BE THE RESULT OF UNSCRUPULOUS PRACTICES THAT MAY ADVERSELY AFFECT THE PRICE OF
OUR STOCK, REGARDLESS OF OUR OPERATING PERFORMANCE.





Shareholders
should be aware that, according to SEC Release No. 34-29093 dated April 17,
1991, the market for penny stocks has suffered in recent years from patterns of
fraud and abuse. Such patterns include (1) control of the market for the
security by one or a few broker-dealers that are often related to the promoter
or issuer; (2) manipulation of prices through prearranged matching of purchases
and sales and false and misleading press releases; (3) boiler room practices
involving high-pressure sales tactics and unrealistic price projections by
inexperienced sales persons; (4) excessive and undisclosed bid-ask differential
and markups by selling broker-dealers; and (5) the wholesale dumping of the same
securities by promoters and broker-dealers after prices have been manipulated to
a desired level, along with the resulting inevitable collapse of those prices
and with consequent investor losses. The occurrence of these patterns or
practices could increase the volatility of our share price.





WE DO NOT EXPECT TO PAY DIVIDENDS
FOR THE FORESEEABLE FUTURE, AND WE MAY NEVER PAY DIVIDENDS. INVESTORS SEEKING CASH DIVIDENDS
SHOULD NOT PURCHASE OUR COMMON STOCK.





We
currently intend to retain any future earnings to support the development of our
business and do not anticipate paying cash dividends in the foreseeable future.
Our payment of any future dividends will be at the discretion of our Board of
Directors after taking into account various factors, including but not limited
to our financial condition, operating results, cash needs, growth plans and the
terms of any credit agreements that we may be a party to at the time. In
addition, our ability to pay dividends on our common stock may be limited by
Nevada state law. Accordingly, investors must rely on sales of their common
stock after price appreciation, which may never occur, as the only way to
realize a return on their investment. Investors seeking cash dividends should
not purchase our common stock.






9





LIMITATIONS
ON DIRECTOR AND OFFICER LIABILITY AND OUR INDEMNIFICATION OF OFFICERS AND
DIRECTORS MAY DISCOURAGE SHAREHOLDERS FROM BRINGING SUIT AGAINST A
DIRECTOR.





Our
Articles of Incorporation and Bylaws provide, with certain exceptions as
permitted by governing Nevada law, that a director or officer shall not be
personally liable to us or our shareholders for breach of fiduciary duty as a
director, except for acts or omissions which involve intentional misconduct,
fraud or knowing violation of law, or unlawful payments of dividends. These
provisions may discourage shareholders from bringing suit against a director for
breach of fiduciary duty and may reduce the likelihood of derivative litigation
brought by shareholders on our behalf against a director. In addition, our
Articles of Incorporation and Bylaws provide for mandatory indemnification of
directors and officers to the fullest extent permitted by Nevada
law.





FUTURE
SALES OF OUR COMMON STOCK COULD PUT DOWNWARD SELLING PRESSURE ON OUR COMMON
STOCK, AND ADVERSELY AFFECT THE PER SHARE PRICE. THERE IS A RISK THAT THIS
DOWNWARD PRESSURE MAY MAKE IT IMPOSSIBLE FOR AN INVESTOR TO SELL SHARE OF COMMON
STOCK AT ANY REASONABLE PRICE, IF AT ALL.





Future
sales of substantial amounts of our common stock in the public market or the
perception that such sales could occur, could put downward selling pressure on
our common stock and adversely affect its market price.





THE
OVER THE COUNTER BULLETIN BOARD IS A QUOTATION SYSTEM, NOT AN ISSUER LISTING
SERVICE, MARKET OR EXCHANGE. THEREFORE, BUYING AND SELLING STOCK ON THE OTC
BULLETIN BOARD IS NOT AS EFFICIENT AS BUYING AND SELLING STOCK THROUGH AN
EXCHANGE. AS A RESULT, IT MAY BE DIFFICULT FOR YOU TO SELL YOUR COMMON STOCK OR
YOU MAY NOT BE ABLE TO SELL YOUR COMMON STOCK FOR AN OPTIMUM TRADING
PRICE.





The Over
the Counter Bulletin Board (the “OTC BB”) is a regulated quotation service that
displays real-time quotes, last sale prices and volume limitations in
over-the-counter securities.  Because trades and quotations on the OTC Bulletin Board involve a manual
process, the market information for such securities cannot be guaranteed. In
addition, quote information, or even firm quotes, may not be available. The
manual execution process may delay order processing and intervening price
fluctuations may result in the failure of a limit order to execute or the
execution of a market order at a significantly different price. Execution of
trades, execution reporting and the delivery of legal trade confirmations may be
delayed significantly. Consequently, one may not be able to sell shares of our
common stock at the optimum trading prices.





When
fewer shares of a security are being traded on the OTC Bulletin Board,
volatility of prices may increase and price movement may outpace the ability to
deliver accurate quote information. Lower trading volumes in a security may
result in a lower likelihood of an individual’s orders being executed, and
current prices may differ significantly from the price one was quoted by the OTC
Bulletin Board at the time of the order entry.  Orders for OTC
Bulletin Board securities may be canceled or edited like orders for other
securities. All requests to change or cancel an order must be submitted to,
received and processed by the OTC Bulletin Board. Due to the manual order
processing involved in handling OTC Bulletin Board trades, order processing and
reporting may be delayed, and an individual may not be able to cancel or edit
his order. Consequently, one may not be able to sell shares of common stock at
the optimum trading prices.





The
dealer’s spread (the difference between the bid and ask prices) may be large and
may result in substantial losses to the seller of securities on the OTC Bulletin
Board if the common stock or other security must be sold immediately. Further,
purchasers of securities may incur an immediate “paper” loss due to the price
spread. Moreover, dealers trading on the OTC Bulletin Board may not have a bid
price for securities bought and sold through the OTC Bulletin Board. Due to the
foregoing, demand for securities that are traded through the OTC Bulletin Board
may be decreased or eliminated.





WE
EXPECT VOLATILITY IN THE PRICE OF OUR COMMON STOCK, WHICH MAY SUBJECT US TO
SECURITIES LITIGATION RESULTING IN SUBSTANTIAL COSTS AND LIABILITIES AND DIVERT
MANAGEMENT’S ATTENTION AND RESOURCES.





The
market for our common stock may be characterized by significant price volatility
when compared to seasoned issuers, and we expect that our share price will be
more volatile than a seasoned issuer for the indefinite future. In the past,
plaintiffs have often initiated securities class action litigation against a
company following periods of volatility in the market price of its securities.
We may in the future be a target of similar litigation. Securities litigation
could result in substantial costs and liabilities and could divert management’s
attention and resources.






10





Item
1B.  Unresolved Staff Comments





As a
smaller reporting company, we are not required to provide this
information.





Item
2.  Properties





Our
principal office is located at #645-375 Water Street, Vancouver, British
Columbia V6B5C6, Canada.  We lease this office space, which consists
of approximately 5,400 square feet.  The lease has a term of 5 years,
beginning on October 1, 2007 and ending on September 30,
2012.  Pursuant to the terms of the lease agreement, we have committed
to basic rent costs for the remaining 3 fiscal years commencing January 1, 2010
as follows: (a) year 1 - $121,531; (b) year 2 - $126,873; (c) year 3 (which will
be comprised of nine months only) - $98,159.  We are also responsible
for common area costs which are currently estimated to be equal to approximately
73% of basic rent.  We also lease an office located at 12201 Tukwila
Intl. Blvd, Suite 200, Tukwila, Washington 98168 for a nominal amount per
month.





Item
3.  Legal Proceedings





In the
normal course of business, we may become involved in various legal proceedings.
Except as stated below, we know of no pending or threatened legal proceeding to
which we are or will be a party which, if successful, might result in a material
loss.





In
December 1999, DHI commenced a lawsuit in the Supreme Court of British Columbia
(No. C996417) against Paul Green for breach of fiduciary duty for wrongfully
attempting to appropriate DHI’s business opportunities.  Mr. Green was
the former chief executive officer of DHI. DHI is seeking an undetermined amount
of damages and a declaration that it had just cause to terminate Paul Green as
the chief executive officer in or about June 1999. No decision has been rendered
in this case and DHI cannot predict whether it will prevail, and if it does,
what the terms of any judgment may be.





On March
9, 2000, Paul Green commenced a separate action in the Supreme Court of British
Columbia (No. S001317) against DHI. In that action, Paul Green claimed wrongful
dismissal and breach of contract on the part of DHI. Paul Green is seeking an
undetermined amount of damages and, among other things, an order of specific
performance for the issuance of a number of shares in the capital of DHI equal
to 18.9% or more of the outstanding shares of DHI. On June 1, 2000, DHI filed a
statement of defense and counterclaim. Management intends to defend this action
vigorously.





Item
4.  Removed and Reserved





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





PART
II





Item
5.  Market for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities





Market
Information





Our
common stock, $0.001 par value per share, has been quoted on the OTC Bulletin
Board under the symbol “LIVC” since August 4, 2008.  Before that date,
our common stock traded under the symbol “CMNN”.  The following table
sets forth, for each fiscal quarter for the past two years, the reported high
and low closing bid quotations for our common stock as reported on the OTC
Bulletin Board.  The bid information was obtained from the OTC
Bulletin Board and reflects inter-dealer prices, without retail mark-up,
markdown or commission, and may not represent actual transactions.





Period
      ended
            High
            LowDecember
      31, 2009
              September
      30, 2009
              June
      30, 2009
              March
      31, 2009
              December
      31, 2008
              September
      30, 2008
              June
      30, 2008
              March
      31, 2008
            $0.22
              $0.30
              $0.35
              $0.41
              $1.34
              $2.81
              $3.10
              $3.47
            $0.13
              $0.15
              $0.18
              $0.15
              $0.25
              $1.25
              $2.26
              $2.37








11





Holders
of Record





We have
approximately 140 record holders of our common stock as of March 22, 2010
according to a shareholders’ list provided by our transfer agent as of that
date. The number of registered shareholders does not include any estimate by us
of the number of beneficial owners of common shares held in street name. The
transfer agent and registrar for our common stock is Computershare Trust
Company, 350 Indiana Street, Suite 800, Golden, Colorado 80401.





Dividends





We have
never declared nor paid any cash dividends on our common stock and we do not
anticipate that we will pay any cash dividends on our common stock in the
foreseeable future. Any future determination regarding the payment of cash
dividends will be at the discretion of our Board of Directors and will be
dependent upon our financial condition, results of operations, capital
requirements and other factors as our Board of Directors may deem relevant at
that time.





Securities
Authorized for Issuance under Equity Compensation Plans





On August
21, 2007, our Board of Directors adopted the Live Current Media Inc. 2007 Stock
Incentive Plan (the “Plan”). The Plan authorizes awards of options (both
incentive stock options and non-qualified stock options), stock awards or stock
bonuses. Persons eligible to receive awards under the Plan include our
employees, officers, directors, consultants, independent contractors, and
advisors, and those of our subsidiaries.





The table
below illustrates, as of December 31, 2009, the number of shares of common stock
to be issued upon the exercise of options granted from the Plan, the weighted
average exercise price of the outstanding options and the number of securities
remaining available in the Plan for future issuance.





Equity
      Compensation Plan InformationPlan
      category
            Number
      of securities to be issued upon exercise of outstanding options, warrants
      and rights
              
              (a)
            Weighted-average
      exercise price of outstanding options, warrants and rights
              
              (b)
            Number
      of securities remaining available for future issuance under equity
      compensation plans (excluding securities reflected in column
      (a))
              
              (c)Equity
      compensation plans approved by security holders
            2,845,500
            $0.63
            1,781,602*Equity
      compensation plans not approved by security holders
            --
            --
            --Total
            2,845,500
            $0.63
            1,781,602*





* an additional 372,898 shares
under the Plan were granted to vendors in exchange for services





Our Board
of Directors administers the Plan. Our Board of Directors has the authority to
determine, at its discretion, the number and type of awards that will be
granted, the recipients of the awards, and the exercise or purchase price
required to be paid, when options may be exercised and the term of the option
grants. Options granted under the plan may not be exercised after 10 years from
the date the option is granted. A total of 5,000,000 shares of common stock were
reserved for awards granted under the Plan.






12





Options
granted under the Plan may be designated as incentive stock options or
non-qualified stock options. Incentive stock options may be granted only to our
employees and employees of our subsidiaries (including officers and directors
who are also employees). The exercise price of non-qualified stock options may
not be less than 85% of the fair market value of a share of our common stock on
the date of the grant, and the exercise price of incentive stock options may not
be less than 100% of the fair market value of a share of our common stock on the
date of the grant. However, the exercise price of any option may not be less
than 110% of the fair market value of our common stock on the date of grant in
the case of individual owning 10% or more of our common stock. Neither incentive
stock options nor non-qualified stock options may have a term exceeding 10
years. In the case of an incentive option that is granted to an individual
owning 10% or more of the common stock, the term may not exceed 5 years. We are
required to obtain shareholder approval of the Plan before the options granted
can qualify for incentive stock option treatment under U.S. tax
laws.  We obtained shareholder approval of the Plan on May 27,
2008.





Recent
Sales of Unregistered Securities





During
the quarter ended December 31, 2009, we did not sell or issue securities that
were not registered under the Securities Act of 1933, as amended.





Item
6.  Selected Financial Data





As a
smaller reporting company we are not required to provide this
information.





Item
7.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations





Management’s
Discussion and Analysis of Financial Condition and Results of Operations
discusses our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United
States.  The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period.  On an on-going basis,
management evaluates its estimates and judgments.  Management bases
its estimates and judgments on historical experience and on various other
factors that are believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying value of assets
and liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or
conditions.





You
should read the following discussion of our financial condition and results of
operations together with our consolidated financial statements and the notes to
our consolidated financial statements included elsewhere in this
report.





Overview





We build
consumer internet experiences around our large portfolio of domain
names.  In addition, we own hundreds of non-core domain names that we
may choose to develop, lease or sell in the future to raise funds in a
non-dilutive manner.  We generate revenues from consumer internet
experiences in two different ways; through the online sales of products
(eCommerce) and through the sale of advertising.  Currently, almost
all of the revenues we earn are generated from our main health and beauty
website, Perfume.com.  Through this website, we sell discount brand
name fragrances, skin care and hair care products directly to
consumers.  We also generate revenues by selling online advertising
space to advertisers or in partnership with third party advertising
networks.  However, in 2008 and 2009, advertising accounted for less
than 2% of total revenues.





By way of
its intuitive domain name and through ongoing technical optimizations,
Perfume.com consistently ranks highly in organic, unpaid search results across
major search engines.  Organic search traffic delivers the majority of
traffic and customers to Perfume.com.  The site also realizes traffic
through direct navigation by visitors.  Finally, we acquire internet
traffic through paid search, comparison shopping websites, and our robust email
marketing efforts as well as through affiliate sales.We pay our affiliates
sales commissions if they deliver traffic to Perfume.com that results in a
successful sale.  Affiliates do not represent themselves as
Perfume.com, and through a rigorously enforced policy, are not allowed to use
our name.  Affiliates place our advertisements on their
websites.  We pay these affiliates a commission when visitors to their
sites click on our advertisements and make purchases on
Perfume.com.





The
recent downturn in the global economy has significantly impacted the U.S.
economy and consumer confidence.  It remains a challenge for all
retailers, including online retailers, to achieve sales growth with adequate
gross margins.  Both our sales and our ability to raise capital have
been negatively impacted as a result of the current recession in the U.S. and we
expect this to continue until the economy improves.






13





During
2008 and 2009, our revenues were not sufficient to support our operations and we
do not expect this to change soon.  Therefore, we needed to find ways
to raise funds for working capital.  Toward the end of the 2008 fiscal
year, we began to experience significant challenges in raising capital through
the sale of our securities and these challenges are
on-going.  Financing opportunities have become more expensive and
difficult to find.  Furthermore, if we attempted to raise funds
through the sale of our securities, the steep decline in the price of our common
stock would result in significant dilution to our current
stockholders.  As a result, management has decided to actively pursue
the sale of some of our non-core domain names to raise funds.  From
January 1, 2009 through December 31, 2009, we sold ten domain names, not
including our cricket.com domain name, for a total of nearly $3.2
million.  We believe these sales are a testament to the inherent value
of our domain name assets, and together with other cost-cutting measures, the
proceeds will help meet our working capital needs and management’s strategy to
achieve the goal of cash flow positive operations by the end of
2010.





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





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





RESTATEMENT
OF FINANCIAL STATEMENTS





On June
18, 2009, we were advised by Ernst & Young, LLP, our independent registered
public accounting firm, that our consolidated financial statements for the
quarter ended March 31, 2009, as well as the consolidated financial statements
for the years ended December 31, 2008 and 2007 (the “Original Financial
Statements”), contained errors.  Based on the foregoing, C. Geoffrey
Hampson, the Company’s Chief Executive Officer and Chief Financial Officer,
concluded that these financial statements should no longer be relied
upon.  These errors, which are described below, affected opening
balances as at December 31, 2007 and the financial position, results of
operations and cash flows for the comparative period ended December 31,
2008.  Please also see Note 2 to our restated financial statements for
the period ended December 31, 2008, as well as our related disclosure in
Amendments No.1 and No. 2 to our Form 10-K as filed with the Securities and
Exchange Commission on September 14, 2009 and October 26, 2009,
respectively.  Below is a discussion of the effect of the restatement
to our financial statements for the year ended December 31, 2008.





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





The
Company’s intangible assets, comprised of its domain names, have book values in
excess of their tax values.  The Original Financial Statements
considered the taxable temporary differences associated with these indefinite
life intangible assets in reducing the valuation allowance associated with loss
carryforwards.  This was an incorrect application of GAAP.  
Correction of this error resulted in the recognition of a deferred tax liability
of $206,370 at December 31, 2008, and a deferred income tax recovery of $40,389
in the year ended December 31, 2008.





B.
Non-Controlling Interest:





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





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





Prior to
recognizing the non-controlling interest liabilities as described in the
preceding two paragraphs, the non-controlling interest’s share of subsidiary
losses in 2008 was limited to the non-controlling interest
liability.  As a consequence of the above increases to non-controlling
interest liabilities, the non-controlling interest’s share in subsidiary losses
was increased by $75,478 in the year ended December 31, 2008.






14





C.
Management Compensation:





The
December 31, 2008 financial statements did not accrue $119,045 for two
CDN$100,000 special bonuses to be paid on January 1, 2009 and January 1, 2010 to
our current President and Chief Corporate Development Officer pursuant to his
employment agreement.  These special bonuses are not discretionary,
but will only be paid if he remains employed as an officer of the Company on the
dates payable.





D.
Estimated life of stock options:





The
Company originally estimated the life of its stock options as equal to the
vesting period for these options, 3 years.  The estimated life should
have been 3.375 years, resulting in a decrease of $118,893 to our stock-based
compensation expense in the year ended December 31, 2008.





E.
Other





(i) Expense
accruals





The
Company discovered an accrual and cutoff error in its recorded accounting fees,
resulting in an overaccrual of accounts payable and accounting expense (included
in Corporate General and Administrative expenses) of $19,521 in the year ended
December 31, 2008.





(ii) Gain
on sale of domain name





The
Company failed to record website development costs attributable to a domain name
sold in 2008, reducing website development costs and gain on sale of domain
names by $37,408 in the year ended December 31, 2008.





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





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





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





(i) Valuation
of shares issued as purchase consideration





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





(ii) Shares
issued to Auctomatic founders





As part
of the merger with Auctomatic, the Company agreed to distribute 413,604 shares
of its common stock payable on the first, second, and third anniversaries of the
Closing Date (the “Distribution Date”) to the Auctomatic founders subject to
their continuing employment with the Company or a subsidiary on each
Distribution Date.  These shares, which were not accounted for in the
Auctomatic purchase, also were not properly accounted for as compensation to the
Auctomatic founders for their continued employment with the
Company.  The related stock-based compensation expense that should
have been recorded in 2008 is $170,065.





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





In order
to provide clarity, we also classified separately on our consolidated balance
sheets and consolidated statements of operations the $1,000,000 payable and
expensed during the year ended December 31, 2008 to the BCCI and
IPL.




I.
Tax Impact:





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




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


15
 CONSOLIDATED
STATEMENTS OF OPERATIONS


Years
Ended December 31, 2009 and 2008


Expressed
      in US Dollars
                
                Year
      ended
                
                
                Year
      endedDecember
      31, 2009
                
                
                December
      31, 2008(As
      Restated)SALESHealth
      and beauty eCommerce
                
                $
                7,216,479
                
                
                $
                9,271,237Other
      eCommerce
                
                
                -
                
                
                
                455Sponsorship
      revenues
                
                
                220,397
                
                
                
                -Domain
      name advertising
                
                
                95,877
                
                
                
                93,141Miscellaneous
      income
                
                
                74,138
                
                
                
                -Total
      Sales
                
                
                7,606,891
                
                
                
                9,364,833COSTS
      OF SALESHealth
      and Beauty eCommerce
                
                
                5,677,005
                
                
                
                7,683,432Other
      eCommerce
                
                
                -
                
                
                
                380Total
      Costs of Sales (excluding depreciation and amortization as shown
      below)
                
                
                5,677,005
                
                
                
                7,683,812GROSS
      PROFIT
                
                
                1,929,886
                
                
                
                1,681,021OPERATING
      EXPENSESAmortization
      and depreciation
                
                
                241,094
                
                
                
                253,141Amortization
      of website development costs
                
                
                123,395
                
                
                
                58,640Corporate
      general and administrative
                
                
                1,004,051
                
                
                
                2,911,627ECommerce
      general and administrative
                
                
                319,155
                
                
                
                567,980Management
      fees and employee salaries
                
                
                3,583,288
                
                
                
                5,798,728Corporate
      marketing
                
                
                14,036
                
                
                
                147,842ECommerce
      marketing
                
                
                580,331
                
                
                
                766,393Other
      expenses
                
                
                264,904
                
                
                
                708,804Total
      Operating Expenses
                
                
                6,130,254
                
                
                
                11,213,155NON-OPERATING
      INCOME (EXPENSES)Global
      Cricket Venture payments
                
                
                -
                
                
                
                (1,000,000
                )Gain
      on settlement of amounts due regarding Global Cricket
    Venture
                
                
                750,000
                
                
                
                -Gain
      from sales and sales-type lease of domain names
                
                
                2,452,081
                
                
                
                461,421Accretion
      interest expense
                
                
                (63,300
                )
                
                
                (96,700
                )Interest
      expense
                
                
                (25,845
                )
                
                
                -Interest
      and investment income
                
                
                1,534
                
                
                
                67,683Foreign
      exchange loss
                
                
                (88,571
                )
                
                
                (3,407
                )Gain
      on restructure of severance payable
                
                
                212,766
                
                
                
                -Gain
      on restructure of Auctomatic payable
                
                
                29,201
                
                
                
                -Impairment
      of Auction Software
                
                
                (590,973
                )
                
                
                -Impairment
      of Goodwill
                
                
                (2,539,348
                )
                
                
                -Total
      Non-Operating Income (Expenses)
                
                
                137,545
                
                
                
                (571,003
                )NET
      LOSS BEFORE TAXES
                
                
                (4,062,823
                )
                
                
                (10,103,137
                )Deferred
      tax recovery
                
                
                81,163
                
                
                
                40,389CONSOLIDATED
      NET LOSS
                
                
                (3,981,660
                )
                
                
                (10,062,748
                )ADD:
      NET INCOME (LOSS) ATTRIBUTABLE TO NON-CONTROLLING INTEREST
                
                
                (28,353
                )
                
                
                75,478NETLOSS
      AND COMPREHENSIVE LOSSFOR
      THE YEAR ATTRIBUTABLE TO LIVE CURRENT MEDIA
      INC.
                
                $
                (4,010,013
                )
                
                $
                (9,987,270
                )LOSS
      PER SHARE - BASIC AND DILUTEDNet
      Loss attributable to Live Current Media Inc. common
      stockholders
                
                $
                (0.17
                )
                
                $
                (0.46
                )Weighted
      Average Number of Common Shares Outstanding - Basic
                
                
                23,941,358
                
                
                
                21,937,179Net
      Loss attributable to Live Current Media Inc. common
      stockholders
                
                $
                (0.17
                )
                
                $
                (0.46
                )Weighted
      Average Number of Common Shares Outstanding - Diluted
                
                
                23,941,358
                
                
                
                21,937,179
 16
  Results
of Operations
 
 
 Sales
and Costs of Sales





Year
over Year Analysis





Total
sales of $7,606,891 reported during the year ended December 31, 2009 decreased
by $1,757,942, or 18.8%, from sales of $9,364,833 in 2008.  The
decrease without consideration of Cricket.com sponsorship revenues of $220,397
was $1,978,339, or 21.1%, due primarily to a decline in Perfume.com revenues as
described below.  The decrease in costs of sales year over year of
$2,006,807, or 26.1% is also consistent with the decline in our eCommerce
business.  Health and Beauty eCommerce product sales represented 94.9%
of total revenues in 2009 including Cricket.com sponsorship revenues and 97.7%
excluding these revenues, compared to 99.0% of total revenues in
2008.





Overall
gross margin in 2009 was 23.1% excluding sponsorship revenues, compared to 18.0%
in 2008.  This increase was due to new revenue generating activities
that were pursued in 2009, as well as a significant increase in gross margins in
our eCommerce business as a result of increased prices, and decreased discounts,
coupons and promotions.





Quarter
over Quarter Analysis





Overall,
combined sales in Q4 of 2009 totalled $2,391,868 as compared to $3,626,217 in Q4
of 2008, a decrease of 34.0%.  This decrease was driven by the
decrease in sales at Perfume.com. Overall, Health & Beauty eCommerce product
sales, consisting of Perfume.com sales, represented 97.6% of total revenues in
Q4 of 2009, compared to 99.5% of total revenues in Q4 of 2008.  A
discussion of the decline in our revenues is included below.





Costs of
sales were $1,791,160 in Q4 of 2009 compared to $3,016,615 during Q4 of 2008, a
decrease of 40.6%.  This resulted in an overall gross margin in Q4 of
2009 of $600,708, or 25.1%.  This is compared to a gross margin of
$609,602, or 16.8% in Q4 of 2008.  This significant increase in the
overall gross margin in Q4 of 2009 is due to a change in management’s focus from
increasing gross sales through promotions and a reduction in prices, to
increasing gross margins by reducing discounts and increasing prices, as well as
the implementation of other income opportunities that require few costs to
manage and have a 100% gross margin.





Health
and Beauty (H&B) eCommerce Sales





Our
Perfume.com sales result from the sale of fragrances, designer skin care and
hair care products.  Our results for 2008 include immaterial amounts
relating to our eCommerce monetization of Body.com which ended in early
2008.  Our health and beauty eCommerce product sales through our
perfume.com website accounted for nearly all of our eCommerce sales in 2008 and
2009 and we expect that this will continue in the short term.





The
following table summarizes our revenues earned on the sale of Health and Beauty
products during each quarter since January 1, 2008.




Quarter
      Ended
              Total Quarterly
    Sales
              
              Average Daily SalesMarch 31,
      2009
              
              $
              1,720,167
              
              
              $
              19,113June 30,
      2009
              
              
              1,663,182
              
              
              
              18,277September 30, 2009
              
              
              1,498,265
              
              
              
              16,285December 31,
      2009
              
              
              2,334,865
              
              
              
              25,379Fiscal Year 2009
      Totals
              
              $
              7,216,479
              
              
              $
              19,771March 31,
      2008
              
              $
              1,816,007
              
              
              $
              19,956June 30,
      2008
              
              
              1,912,217
              
              
              
              21,013September 30,
      2008
              
              
              1,934,829
              
              
              
              21,031December 31,
      2008
              
              
              3,608,184
              
              
              
              39,219Fiscal Year 2008
      Totals
              
              $
              9,271,237
              
              
              $
              25,331





The most
recent quarters have presented great challenges for all retailers, including
eCommerce, due to the worldwide economic downturn.  As noted above,
the majority of our revenues come from consumers in the United States, which is
still experiencing a severe recession that has adversely affected consumer
spending on discretionary items.  This decline in discretionary
consumer spending has contributed to the decrease in revenues from
Perfume.com.






17





The
following table summarizes our gross margins and gross margin percentages earned
on the sale of Health and Beauty products during each quarter since January 1,
2008.





Quarter
      Ended
              
              Quarterly
      Gross
              
              
              Quarterly
      GrossMargins
      $
              
              
              Margin
      %March
      31,
      2009
              
              $
              333,548
              
              
              
              19.4
              %June
      30,
      2009
              
              
              347,435
              
              
              
              20.9
              %September
      30, 2009
              
              
              314,786
              
              
              
              21.0
              %December
      31, 2009
              
              
              543,705
              
              
              
              23.3
              %Fiscal
      Year 2009 Totals
              
              $
              1,539,474
              
              
              
              21.3
              %March
      31, 2008
              
              $
              334,678
              
              
              
              18.4
              %June
      30, 2008
              
              
              329,150
              
              
              
              17.2
              %September
      30, 2008
              
              
              332,580
              
              
              
              17.2
              %December
      31, 2008
              
              
              591,397
              
              
              
              16.4
              %Fiscal
      Year 2008 Totals
              
              $
              1,587,805
              
              
              
              17.1
              %





Year
over Year Analysis





Perfume.com
revenues decreased 22.2% during the year ended December 31, 2009 compared to
revenues in 2008.  Daily sales of $19,771 in 2009 decreased in part
due to the decline in economic conditions; however as management has shifted its
focus to increasing gross margins from increasing gross revenues, we expect this
trend to continue.





Costs of
shipping and purchases decreased 26.1% to $5,677,005 in 2009 from $7,683,432 in
2008.  This resulted in an increased gross margin during 2009 of 21.3%
compared to 17.1% in 2008.  During the last half of 2009, management
revised the business plan for Perfume.com and has now focused on increasing
gross margins and cutting costs.  As a result, although there has been
decline in revenues period over period, this change in strategy has provided the
Company with significantly larger gross margins quarter over quarter in 2009.
The dollar amount of our gross margins has remained consistent year over year,
however we have been able to increase our gross margins by over 4 percentage
points even as our revenues have declined.




Quarter
over Quarter Analysis





Perfume.com
revenues in Q4 of 2009 accounted for 32.4% of our annual eCommerce sales, due to
the seasonal nature of our business.  This is compared to sales in Q4
of 2008 that accounted for 38.9% of our 2008 annual
sales.  Historically, Perfume.com sales in our 4th
quarter usually account for 30-40% of our annual sales.  Management
believes that this business segment, especially with the new strategy of higher
engagement and higher prices, continues to demonstrate strong
potential.  However, it is possible that consumer spending on
discretionary items will continue to decline as the recession in the U.S., from
which we earn the majority of our eCommerce revenues, continues.





Perfume.com
revenues decreased 35.3% to $2,334,865 in Q4 of 2009 from $3,608,184 in Q4 of
2008.  Daily sales averaged $25,379 in Q4 of 2009 compared to $39,219
per day in Q4 of 2008.  This decrease was due both to the continuing
recessionary factors in the U.S. economy, as well as the significant shift in
management’s selling strategy.  Whereas in 2008 we were focusing on
increasing revenues to the detriment of our gross margin ratios, in 2009 the
strategy focused on increasing gross margins by limiting aggressive and
unprofitable SEO practices and discounts, broadening valuable content on the
site, and increasing prices of products for sale.





Costs of
shipping and purchases totalled $1,791,160 in Q4 of 2009 as compared to
$3,016,787 in Q4 of 2008. This produced significantly higher gross margins in
Perfume.com of 23.3% in Q4 of 2009 compared to 16.4% in Q4 of
2008.  The continuing increases in gross profit margins in each
quarter of 2009 demonstrates the success of management’s continued effort to
increase gross margins, although achieving this goal resulted in decreased
revenues.  Management continues to research and pursue opportunities
that may contribute to higher gross margin percentages in the
future.  Management anticipates that it will maintain a profit margin
of approximately 20-23% through 2010.  Over the next several quarters,
management will continue to explore opportunities to introduce and implement
more robust supply chain capability which, if realized, should also aid in
increasing gross margins in the future.




18





Other
eCommerce Sales





In Q1 of
2008, we ceased offering goods or services for sale on any of our websites other
than Perfume.com and undertook to re-evaluate the business models around which
these websites were built.  As a result, these websites generated no
revenue after the first quarter of the 2008 fiscal year.  In 2010,
we will continue to allocate our resources to Perfume.com.





Sponsorship
Revenues





In Q3 and
Q4 of 2009, we collected for revenues earned on sponsorships related to past
cricket tournaments that are receivable based on the Company’s prior agreements
relating to the cricket.com website.  All amounts were either received
during or subsequent to year end.  There were no similar revenues in
2008 and we will not have similar revenues in the future.





Advertising
Income





Year
over Year Analysis





During
2009, our advertising revenues were $95,877, consistent with our advertising
revenues in 2008 of $93,141.  These revenues accounted for 1.3% of
total revenues in 2009 both including and excluding sponsorship revenues,
slightly higher than the 1% in 2008.  As noted above, management
continues to pursue new opportunities to increase advertising revenues, however
we do not expect them to account for a significant portion of our revenue
stream.





Quarter
over Quarter Analysis





In Q4 of
2009, we generated advertising revenues of $29,162 compared to $18,033 in Q4 of
2008, an increase of 61.7%.  Management had terminated its primary
advertising contract in early 2008 because its restrictive conditions limited
monetization in the medium and long term.  Advertising revenues had
subsequently decreased throughout every quarter in 2008.  However, in
2009 management pursued new monetization opportunities with advertisers and
increased advertising options available on our properties.  As a
result, in 2009, advertising revenues began to increase quarter over
quarter.  In Q4 of 2009, advertising accounted for 1.2% of total
revenues compared to only 0.5% of total revenues in Q4 of
2008.  Advertising revenues are expected to continue to account for
less than 2% of total revenues in 2010.





Miscellaneous
Income





In early
2009, we implemented a new cost sharing arrangement with a related party whereby
we would earn $6,000 per month for providing administrative, technical, and
other services.  This income is included in miscellaneous and other
income on our consolidated statements of operations.





Domain
Name Leases and Sales





There was
one outright sale of a domain name in the 2008 fiscal year and sales of ten
domain names in 2009, not including Cricket.com.  Management has
successfully raised significant funds in order to aid in the Company’s
liquidity, continues to evaluate expressions of interest from domain name
buyers, and continues to search for other domain names that would complement
either the advertising or eCommerce businesses.





General
and Administrative (G&A) Expenses





General
and administrative expenses consist of costs for general and corporate
functions, including facility fees, travel, telecommunications, investor
relations, insurance, merchant charges, and professional fees.  The
following tables summarize our total general and administrative expenses, and
the breakdown of our corporate and eCommerce general and administrative expenses
during each quarter since January 1, 2008.





Quarter
      Ended
              
              Corporate
              
              
              eCommerce
              
              
              Total
              
              
              As
      a % ofG&A
              
              
              G&A
              
              
              G&A*
              
              
              Total
      Sales**March
      31, 2009 (as
      restated)
              
              $
              291,585
              
              
              $
              80,220
              
              
              $
              371,805
              
              
              
              21.2
              %June
      30,
      2009
              
              
              250,598
              
              
              
              73,668
              
              
              
              324,266
              
              
              
              19.0
              %September
      30, 2009
              
              
              138,512
              
              
              
              63,461
              
              
              
              201,973
              
              
              
              13.1
              %December
      31, 2009
              
              
              323,356
              
              
              
              101,806
              
              
              
              425,162
              
              
              
              17.8
              %Fiscal
      Year 2009 Totals
              
              $
              1,004,051
              
              
              $
              319,155
              
              
              $
              1,323,206
              
              
              
              17.9
              %March
      31, 2008 (as restated)
              
              $
              526,534
              
              
              $
              169,813
              
              
              $
              696,347
              
              
              
              37.7
              %June
      30, 2008 (as restated)
              
              
              571,355
              
              
              
              100,495
              
              
              
              671,850
              
              
              
              34.6
              %September
      30, 2008 (as restated)
              
              
              1,037,546
              
              
              
              114,973
              
              
              
              1,152,519
              (1)
              
              
              59.0
              %December
      31, 2008 (as restated)
              
              
              776,192
              
              
              
              182,699
              
              
              
              958,891
              
              
              
              26.4
              %Fiscal
      Year 2008 Totals (as restated)
              
              $
              2,911,627
              
              
              $
              567,980
              
              
              $
              3,479,607
              
              
              
              37.2
              %





19





*
Excluding foreign exchange gain or loss which was reported as part of G&A
expenses until Q4 2009


**Excluding
cricket.com sponsorship revenues


(1)
Cricket related expenses included in corporate general and administrative costs
for the first two quarters of 2008 were capitalized in Q2 of 2008.  In
Q3 of 2008, these costs were expensed in full in Q3 of 2008, resulting in the
larger expense for that quarter.





Year
over Year Analysis





In 2009,
we recorded total general and administrative expense of $1,323,206 or 17.9% of
total sales, not including Cricket.com sponsorship revenues, as compared to
$3,479,607 or 37.2% of total sales in 2008, a decrease of $2,156,401, or
62.0%.  This total includes corporate and eCommerce related general
and administrative costs.  Management has actively curtailed its
spending since early 2009, and expects this trend to continue throughout 2010
and 2011.





Corporate
general and administrative costs in 2009 of $1,004,051 have decreased by
$1,907,576, or more than 65.5%, compared to $2,911,627 spent in
2008.  One of the significant costs we incurred during 2008 which was
not incurred in 2009 was approximately $680,000 in payments made in cash and
common stock for investor relations services as well as $396,600 in M&A
activity.  We also significantly reduced expenses during 2009,
including reductions of $38,800 in meals and entertainment, $110,500 in travel,
$46,300 in telephone, and $21,900 in automobile allowance and parking
costs.  The decrease in these expenses was due to management’s focus
in 2009 on cutting costs as well as the decrease in the number of employees in
2009.  These expenses also decreased by $101,200 in rent benefits and
approximately $165,800 in legal expenses due to our addition in mid-2008 of
in-house legal counsel.  Cricket related expenses included in
corporate general and administrative costs in 2009 were $23,697, which
represented a decrease of approximately $373,400 over the $397,133 expensed in
2008.  In total, these expenses accounted for 13.6% of total revenues
excluding Cricket.com sponsorships in 2009, compared to 31.1% in
2008.





ECommerce
general and administrative costs, which totaled $319,155 in 2009, decreased by
$248,825, or 43.8% compared to the prior year.  During 2008, we spent
$105,300 for recruiting costs.  There were no recruiting costs in
2009.  Additional reductions included $9,200 in internet hosting and
traffic, $11,800 in internet traffic, $42,200 in decreased consulting fees,
$38,900 in travel and accommodation costs related to our Perfume.com business,
and $49,300 in merchant fees due to decreased sales in 2009.  We
believe that these expense ratios are reasonable given the increasingly
competitive environment for eCommerce sales and our continued focus on growing
the eCommerce business.  We expect to maintain eCommerce general and
administrative costs below 10% of eCommerce sales.  These expenses
represented 4.4% of eCommerce sales in 2009 compared to 6.1% in
2008.





Quarter
over Quarter Analysis





In Q4 of
2009, we recorded total general and administrative expense of $429,794 or 18.0%
of total sales as compared to $977,366 or 27.0% of total sales in Q4 of 2008, a
decrease of $547,572 or over 56.0%.  This total includes corporate and
eCommerce related general and administrative costs.  Management
expects general and administrative expenses to decrease as a percentage of
revenue as the eCommerce business grows and as continued efforts are made to cut
costs, and expects to maintain general and administrative costs well below 20%
of total sales.





Corporate
general and administrative costs of $323,356 have decreased from the amount of
$776,192 in Q4 of 2008 by $452,836, or 58.3%.  The significant costs
we incurred during Q4 of 2008 which were not incurred in Q4 of 2009 were
approximately $151,100 in payments made both in cash and common stock for
investor relations services, and $377,000 in M&A activity.  There
were no expenses related to our cricket activities in Q4 of 2009 as we had
disposed of cricket.com in August of 2009, however there were over $26,000 of
such expenses in Q4 of 2008.  In total, corporate general and
administrative expenses accounted for 13.5% of total revenues in Q4 of 2009,
compared to 21.4% in Q4 of 2008.





ECommerce
general and administrative costs, which totalled $101,806 in Q4 of 2009,
decreased by $80,893, or 44.3%, over Q4 of 2008 primarily due to a $36,500
decrease in merchant fees and $48,300 decrease in consulting expenses in Q4 of
2009 compared to Q4 of 2008.  These expenses represented 4.4% of
eCommerce sales in Q4 of 2009 compared to 5.1% in Q4 of
2008.   Management believes these expense ratios are reasonable
given the increasingly competitive environment for eCommerce sales in the United
States and management’s continued focus on growing the eCommerce business
throughout 2010.






20





Management
Fees and Employee Salaries





The
following table details the breakdown of our management fees and employee
salaries expense during each quarter since January 1, 2008.





Quarter
      Ended
              
              Total
              
              
              Accrued
              
              
              Stock-Based
              
              
              NormalizedExpense
              
              
              Bonuses
              
              
              Compensation
              
              
              ExpenseMarch
      31, 2009 (as restated)
              
              $
              1,193,595
              
              
              $
              8,919
              
              
              $
              610,342
              
              
              $
              574,334June
      30, 2009
              
              
              996,661
              
              
              
              10,427
              
              
              
              452,487
              
              
              
              533,747September
      30, 2009
              
              
              760,631
              
              
              
              12,177
              
              
              
              353,331
              
              
              
              395,123December
      31, 2009
              
              
              632,401
              
              
              
              7,898
              
              
              
              286,359
              
              
              
              338,144Fiscal
      Year 2009 Totals
              
              $
              3,583,288
              
              
              $
              39,421
              
              
              $
              1,702,519
              
              
              $
              1,841,348March
      31, 2008 (as restated)
              
              $
              1,168,089
              
              
              $
              123,602
              
              
              $
              443,721
              
              
              $
              600,766June
      30, 2008 (as restated)
              
              
              1,595,082
              
              
              
              224,575
              
              
              
              543,158
              
              
              
              827,349September
      30, 2008 (as restated)
              
              
              2,171,036
              
              
              
              258,166
              
              
              
              646,994
              
              
              
              1,265,876
              (1)December
      31, 2008 (as restated)
              
              
              864,521
              
              
              
              (251,648
              )
              
              
              528,653
              
              
              
              587,516Fiscal
      Year 2008 Totals (as restated)
              
              $
              5,798,728
              
              
              $
              354,695
              
              
              $
              2,162,526
              
              
              $
              3,281,507


(1)
Cricket related expenses included in corporate general and administrative costs
for the first two quarters of 2008 were capitalized in Q2 of 2008.  In
Q3 of 2008, these costs were expensed in full, resulting in the larger expense
for that quarter.





Year
over Year Analysis





During
the year ended December 31, 2009, we have seen a continuing decline in
management fees and employee salaries.  In 2009, we incurred total
management fees and staff salaries of $3,583,288 compared to $5,798,728 in 2008,
a decrease of 38.2%.  This amount includes stock based compensation of
$1,702,519 and $2,162,526 in 2009 and 2008 respectively.  It also
includes accrued amounts for special bonuses payable to our current President
pursuant to his employment agreement.  Excluding these amounts,
normalized management fees and employee salaries expense was $1,841,348 in 2009
compared to $3,281,507 in 2008, resulting in a decrease of 43.9% year over
year.  This decrease was primarily due to the fact that we terminated
several employees in early 2009, as well as decreased costs related to our
activities in cricket.com.  Cricket related expenses, including
management fees and salaries for the year ended December 31, 2009, were
$424,425, while during 2008 these expenses totalled $973,679.  In
August 2009, we terminated our activities related to the cricket
venture.





Normalized
management fees and salaries represented 24.9% of total revenues, not including
cricket sponsorship revenues, in 2009 and 35.0% in 2008.  In early
2009, our staffing requirements were restructured and a number of employees were
laid off, including our former President and COO.  After severance
payments were fully paid out, the reduced number of staff will contribute to a
decrease in management fees and salaries as a percentage of
revenue.  We anticipate maintaining salary expense at approximately
20% of revenues.





Executive
compensation in 2009 of $2,104,868 (2008 - $3,125,605) accounted for 58.74%
(2008 – 53.90%) of the total management fees and employee salary
expense.  Excluding executive compensation, employee salaries
decreased by 44.7% due to the fact a number of staff were terminated in 2009 in
both the health and beauty business and administrative support.





Quarter
over Quarter Analysis





In Q4 of
2009, we incurred total management fees and staff salaries of $632,401 compared
to $864,521 in Q4 of 2008.  These amounts include stock based
compensation of $286,359 in Q4 of 2009 and $528,653 in Q4 of 2008, as well as
accrued amounts for special bonuses payable.  Excluding these amounts,
normalized management fees and employee salaries expense in Q4 of 2009 totalling
$338,144 decreased by 42.4% over Q4 of 2008.  This decrease was
primarily due to staff terminations in 2009.





Normalized
management fees and staff salaries have decreased steadily since Q4 of
2008.  In Q4 of 2009, these expenses represented only 14.1% of total
revenues, not including cricket.com sponsorship revenues.  These
decreases are due to the fact that we terminated several employees in late 2008
and early 2009 and ended various consulting agreements that existed in
2008.  Management believes that it is reasonable for the Company to
maintain salaries expense below 20% of total revenues.






21





Marketing





We
generate internet traffic through paid search, email and affiliate
marketing.  We pay marketing costs related to search and email in
order to drive traffic to our various websites.  We pay our affiliates
sales commissions if they deliver traffic to Perfume.com that results in a
successful sale.





Quarter
      Ended
              
              Corporate
              
              
              eCommerce
              
              
              Total
              
              
              As
      a % ofMarketing
              
              
              Marketing
              
              
              Marketing
              
              
              Total
      Sales**March
      31, 2009 (as
      restated)
              
              $
              3,876
              
              
              $
              111,422
              
              
              $
              115,298
              
              
              
              6.6
              %June
      30,
      2009
              
              
              6,221
              
              
              
              114,965
              
              
              
              121,186
              
              
              
              7.1
              %September
      30, 2009
              
              
              3,939
              
              
              
              107,678
              
              
              
              111,617
              
              
              
              7.3
              %December
      31, 2009
              
              
              -
              
              
              
              246,266
              
              
              
              246,266
              
              
              
              10.3
              %Fiscal
      Year 2009 Totals
              
              $
              14,036
              
              
              $
              580,331
              
              
              $
              594,367
              
              
              
              8.0
              %March
      31, 2008 (as restated)
              
              $
              26,459
              
              
              $
              149,187
              
              
              $
              175,646
              
              
              
              10.0
              %June
      30, 2008 (as restated)
              
              
              20,243
              
              
              
              129,885
              
              
              
              150,128
              
              
              
              7.7
              %September
      30, 2008 (as restated)
              
              
              14,449
              
              
              
              99,412
              
              
              
              113,861
              
              
              
              5.8
              %December
      31, 2008 (as restated)
              
              
              86,691
              
              
              
              387,909
              
              
              
              474,600
              
              
              
              13.1
              %Fiscal
      Year 2008 Totals (as restated)
              
              $
              147,842
              
              
              $
              766,393
              
              
              $
              914,235
              
              
              
              9.8
              %


**Excluding
cricket.com sponsorship revenues





Year
over Year Analysis





During
2009, we incurred $594,367 in marketing costs, or 8.0% of total revenues
excluding sponsorship revenues, compared to $914,235, or 9.8% of total revenues
in 2008.  Our websites’ search rankings currently perform adequately
however management believes targeted keywords advertising at opportune times
will bring additional traffic to Perfume.com.





Included
in this total was $14,036 in corporate marketing expenses in 2009 compared to
$147,842 in 2008, a decrease of $133,806 or 90.5%.  In 2008, $42,500
of these costs consisted of public relations services related to rebranding the
Company. Corporate marketing expenses included costs related to our cricket
activities totaling $6,787 in 2009 compared to $105,443 in 2008.  We
have been able to maintain corporate marketing costs in both periods to a small
percentage of total revenues.





ECommerce
marketing expenses relate entirely to advertising costs incurred in our
eCommerce business, particularly email advertising, search engine marketing, and
affiliate marketing programs.  During 2009, these expenses were
$580,331 compared to $766,393 in 2008.  The decrease of $186,062, or
24.3% year over year, was due to a decrease of approximately $271,700 in
pay-per-click advertising campaigns and email advertising campaigns combined,
and a reduction of $18,000 in comparison shopping advertising, offset by
increases of $45,000 to online advertising and $60,800 to affiliate spending
advertising costs during 2009 compared to 2008 as management continues to
explore cost-effective ways to drive revenues and traffic.  ECommerce
marketing costs in 2009 accounted for 8.0% of eCommerce sales and were
consistent with 8.3% in 2008.  Management believes it is reasonable to
expect eCommerce marketing costs to remain under 10% of eCommerce
sales.





Quarter
over Quarter Analysis





We
acquire internet traffic by pay-per-click, email and affiliate
marketing.  In Q4 of 2009, we incurred total marketing expenses of
$246,266, or 10.3% of total revenues, compared to $474,600, or 13.1% of total
revenues in Q4 of 2008.





There
were no corporate marketing expenses included in this total for Q4 of 2009,
however $86,691 of the total in Q4 of 2008 were corporate marketing
expenses.  The expenses we incurred during Q4 of 2008 related to
corporate marketing costs for our cricket activities.





ECommerce
marketing expenses in Q4 of 2009 of $246,266, or 10.5% of eCommerce sales,
decreased by $141,643 or 36.5% compared to $387,909 expensed in Q4 of
2008.  These expenses have been consistent throughout 2009 due to
increased effective email marketing campaigns for Perfume.com.  The
fourth quarter of each year sees an increase in these expenses due to the
seasonal nature of our revenues.  Management believes that customer
acquisition is the key to accelerated growth, and direct, measurable marketing
vehicles like search, email, and affiliates account for the largest part of
these marketing expenditures.






22





Other
Expenses





During Q1
of 2009, we incurred various restructuring costs of $264,904 consisting of
severance payments to our former President and Chief Operating Officer and to
other employees terminated in the first quarter as a result of restructuring our
staffing requirements.  There were no such expenses during the
remainder of 2009.





During
the first quarter of 2008, we incurred various unusual and one-time costs
totaling $629,856.  During Q2 of 2008, we incurred similar
restructuring costs including $31,691 in valuation costs relating to the payment
of amounts owed to the Company by its subsidiary, DHI, with shares of DHI common
stock which were issued in Q1 2008, and $2,000 in some final windup costs
related to the disposition of FrequentTraveller in late 2007.  During
Q3 and Q4 of 2008, we incurred $45,000 in costs related to engaging two firms to
pursue capital financing opportunities that were terminated subsequent to the
2008 year end.  Total other expenses for 2008 were
$708,804.





Global
Cricket Venture Expenses





We
incurred $227,255 in the first quarter of 2009, $155,968 in the second quarter
of 2009, and $69,084 in the third quarter of 2009 relating to Global Cricket
Venture, sometimes referred to in this report as “GCV”.  We ceased
incurring such costs after August 2009 when we entered into an agreement to sell
cricket.com, as discussed below.  These costs relate to, but are not
limited to, expenditures for business development, travel, marketing,
consulting, and salaries.  As such, the costs have been reported as
$6,787 of corporate marketing, $424,425 of management fees and employee
salaries, and $21,095 of corporate general and administrative
expenses.





On March
31, 2009, the Company, GCV, the BCCI and the IPL amended the Memoranda of
Understanding that had been entered into on April 16, 2008.  The
Company and the BCCI jointly entered into a Termination Agreement, pursuant to
which the BCCI Memorandum was terminated.  On the same date, the
Company, GCV and the BCCI, on behalf of the IPL, entered into a Novation
Agreement with respect to the IPL Memorandum.  Under the Novation
Agreement, the combined $1 million owed to the BCCI and the IPL at December 31,
2008 was reduced to $500,000, consisting of $125,000 owed to the BCCI and
$375,000 owed to the IPL.  We accounted for our economic obligations
to the BCCI and IPL based on the schedule of payments included in the Memoranda
of Understanding by accruing individual payments as liabilities based on the
payment schedule, and expensed such payments in the related period as a current
expense as the minimum guaranteed payments owing to the BCCI and IPL had no
future benefit to the Company.  The responsibility for this payment
was assumed by, and the benefits associated with the Memorandum of Understanding
(“MOU”) formerly held by the Company were transferred to, GCV through the
Novation Agreement.  During the first quarter of 2009, the Company
also accrued the payment of $625,000 that was due to be paid to the BCCI on
January 1, 2009.  As a result of the Novation Agreement, the
consolidated financial statements for the year ended December 31, 2009 reflected
a gain on settlement of GCV related payments of $750,000.





Subsequently,
in August 2009, GCV transferred and assigned to an unrelated third party
(“Mauritius”) all of its rights, title, and interest in and to the original MOU
with the IPL, as the original MOU was amended by the Novation Agreement that was
signed on March 31, 2009.  Pursuant to this agreement, Mauritius also
agreed to assume and be liable for all past and future obligations and
liabilities of GCV arising from the original MOU, as it was amended by the
Novation.  As a result, the $750,000 that was payable to the BCCI and
IPL was assumed and paid by Mauritius during the third quarter of
2009.





We also
agreed to sell the cricket.com domain name, along with the associated website,
content, copyrights, trademarks, etc., to Mauritius for consideration of four
equal payments of $250,000 each.  In order to facilitate the transfer
of the Cricket.com website, we agreed to provide Mauritius with support services
for a period of no more than 6 months (the “Transition Period”).  In
exchange for the support services, Mauritius agreed to the payment of certain
expenses related to the support services.  The cricket.com domain name
is to remain the property of the Company until all payments have been
made.  As of the date of filing this report, the first three
instalments of $250,000 each have been received.  At December 31,
2009, collectability of the two instalments receivable in February and May 2010
was not reasonably assured, therefore we have only recognized the first two
$250,000 instalments in 2009 in our calculation of the gain on sales-type lease
of cricket.com as discussed below.





We
accounted for these transactions under ASC 605-25, Multiple Element
Arrangements.Using this guidance, the gain on the sales type
lease of cricket.com, the gain on settlement upon assignment and assumption of
amounts due under the Novation Agreement, as well as the support services we are
to provide to Mauritius during the transition period, are to be recognized over
the six month transition period, or from September 2009 to February
2010.  As a result, the Company recognized four/sixths of the gain on
settlement of the amounts owing under the Novation Agreement, four/sixths of the
gain on sales-type lease of the first instalment received for cricket.com, and
one/third of the gain on sales-type lease of the second instalment received for
cricket.com during 2009.  Refer to Note 6 in our consolidated
financial statements attached.






23





These two
agreements resulted in our full exit from the Cricket business, once we provided
the interim support services, which we have agreed to provide for a period of
six months and which we completed on February 20, 2010.  The
Transition Period ended February 20, 2010.  Subsequent to the end of
the Transition Period, the Company and Mauritius verbally agreed to extend the
services agreement on a month to month basis.





Liquidity
and Capital Resources





We
generate revenues from the sale of third-party products over the Internet,
"pay-per-click" advertising, and selling advertising on media rich websites with
relevant content.  However, during the 2008 and 2009 fiscal years our
revenues were not adequate to support our operations.  In order to
conserve cash, we paid certain service providers with shares of our common stock
during those years, and we continue to explore opportunities to do so in 2010 as
well.  We also sold or leased some of our domain name assets in order
to better manage our liquidity and cash resources.





In
November 2008, we also raised $1,057,775 of cash by selling 1,627,344 units
consisting of one share of our common stock and two warrants, each for the
purchase of a half share of common stock.  The offering price was
$0.65 per unit.





As at
December 31, 2009, current liabilities were in excess of current assets
resulting in a working capital deficiency of $1,311,475 compared to a working
capital deficiency of $3,199,931 at December 31, 2008.  During the
year ended December 31, 2009, we incurred a net loss of $4,010,013 and a
decrease in cash of $1,418,820 compared to a net loss of $9,987,270 and a
decrease in cash of $5,542,725 during the year ended December 31,
2008.  During 2009, we increased our accumulated deficit to
$16,787,208 from $12,777,195 in 2008 and have a stockholders’ deficit of
$148,448, primarily due to the net loss for the year which includes two
impairment charges during the year.  The impairment charges of
$590,973 of Auction Software and $2,539,348 of Goodwill relate to the merger
with Auctomatic in May 2008.  Refer to Notes 7 and 8 of our
consolidated financialstatements.





The
decrease in cash for the year primarily included cash outlays to pay off some
large accounts payable that had been accrued at the December 31, 2008 fiscal
year end.  Other payments that were either unusual or non-operational
in nature included expenses that were paid during the year related to Global
Cricket Venture.





Operating
Activities





Operating
activities during the year ended December 31, 2009 resulted in cash outflows of
$4,210,644 after adjustments for non-cash items.  The most significant
adjustments were the stock-based compensation expensed during the period of
$1,702,519, which offset the decrease in accounts payable and accrued
liabilities of $1,757,351 and the gain from the sales and sales-type lease of
domain names of $2,452,081.  In the year ended December 31, 2008, cash
outflows of $4,854,260 were primarily due to the net loss offset by stock-based
compensation expensed during the year of $2,162,526, the increase in accounts
payable and accrued liabilities of $1,612,814, and the amounts payable to the
BCCI and IPL of $1,000,000.





Investing
Activities





Investing
activities during the year ended December 31, 2009 generated cash inflows of
$2,791,824, primarily due to $3,446,420 in proceeds received from the sale and
sales-type lease of domain names, less $284,669 in
commissions.  During the year ended December 31, 2008, we generated
cash outflows of $1,659,437 primarily due to the cash consideration of
$1,530,047 paid in conjunction with the Auctomatic merger, the investment of
approximately $187,532 in property and equipment, and $451,439 used for website
development.





Financing
Activities





There was
no effect to financing activities for the year ended December 31,
2009.  The year ended December 31, 2008 included $970,972 in proceeds
received from the sale of our common stock as a result of our private placement
in November 2008.





Future
Operations





At the
2009 and 2008 year ends we had a working capital deficiency, and for over the
past two fiscal years we have experienced substantial losses.  We
expect to continue to incur losses in the coming quarters even though costs have
been reduced through lay-offs and restructuring.  We may also seek to
explore new business opportunities, including the partnering, building or
acquiring of a distribution center or warehouse in the United States to enhance
our fragrance fulfillment capability and improve gross margins.  These
acquisitions may require additional cash beyond what is currently available and
such funds may be raised by future equity and/or debt financings, and through
the sale of non-core domain name assets.






24





We are
pursuing opportunities to increase cash flows, however there is no certainty
that these opportunities will generate sufficient cash flows to support our
activities in the future in view of changing market
conditions.  During the 2010 fiscal year, we expect to expend
significant funds toward additional marketing costs, which we believe will
translate into higher revenue growth.  There is no certainty that the
profit margins we may generate going forward, even if we are also successful in
raising working capital, will be sufficient to offset the anticipated marketing
costs and other expenditures and may result in net cash outflow for the 2010
fiscal year.





We have
actively curtailed some operations and growth activities in an effort to reduce
costs and preserve cash on hand.  We have sold selected domain names
in order to address short term liquidity needs.  Ten domain names were
sold or leased during the year for over $3.2 million, in addition to the
agreements that were reached with Mauritius relating to
cricket.com.  We believe that these strategic sales of domain names
will provide us with the required cash to meet our working capital needs and
provide for general operating capital needs over the next 12
months.  We also anticipate that we may enter into future sales of
domain names if we require further additions to our working
capital.  There can be no assurances that any future sales of domain
names on terms acceptable to us will occur or that such sales, if they do occur,
will provide us with enough money to meet our operating expenses.





The
consolidated financial statements have been prepared on a going concern basis
which assumes that we will be able to realize assets and discharge liabilities
in the normal course of business for the foreseeable future.  Our
ability to continue as a going-concern is in substantial doubt as it is
dependent on continued financial support from our investors, our ability to sell
additional non-core domain names, our ability to raise future debt or equity
financings, and the attainment of profitable operations to meet our liabilities
as they become payable.  The outcome of our operations and fundraising
efforts is dependent in part on factors and sources beyond our direct control
that cannot be predicted with certainty.  Access to future debt or
equity financing is not assured and we may not be able to enter into
arrangements with financing sources on acceptable terms, if at
all.  The financial statements do not include any adjustments relating
to the recoverability or classification of assets or the amounts or
classification of liabilities that might be necessary should we be unable to
continue as a going concern.





We expect
to achieve an improved financial position and enhanced liquidity by establishing
and carrying out a plan of recovery as discussed in our consolidated financial
statements for the fiscal year ended December 31, 2009, which are included in
this report.





We have
no current plans to purchase any significant property and
equipment.





Off-Balance
Sheet Arrangements





As of
December 31, 2009, we did not have any off-balance sheet arrangements, including
any outstanding derivative financial instruments, off-balance sheet guarantees,
interest rate swap transactions or foreign currency contracts.  We do
have off-balance sheet commitments as disclosed in the notes to our consolidated
financial statements.  We do not engage in trading activities
involving non-exchange traded contracts.





Application
of Critical Accounting Policies





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





Going
Concern





Our
consolidated financial statements have been prepared on a going concern basis
which assumes that we will be able to realize our assets and discharge our
liabilities in the normal course of business for the foreseeable future. We have
generated a consolidated net loss of $4,010,013 and realized a negative cash
flow from operating activities of $4,210,644 for the year ended December 31,
2009.  At this date, we had a working capital deficiency of
$1,216,325, compared to $3,199,931 at December 31, 2008.  At December
31, 2009 we had an accumulated deficit of $16,787,208, as compared to an
accumulated deficit of $12,777,195 at December 31,
2008.  Stockholders’ deficit was $148,448 at December 31, 2009, as
compared to stockholders’ equity of $1,995,592 at December 31, 2008, primarily
due to the net loss in 2009 which includes two impairment charges during the
year.






25





Our
ability to continue as a going-concern is in substantial doubt as it is
dependent on a number of factors including, but not limited to, the receipt of
continued financial support from our investors, our ability to sell additional
non-core domain names, our ability to raise equity or debt financing as we need
it, and whether we will be able to use our securities to meet certain of our
liabilities as they become payable.  The outcome of these matters is
dependent on factors outside of our control and cannot be predicted at this
time.





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





Principles
of Consolidation





The
consolidated financial statements include our accounts, our wholly owned
subsidiary Delaware, our wholly-owned subsidiary LCM Cricket Ventures, our 98.2%
(December 31, 2008 – 98.2%) interest in our subsidiary DHI, DHI’s wholly owned
subsidiaries Importers and 612793, and LCM Cricket Ventures’ 50.05% interest in
Global Cricket Venture.  All significant intercompany balances and
transactions are eliminated on consolidation.





Revenue
Recognition





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





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





Sponsorship
revenues consist of sponsorships related to past cricket tournaments that are
receivable based on our prior agreements relating to the Cricket.com website.
Revenues are recognized once collectability is reasonably assured.





Gains
from the sale of domain names, whose carrying values are recorded as intangible
assets, consist primarily of funds earned for the transfer of rights to domain
names that are currently in our control.  Revenues are recognized when
the sale agreement is signed and the collectability of the proceeds is
reasonably assured.  In 2009, there were ten sales of domain names,
not including Cricket.com.  Collectability of the amounts owing on
these sales are reasonably assured and therefore accounted for as a sale in the
period the transaction occurred.  In 2008, there was a sale of one
domain name.  Collectability of the amounts owing on this sale is
reasonably assured and therefore accounted for as a sale in the period the
transaction occurred.





Gains
from the sales-type leases of domain names, whose carrying values are recorded
as intangible assets, consist primarily of funds earned over a period of time
for the transfer of rights to domain names that are currently in our
control.  When collectability of the proceeds on these transactions is
reasonably assured, the gain on sale is accounted for as a sales-type lease in
the period the transaction occurs.  In 2009, there was one sales-type
lease of a domain name where collectability of future payments owing on this
sale were not reasonably assured.  Therefore, the gains were recorded
based only on the amounts that were reasonably assured.  The contract
for the sales-type lease was breached in Q2 of 2009 however there was no effect
to the financial statements.  In 2008, there was one sales-type lease
of a domain name.  See also Note 12 to our consolidated financial
statements.





Stock-Based
Compensation





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






26





In August
2007, our board of directors approved a Stock Incentive Plan to make available
5,000,000 shares of common stock to be awarded as restricted stock awards or
stock options, in the form of incentive stock options (“ISO”) to be granted to
our employees, and non-qualified stock options to be granted to our employees,
officers, directors, consultants, independent contractors and advisors, provided
such consultants, independent contractors and advisors render bona-fide services
not in connection with the offer and sale of securities in a capital-raising
transaction or promotion of our securities.  Our shareholders approved
the Stock Incentive Plan at the 2008 Annual General Meeting.





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





On March
25, 2009, our Board of Directors approved a reduction in the exercise price of
stock option grants previously made under the 2007 Incentive Stock Option
Plan.  No other terms of the plan or the grants were
modified.





Inventory





Inventory
is recorded at the lower of cost or market using the first-in first-out (FIFO)
method.  We maintain little or no inventory of perfume which is
shipped from the supplier directly to the customer.  The inventory on
hand as at December 31, 2009 is recorded at cost of $28,714 (December 31, 2008 -
$74,082) and represents inventory in transit from the supplier to the
customer.





Website
development costs





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





Intangible
Assets





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





Our
intangible assets, which consist of our portfolio of generic domain names, have
been determined to have an indefinite life and as a result are not
amortized.  Management has determined that there is no impairment of
the carrying value of intangible assets at December 31, 2009.





Goodwill





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





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




27





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





Recent
Accounting Pronouncements





ASC
105


In June,
2009, the FASB issued Update No. 2009-01, The FASB Accounting Standards
CodificationTM (“ASC”)
as the source of authoritative U.S. generally accepted accounting principles
(GAAP) recognized by the FASB to be applied by nongovernmental
entities.  This guidance is set forth in Topic 105 (“ASC
105”).  Rules and interpretive releases of the Securities and Exchange
Commission (SEC) under authority of federal securities laws are also sources of
authoritative GAAP for SEC registrants. On the effective date of this Statement,
the Codification will supersede all then-existing non-SEC accounting and
reporting standards. All other nongrandfathered non-SEC accounting literature
not included in the Codification will become nonauthoritative.  This
statement is effective for financial statements issued for fiscal years and
interim periods ending after September 15, 2009, which, for the Company, is
the interim period ending September 30, 2009.  The Company adopted ASC
105 at September 30, 2009, however the adoption of this statement did not have a
material effect on its financial results.  Further to the adoption of
ASC 105, the Company has updated its references to GAAP.





ASC
855


In May,
2009, the FASB issued ASC 855, Subsequent Events. The new
standard is intended to establish general standards of accounting for, and
disclosure of, events that occur after the balance sheet date but before
financial statements are issued or are available to be issued.  This
statement is effective for financial statements issued for interim or annual
financial periods ending after June 15, 2009, which, for the Company, was the
interim period ending June 30, 2009.  The Company adopted ASC 855 in
the second quarter of 2009, however it did not have a material effect to the
Company’s current practice.





ASC
815-10-65


In
March 2008, the FASB issued ASC 815, Derivatives and
Hedging.  ASC 815 is intended to improve financial standards
for derivative instruments and hedging activities by requiring enhanced
disclosures to enable investors to better understand their effects on an
entity's financial position, financial performance and cash flows. Entities are
required to provide enhanced disclosures about: how and why an entity uses
derivative instruments; how derivative instruments and related hedged items are
accounted for under ASC 815; and how derivative instruments and related hedged
items affect an entity's financial position, financial performance and cash
flows.  ASC 815 was effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008, which for
the Company was the fiscal year beginning January 1, 2009.  The
Company adopted ASC 815-10-65 at January 1, 2009, however the adoption of this
statement did not have a material effect on its financial results.





ASC
260-10-45


The FASB
issued ASC 260-10-45, Earnings
Per Share,which clarifies that all outstanding unvested share-based
payment awards that contain rights to nonforfeitable dividends participate in
undistributed earnings with common shareholders.  Awards of this
nature are considered participating securities and the two-class method of
computing basic and diluted earnings per share must be applied.  The
restricted stock awards the Company has granted to employees and directors are
considered participating securities as they receive nonforfeitable
dividends.  The Company adopted AC 260-10-45 effective January 1,
2009, however, there has been no material effect on its financial
results.





ASC
350-30


In April
2008, the FASB issued ASC 350-30, General Intangibles Other Than
Goodwill.  ASC 350-30 amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset.  The intent of ASC
350-30 is to improve the consistency between the useful life of a recognized
intangible asset and the period of expected cash flows used to measure the fair
value of the asset.  ASC 350-30 was effective for financial statements
issued for fiscal years beginning after December 15, 2008, which for the Company
was the fiscal year beginning January 1, 2009.  The Company adopted
ASC 350-30 at January 1, 2009, however the adoption of this statement did not
have a material effect on its financial results.






28





ASC
805


In
December 2007, the FASB issued revised authoritative guidance in ASC 805,
Business
Combinations.  ASC 805 establishes principles and requirements
for how the acquirer in a business combination: (i) recognizes and measures in
its financial statements the identifiable assets acquired, the liabilities
assumed, and any noncontrolling interest in the acquiree, (ii) recognizes and
measures the goodwill acquired in the business combination or a gain from a
bargain purchase, and (iii) determines what information to disclose to enable
users of the financial statements to evaluate the nature and financial effects
of the business combination.  ASC 805 is effective for financial
statements issued for fiscal years and interim periods beginning after December
15, 2008, which for the Company was the fiscal year beginning January 1,
2009.  The Company adopted ASC 805 at January 1, 2009, however the
adoption of this statement did not have a material effect on its financial
results.  ASC 805 will be applied to any future business
combinations.





ASC
810


In
December 2007, the FASB issued authoritative guidance related to noncontrolling
interests in consolidated financial statements, which was an amendment of ARB
No. 51.  This guidance is set forth in ASC 810, Consolidation.  ASC
810 establishes accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a
subsidiary.  This accounting standard is effective for fiscal years
beginning on or after December 15, 2008, which for the Company was the fiscal
year beginning January 1, 2009. The Company adopted ASC 810 at January 1, 2009,
however the adoption of this statement did not have a material effect on its
financial results.





ASC
820


In
September 2006, the FASB issued ASC 820, Fair Value Measurements and
Disclosures.  This Statement defines fair value, establishes a
framework for measuring fair value in GAAP, and expands disclosures about fair
value measurements.  This standard does not require any new fair value
measurements.





In 2008,
the Company adopted ASC 820 for financial assets and liabilities recognized at
fair value on a recurring basis. The adoption did not have a material effect on
its financial results. The disclosures required by ASC 820 for financial assets
and liabilities measured at fair value on a recurring basis as at December 31,
2008 are included in Note 4 to the financial statements included in this
report.





In
February 2008, the FASB issued authoritative guidance which deferred the
effective date of ASC 820 to fiscal years beginning after November 15, 2008 for
nonfinancial assets and nonfinancial liabilities, except for those items that
are recognized or disclosed at fair value in the financial statements on a
recurring basis, which for the Company was the fiscal year beginning January 1,
2009.  The Company applied the requirements of ASC 820 for fair value
measurements of financial and nonfinancial assets and liabilities not valued on
a recurring basis at January 1, 2009.  The adoption of this statement
did not have a material effect on its financial reporting and
disclosures.





Accounting
Standards Update (“ASU”) 2009 -13


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





Item
7A.  Quantitative and Qualitative Disclosures About Market
Risk





As a
smaller reporting company we are not required to provide this
information.





Item
8.  Financial Statements and Supplementary Data





The
financial statements are listed in the Index to Financial Statements on page
F-1.







29


Item
9.  Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure


On
December 16, 2009, Ernst & Young LLP (“E&Y”) was dismissed as our
independent registered public accounting firm.  This action was
approved by the Audit Committee of the Board of Directors of the
Company.





The
reports of E&Y on the Company's consolidated financial statements for the
fiscal years ended December 31, 2008 and December 31, 2007 did not contain any
adverse opinion or a disclaimer of opinion, however the report issued on the
financial statements for the year ended December 31, 2008 was modified as to our
ability to continue as a going concern.





During
the Company's fiscal years ended December 31, 2008 and December 31, 2007 and
through December 16, 2009, there were no disagreements with E&Y on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of E&Y, would have caused it to make reference thereto in its
reports on the Company's financial statements for such fiscal
years.





During
the Company’s fiscal years ended December 2008 and 2007 and through December 16,
2009, there were two “reportable events” as described in Item 304(a)(1)(v) of
Regulation S-K promulgated under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”) (the “Reportable Events”).  The Reportable Events
were as follows:





(1)           As
disclosed in our 2008 Form 10-K, as amended and filed with the Securities and
Exchange Commission on September 14, 2009, our control environment did not
sufficiently promote effective internal control over financial reporting
throughout the organization because we did not have an appropriate level of
technical knowledge, experience and training in the accounting for business
combinations, stock based compensation, deferred income taxes and financial
statement disclosure.





(2)           As
we disclosed in the Current Report on Form 8-K which we filed with the
Securities and Exchange Commission on June 24, 2009 and amended on July 20,
2009, on June 18, 2009 the Company was advised by E&Y that the audit opinion
dated March 24, 2009 on the Company’s December 31, 2008 and 2007 consolidated
financial statements could no longer be relied upon because of errors in our
financial statements for the periods ended September 30, 2008, December 31, 2008
and March 31, 2009.  These errors included errors in valuing and
classifying warrants issued in connection with a financing, recording the
appropriate expense related to the issuance of common stock made in exchange for
services, and appropriately accruing as a liability and recording bonus
compensation.





On
December 18, 2009, Davidson & Company LLP (“Davidson”) was engaged as our
independent registered public accounting firm.  The engagement of
Davidson was approved by the Audit Committee of the Board of
Directors.  During the Company’s fiscal years ended December 31, 2008
and December 31, 2007 and through December 18, 2009, we did not consult with
Davidson regarding any of the matters or events set forth in Item 304(a)(2)(i)
or Item 304(a)(2)(ii) of Regulation S-K.





Item
9A(T). Controls and Procedures





Disclosure
Controls and Procedures





Our
management, with the participation of our Chief Executive Officer (“CEO”) and
Principal Financial Officer (“PFO”), has evaluated the effectiveness of the
Company’s disclosure controls and procedures (as such term is defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”)) as of the end of the period covered by this Report
(December 31, 2009).  Based on such evaluation, our Chief Executive
Officer and Principal Financing Officer has concluded that, as of the end of
such period, the Company’s disclosure controls and procedures are not effective
in recording, processing, summarizing and reporting, on a timely basis,
information required to be disclosed by us in the reports that we file or submit
under the Exchange Act and are effective in ensuring that information required
to be disclosed by us in the reports that we file or submit under the Exchange
Act is accumulated and communicated to our management, including our Chief
Executive Officer and Principal Financial Officer, as appropriate to allow
timely decisions regarding required disclosure.





Management’s
Report on Internal Control over Financial Reporting





Our management is responsible for establishing
and maintaining adequate internal control over financial
reporting.  Our internal control over financial reporting has been
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles generally accepted in
the United States.





Our
internal control over financial reporting includes policies and procedures that
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect transactions and dispositions of our assets; provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with accounting principles generally accepted
in the United States of America, and that receipts and expenditures are being
made only in accordance with authorization of our management and directors; and
provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have a
material effect on our financial statements.






30





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Therefore, even those systems determined to be
effective can provide only reasonable assurance with respect to financial
statement preparation and presentation. Projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.





Management
assessed the effectiveness of our internal control over financial reporting at
December 31, 2009. In making this assessment, management used the criteria
set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”) in Internal Control—Integrated
Framework.  Based on that assessment under those criteria,
management has determined that, at December 31, 2009, our internal control over
financial reporting was effective.





This
Annual Report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only management's report in this Annual
Report.





Changes
in Internal Control over Financial Reporting





On June
18, 2009, we were advised by Ernst & Young, LLP, who was then our
independent registered public accounting firm, that our consolidated financial
statements for the quarter ended March 31, 2009, as well as the consolidated
financial statements for the years ended December 31, 2008 and 2007, contained
errors. Based on the foregoing, our Chief Executive Officer and Chief Financial
Officer concluded that these financial statements should no longer be relied
upon, The errors arose from the fact that we did not have an appropriate level
of technical knowledge, experience and training in the accounting for business
combinations, stock based compensation, deferred income taxes and financial
statement disclosure, resulting in the Company's determination that it did not
maintain effective controls to ensure that errors like those we reported would
not reoccur. Therefore, during the quarter ended December 31, 2009, the Company
changed its internal control over financial reporting to retain the services of
an outside consultant to assist with the accounting for unusual transactions in
the future. In addition, the Company feels that its staff has a much higher
level of technical knowledge and experience in the accounting for such items,
and in the preparation and review of its financial statements. The Company also
intends to provide additional training to its accounting staff, as
necessary.
 
 Except as
noted above, there were no changes in the Company's internal control over
financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during
the quarter ended December 31, 2009, that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting.





Item
9B.  Other Information





For the
fourth quarter ended December 31, 2009, all items required to be disclosed under
Form 8-K were reported.





PART
III





Item
10.  Directors, Executive Officers and Corporate
Governance





Directors
and Executive Officers





The
following table identifies our executive officers and directors, their age,
their respective offices and positions, and their respective dates of election
or appointment.




Name
            
            Age
            
            Position
      Held
            
            Officer/Director
      SinceC.
      Geoffrey Hampson
            
            52
            
            Chief
      Executive Officer, Principal Financial Officer, Principal Accounting
      Officer and Chairman of the Board
            
            June
      1, 2007Mark
      Melville
            
            40
            
            President
      and Chief Corporate Development Officer
            
            January
      1, 2008 (Chief Corporate Development Officer); February 4, 2009
      (President)Chantal
      Iorio
            
            32
            
            Vice-President,
      Finance
            
            January
      7, 2008James
      P. Taylor
            
            54
            
            Director
            
            July
      23, 2007Mark
      Benham
            
            59
            
            Director
            
            September
      12, 2007Boris
      Wertz
            
            36
            
            Director
            
            March
      14, 2008





The
directors named above will serve until the next annual meeting of our
stockholders or until their successors are duly elected and qualified. Officers
will hold their positions at the pleasure of the Board of Directors, absent any
employment agreement. There is no arrangement or understanding between any of
our directors or officers and any other person pursuant to which any director or
officer was or is to be selected as a director or officer.






31





Biographical Information





C. Geoffrey Hampson has been
our Chief Executive Officer (“CEO”) and a director since June 1, 2007 and has
been our Principal Financial Officer and Principal Accounting Officer since
January 31, 2008.  Mr. Hampson has been the founder, president, and
CEO of many successful, start-up and operating companies over the last 25
years.  He was CEO, President and a director of Peer 1 Network
Enterprises, Inc., an internet infrastructure company, from September 2000 to
January 2006.  He has been the CEO of Corelink Data Centers, LLC since
November 2007 and the CEO and a co-owner of Techvibes Media Inc., a local market
technology resource website and blog, since March 2007.  Mr. Hampson
is Chairman and CEO of Fibrox Technology Ltd., a manufacturer of high quality
mineral fibre for the automatic, acoustical and insulation markets since
1995.  Mr. Hampson sits on the boards of directors of several
companies including Corelink Data Centers, LLC, a private company, Cricket
Capital Corp., a company listed on the TSX Venture market, Techvibes Media Inc.,
a private company, Carat Exploration Inc., a company listed on the TSX Venture
market, and Pacific Rodera Energy Inc., a company listed on the TSX Venture
market.  Mr. Hampson devotes between 120 and 150 hours to our business
per month.  Mr. Hampson has extensive experience with technology-based
companies, both as a founder and operator.  He has an in-depth
knowledge of the Company’s business, strategy and management team, all of which
qualify him to be a director.





James P. Taylor has been our
director since July 23, 2007, and is the Chair of the Audit
Committee.  From April 2008 to the present, he has served as the Chief
Financial Officer of Corelink Data Centers, LLC.  From April 2007 to
December 2007, he was the Chief Financial Officer of Lakewood Engineering and
Manufacturing.  From May 2006 to April 2007, he was engaged as a
financing and management consultant for various companies.  From
February 2002 to April 2006, Mr. Taylor served as the Chief Financial Officer
for Peer 1 Network Enterprises, Inc., a publicly traded company and North
American provider of Internet infrastructure services.  While at Peer
1, he was responsible for financial and administrative operations and led the
development of annual and strategic business plans and financial
models.  From 2001 to 2002, Mr. Taylor served as Chief Operating
Officer and Chief Financial Officer of Chicago Aerosol, LLC.  Mr.
Taylor is a member of the Society of Competitive Intelligence.  Mr.
Taylor is a graduate of Indiana University where he obtained a Bachelor of
Science degree in Finance and Accounting.  He earned his MBA from
DePaul University where he focused his studies on International Business and
Corporate Finance.  Mr. Taylor has over 20 years of experience in
corporate management, finance and planning, as well as an in-depth knowledge of
the Company’s business, strategy and management team, all of which qualify him
to be a director.





Mark Benham has been our
director since September 12, 2007.  He is Chair of the Compensation
Committee and is also a member of the Audit Committee.  Mr. Benham has
fifteen years of experience in private equity and investment
banking.  Since 1994, Mr. Benham has been a partner at Celerity
Partners, a private equity fund based in California. Mr.
Benham currently sits on the boards of directors of several companies including
Oncore Manufacturing Services, a private company, Pinnacle Treatment Centers,
Inc., a private company, Trigemina, Inc., a private company, and Ascension
Insurance, a private company.  Until resigning in 2009, he sat on the
boards of directors of O Premium Waters, a private company, Portal Group
Holdings, Inc., a private company, Verari Systems, Inc., a private company, and
Peer 1 Network Enterprises, Inc., a publicly traded company and North American
provider of Internet infrastructure services. Mr.
Benham holds a B.A. in English from the University of California, Berkeley, and
an M.A. and M.B.A. from the University of Chicago.  Mr. Benham has
extensive experience with technology-based companies in the context of his
investment banking experience.  He has an in-depth knowledge of the
Company’s business, strategy and management team, all of which qualify him to be
a director.





Mark Melville has been our
Chief Corporate Development Officer since January 1, 2008.  On
February 4, 2009, he was also named our President.  From July 2005 to
November 2007, Mr. Melville was Global Account Manager at Monitor Group L.P.,
one of the world’s premier strategic consulting and investment
firms.  While at Monitor, he worked directly with senior executives of
Fortune 500 companies on a range of strategic initiatives and co-led Monitor’s
West Coast technology practice.  From August 2002 to July 2005, Mr.
Melville was Chief Executive Officer of SteelTrace Ltd., a leading provider of
business process and requirements management software.  Mr. Melville
sold SteelTrace to Compuware Corporation in 2006.  Prior to
SteelTrace, from 1999 to 2001, he was the Vice President of Corporate
Development at MobShop, a pioneer in online commerce.  Prior to
MobShop from 1998 to 1999, he was a senior member of Exchange.com, which was
sold to Amazon.com in 1999. Mr. Melville holds a Masters in Business
Administration degree from the Harvard Graduate School of Business, a Masters in
Public Administration degree from Harvard's JFK School of Government, and an
Honors Bachelor degree in Finance from the University of British
Columbia.





Chantal Iorio has served as
our Vice President, Finance since January 7, 2008.  From 2000 to
November 2007, Ms. Iorio was employed at HLB Cinnamon Jang Willoughby &
Company, Chartered Accountants.  Most recently, she was a manager
responsible for the supervision and training of staff, managing, delegating and
reviewing files, completing and supervising audit, non-audit and tax procedures,
as well as administering client relations.  Since September 2004, Ms. Iorio
has been Treasurer, board of directors (volunteer) for the Vancouver Community
Network, a not-for-profit organization focused on providing low-cost access to
the internet to communities in Vancouver.  Ms. Iorio is a Chartered
Accountant in British Columbia, Canada and a Certified Public Accountant in the
state of Illinois.  She also holds a Bachelor of Commerce in International
Business with a focus in Accounting from the University of British
Columbia.






32





Boris Wertz was appointed as a
director effective March 14, 2008.  Dr. Wertz was also appointed to serve
as Chair of the Governance Committee of the board.  Dr. Wertz has an
established career of strategic management and operational experience in the
area of consumer internet use.  From February 2008 to the present, he has
served as CEO of Nexopia, the most popular social networking utility for
Canadian youth.  From November 2007 to the present, he has served as
CEO of W Media Ventures, a Vancouver-based venture capital firm that focuses on
consumer internet investments. From 2002 to 2007, Dr. Wertz was the Chief
Operating Officer of AbeBooks.com, the world's largest online marketplace for
books, which was recently sold to Amazon.com.  He also served as a
Director of AbeBooks.com from November 2003 to November 2008.  He
currently serves on the Board of Directors for Yapta Inc., Suite 101, Inc.,
Indochino.com, TeamPages, Techvibes Media Inc. and Nexopia.com.  Dr.
Wertz completed his Ph. D. as well as his graduate studies at the Graduate
School of Management (WHU), Koblenz, majoring in Business Economics and Business
Management.





Family
Relationships





There are
no family relationships among our directors and executive officers.





Involvement
in Certain Legal Proceedings




To the
best of our knowledge, none of our directors or executive officers has, during
the past ten years, been involved in any legal proceedings described in
subparagraph (f) of Item 401 of Regulation S-K.





Compliance
with Section 16(a) of the Exchange Act





Section 16(a)
of the Exchange Act requires our executive officers and directors, and persons
who own more than 10% of our common stock to file reports of ownership and
change in ownership with the Securities and Exchange Commission and the exchange
on which the common stock is listed for trading. Executive officers, directors
and more than 10% stockholders arerequired by regulations promulgated under the Exchange Act to furnish us
with copies of all Section 16(a) reports filed.





To our
knowledge, based solely on review of the copies of such reports furnished to us
and written representations that no other reports were required, all of our
officers, directors and greater than 10% shareholders complied with all
applicable Section 16(a) filing requirements for the fiscal year ended December
31, 2009 with the exception of the following;




(1)
            From November 16, 2009 through November 18, 2009, Mr. Hampson
      engaged in 4 transactions to purchase shares of our common stock. These
      transactions were reported on November 23,
2009.


(2)
            From
      November 19, 2009 through November 23, 2009, Mr. Hampson engaged in 4
      transactions to purchase shares of our common stock. These transactions
      were reported on November 24, 2009.


Code
of Ethics





We have
adopted a code of ethics that applies to our executive officers and employees,
including our principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar
functions.  A copy of our code of ethics may be found under the
“Investors” section of our website at www.livecurrent.com.





Audit
Committee and Audit Committee Financial Expert





Our Board
of Directors formed an audit committee on August 16, 2007 (the “Audit
Committee”). James P. Taylor was appointed as Chair of the Audit Committee on
August 16, 2007 and Mark Benham was appointed as an additional member of the
Audit Committee on March 14, 2008.  We believe Mr. Taylor and Mr.
Benham are “audit committee financial experts” as that term is defined by Item
407 of Regulation S-K.





The Audit
Committee assists the Board of Directors in its oversight of the quality and
integrity of our accounting, auditing, and reporting practices.  The
Audit Committee's role includes overseeing the work of our internal accounting
and financial reporting and auditing processes and discussing with management
our processes to manage business and financial risk, and for compliance with
significant applicable legal, ethical, and regulatory
requirements.  The Audit Committee is responsible for the appointment,
compensation, retention, and oversight of the independent auditor engaged to
prepare or issue audit reports on our financial statements and internal control
over financial reporting. The Audit Committee relies on the expertise and
knowledge of management and the independent auditor in carrying out its
oversight responsibilities.  The Committee's specific responsibilities
are delineated in its charter.






33





Compensation
Committee





Our Board
of Directors formed a Compensation Committee on January 22, 2008 (the
“Compensation Committee’).  Mark Benham was appointed as Chair and
sole member of the Compensation Committee on January 22, 2008.  Our
Board of Directors has delegated to the Compensation Committee strategic and
administrative responsibility on a broad range of issues.  The
Compensation Committee’s basic responsibility is to assure that the Chief
Executive Officer, other officers, and key management are compensated
effectively in a manner consistent with our compensation strategy and
competitive practice.  In addition, the Compensation Committee is
responsible for establishing general compensation guidelines for non-management
employees.





The
Compensation Committee will be responsible for overseeing and, as appropriate,
making recommendations to the Board regarding the annual salaries and other
compensation of our executive officers, our general employee compensation and
other policies and providing assistance and recommendations with respect to our
compensation policies and practices.  The Compensation Committee is
authorized to carry out these activities and other actions reasonably related to
the Compensation Committee’s purposes or assigned by the Board from time to
time.  The Committee's specific responsibilities are delineated in its
charter.





Nominating
and Governance Committee





Our Board
of Directors formed a Nominating and Governance Committee on January 22, 2008
(the “Nominating and Governance Committee’).  On March 14, 2008, Dr.
Boris Wertz was appointed as Chair and sole member of the Nominating and
Governance Committee.  Our Board of Directors has delegated to the
Nominating and Governance Committee the responsibility for overseeing and, as
appropriate, making recommendations to the Board regarding membership and
constitution of the Board and its role in overseeing the affairs of the
Company. The Committee's specific responsibilities are delineated in its
charter.





There
have been no material changes to the procedures by which stockholders may
recommend nominees to our Board of Directors.





Item
11.  Executive Compensation





The
following table summarizes all compensation for the 2008 and 2009 fiscal years
received by our Chief Executive Officer and our two most highly compensated
executive officers who earned more than $100,000.  All annual totals
have been converted from Canadian dollars to USD at the average 2009 foreign
exchange rate of 0.8760 and a 2008 foreign exchange rate of
0.9371.  The 2008 amounts have been updated to reflect the 2008
restated amounts.





Summary
      Compensation TableName
      and
              principal
              position
              (a)
            Year
              (b)
            Salary
      (1)
              ($)
              (c)
            Bonus
      (1)
              ($)
              (d)
            Stock
              Awards
              ($)
              (e)
            Option
              Awards
              ($)
              (f)
            Non-Equity
              Incentive
              Plan
              ($)
              (g)
            Non-
              qualified
              Deferred
              Compen-
              sation
              Earnings
              ($)
              (h)
            All
              Other
              Compen-
              sation
              ($)
              (i)
            Total
              ($)
              (j)Cameron
      Pan
              Former
      Chief Financial Officer
              Aug
      2000 – Feb 2002
              July
      2002 – Jan 31, 2008
            2009
              2008
            None
              206,487
            None
              None
            None
              None
            None
              None
            
            None
              None
            None
              None
            None
              35,750
            None
              242,237C.
      Geoffrey Hampson
              Chief
      Executive Officer, Chairman of the Board
              June
      1, 2007 – Present;
              Principal Financial Officer, Principal Accounting Officer
              January 31, 2008 – Present(1)
            2009
              2008
            112,232
              285,320
            None
              None
            None
              None
            568,906
              515,255
            *
            None
              None
            None
              None
            None
              None
            681,138
              800,575Mark
      Melville,Chief Corporate
      Development Officer January 1, 2008 to Present; President February 4, 2009
      to Present (2)
            2009
              2008
            220,549
              230,276
            87,601
              281,130
            None
              None
            439,511
              398,023
            *
            None
              None
            None
              None
            None
              35,844
            747,661
              945,273Jonathan
      Ehrlich,Chief Operating
      Officer and President
              Oct
      2007 – January 31, 2009 (3)
            2009
              2008
            282,052
              258,612
            17,520
              None
            None
              None
            135,359
              615,871
            *
            None
              None
            None
              None
            45,553
              49,198
            480,484
              923,681


* amounts represent compensation expense and include
the incremental fair value adjustment computed as a result of the repricing of
stock options that occurred on March 25, 2009.




34





(1) Mr.
Hampson did not receive any compensation for services as a director of the
Company.  The Company valued Mr. Hampson’s options using the Black
Scholes option pricing model using the following assumptions: no dividend yield;
expected volatility rate of 118.02%; a risk free interest rate of 3.97 and an
expected life of 3.375 years resulting in a value of $1.61 per option
granted.





(2) The
Company valued Mr. Melville’s options using the Black Scholes option pricing
model using the following assumptions: no dividend yield; expected volatility
rate of 75.66%; risk free interest rate of 3.07% and an expected life of 3.375
years resulting in a value of $1.26 per option granted





(3) The
Company valued Mr. Ehrlich’s options using the Black Scholes option pricing
model using the following assumptions: no dividend yield; expected volatility
rate of 118.02%; risk free interest rate of 4.05% and an expected life of 3.375
years resulting in a value of $1.45 per option granted.





There are
no plans that provide for the payment of retirement benefits, or benefits that
will be paid primarily following retirement, including but not limited to
tax-qualified defined benefit plans, supplemental executive retirement plans,
tax-qualified defined contribution plans and nonqualified defined contribution
plans.





Other
than as discussed below in “Employment Agreements,” there are no contracts,
agreements, plans or arrangements, written or unwritten, that provide for
payment to a named executive officer at, following, or in connection with the
resignation, retirement or other termination of a named executive officer, or a
change in control of our company or a change in the named executive officer's
responsibilities following a change in control.





On
January 31, 2008, Cameron Pan resigned as our Chief Financial Officer and
employee.  Pursuant to the terms and conditions of an employment
severance agreement dated January 17, 2008 between us and Mr. Pan, we agreed to
pay Mr. Pan on February 1, 2008 CDN$248,000 represented by CDN$158,400 of
severance allowance, CDN$79,200 of accrued bonus and CDN$10,400 for other
benefits, less any and all applicable government withholdings and
deductions.  Furthermore, pursuant to the severance agreement, for a
period commencing on February 1, 2008 until April 30, 2008, we agreed to retain
Mr. Pan as a consultant for a daily fee of CDN$750 or as the case may be, for an
hourly rate of CDN$120, to assist in the day to day operations of Live Current
and the transition of duties from Mr. Pan to others that may be designated by
Live Current.





On
February 4, 2009, Jonathan Ehrlich resigned as our President and Chief Operating
Officer and employee, effective January 31, 2009.  Pursuant to the
terms and conditions of an employment severance agreement dated February 4, 2009
between us and Mr. Ehrlich, the Company agreed to pay CDN$600,000 to Mr.
Ehrlich, which consists of a severance allowance in the amount of CDN$298,000
and an accrued special bonus in the amount of CDN$250,000, less any and all
applicable government withholdings and deductions, as well as other benefits in
the amount of CDN$52,000.  The severance allowance and other benefits
were to be paid over a period of 12 months.  The accrued special bonus
had become due on October 1, 2008 and had been expensed in the fourth quarter of
the 2008 fiscal year.  The other benefits were owing to Mr. Ehrlich
before his resignation.  The payment of the net amount of the accrued
special bonus was to be converted to equity and paid in restricted shares of the
Company’s common stock over a period of 12 months.  The number of
shares of common stock to be issued for each payment was to be computed using
the closing price of the common stock on the 15thday
of each month or, in the event that the 15thday
was not a trading day, on the trading day immediately before the 15thday
of the month.





On June
2, 2009 the employment severance agreement with Mr. Ehrlich was
amended.  As a result of this amendment, we were permitted to pay the
remaining severance amounts owed to Mr. Ehrlich over a period of 10 months
rather than 5 months.  Mr. Ehrlich agreed to defer until December 31,
2009 the payment of the accrued special bonus, and as of September 1, 2009 we
were relieved from the payment of certain expenses that we had agreed to make on
Mr. Ehrlich’s behalf and from the obligation to pay relocation expenses to Mr.
Ehrlich.






35





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





On August
21, 2007, our Board of Directors adopted the Live Current Media Inc. 2007 Stock
Incentive Plan (the “Plan”) and granted incentive stock options from the Plan to
certain key personnel, as further described below.





Employment
Agreements





C.
Geoffrey Hampson, Chief Executive Officer and Chairman





We
entered into an employment agreement with C. Geoffrey Hampson on May 31,
2007.  Pursuant to the employment agreement, Mr. Hampson shall serve
as our Chief Executive Officer for a term of five years effective June 1, 2007
and subject to certain termination rights on the part of Live Current and Mr.
Hampson.  The employment agreement provides that Mr. Hampson will
receive an annual base salary of CDN$300,000, subject to annual review as well
as a bonus of up to 60% of base salary as determined by the Board of Directors.  The employment
agreement also entitles him to participate in the health, dental and other
fringe benefits or policies available to personnel with commensurate
duties.  In connection with the employment agreement, on September 11,
2007 we granted to Mr. Hampson an incentive stock option to purchase up to
1,000,000 shares of our common stock at an exercise price of $2.50 per
share.  The option to purchase shares of our common stock vests over
the term of the employment agreement as follows: (i) exercisable as to 333,333
shares on September 11, 2008 and (ii) thereafter the option to purchase 83,333
shares vests after each successive three-month period until the entire option
has vested.  Unless earlier terminated, the option shall expire on
September 11, 2012.  The incentive stock option was granted pursuant
to our 2007 Stock Incentive Plan.  As part of the reduction in the
exercise price of all options granted from the 2007 Stock Incentive Plan, the
exercise price of the option granted to Mr. Hampson was reduced to $0.65 on
March 25, 2009.





On June
1, 2007, the Board of Directors appointed Mr. Hampson as a director and Chairman
of the Board.





On
November 10, 2009 we entered into an amendment (the “Amendment”) with Mr.
Hampson to the employment agreement.  The Amendment has an effective
date of October 1, 2009.





Pursuant
to the Amendment, Mr. Hampson’s annual salary has been reduced from CDN$300,000
to CDN$120,000 as of February 1, 2009.  The portion of Mr. Hampson’s
salary that was deferred during the period beginning on February 1, 2009 and
ending on September 30, 2009 in the amount of CDN$80,000, less any amounts as
are required by law to be withheld, was to be converted to equity and paid
in restricted shares of our common stock.  The number of shares of
common stock to be issued will be computed using the closing price of the common
stock on December 1, 2009.





The
Amendment added the following language to the definition of “change of control
of the company”: (a) if the incumbent Board of Directors (the “Incumbent Board”)
ceases to constitute a majority of the Company’s Board of Directors for any
reason(s) other than (i) the voluntary resignation of one or more Board members;
(ii) the refusal by one or more Board members to stand for election to the
Board; and/or (iii) the removal of one or more Board members for good cause;
provided, however, (1)that if the nomination
or election of any new director of the Company was approved by a vote of at
least a majority of the Incumbent Board, such new director shall be deemed a
member of the Incumbent Board; and (2) that no individual shall be considered a
member of the Incumbent Board if such individual initially assumed office (A) as
a result of either an actual or threatened director election contest wherein a
person or group of persons opposed a solicitation made by the Company with
respect to the election or removal of directors at any annual or special meeting
of the Company’s shareholders, or (B) as a result of a solicitation of proxies
or consents by or on behalf of any person other than the Company or its
designated representatives (a “Proxy Contest”), or (C) as a
result of any agreement intended to avoid or settle any director election
contest or Proxy Contest; (b) any cancellation or nonrenewal of the Company’s
directors and officers insurance coverage without the approval of the Executive
or the majority of the Incumbent Board; or (c) as a result of a successful
tender offer.






36




The
Amendment also includes a provision that allows any bonus paid to Mr. Hampson to
be paid in common stock, in cash or in a combination of cash and common
stock.  The entitlement to, amount and form of bonus remuneration must
be determined and approved by the board of directors in its sole
discretion.





On
December 28, 2009 we entered into a second amendment to Mr. Hampson’s employment
agreement.  Pursuant to the second amendment, the salary that had been
deferred was reduced by CDN$8,000 and the balance was paid in cash to Mr.
Hampson.





Jonathan
Ehrlich, former Chief Operating Officer and former President





We
entered into an employment agreement with Jonathan Ehrlich on September 11,
2007. Pursuant to the employment agreement, Mr. Ehrlich was to serve as the
Chief Operating Officer and President of Live Current for a term of five years
effective October 1, 2007, subject to certain early termination rights on the
part of Live Current and Mr. Ehrlich.  The employment agreement
provided that Mr. Ehrlich was to receive an annual base salary of CDN$275,000,
subject to annual review by the Chief Executive Officer and the Board of
Directors as well as a bonus of up to 50% of his base salary, to be determined
by the Board of Directors in its sole discretion.  He also was paid a
signing bonus of CDN$200,000 upon his start date and was to be paid two special
bonuses of CDN$250,000 each on each of October 1, 2009 and October 1, 2010
unless earlier terminated.  The employment agreement also entitled Mr.
Ehrlich to participate in the health and dental and other fringe benefits or
policies available to personnel with commensurate duties.  In
connection with the employment agreement, on September 8, 2007, Live Current
granted an incentive stock option to Mr. Ehrlich to purchase up to 1,500,000
shares of common stock at an exercise price of $2.04 per share.  The
option was to vest over the term of the employment agreement as follows: (i)
exercisable as to 500,000 shares on October 1, 2008 and (ii) thereafter the
option to purchase 125,000 shares vests after each successive three-month period
until the entire option has vested.  Unless earlier terminated, the
option would expire on October 1, 2012.  The incentive stock option
was granted under the Company’s 2007 Stock Incentive Plan.  Mr.
Ehrlich resigned as our Chief Operating Officer and President effective January
31, 2009, and his right to the incentive stock option was
terminated.





Mark Melville, Chief Corporate
Development Officer and President





We
entered into an employment agreement with Mark Melville on November 9,
2007.  Pursuant to the employment agreement, Mr. Melville shall serve
as our Chief Corporate Development Officer for a term of five years effective
January 1, 2008, subject to certain early termination rights on the part of Live
Current and Mr. Melville.  The employment agreement provides that Mr.
Melville will receive an annual base salary of CDN$250,000, commencing January
1, 2008, subject to annual review by the Chief Executive Officer and the Board
of Directors as well as a bonus of up to 50% of his base salary, to be
determined by the Board of Directors in its sole discretion.  He also
was paid a signing bonus of CDN$300,000 upon his start date and is to be paid
two special bonuses of CDN$100,000 each on each of January 1, 2009 and January
1, 2010.  We have not yet paid either of these bonuses.  The
employment agreement also entitles Mr. Melville to participate in the health and
dental and other fringe benefits or policies available to personnel with
commensurate duties.  In connection with the employment agreement, on
January 1, 2008, we granted an incentive stock option to Mr. Melville to
purchase up to 1,000,000 shares of our common stock at an exercise price of
$2.05 per share.  The option vests over the term of the employment
agreement as follows: (i) exercisable as to 333,333 shares on January 1, 2009
and (ii) thereafter the option to purchase an additional 83,333 shares vests on
the last day of each successive three month period thereafter, until all such
shares have vested. Unless earlier terminated, the option shall expire on
January 1, 2013. The incentive stock option was granted pursuant to our 2007
Stock Incentive Plan.  As part of the reduction in the exercise price
of all options granted from the 2007 Stock Incentive Plan, the exercise price of
the option granted to Mr. Melville was reduced to $0.65 on March 25,
2009.   On February 4, 2009, Mr. Melville assumed the duties of
the office of President.




OUTSTANDING
EQUITY AWARDS AT DECEMBER 31, 2009





The
following table sets forth certain information concerning unexercised stock
options for each named executive officer above.  There were no stock
awards outstanding as of end of fiscal year 2009.





OUTSTANDING EQUITY AWARDS AT FISCAL
      YEAR-ENDOPTION
      AWARDS
            STOCK
      AWARDSName
            Number
      of
              securities
              underlying
              unexercised
              options
      (#)
              Exercisable
            Number
      of
              securities
              underlying
              unexercised
              options
      (#)
              Unexercisable
            Equity
      Incentive
              Plan
      Awards:
              Number
      of
              Securities
              underlying
              unexercised
              unearned
              options
      (#)
            Option
              exercise
              price
      ($)(1)
            Option
              expiration
              date
            Number
      of
              shares
      or
              units
      of
              stock
      that
              have
      not
              vested
      (#)
            Market
              value
      of
              shares
      or
              units
      of
              stock
      that
              have
      not
              vested
      ($)
            Equity
      incentive
              plan
      awards:
              number
      of
              unearned
      shares,
              units
      or other
              rights
      that
              have
      not
              vested
      (#)
            Equity
      incentive
              plan
      awards:
              Market
      or payout
              value
      of unearned
              shares,
      units or
              other
      rights that
              have
      not
              vested
      ($)C.
      Geoffrey Hampson
            750,000
      (2)
            250,000
      (2)
            
            $0.65
            09/11/2012Jonathan
      Ehrlich
            -    (3)
            -    (3)
            
            $0.65
            N/AMark
      Melville
            583,333
      (4)
            416,667
      (4)
            
            $0.65
            01/01/2013


37


(1)
            
            On
      March 25, 2009, the Board of Directors approved a reduction of the
      exercise price of stock option grants made prior to this
      date.  As a result, all grants issued prior to March 25, 2009
      currently have an exercise price of $0.65.(2)
            
            The
      option became exercisable as to 333,333 shares on September 11, 2008 and
      an additional 83,333 shares on the last day of each successive three-month
      period thereafter, until all such shares have vested.(3)
            
            The
      option was terminated upon Mr. Ehrlich’s resignation on February 4,
      2009.(4)
            
            The
      option will become exercisable as to (i) 333,333 shares on January 1, 2009
      and (ii) an additional 83,333 shares on the last day of each successive
      three-month period thereafter, until all such shares have
      vested.





Director
Compensation





The
      following director compensation disclosure reflects all compensation
      awarded to, earned by or paid to the directors below for the fiscal year
      ended December 31, 2009.
                
                DIRECTOR
      COMPENSATIONName
              
              FeesEarned
                or
      Paid in
                Cash
                ($)
              
              
              Stock
                Awards
                ($)
              
              
              Option
                Awards
                ($)
              
              
              Non-
                Equity
                Incentive
                Plan
      Compen-
                sation
                ($)
              
              
              Change
      in
                Pension
      Value
                and
                Nonqualified
                Deferred
                Compen-
                sation
                Earnings
                ($)
              
              
              All
      Other
                Compen-
                sation
                ($)
              
              
              Total
                ($)James
      P. Taylor (2)
              
              
              --
              
              
              
              --
              
              
              $
              56,890
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              $
              56,890Mark
      Benham (3)
              
              
              --
              
              
              
              --
              
              
              $
              55,821
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              $
              55,821Boris
      Wertz (4)
              
              
              --
              
              
              
              --
              
              
              $
              49,079
              
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              $
              49,079
  (1)
            
            On
      March 25, 2009, the Board of Directors approved a reduction of the
      exercise price of stock option grants made prior to this
      date.  As a result, all grants issued prior to March 25, 2009
      currently have an exercise price of $0.65.(2)
            
            The
      aggregate number of stock awards and option awards issued to
      Mr. Taylor and outstanding as ofDecember 31,
      2009 is 0 and 100,000, respectively.(3)
            
            The
      aggregate number of stock awards and option awards granted to
      Mr. Benham and outstanding as ofDecember 31,
      2009 is 0 and 100,000 respectively.(4)
            
            The
      aggregate number of stock awards and option awards granted to
      Dr. Wertz and outstanding as ofDecember 31,
      2009 is 0 and 100,000 respectively.








38


On March
14, 2008, the Company granted to Dr. Wertz a stock option to purchase up to
100,000 shares of its common stock at the then market price on March 14, 2008,
$2.49 per share.  The option is subject to vesting as follows: (i)
33,333 shares on the first anniversary of the stock option agreement and (ii)
thereafter 8,333 shares vest after each successive three-month period.  The
stock option has been granted under the Company’s 2007 Stock Option
Plan.  As part of the reduction in the exercise price of all options
granted from the 2007 Stock Incentive Plan, the exercise price of the option
granted to Dr. Wertz was reduced to $0.65 on March 25, 2009.  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 3.375 years
resulting in a value of $1.40 per option.





Item
12.  Security Ownership of Certain Beneficial Holders and
Management





Securities
Authorized for Issuance Under Equity Compensation Plans





On August
21, 2007, our Board of Directors adopted the Live Current Media Inc. 2007 Stock
Incentive Plan (the “Plan”). The Plan authorizes awards of options (both
incentive stock options and non-qualified stock options), stock awards or stock
bonuses. Persons eligible to receive awards under the Plan include our
employees, officers, directors, consultants, independent contractors, and
advisors, and those of our subsidiaries.





The table
below illustrates, as of December 31, 2009, the number of shares of common stock
to be issued upon the exercise of options granted from the Plan, the weighted
average exercise price of the outstanding options and the number of securities
remaining available in the Plan for future issuance. On March 25, 2009, the
Board of Directors approved a reduction of the exercise price of stock option
grants made prior to this date.  As a result, all grants issued prior
to March 25, 2009 currently have an exercise price of $0.65.








Equity
      Compensation Plan InformationPlan
      category
            Number
      of securities to be issued upon exercise of outstanding options, warrants
      and rights
              
              (a)
            Weighted-average
      exercise price of outstanding options, warrants and rights
              
              (b)
            Number
      of securities remaining available for future issuance under equity
      compensation plans (excluding securities reflected in column
      (a))
              
              (c)Equity
      compensation plans approved by security holders
            2,845,500
            $0.63
            1,781,602*Equity
      compensation plans not approved by security holders
            --
            --
            --Total
            2,845,500
            $0.63
            1,781,602*





* an additional 372,898 shares
under the Plan were granted to vendors in exchange for services





Our Board
of Directors administers the Plan. Our Board of Directors has the authority to
determine, at its discretion, the number and type of awards that will be
granted, the recipients of the awards, and the exercise or purchase price
required to be paid, when options may be exercised and the term of the option
grants. Options granted under the Plan may not be exercised after 10 years from
the date the option is granted. A total of 5,000,000 shares of common stock were
reserved for awards granted under the Plan.






39





Options
granted under the Plan may be designated as incentive stock options or
non-qualified stock options. Incentive stock options may be granted only to our
employees and employees of our subsidiaries (including officers and directors
who are also employees). The exercise price of non-qualified stock options may
not be less than 85% of the fair market value of a share of our common stock on
the date of the grant, and the exercise price of incentive stock options may not
be less than 100% of the fair market value of a share of our common stock on the
date of the grant. However, the exercise price of any option may not be less
than 110% of the fair market value of our common stock on the date of grant in
the case of an individual owning 10% or more of our common stock. Neither
incentive stock options nor non-qualified stock options may have a term
exceeding 10 years. In the case of an incentive option that is granted to an
individual owning 10% or more of the common stock, the term may not exceed 5
years. We were required to obtain shareholder approval of the Plan before the
options granted can qualify for incentive stock option treatment under U.S. tax
laws.  We obtained shareholder approval of the Plan on May 27,
2008.





Security
Ownership of Certain Beneficial Owners (more than 5%)





The
following table sets forth certain information, as of March 22, 2010, with
respect to the holdings of (1) each person who is the beneficial owner of more
than five percent of our common stock, (2) each of our directors, (3) each named
executive officer, and (4) all of our directors and executive officers as a
group.





Beneficial
ownership of the common stock is determined in accordance with the rules of the
Securities and Exchange Commission and includes any shares of common stock over
which a person exercises sole or shared voting or investment powers, or of which
a person has a right to acquire ownership at any time within 60 days of March
22, 2010. Except as otherwise indicated, and subject to applicable community
property laws, we believe that the persons named in this table have sole voting
and investment power with respect to all shares of common stock held by them.
Applicable percentage ownership in the following table is based on 24,026,180
shares of common stock outstanding as of March 22, 2010 plus, for each
individual, any securities that individual has the right to acquire within 60
days of March 22, 2010.





Title of
      Class
            Name and Address
      (1)
            
            Shares Beneficially
              Owned
(2)
            
            Percentage of
      ClassBeneficial Owners
      of
              More than
      5%:Common
      Stock
            Carl
      H. Jackson and Jodi Sansone (3)
              22
      Clinton Avenue
              Westport,
      CT 06880
            
            1,374,545
            
            5.66%Current Directors
      and
              Named
      Executive
              Officers:Common
      Stock
            C.
      Geoffrey Hampson, Chief Executive Officer, Principal Financial Officer,
      Principal Accounting Officer, Director (4)
            
            3,010,383
            
            12.02%Common
      Stock
            Mark
      Melville, President, Chief Corporate Development Officer
    (5)
            
            857,692
            
            3.45%Common
      Stock
            Jonathan
      Ehrlich, former Chief Operations Officer, former President
    (6)
            
            306,621
            
            1.27%Common
      Stock
            Mark
      Benham, Director (7)
            
            108,333
            
            0.45%*Common
      Stock
            James
      P. Taylor, Director (8)
            
            93,333
            
            0.39%*Common
      Stock
            Boris
      Wertz,
              Director
      (9)
            
            66,667
            
            0.28%*All Directors and Executive Officers as a
      group (6
      persons)
            
            4,443,029
            
            17.86%


*                 Less
than 1%.





40




(1)
            Unless
      otherwise indicated, the address of the beneficial owner is c/o Live
      Current Media Inc., 375 Water Street, Suite 645, Vancouver, BC, V6B5C6,
      Canada.(2)
            The
      information included in this table regarding shareholders who are not
      affiliated with the Company has been derived from the records of our stock
      transfer agent and public filings.(3)
            Includes
      a warrant to purchase 138,461 shares of our common stock with an exercise
      price of $0.78 effective November 19, 2008, exercisable at any time, and
      expiring November 19, 2010 and a warrant to purchase 138,461 shares of our
      common stock with an exercise price of $0.91 effective November 19, 2008,
      exercisable at any time, and expiring November 19, 2011.  Both
      these warrants were issued as part of our private placement on November
      19, 2008.(4)
            Includes
      1,982,050 shares of common stock, and an option to purchase 833,333 shares
      of our common stock granted on September 11, 2007 pursuant to an
      employment agreement that will have vested within 60 days of March 22,
      2010.  This does not include an option to purchase 166,667
      shares of our common stock under the same grant, as Mr. Hampson will not
      have the right to acquire shares pursuant to this option until June 11,
      2010.  Mr. Hampson’s holdings also include a warrant to purchase
      97,500 shares of our common stock with an exercise price of $0.78
      effective November 19, 2008, exercisable at any time, and expiring
      November 19, 2010 and a warrant to purchase 97,500 shares of our common
      stock with an exercise price of $0.91 effective November 19, 2008,
      exercisable at any time, and expiring November 19, 2011.  Both
      these warrants were issued as part of our private placement on November
      19, 2008.(5)
            Includes
      53,846 shares of common stock, and an option to purchase 750,000 shares of
      our common stock granted on January 1, 2008 pursuant to an employment
      agreement that will have vested within 60 days of March 22,
      2010.  This does not include an option to purchase 250,000
      shares of our common stock under the same grant, as Mr. Melville will not
      have the right to acquire shares pursuant to this option until July 1,
      2010.  Also includes a warrant to purchase 26,923 shares of our
      common stock with an exercise price of $0.78 effective November 19, 2008,
      exercisable at any time, and expiring November 19, 2010 and a warrant to
      purchase 26,923 shares of our common stock with an exercise price of $0.91
      effective November 19, 2008, exercisable at any time, and expiring
      November 19, 2011.  Both these warrants were issued as part of
      our private placement on November 19, 2008.(6)
            Includes
      268,161 shares of common stock, a warrant to purchase 19,230 shares of our
      common stock with an exercise price of $0.78 effective November 19, 2008,
      exercisable at any time, and expiring November 19, 2010 and a warrant to
      purchase 19,230 shares of our common stock with an exercise price of $0.91
      effective November 19, 2008, exercisable at any time, and expiring
      November 19, 2011.  Both these warrants were issued as part of
      our private placement on November 19, 2008.(7)
            Includes
      25,000 shares of common stock, an option to purchase 83,333 shares of our
      common stock granted on September 11, 2007 for services as a member of our
      Board of Directors that will have vested within 60 days of March 22,
      2010.  This does not include an option to purchase 16,667 shares
      of our common stock under the same grant, as Mr. Benham will not have the
      right to acquire shares pursuant to this option until June 12,
      2010.(8)
            Includes
      10,000 shares of common stock, an option to purchase 83,333 shares of our
      common stock granted on September 11, 2007 for services as a member of our
      Board of Directors that will have vested within 60 days of March 22,
      2010.  This does not include an option to purchase 16,667 shares
      of our common stock under the same grant, as Mr. Taylor will not have the
      right to acquire shares pursuant to this option until June 12,
      2010.(9)
            Includes
      an option to purchase 66,667 shares of our common stock granted on March
      14, 2008 for services as a member of our Board of Directors that will have
      vested within 60 days of March 22, 2010.  This does not include
      an option to purchase 33,333 shares of our common stock under the same
      grant, as Dr. Wertz will not have the right to acquire shares pursuant to
      this option until June 14, 2010.




41





Item
13.  Certain Relationships and Related Transactions and Director
Independence





Transactions
with Related Persons





The
following describes all transactions since January 1, 2009, and all proposed
transactions, in which the Company was or is to be a participant and the amount
involved exceeds the lesser of $120,000 or one percent of the average of the
Company’s total assets at year-end for the last two completed fiscal years, and
in which any related person had or will have a direct or indirect material
interest.





On March
1, 2009, the Company began charging $6,000 per month to a company controlled by
its CEO.  The Company is providing IT, administrative, and marketing
support.





On March
25, 2009, our Board of Directors reduced the exercise price of all outstanding
stock options granted pursuant to the Live Current Media Inc. Stock Incentive
Plan to $0.65.  These options are held by our officers, directors,
employees, consultants and agents.  The original exercise prices
ranged from a high of $3.30 to a low of $0.65.  As a result of this
reduction, the exercise price of the outstanding stock option granted to Mr.
Hampson was reduced from $2.50.  No other terms of conditions of the
stock option grants were modified.





Certain
of our current officers and directors have employment agreements with us that
were amended during the year ended December 31, 2009 and we entered into
amendments to employment severance agreements with certain of our former
officers.  See Item 11 – Executive Compensation for a discussion of
these agreements.





Director
Independence





We
currently have three directors, Mr. Mark Benham, Mr. James P. Taylor, and Dr.
Boris Wertz, who are independent directors as that term is defined under the
rules of the NASDAQ Capital Market.  Mr. Benham serves as the chairman
and independent director of the Compensation Committee and as an independent
director of the Audit Committee.  Mr. Taylor serves as the chairman
and an independent director of the Audit Committee.  Dr. Wertz serves
as the chairman and independent director of the Nominating and Governance
Committee.  Both Mr. Benham and Mr. Taylor are audit committee
financial experts as defined by Item 407 of Regulation S-K and meet the
independence requirement for an audit committee and compensation committee
members.





Item
14.   Principal Accounting Fees and Services





(1)  Audit
Fees and Related Fees





The
aggregate fees billed for each of the last two fiscal years for professional
services rendered by our principal accountant for the audit of annual financial
statements and for review of financial statements included in our quarterly
reports or for services that are normally provided by the accountant in
connection with statutory and regulatory filings or engagements for those fiscal
years was:





2009 -
$198,000 – Ernst & Young


2008
(restated) - $253,000 – Ernst & Young





(2)  Tax
Fees





The
aggregate fees billed in each of the last two fiscal years for professional
services rendered by the principal accountant for tax compliance, tax advice,
and tax planning was:





2009 –
$14,300 – Ernst & Young


2008
(restated) - $72,000 – Ernst & Young







42


(3) All
Other Fees
 
 The
aggregate fees billed in each of the last two fiscal years for the products and
services provided by the principal accountant, other than the services reported
in paragraphs (1) and (2) was:
 
 2009 -
$37,500 – Ernst & Young
 2008
(restated) - $  3,000 – Ernst & Young


(4)  Our audit
committee’s pre-approval policies and procedures require that the audit
committee pre-approve all accounting related activities prior to the performance
of any services by any accountant or auditor.





(5)  The percentage
of hours expended on the principal accountant’s engagement to audit our
financial statements for the most recent fiscal year that were attributed to
work performed by persons other than the principal accountant’s full time,
permanent employees was nil.






43





Item
15.  Exhibits




EXHIBIT
INDEX





Number
            Description





3.1
            Articles
      of Incorporation (1)3.2
            Bylaws
      (2)3.3
            Certificate
      of Amendment to the Articles of Incorporation (3)3.4
            Text
      of Amendment to the Bylaws (4)10.1
            Live
      Current Media Inc. 2007 Stock Incentive Plan (6)10.2
            Employment
      agreement between Live Current Media Inc. and C. Geoffrey Hampson dated
      May 31, 2007 (7)+





10.3
            Real
      Property Lease Agreement between Live Current Media Inc. and Landing
      Holdings Limited and Landing Properties Limited dated July 16, 2007 (8)10.6
            Incentive
      Stock Option Agreement between Live Current Media Inc. and C. Geoffrey
      Hampson dated September 11, 2007 (9)+10.7
            Incentive
      Stock Option Agreement between Live Current Media Inc. and James P. Taylor
      dated September 11, 2007 (10)+10.8
            Incentive
      Stock Option Agreement between Live Current Media Inc. and Mark Benham
      dated September 12, 2007 (11)+10.9
            Employment
      Agreement between Live Current Media Inc. and Mark Melville dated November
      9, 2007 (12)+10.10
            Incentive
      Stock Option Agreement between Live Current Media Inc. and Mark Melville
      dated November 9, 2007 (13)+10.11
            Form
      of Subscription Agreement (5)10.12
            Employment
      Agreement between Live Current Media Inc. and Chantal Iorio dated December
      12, 2007 (14)+10.13
            Subscription
      Agreement (15)10.14
            Common
      Stock Purchase Warrant dated November 19, 2008 (16)10.15
            Common
      Stock Purchase Warrant dated November 19, 2008 (17)10.16
            Employment
      Severance Agreement dated February 4, 2009 between Live Current Media Inc.
      and Jonathan Ehrlich (18)+10.17
            Amendment
      dated June 2, 2009 to Employment Severance Agreement between Live Current
      Media Inc. and Jonathan Ehrlich (19)+10.18
            Amendment
      dated November 13, 2009 to Employment Severance Agreement between Live
      Current Media Inc. and Jonathan Ehrlich (20)+10.19
            Memorandum
      of Understanding between Live Current Media Inc. and Board of Control For
      Cricket in India dated April 16, 2008 (21)10.20
            Memorandum
      of Understanding between Live Current Media Inc. and Board of Control for
      Cricket in India for and on behalf of Indian Premier League dated April
      16, 2008 (22)   44
  10.21
            Novation
      Agreement dated March 31, 2009 among Live Current Media Inc., Global
      Cricket Ventures Pte. Ltd. and Board of Control for Cricket in India (23)10.22
            Mutual
      Termination Agreement dated March 31, 2009 between Live Current Media Inc.
      and Board of Control for Cricket in India (24)10.23
            Assignment
      and Assumption Agreement dated August 20, 2009 between Global Cricket
      Venture Pte., Ltd. and Global Cricket Ventures Limited (25)10.24
            Cricket.com
      Lease and Transfer Agreement dated August 20, 2009 between Domain Holdings
      Inc. and Global Cricket Ventures Limited (26)10.25
            Settlement
      Agreement dated August 27, 2009 between Live Current Media Inc. and
      Harjeet Taggar (27)10.26
            Settlement
      Agreement dated August 27, 2009 between Live Current Media Inc. and
      Kulveer Taggar (28)10.27
            Form
      of Convertible Promissory Note issued to certain shareholders of
      Auctomatic, Inc. (29)10.28
            Amendment
      to Employment Agreement dated November 10, 2009 between Live Current Media
      Inc. and C. Geoffrey Hampson (30)+10.29
            Second
      Amendment to Employment Agreement dated December 28, 2009 between Live
      Current Media Inc. and C. Geoffrey Hampson (31)+21
            List
      of Subsidiaries *23
            Consent
      of Independent Registered Public Accounting Firm *24
            Power
      of Attorney *31
            Certification
      Pursuant To Section 302 Of The Sarbanes-Oxley Act Of 2002 — Chief
      Executive Officer, Principal Financial Officer and Principal Accounting
      Officer *32
            Certification
      Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of
      The Sarbanes-Oxley Act Of 2002 — Chief Executive Officer, Principal
      Financial Officer and Principal Accounting Officer
  *




*Filed
herewith.




+Denotes
a management contract.




(1)
            Previously
      filed as Exhibit 2(a) to Live Current Media Inc.’s Registration Statement
      on Form 10-SB as filed on March 10, 2000 and incorporated herein by this
      reference.(2)
            Previously
      filed as Exhibit 2(b) to Live Current Media Inc.’s Registration Statement
      on Form 10-SB as filed on March 10, 2000 and incorporated herein by this
      reference.(3)
            Previously
      filed as Exhibit 3.3 to Live Current Media Inc.’s Quarterly Report on Form
      10-QSB for period ended September 30, 2007 as filed on November 19, 2007
      and incorporated herein by this reference.(4)
            Previously
      filed as Exhibit 3.4 to Live Current Media Inc.’s Current Report on Form
      8-K as filed on August 22, 2007 and incorporated herein by this
      reference.(5)
            Previously
      filed as Exhibit 10.1 to Live Current Media Inc.’s Current Report on Form
      8-K as filed on September 25, 2007 and incorporated herein by this
      reference.(6)
            Previously
      filed as Exhibit 4.1 to Live Current Media Inc.’s Registration Statement
      Form S-8 as filed on August 22, 2007 and incorporated herein by this
      reference.(7)
            Previously
      filed as Exhibit 10.7 to Live Current Media Inc.’s Current Report on Form
      8-K as filed on June 5, 2007 and incorporated herein by this
      reference.(8)
            Previously
      filed as Exhibit 10.8 to Live Current Media Inc.’s Quarterly Report on
      Form 10-QSB for period ended September 30, 2007 as filed on November 19,
      2007 and incorporated herein by this
reference.  (9)
            Previously
      filed as Exhibit 10.6 to Live Current Media Inc.’s Registration Statement
      on Form SB-2 as filed on November 28, 2007 and incorporated herein by this
      reference.(10)
            Previously
      filed as Exhibit 10.7 to Live Current Media Inc.’s Registration Statement
      on Form SB-2 as filed on November 28, 2007 and incorporated herein by this
      reference.(11)
            Previously
      filed as Exhibit 10.8 to Live Current Media Inc.’s Registration Statement
      on Form SB-2 as filed on November 28, 2007 and incorporated herein by this
      reference.(12)
            Previously
      filed as Exhibit 10.1 to Live Current Media Inc.’s Current Report on Form
      8-K as filed November 16, 2007 and incorporated herein by this
      reference.(13)
            Previously
      filed as Exhibit 10.2 to Live Current Media Inc.’s Current Report on Form
      8-K as filed November 16, 2007 and incorporated herein by this
      reference.  45




(14)
            Previously
      filed as Exhibit 10.1 to Live Current Media Inc.’s Current Report on Form
      8-K as filed December 18, 2007 and incorporated herein by this
      reference.





(15)
            Previously
      filed as Exhibit 10.1 to Live Current Media Inc.’s Current Report on Form
      8-K as filed November 20, 2008 and incorporated herein by this
      reference.





(16)
            Previously
      filed as Exhibit 4.1.1 to Live Current Media Inc.’s Current Report on Form
      8-K as filed November 20, 2008 and incorporated herein by this
      reference.





(17)
            Previously
      filed as Exhibit 4.1.2 to Live Current Media Inc.’s Current Report on Form
      8-K as filed November 20, 2008 and incorporated herein by this
      reference.





(18)
            Previously
      filed as Exhibit 10.1 to Live Current Media Inc.’s Current Report on Form
      8-K as filed February 5, 2009 and incorporated herein by this
      reference.+





(19)
            Previously
      filed as Exhibit 10.40 to Live Current Media Inc.’s registration statement
      on Form S-1, as amended and filed on February 1, 2010 and incorporated
      herein by this reference.+





(20)
            Previously
      filed as Exhibit 10.47 to Live Current Media Inc.’s registration statement
      on Form S-1, as amended and filed on February 1, 2010 and incorporated
      herein by this reference.+





(21)
            Previously
      filed as Exhibit 10.1 to Live Current Media Inc.’s Current Report on Form
      8-K as filed April 8, 2009 and incorporated herein by this
      reference.





(22)
            Previously
      filed as Exhibit 10.2 to Live Current Media Inc.’s Current Report on Form
      8-K as filed April 8, 2009 and incorporated herein by this
      reference.





(23)
            Previously
      filed as Exhibit 10.3 to Live Current Media Inc.’s Current Report on Form
      8-K as filed April 8, 2009 and incorporated herein by this
      reference.





(24)
            Previously
      filed as Exhibit 10.4 to Live Current Media Inc.’s Current Report on Form
      8-K as filed April 8, 2009 and incorporated herein by this
      reference.





(25)
            Previously
      filed as Exhibit 10.1 to Live Current Media Inc.’s Current Report on Form
      8-K as filed August 31, 2009 and incorporated herein by this
      reference.





(26)
            Previously
      filed as Exhibit 10.2 to Live Current Media Inc.’s Current Report on Form
      8-K as filed August 31, 2009 and incorporated herein by this
      reference.





(27)
            Previously
      filed as Exhibit 10.3 to Live Current Media Inc.’s Current Report on Form
      8-K as filed August 31, 2009 and incorporated herein by this
      reference.





(28)
            Previously
      filed as Exhibit 10.4 to Live Current Media Inc.’s Current Report on Form
      8-K as filed August 31, 2009 and incorporated herein by this
      reference.





(29)
            Previously
      filed as Exhibit 10.1 to Live Current Media Inc.’s Current Report on Form
      8-K as filed August 21, 2009 and incorporated herein by this
      reference.





(30)
            Previously
      filed as Exhibit 10.46 to Live Current Media Inc.’s registration statement
      on Form S-1, as amended and filed on February 1, 2010 and incorporated
      herein by this reference.+





(31)
            Previously
      filed as Exhibit 10.1 to Live Current Media Inc.’s Current Report on Form
      8-K as filed January 4, 2010 and incorporated herein by this
      reference.+








46





SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.





LIVE CURRENT MEDIA
      INC.By:
              /s/ C. Geoffrey
      HampsonName:
              C.
      Geoffrey HampsonTitle:
              Chief
      Executive Officer, Principal Financial Officer, Principal Accounting
      Officer and ChairmanDated:
              March
      26, 2010


Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.





Name
            
            Title
            
            Date/s/
      C. Geoffrey HampsonC.
      Geoffrey Hampson
            
            Chief
      Executive Officer, Principal Financial Officer, Principal Accounting
      Officer and Director
            
            March
      26, 2010/s/
      Mark MelvilleMark
      Melville
            
            President
            
            March
      26, 2010/s/
      C. Geoffrey Hampson, Attorney-in-FactBoris
      Wertz
            
            Director
            
            March
      26, 2010/s/
      Mark BenhamMark
      Benham
            
            Director
            
            March
      26, 2010/s/James
      P. TaylorJames
      P. Taylor
            
            Director
            
            March
      26, 2010








47




LIVE
CURRENT MEDIA INC.
 
 
 
 CONSOLIDATED
FINANCIAL STATEMENTS
 
 DECEMBER
31, 2009 AND 2008
 
 
 
 
 
  REPORTS
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS
              F-2 -
    F-3CONSOLIDATED
      BALANCE SHEETS
              F-4CONSOLIDATED
      STATEMENTS OF OPERATIONS
              F-5CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY
              F-6CONSOLIDATED
      STATEMENTS OF CASH FLOWS
              F-7NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS
              F-8
   F-1
 
 
 
 REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 
 To
the Stockholders and Board of Directors of
 Live
Current Media, Inc.
 
 
 We
have audited the accompanying consolidated balance sheet of Live Current Media,
Inc. as of December 31, 2009, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the year ended December 31,
2009. These consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audit.
 
 We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
 
 In
our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 2009, and the results of its operations and its cash flows for the
year ended December 31, 2009 in conformity with accounting principles generally
accepted in the United States of America.
 
 
 
 /s/
DAVIDSON & COMPANY LLP
 
 
 Vancouver,
      Canada
                Chartered
      AccountantsMarch
      26, 2010
 
 F-2
 Report
of Independent Registered Accounting Firm
 
 We have
audited the accompanying consolidated balance sheet of Live Current Media Inc.
as of December 31, 2008, and the related consolidated statement of operations,
stockholders’ equity, and cash flows for the year then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
 
 We
conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. We were not engaged
to perform an audit of the Company's internal control over financial
reporting.  Our audit includes consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion.  An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation.  We believe that our audit provides
a reasonable basis for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Live Current Media
Inc. at December 31, 2008, and the consolidated results of its operations and
its cash flows of the year then ended in conformity with U.S. generally accepted
accounting principles.
 
 As
discussed in Note 1 to the financial statements, the Company's recurring net
losses raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1.
These financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
 
 As
discussed in Note 2 to the consolidated financial statements, the December 31,
2008 consolidated financial statements have been restated to correct errors in
accounting for business combinations and consolidations, compensation, warrants
issued, deferred taxes and accrued expenses.
 
 
 
 Vancouver,
      Canada
                /s/
      Ernst & Young LLPSeptember
      10, 2009
                Chartered
      Accountants
    F-3
 LIVE
CURRENT MEDIA INC.
 CONSOLIDATED
BALANCE SHEETS
 Expressed
In U.S. Dollars
 (Going
Concern - See Note 1)
 December
      31, 2009
                
                
                December
      31, 2008(As
      Restated -
                  See
      Note 2)ASSETSCurrentCash
      and cash equivalents
                
                $
                413,700
                
                
                $
                1,832,520Accounts
      receivable (net of allowance for doubtful accounts of nil)
                
                
                600,390
                
                
                
                93,582Prepaid
      expenses and deposits
                
                
                148,697
                
                
                
                109,543Inventory
                
                
                28,714
                
                
                
                74,082Current
      portion of receivable from sales-type lease (Note
    12)
                
                
                23,423
                
                
                
                23,423Total
      current assets
                
                
                1,214,924
                
                
                
                2,133,150Long-term
      portion of receivable from sales-type lease (Note
    12)
                
                
                -
                
                
                
                23,423Property
      & equipment (Note
      8)
                
                
                231,327
                
                
                
                1,042,851Website
      development costs (Note
      9)
                
                
                217,883
                
                
                
                355,391Intangible
      assets
                
                
                963,133
                
                
                
                1,587,463Goodwill
      (Notes 5 and
      7)
                
                
                66,692
                
                
                
                2,606,040Total
      Assets
                
                $
                2,693,959
                
                
                $
                7,748,318LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrentAccounts
      payable and accrued liabilities
                
                $
                1,161,241
                
                
                $
                3,047,993Amounts
      payable to the BCCI and IPL(Note
    6)
                
                
                -
                
                
                
                1,000,000Deferred
      gains of amounts regarding Global Cricket Venture (Note
6)
                
                
                500,000
                
                
                
                -Bonuses
      payable
                
                
                158,466
                
                
                
                354,695Due
      to shareholders of Auctomatic (Note
7)
                
                
                118,664
                
                
                
                789,799Convertible
      notes to shareholders of Auctomatic(Note
    7)
                
                
                429,500
                
                
                
                -Deferred
      revenue
                
                
                43,240
                
                
                
                120,456Current
      portion of deferred lease inducements (Note
    10)
                
                
                20,138
                
                
                
                20,138Total
      current liabilities
                
                
                2,431,249
                
                
                
                5,333,081Deferred
      income tax (Note
      14)
                
                
                125,207
                
                
                
                206,370Deferred
      lease inducements (Note
      10)
                
                
                35,241
                
                
                
                55,380Warrants
      (Note
      11(e))
                
                
                250,710
                
                
                
                157,895Total
      Liabilities
                
                
                2,842,407
                
                
                
                5,752,726STOCKHOLDERS'
      EQUITYCommon
      Stock (Note
      11)Authorized:
      50,000,000 common shares, $0.001 par valueIssued
      and outstanding:24,026,180
      common shares (December 31, 2008 - 23,546,370)
                
                
                15,335
                
                
                
                14,855Additional
      paid-in capital
                
                
                16,595,072
                
                
                
                14,757,932Accumulated
      deficit
                
                
                (16,787,208
                )
                
                
                (12,777,195
                )Total
      Live Current Media Inc. stockholders' equity (deficit)
                
                
                (176,801
                )
                
                
                1,995,592Non-controlling
      interest
                
                
                28,353
                
                
                
                -Total
      Stockholders' Equity (Deficit)
                
                
                (148,448
                )
                
                
                1,995,592Total
      Liabilities and Stockholders' Equity
                
                $
                2,693,959
                
                
                $
                7,748,318
 
 Commitments
and Contingency(Notes 16 and
17)
 Subsequent
Events(Note
19)
  See
accompanying notes to consolidated financial statements
   /s/ James P.
      Taylor
                    
                    
                    /s/ Mark
  BenhamJames P. Taylor,
      Director
                    
                    
                    Mark Benham,
      Director
  F-4
 
 LIVE
CURRENT MEDIA INC.
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 Expressed
In U.S. Dollars
 Year
      ended
                      
                      
                      Year
      endedDecember
      31, 2009
                      
                      
                      December
      31, 2008(As
      Restated -
                        See
      Note 2)SALESHealth
      and beauty eCommerce
                      
                      $
                      7,216,479
                      
                      
                      $
                      9,271,237Other
      eCommerce
                      
                      
                      -
                      
                      
                      
                      455Sponsorship
      revenues
                      
                      
                      220,397
                      
                      
                      
                      -Domain
      name advertising
                      
                      
                      95,877
                      
                      
                      
                      93,141Miscellaneous
      and other income
                      
                      
                      74,138
                      
                      
                      
                      -Total
      Sales
                      
                      
                      7,606,891
                      
                      
                      
                      9,364,833COSTS
      OF SALESHealth
      and Beauty eCommerce
                      
                      
                      5,677,005
                      
                      
                      
                      7,683,432Other
      eCommerce
                      
                      
                      -
                      
                      
                      
                      380Total
      Costs of Sales (excluding depreciation and amortization as shown
      below)
                      
                      
                      5,677,005
                      
                      
                      
                      7,683,812GROSS
      PROFIT
                      
                      
                      1,929,886
                      
                      
                      
                      1,681,021OPERATING
      EXPENSESAmortization
      and depreciation
                      
                      
                      241,094
                      
                      
                      
                      253,141Amortization
      of website development costs(Note
    9)
                      
                      
                      123,395
                      
                      
                      
                      58,640Corporate
      general and administrative
                      
                      
                      1,004,051
                      
                      
                      
                      2,911,627ECommerce
      general and administrative
                      
                      
                      319,155
                      
                      
                      
                      567,980Management
      fees and employee salaries
                      
                      
                      3,583,288
                      
                      
                      
                      5,798,728Corporate
      marketing
                      
                      
                      14,036
                      
                      
                      
                      147,842ECommerce
      marketing
                      
                      
                      580,331
                      
                      
                      
                      766,393Other
      expenses (Note
      13)
                      
                      
                      264,904
                      
                      
                      
                      708,804Total
      Operating Expenses
                      
                      
                      6,130,254
                      
                      
                      
                      11,213,155NON-OPERATING
      INCOME (EXPENSES)Global
      Cricket Venture payments(Note 6)
                      
                      
                      -
                      
                      
                      
                      (1,000,000
                      )Gain
      on settlement of amounts due regarding Global Cricket Venture(Note
    6)
                      
                      
                      750,000
                      
                      
                      
                      -Gain
      from sales and sales-type lease of domain names (Note
    12)
                      
                      
                      2,452,081
                      
                      
                      
                      461,421Accretion
      interest expense(Note
      7)
                      
                      
                      (63,300
                      )
                      
                      
                      (96,700
                      )Interest
      expense
                      
                      
                      (25,845
                      )
                      
                      
                      -Interest
      and investment income
                      
                      
                      1,534
                      
                      
                      
                      67,683Foreign
      exchange loss
                      
                      
                      (88,571
                      )
                      
                      
                      (3,407
                      )Gain
      on restructure of severance payable
                      
                      
                      212,766
                      
                      
                      
                      -Gain
      on restructure of Auctomatic payable
                      
                      
                      29,201
                      
                      
                      
                      -Impairment
      of Auction Software(Note 8)
                      
                      
                      (590,973
                      )
                      
                      
                      -Impairment
      of Goodwill(Note
      7)
                      
                      
                      (2,539,348
                      )
                      
                      
                      -Total
      Non-Operating Income (Expenses)
                      
                      
                      137,545
                      
                      
                      
                      (571,003
                      )NET
      LOSS BEFORE TAXES
                      
                      
                      (4,062,823
                      )
                      
                      
                      (10,103,137
                      )Deferred
      tax recovery (Note
      14)
                      
                      
                      81,163
                      
                      
                      
                      40,389CONSOLIDATED
      NET LOSS
                      
                      
                      (3,981,660
                      )
                      
                      
                      (10,062,748
                      )ADD:
      NET (INCOME) LOSS ATTRIBUTABLE TONON-CONTROLLING
      INTEREST
                      
                      
                      (28,353
                      )
                      
                      
                      75,478NET
      LOSS AND COMPREHENSIVE LOSS FOR THEYEAR
      ATTRIBUTABLE TO LIVE CURRENT MEDIA INC.
                      
                      $
                      (4,010,013
                      )
                      
                      $
                      (9,987,270
                      )LOSS
      PER SHARE - BASIC AND DILUTEDNet
      Loss attributable to Live Current Media Inc. common
      stockholders
                      
                      $
                      (0.17
                      )
                      
                      $
                      (0.46
                      )Weighted
      Average Number of Common Shares Outstanding - Basic
                      
                      
                      23,941,358
                      
                      
                      
                      21,937,179Net
      Loss attributable to Live Current Media Inc. common
      stockholders
                      
                      $
                      (0.17
                      )
                      
                      $
                      (0.46
                      )Weighted
      Average Number of Common Shares Outstanding - Diluted
                      
                      
                      23,941,358
                      
                      
                      
                      21,937,179
 See
accompanying notes to consolidated financial statements
 F-5
 
  LIVE
CURRENT MEDIA INC.
 CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
 Expressed
In U.S. Dollars
 Live
      Current Media Inc. StockholdersCommon
      stock
                
                
                Additional
                  Paid-in
                  Capital
                
                
                Accumulated
      Deficit
                
                
                Total
                  Stockholders'
                  Equity
      (Deficit)
                
                
                Non-Controlling
      Interest
                
                
                Total
      Equity (Deficit)Number
      of Shares
                
                
                AmountBalance,
      December 31, 2007 (As Restated - See Note 2)
                
                
                21,446,623
                
                
                $
                12,456
                
                
                $
                10,170,004
                
                
                $
                (2,789,925
                )
                
                $
                7,392,535
                
                
                $
                8,786
                
                
                $
                7,401,321Stock-based
      compensation(Note
      11d)
                
                
                -
                
                
                
                -
                
                
                
                2,162,526
                
                
                
                -
                
                
                
                2,162,526
                
                
                
                -
                
                
                
                2,162,526Issuance
      of Common Stock
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                66,692
                
                
                
                66,692Issuance
      of 586,403 common shares per the mergeragreement with
      Auctomatic(Note
      7)
                
                
                586,403
                
                
                
                586
                
                
                
                1,248,279
                
                
                
                -
                
                
                
                1,248,865
                
                
                
                -
                
                
                
                1,248,865Issuance
      of 33,000 common shares to investor relations firm (Note
    11b)
                
                
                33,000
                
                
                
                33
                
                
                
                85,649
                
                
                
                -
                
                
                
                85,682
                
                
                
                -
                
                
                
                85,682Issuance
      of 120,000 common shares to investor relations firm (Note
    11b)
                
                
                120,000
                
                
                
                120
                
                
                
                218,057
                
                
                
                -
                
                
                
                218,177
                
                
                
                -
                
                
                
                218,177Issuance
      of 50,000 warrants to investor relations firm (Note
    11e)
                
                
                -
                
                
                
                -
                
                
                
                45,500
                
                
                
                -
                
                
                
                45,500
                
                
                
                -
                
                
                
                45,500Cancellation
      of 300,000 common shares not distributed(Note
    11b)
                
                
                (300,000
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Private
      Placement of 1,627,344 units at $0.65 per share (Note
    11b)
                
                
                1,627,344
                
                
                
                1,627
                
                
                
                898,253
                
                
                
                -
                
                
                
                899,880
                
                
                
                -
                
                
                
                899,880Share
      issue costs(Note
      11b)
                
                
                -
                
                
                
                -
                
                
                
                (86,803
                )
                
                
                -
                
                
                
                (86,803
                )
                
                
                -
                
                
                
                (86,803
                )Extinguishment
      of accounts payable(Note 11b)
                
                
                33,000
                
                
                
                33
                
                
                
                16,467
                
                
                
                -
                
                
                
                16,500
                
                
                
                -
                
                
                
                16,500Net
      loss and comprehensive loss
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (9,987,270
                )
                
                
                (9,987,270
                )
                
                
                (75,478
                )
                
                
                (10,062,748
                )Balance,
      December 31, 2008 (As Restated - See Note 2)
                
                
                23,546,370
                
                
                
                14,855
                
                
                
                14,757,932
                
                
                
                (12,777,195
                )
                
                
                1,995,592
                
                
                
                -
                
                
                
                1,995,592Stock-based
      compensation(Note
      11d)
                
                
                -
                
                
                
                -
                
                
                
                1,702,519
                
                
                
                -
                
                
                
                1,702,519
                
                
                
                -
                
                
                
                1,702,519Issuance
      of 15,000 common shares to investor relations firm (Note
    11b)
                
                
                15,000
                
                
                
                15
                
                
                
                5,685
                
                
                
                -
                
                
                
                5,700
                
                
                
                -
                
                
                
                5,700Extinguishment
      of accounts payable(Note 11b)
                
                
                372,898
                
                
                
                373
                
                
                
                129,028
                
                
                
                -
                
                
                
                129,401
                
                
                
                -
                
                
                
                129,401Issuance
      of 91,912 common shares per the mergeragreement with
      Auctomatic(Note
      7)
                
                
                91,912
                
                
                
                92
                
                
                
                (92
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Net
      loss and comprehensive loss
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (4,010,013
                )
                
                
                (4,010,013
                )
                
                
                28,353
                
                
                
                (3,981,660
                )Balance,
      December 31, 2009
                
                
                24,026,180
                
                
                $
                15,335
                
                
                $
                16,595,072
                
                
                $
                (16,787,208
                )
                
                $
                (176,801
                )
                
                $
                28,353
                
                
                $
                (148,448
                )
 
 See
accompanying notes to consolidated financial statements
  F-6
  LIVE
CURRENT MEDIA INC.
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 Expressed
In U.S. Dollars
 Year
      ended
                  
                  
                  Year
      endedDecember
      31, 2009
                  
                  
                  December
      31, 2008(As
      Restated -
                    See
      Note 2)OPERATING
      ACTIVITIESNet
      loss for the year
                  
                  $
                  (3,981,660
                  )
                  
                  $
                  (10,062,748
                  )Non-cash
      items included in net loss:Deferred
      tax recovery(Note
      14)
                  
                  
                  (81,163
                  )
                  
                  
                  (40,389
                  )Gain
      on settlement of amounts due to Global Cricket Venture(Note
    6)
                  
                  
                  (750,000
                  )
                  
                  
                  -Gain
      on restructure of severance payable
                  
                  
                  (212,766
                  )
                  
                  
                  -Gain
      on restructure of Auctomatic payable
                  
                  
                  (29,201
                  )
                  
                  
                  -Impairment
      of Goodwill(Note
      7)
                  
                  
                  2,539,348
                  
                  
                  
                  -Impairment
      of Auction Software(Note 8)
                  
                  
                  590,973
                  
                  
                  
                  -Gain
      from sales and sales-type lease of domain names
                  
                  
                  (2,452,081
                  )
                  
                  
                  (461,421
                  )Accretion
      interest expense
                  
                  
                  63,300
                  
                  
                  
                  96,700Interest
      expense
                  
                  
                  25,845
                  
                  
                  
                  -Stock-based
      compensation
                  
                  
                  1,702,519
                  
                  
                  
                  2,162,526Warrants
                  
                  
                  92,815
                  
                  
                  
                  45,500Issuance
      of common stock for services (Note
    11b)
                  
                  
                  5,700
                  
                  
                  
                  303,859Amortization
      and depreciation
                  
                  
                  344,351
                  
                  
                  
                  291,643Change
      in operating assets and liabilities:Accounts
      receivable
                  
                  
                  (256,808
                  )
                  
                  
                  45,348Prepaid
      expenses and deposits
                  
                  
                  (39,154
                  )
                  
                  
                  136,631Inventory
                  
                  
                  45,368
                  
                  
                  
                  (74,082
                  )Accounts
      payable and accrued liabilities
                  
                  
                  (1,757,351
                  )
                  
                  
                  1,612,814Amounts
      payable to the BCCI and IPL
                  
                  
                  -
                  
                  
                  
                  1,000,000Bonuses
      payable
                  
                  
                  16,537
                  
                  
                  
                  21,982Deferred
      revenue
                  
                  
                  (77,216
                  )
                  
                  
                  67,377Cash
      flows used in operating activities
                  
                  
                  (4,210,644
                  )
                  
                  
                  (4,854,260
                  )INVESTING
      ACTIVITIESProceeds
      from sale of domain names
                  
                  
                  2,801,420
                  
                  
                  
                  408,302Commissions
      on sale of domain names
                  
                  
                  (264,669
                  )
                  
                  
                  (39,261
                  )Proceeds
      from sales-type lease of domain names
                  
                  
                  645,000
                  
                  
                  
                  140,540Commissions
      on sales-type lease of domain names
                  
                  
                  (20,000
                  )
                  
                  
                  -Cash
      consideration for Auctomatic(Note
    7)
                  
                  
                  (301,579
                  )
                  
                  
                  (1,530,047
                  )Purchases
      of property & equipment
                  
                  
                  (20,544
                  )
                  
                  
                  (187,532
                  )Website
      development costs (Note
      9)
                  
                  
                  (47,804
                  )
                  
                  
                  (451,439
                  )Cash
      flows from (used in) investing activities
                  
                  
                  2,791,824
                  
                  
                  
                  (1,659,437
                  )FINANCING
      ACTIVITIESProceeds
      from sale of common stock (net of share issue costs)
                  
                  
                  -
                  
                  
                  
                  970,972Cash
      flows from financing activities
                  
                  
                  -
                  
                  
                  
                  970,972Net
      decrease in cash and cash equivalents
                  
                  
                  (1,418,820
                  )
                  
                  
                  (5,542,725
                  )Cash
      and cash equivalents, beginning of year
                  
                  
                  1,832,520
                  
                  
                  
                  7,375,245Cash
      and cash equivalents, end of year
                  
                  $
                  413,700
                  
                  
                  $
                  1,832,520
  See
accompanying notes to consolidated financial statements
 SUPPLEMENTAL
      INFORMATION
                  
                  2009
                  
                  
                  2008Cash
      paid during the year for:Interest
                  
                  $
                  21,279
                  
                  
                  $
                  -Income
      taxes
                  
                  $
                  -
                  
                  
                  $
                  -
 
 F-7
 
 Live
Current Media Inc.
 Notes
to the Consolidated Financial Statements
 For
the year ended December 31, 2009
  
 NOTE
1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION
 
 Nature
of business
 Live
Current Media Inc. (the “Company” or “Live Current”) was incorporated under the
laws of the State of Nevada on October 10, 1995 under the name “Troyden
Corporation” and changed its name on August 21, 2000 from Troyden Corporation to
“Communicate.com Inc.”.  On May 30, 2008, the Company changed its name
from Communicate.com Inc. to Live Current Media Inc. after obtaining formal
shareholder approval to do so at the Annual General Meeting in May
2008.
 
 The
Company’s principal operating subsidiary, Domain Holdings Inc. (“DHI”), was
incorporated under the laws of British Columbia on July 4, 1994 under the name
“IMEDIAT Digital Creations Inc.”.  On April 14, 1999, IMEDIAT Digital
Creations, Inc. changed its name to “Communicate.com Inc.” and was redomiciled
from British Columbia to the jurisdiction of Alberta.  On April 5,
2002, Communicate.com Inc. changed its name to Domain Holdings
Inc.  DHI has 62,635,383 shares of common stock currently issued and
outstanding.  61,478,225 shares, or approximately 98.2% of the
outstanding shares, are held by Live Current.
 
 Through
DHI, the Company builds consumer Internet experiences around its portfolio of
domain names.  DHI’s current business strategy is to develop or to
seek partners to develop its domain names to include content, commerce and
community applications.  DHI is currently actively developing the
Perfume.com website, providing eCommerce for fragranceand
other health and beauty products.  DHIdevelops
content and sells advertising services on other domains held forfuture
development.  Before August 2009, the Company was also developing
Cricket.com, a media-rich consumer sports experience.  On August 25,
2009, the Company sold the domain name and assigned to an unrelated third party
all of the rights, title, and interest in and to the original Memorandum of
Understanding (“MOU”) with the Indian Premier League (“IPL”).  Refer
to Note 6.
 
 DHI owns
100% of 0778229 B.C. Ltd. (“Importers”), Acadia Management Corp. (“Acadia”), and
a dormant company 612793 B.C. Ltd. (“612793”).  Acadia’s assets and
liabilities were assigned to DHI in October 2008, and that company was dissolved
and removed from the registrar of companies of British Columbia on January 21,
2009.
 
 On March
13, 2008, the Company incorporated a wholly owned subsidiary in the state of
Delaware, Communicate.com Delaware, Inc. (“Delaware”).  This
subsidiary was incorporated in relation to the Auctomatic transaction. Refer to
Note 7.
 
 On August
8, 2008, the Company also formed a wholly-owned subsidiary in Singapore, LCM
Cricket Ventures Pte. Ltd. (“LCM Cricket Ventures”).  This company
holds 50.05% of Global Cricket Venture Pte. Ltd. (“Global Cricket Venture” or
“GCV”).
 
 Basis
of presentation
 The
consolidated financial statements are presented in United States dollars and are
prepared in accordance with accounting principles generally accepted in the
United States.
 
 Going
Concern
 The
consolidated financial statements have been prepared on a going concern basis
which assumes that the Company will be able to realize assets and discharge
liabilities in the normal course of business for the foreseeable future. During
the year ended December 31, 2009, the Company generated a consolidated net loss
of $4,010,013 (2008 - $9,987,270) and realized a negative cash flow from
operating activities of $4,210,644 (2008 - $4,854,260).  At the end of
2009, there is an accumulated deficit of $16,787,208 (2008 - $12,777,195) and a
working capital deficiency of $1,216,325 (2008 - $3,199,931).
 
 The
Company's ability to continue as a going-concern is in substantial doubt as it
is dependent on the continued financial support from its investors, the ability
of the Company to obtain financing (whether through debt or equity), the ability
of the Company to use its common stock to pay for liabilities as it has in
certain instances in the past, and the attainment of profitable
operations.   The outcome of these matters is dependant on
factors outside of the Company’s control and cannot be predicted at this
time.
 
 These
financial statements do not include any adjustments relating to the
recoverability or classification of assets or the amounts or classification of
liabilities that might be necessary should the Company be unable to continue as
a going concern.
  F-8
  Live
Current Media Inc.
 Notes
to the Consolidated Financial Statements
 For
the year ended December 31, 2009
   NOTE
1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION (continued)
 
 Going
Concern (continued)
 
 The
Company has established a plan to continue its current business operations and
overcome its financial difficulties.  The Company expects to achieve
an improved financial position and enhanced liquidity by establishing and
carrying out a plan of recovery as follows:
  1.
              Auctomatic payment deferrals:Under the terms of the acquisition agreement to purchase Entity
      Inc. (also referred to as Auctomatic), the Company was obligated to make
      $800,000 in cash payments in May 2009.  Refer to Note
      7.  The Company negotiated an agreement with the majority of the
      Entity shareholders to convert more than half of this payable into a
      convertible interest bearing note with a nine month term. The payment due
      date is May 2010.2.
              Payment of Obligations with
      Common Stock:  The Company intends to continue to ask
      certain vendors if they will agree to accept the Company’s common stock in
      lieu of cash as payment for outstanding obligations.  During
      2009, the Company succeeded in reaching three such agreements as payment
      of approximately $129,401 in obligations.3.
              Global Cricket Venture:In August 2009, the Company reached an agreement with an unrelated
      third party (“Mauritius”), whereby Mauritius agreed to assume and be
      liable for all past and future obligations and liabilities of GCV arising
      from the original Memorandum of Understanding (“MOU”), as it was amended
      by the Novation Agreement discussed in Note 6.  The Company has
      also agreed to sell the domain name cricket.com to Mauritius, along with
      the associated website, content, copyrights, trademarks, etc., for
      consideration of four equal payments of $250,000 each.  The
      cricket.com domain name shall remain the property of the Company until all
      payments have been made.  Refer to Note 6.4.
              Reduction in employees and
      reduction of CEO salary:Since December 31, 2008, the Company has
      reduced the number of its full-time employees and consultants by
      27%.  This included termination of the Company’s former
      President. All severance payments have been paid by the end of
      2009.  The special bonus owing to the Company’s former President
      of $250,000CAD that was to be paid in stock was waived in exchange for
      $20,000 cash, which was also paid by the end of 2009.In
      addition, members of senior management agreed to forgo 2008 and 2009
      bonuses, staff bonuses were not granted for 2008 and 2009, and effective
      February 1, 2009, the Company’s CEO decreased his salary from $300,000CAD
      to $120,000CAD.  Salary earned from February 1, 2009 to
      September 30, 2009 was deferred and settled for
  $72,000CAD.5.
              Management Focus:Management will focus on the perfume business that is currently
      producing divisional profits.  Management is developing a
      business plan to exploit this business as it believes that the perfume
      business has the potential to grow dramatically and will continue to
      produce modest profits in the short term with minimal
      investment.6.
              Supply Chain Management:The Company is continuing to explore opportunities to transition
      from the legacy third party drop shippers which produces gross margins of
      19-21% to a Third Party Logistics (“3PL”) option whereby the Company
      purchases the inventory and has a 3PL provider store, and “pick and pack”
      perfume orders. This change in supply chain methodology will require a
      minimal investment in inventory but should result in much healthier net
      margins.7.
              Domain Name sales:Management entered into arrangements in 2009 to sell or lease
      eleven of the Company’s non-core domain name assets, including
      Cricket.com, as a non-dilutive way to raise working
      capital.  These transactions have raised nearly $4.2 million
      this year.  See Note 12.
  NOTE
2 – RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS
 
 Correction of an error in
comparative periods:
 
 The
Company determined that its original consolidated financial statements as at and
for the three month period ended March 31, 2009, and as at and for the years
ended December 31, 2008 and 2007 (the “Original Financial Statements”) contained
errors.  These errors, which are described below, affected opening
balances as at December 31, 2007 and the financial position, results of
operations and cash flows for the comparative periods ended December 31,
2008.
 F-9
 
 Live
Current Media Inc.
 Notes
to the Consolidated Financial Statements
 For
the year ended December 31, 2009
 NOTE
2 – RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS
 
 A.
Deferred income tax liability related to indefinite life intangible
assets:
 
 The
Company’s intangible assets, comprised of its domain names, have book values in
excess of their tax values.  The Original Financial Statements
considered the taxable temporary differences associated with these indefinite
life intangible assets in reducing the valuation allowance associated with its
loss carryforwards.  This was an incorrect application of
GAAP.  A deferred tax liability should have been recognized for these
taxable temporary differences.  Correction of this error resulted in
the recognition of a deferred tax liability of $206,370 as at December 31, 2007
and a deferred tax recovery of $40,389 for the year ended December 31,
2008.
 
 B.
Non-Controlling Interest:
 
 The
Company determined that it should have recorded $66,692 of goodwill and an
increase to non-controlling interest liability associated with the exchange of
$3,000,000 of amounts due from a subsidiary for additional common stock in
2008.  See Note 5.
 
 Prior to
recognizing the non-controlling interest liabilities, the non-controlling
interest’s share of subsidiary losses in 2008 and 2007 was limited to the
non-controlling interest liability.  As a consequence of the above
increases to non-controlling interest liabilities, the non-controlling
interest’s share in subsidiary losses was increased by $75,478 in the year ended
December 31, 2008.
 
 C.
Management Compensation:
 
 The
financial statements for the year ended December 31, 2008 did not accrue or
expense $119,045 for two CDN$100,000 special bonuses to be paid on January 1,
2009 and January 1, 2010 to the Company’s current President and Chief Corporate
Development Officer pursuant to his employment agreement. These special bonuses
are not discretionary, but will only be paid if he remains employed as an
officer of the Company on the dates payable.
 
 D.
Estimated life of stock options:
 
 The
Company originally estimated the life of its stock options as equal to the
vesting period for these options, 3 years.  The estimated life should
have been 3.375 years, resulting in a decrease of $118,893 to the Company’s
stock-based compensation expense in the year ended December 31,
2008.
 
 E.
Other
 
 (i)
              Expense
      accruals
 
 The
Company discovered an accrual and cutoff error in its recorded accounting fees,
resulting in an overaccrual of accounts payable and accounting expense (included
in Corporate General and Administrative expenses) of $19,521 in the year ended
December 31, 2008.
 
 (ii)
              Gain
      on sale of domain name
 
 The
Company failed to record website development costs attributable to a domain name
sold in 2008, reducing website development costs and gain on sale of domain
names by $37,408 in the year ended December 31, 2008.
 
 F.
Classification of warrants issued in November 2008 private
placement:
 
 In
November 2008, the Company raised $1,057,775 of cash by selling 1,627,344
units consisting of one share of the Company’s common stock and two warrants,
each for the purchase of a half share of common stock.  The offering
price was $0.65 per unit.  The estimated fair value of the warrants
was $157,895 and was presented as equity in the Original Financial
Statements.  The warrants contained provisions which could require
their redemption in cash in certain circumstances which may not all be within
the Company’s control.  The fair value of the warrants therefore
should have been recorded as a liability, with future changes to fair value
reported as either income or expense in the period in which the change in fair
value occurs.  There were no changes to the fair value of the warrants
between the November 2008 issue date and December 31, 2008.
 F-10
 
 Live
Current Media Inc.
 Notes
to the Consolidated Financial Statements
 For
the year ended December 31, 2009
 NOTE
2 – RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS
(continued)
 
 G.
Shares issued in connection with the merger with Auctomatic:
 
 (i)
              Valuation
      of shares issued as purchase
consideration
 
 The
Auctomatic merger closed on May 22, 2008.  The original estimate of
the fair value of the share purchase consideration attributable to the
acquisition was based on the trading value of the shares around March 25,
2008.  However, the Merger Agreement had an adjustment provision
regarding the number of shares to be issued, such that the shares should have
been valued with reference to the May 22, 2008 closing date as opposed to the
announcement date on March 25, 2008.  Using the average share price
around the closing date, an additional $110,746 should have been recorded as
additional paid-in capital and goodwill during the year ended December 31,
2008.
 
 (ii)
              Shares
      issued to Auctomatic founders
 
 As part
of the merger, the Company agreed to distribute 413,604 shares of its common
stock payable on the first, second, and third anniversaries of the Closing Date
(the “Distribution Date”) to the Auctomatic founders subject to their continuing
employment with the Company or a subsidiary on each Distribution
Date.  These shares, which were not accounted for in the Auctomatic
purchase, also were not properly accounted for as compensation to the Auctomatic
founders for their continued employment with the Company.  The related
stock-based compensation expense that should have been recorded in 2008 was
$170,065.
 
 H.
Financial Statement Classification of Amounts Payable to the BCCI and
IPL:
 
 In order
to provide clarity, the Company also classified separately on its consolidated
balance sheets and consolidated statements of operations the $1,000,000 of
amounts payable as at December 31, 2008 to the Board of Control for Cricket in
India (“BCCI”) and the DLF Indian Premier League (“IPL”).
 
 I.
Tax Impact:
 
 Exclusive
of Item A, none of the above adjustments gave rise to an increase or decrease in
the Company’s tax position.
 
 The
effect of the adjustments by financial statement line item to the December 31,
2008 consolidated financial statements are disclosed in detail within the
amended and restated consolidated financial statements for the year ended
December 31, 2008, which are included in the Company’s Annual Report on Form
10-K as filed with the Securities & Exchange Commission on March 31, 2009,
and subsequently amended on September 14, 2009 and on October 26,
2009.
 NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 The
following is a summary of significant accounting policies used in preparation of
these consolidated financial statements:
 
 Principles
of consolidation
 The
consolidated financial statements include the accounts of the Company, its
wholly owned subsidiary Delaware, its wholly-owned subsidiary LCM Cricket
Ventures, its 98.2% interest in its subsidiary DHI, DHI’s wholly owned
subsidiaries Importers and 612793, and LCM Cricket Ventures’ 50.05% interest in
Global Cricket Venture (“GCV”).  All intercompany balances and
transactions are eliminated on consolidation.
 
 Use
of estimates
 The
preparation of consolidated financial statements in conformity with U.S.
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of intangible assets, fair
value measurement, related party transactions, stock based compensation, and
determination and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and for the periods that the consolidated
financial statements are prepared. Actual results could differ from these
estimates.
  F-11
 Live
Current Media Inc.
 Notes
to the Consolidated Financial Statements
 For
the year ended December 31, 2009
 NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Business
Combinations
 On the
acquisition of a subsidiary, the purchase method of accounting is used whereby
the purchase consideration is allocated to the identifiable assets and
liabilities on the basis of fair value at the date of
acquisition.  The Company considers critical estimates involved in
determining any amount of goodwill, and tests for impairment of such goodwill as
disclosed in its Goodwill accounting policy below.
 
 Revenue
recognition
 Revenues
and associated costs of goods sold from the on-line sales of products, currently
consisting primarily of fragrances and other beauty products, are recorded upon
delivery of products and determination that collection is reasonably
assured.  The Company records inventory as an asset for items in
transit as title does not pass until received by the customer.  All
associated shipping and handling costs are recorded as cost of goods sold upon
delivery of products.
 
 Web
advertising revenue consists primarily of commissions earned from the referral
of visitors from the Company’s websites to other parties.  The amount
and collectability of these referral commissions is subject to uncertainty;
accordingly, revenues are recognized when the amount can be determined and
collectability can be reasonably assured.  In accordance with FASB
Accounting Standards Codification (“ASC”) 605-45-45, Revenue Recognition - Principal
Agent Considerations, the Company records web advertising revenues on a
gross basis.
 
 Sponsorship
revenues consist of sponsorships related to past cricket tournaments that are
receivable based on the Company’s prior agreements relating to the Cricket.com
website.  Revenues are recognized once collectability is reasonably
assured.
 
 Gains
from the sale of domain names, whose carrying values are recorded as intangible
assets, consist primarily of funds earned for the transfer of rights to domain
names that are currently in the Company’s control.  Revenues have been
recognized when the sale agreement is signed, the price is fixed and agreed upon
by all parties, and the collectability of the proceeds is reasonably
assured.  In the year ended December 31, 2009, there were eight sales
of domain names.  Collectability of the amounts owing on these sales
is reasonably assured and therefore accounted for as sales in the period the
transactions occurred.  In 2008, there was one sale of a domain
name.  Collectability of the amounts owing on this sale is reasonably
assured and therefore accounted for as a sale in the period the transaction
occurred.
 
 Gains
from the sales-type leases of domain names, whose carrying values are recorded
as intangible assets, consist primarily of funds earned over a period of time
for the transfer of rights to domain names that are currently in the Company’s
control.  When collectability of the proceeds on these transactions is
reasonably assured, the gain on sale is accounted for as a sales-type lease in
the period the transaction occurs.  In the year ended December 31,
2009, there were sales-type leases for three domain names where collectability
of future payments owing on sale were not reasonably
assured.  Therefore, the gains were recorded based only on the amounts
that were reasonably assured.  One of these contracts was breached
during the year, however there was no effect to the financial
statements.  In 2008, there was one sales-type lease of a domain
name.  See also Note 12.
 
 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 ASC 830, Foreign Currency Matters, the
foreign currency financial statements of the Company’s subsidiaries are
translated into U.S. dollars.  Monetary assets and liabilities are
translated using the foreign exchange rate that prevailed at the balance sheet
date.  Revenue and expenses are translated at weighted average rates
of exchange during the year and stockholders’ equity accounts and certain other
historical cost balances are translated by using historical exchange
rates.  There are no resulting exchange gains and losses that are
required to be presented as cumulative foreign currency translation gains
(losses) within other accumulated comprehensive income (loss).  There
was no effect to comprehensive income (loss) related to the share conversion
with DHI.
 
 Transactions
denominated in foreign currencies are remeasured at the exchange rate in effect
on the respective transaction dates and gains and losses are reflected in the
consolidated statements of operations.
  F-12
 Live
Current Media Inc.
 Notes
to the Consolidated Financial Statements
 For
the year ended December 31, 2009
 NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 
 Comprehensive income
(loss)
 Comprehensive
income (loss) includes all changes in equity of the Company during a period
except those resulting from investments by shareholders and distributions to
shareholders.  Comprehensive income (loss) includes net income (loss)
and other comprehensive income (loss) (“OCI”).  The major components
included in OCI are cumulative translation adjustments arising on the
translation of the financial statements of self-sustaining foreign operations
and unrealized gains and losses on financial assets classified as
available-for-sale. The Company has no self-sustaining foreign operations or
unrealized gains or losses on financial assets classified as
available-for-sale.
 
 Loss
per share
 Basic
loss per share is computed by dividing losses for the period by the weighted
average number of common shares outstanding for the period.  Diluted
loss per share reflects the potential dilution of securities by including other
potential common stock in the weighted average number of common shares
outstanding for a period and is not presented where the effect is
anti-dilutive.  The other potential common stock includes 2,845,000
options and 3,304,688 warrants as disclosed in Note 11.
 
 Cash
and cash equivalents
 The
Company considers all highly liquid instruments, with original maturity dates of
three months or less at the time of issuance, to be cash
equivalents.
 
 Accounts
receivable and allowance for doubtful accounts
 The
Company’s accounts receivable balance consists primarily of amounts receivable
on sales and sales-type leases of domain names, goods and services taxes (GST)
receivable, advertising revenues receivable and sponsorship
revenues.  Per the Company’s review of open accounts and collection
history, the accounts receivable balances are reasonably considered to be
collectible and therefore no allowance for doubtful accounts has been reflected
at the 2009 or 2008 year ends.
 
 Inventory
 Inventory
is recorded at the lower of cost or market using the first-in first-out (FIFO)
method.  The Company maintains little or no inventory of perfume which
is shipped from the supplier directly to the customer.  The inventory
on hand as at December 31, 2009 is recorded at cost of $28,714 (December 31,
2008 - $74,082) and represents inventory in transit from the supplier to the
customer.
 
 Property & Equipment
 These
assets are stated at cost. Minor additions and improvements are charged to
operations, and major additions are capitalized. Upon retirement, sale or other
disposition, the cost and accumulated depreciation are eliminated from the
accounts, and a gain or loss is included in operations.
 
 Amortization
for equipment is computed using the declining balance method at the following
annual rates:
  Office Furniture and
      Equipment
              20%Computer
      Equipment
              30%Computer
      Software
              100%
 
 Amortization
for leasehold improvements is based on a straight-line method calculated over
the term of the lease.  Auction software was amortized straight line
over the life of the asset and was written off at June 30,
2009.  Other additions are amortized on a half-year basis in the year
of acquisition.
 
 Website
development costs
 The
Company has adopted the provisions of ASC 350-50-25, Website Development Costs,
whereby costs incurred in the preliminary project phase are expensed as
incurred; costs incurred in the application development phase are capitalized;
and costs incurred in the post-implementation operating phase are expensed as
incurred.  Website development costs are stated at cost less
accumulated amortization and are amortized using the straight-line method over
its estimated useful life.  Upgrades and enhancements are capitalized
if they result in added functionality which enables the software to perform
tasks it was previously incapable of performing.  See also Note
9.
  F-13
 Live
Current Media Inc.
 Notes
to the Consolidated Financial Statements
 For
the year ended December 31, 2009
 NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 
 Intangible
assets
 The
Company has adopted the provisions of ASC 350, Intangibles – Goodwill and
Other, which revises the accounting for purchased goodwill and intangible
assets. Under ASC 350, intangible assets with indefinite lives are no longer
amortized and are tested for impairment annually.  The determination
of any impairment would include a comparison of estimated future operating cash
flows anticipated during the remaining life with the net carrying value of the
asset as well as a comparison of the fair value to book value of the
Company.
 
 The
Company’s intangible assets, which consist of its portfolio of generic domain
names, have been determined to have an indefinite life and as a result are not
amortized.  Management has determined that there is no impairment of
the carrying value of intangible assets at December 31, 2009.
 
 Goodwill
 Goodwill
represents the excess of acquisition cost over the fair value of the net assets
of acquired entities. In accordance with ASC
350-20, Goodwill, the
Company is required to assess the carrying value of goodwill annually or
whenever circumstances indicate that a decline in value may have occurred,
utilizing a fair value approach at the reporting unit level. A reporting unit is the
operating segment, or a business unit one level below that operating segment,
for which discrete financial information is prepared and regularly reviewed by
segment management.
 
 The
goodwill impairment test is a two-step impairment test. In the first step, the
Company compares the fair value of each reporting unit to its carrying value.
The Company
determines the fair value of its reporting units using a discounted cash flow
approach. If the
fair value of the reporting unit exceeds the carrying value of the net assets
assigned to that reporting unit, goodwill is not impaired and the Company is not
required to perform further testing. If the carrying value of
the net assets assigned to the reporting unit exceeds the fair value of the
reporting unit, then the Company must perform the second step in order to
determine the implied fair value of the reporting unit’s goodwill and compare it
to the carrying value of the reporting unit’s goodwill. The activities in the
second step include valuing the tangible and intangible assets and liabilities
of the impaired reporting unit based on their fair value and determining the
fair value of the impaired reporting unit’s goodwill based upon the residual of
the summed identified tangible and intangible assets and
liabilities.
 
 In
accordance with ASC 350-20 and the Company’s policy to assess the carrying value
of goodwill annually as noted above, the Company performed this assessment at
the December 31, 2009 fiscal year end.  At that date, the Company
determined that the business acquired was never effectively integrated into the
reporting unit it was assigned to, Perfume.com.  Since the benefits of
the acquired goodwill were never realized by the rest of the reporting unit, and
the use of the other aspects of the business acquired have ended, the Company
has determined that an impairment charge of $2,539,348 relating to the goodwill
acquired pursuant to the merger with Auctomatic was required.  See
also Note 7.  The balance of $66,692 of goodwill relates to the
issuance of shares of DHI in exchange for intercompany debt in early
2008.  See also Note 5.
 
 Deferred
Revenue
 Revenue
that has been received but does not yet qualify for recognition under the
Company's policies is reflected as either deferred revenue or long-term deferred
revenue.
 
 Deferred
Lease Inducements
 Lease
inducements, including rent free periods, are deferred and accounted for as a
reduction of rent expense over the term of the related lease on a straight-line
basis.
 
 Advertising Costs
 The
Company recognizes advertising expenses in accordance with ASC 720-35, Advertising Costs. As such,
the Company expenses the costs of producing advertisements at the time
production occurs or the first time the advertising takes place and expenses the
cost of communicating advertising in the period during which the advertising
space or airtime is used.  Internet advertising expenses are
recognized as incurred based on the terms of the individual agreements, which
are generally: 1) a commission for traffic driven to the Website that
generates a sale or 2) a referral fee based on the number of clicks on
keywords or links to its Website generated during a given
period.  Total advertising expense of $594,367 for the year ended
December 31, 2009 (2008 - $914,235) is included in the “Corporate Marketing” and
“eCommerce Marketing” categories on the Company’s consolidated statements of
operations.
  F-14
  Live
Current Media Inc.
 Notes
to the Consolidated Financial Statements
 For
the year ended December 31, 2009
 
  NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 
 Stock-based
compensation
 Beginning
on July 1, 2007, the Company began accounting for stock options under the
provisions of ASC 718, Stock
Compensation, which requires the recognition of the fair value of
stock-based compensation. Under the fair value recognition provisions for ASC
718, stock-based compensation cost is estimated at the grant date based on the
fair value of the awards expected to vest and recognized as expense ratably over
the requisite service period of the award. The Company has used the
Black-Scholes valuation model to estimate fair value of its stock-based awards
which requires various judgmental assumptions including estimating stock price
volatility and expected life. The Company’s computation of expected volatility
is based on a combination of historical and market-based volatility. In
addition, the Company considers many factors when estimating expected life,
including types of awards and historical experience. If any of the assumptions
used in the Black-Scholes valuation model change significantly, stock-based
compensation expense may differ materially in the future from that recorded in
the current period.
 
 In August
2007, the Company’s Board of Directors approved an Incentive Stock Option Plan
to make available 5,000,000 shares of common stock for the grant of stock
options, including incentive stock options.  Incentive stock options
may be granted to employees of the Company, while non-qualified stock options
may be granted to employees, officers, directors, consultants, independent
contractors and advisors of the Company, provided such consultants, independent
contractors and advisors render bona-fide services not in connection with the
offer and sale of securities in a capital-raising transaction or promotion of
the Company’s securities.  See also Note 11.
 
 The
Company accounts for equity instruments issued in exchange for the receipt of
goods or services from other than employees in accordance with ASC 718 and the
conclusions reached by ASC 505-50.  Costs are measured at the estimated
fair market value of the consideration received or the estimated fair value of
the equity instruments issued, whichever is more reliably measurable.  The
value of equity instruments issued for consideration other than employee
services is determined on the earliest of a performance commitment or completion
of performance by the provider of goods or services as defined by ASC
505-50.
 
 On March
25, 2009, the Board of Directors approved a reduction in the exercise price of
Stock Option grants previously made under the 2007 Incentive Stock Option
Plan.  No other terms of the plan or the grants were
modified.  See also Note 11(d).
 Non-Controlling
Interest
 The
consolidated financial statements include the accounts of DHI (and its
subsidiaries).  All intercompany accounts and transactions have been
eliminated upon consolidation.  The Company records non-controlling
interest which reflects the 1.8% portion of the earnings of DHI and its
subsidiaries allocable to the holders of the minority
interest.
 
 Income
taxes
 On
January 1, 2007, the Company adopted the following new accounting policy related
to income tax.  The Company began accounting for income tax under the
provisions of Financial Accounting Standards Board (“FASB”) ASC
740-10.  ASC 740-10 clarifies the accounting for uncertainty in income
taxes recognized in an enterprise’s financial statements in accordance with ASC
740-10 and prescribes a recognition threshold and measurement process for
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return.  ASC 740-10 also provides
guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosure and transition. The Company and its
subsidiaries are subject to U.S. federal income tax and Canadian
income tax, as well as income tax of multiple state and local jurisdictions.
Based on the Company’s evaluation, the Company has concluded that there are no
significant uncertain tax positions requiring recognition in the Company’s
financial statements. The Company’s evaluation was performed for the tax years
ended December 31, 2003, 2004, 2005, 2006, 2007, 2008 and 2009, the tax years
which remain subject to examination by major tax jurisdictions as of December
31, 2009.  The Company may from time to time be assessed interest or
penalties by major tax jurisdictions, although any such assessments historically
have been minimal and immaterial to the Company’s financial
results.  In the event the Company has received an assessment for
interest and/or penalties, it has been classified in the financial statements as
selling, general and administrative expense.
  F-15
  Live
Current Media Inc.
 Notes
to the Consolidated Financial Statements
 For
the year ended December 31, 2009
   NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 
 Recently
Adopted Accounting Pronouncements
 
 ASC
105
 In June,
2009, the FASB issued Update No. 2009-01, The FASB Accounting Standards
CodificationTM
(“ASC”) as the source of authoritative U.S. generally accepted accounting
principles (GAAP) recognized by the FASB to be applied by nongovernmental
entities.  This guidance is set forth in Topic 105 (“ASC
105”).  Rules and interpretive releases of the Securities and Exchange
Commission (SEC) under authority of federal securities laws are also sources of
authoritative GAAP for SEC registrants. On the effective date of this Statement,
the Codification will supersede all then-existing non-SEC accounting and
reporting standards. All other nongrandfathered non-SEC accounting literature
not included in the Codification will become nonauthoritative.  This
statement is effective for financial statements issued for fiscal years and
interim periods ending after September 15, 2009, which, for the Company, is
the interim period ending September 30, 2009.  The Company adopted ASC
105 at September 30, 2009, however the adoption of this statement did not have a
material effect on its financial results.  Further to the adoption of
ASC 105, the Company has updated its references to GAAP.
 
 ASC
855
 In May,
2009, the FASB issued ASC 855, Subsequent Events. The new
standard is intended to establish general standards of accounting for and
disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued.  This
statement is effective for financial statements issued for interim or annual
financial periods ending after June 15, 2009, which, for the Company, was the
interim period ending June 30, 2009.  The Company adopted ASC 855 in
the second quarter of 2009 however it did not have a material effect to the
Company’s current practice.
 
 ASC
815-10-65
 In
March 2008, the FASB issued ASC 815, Derivatives and
Hedging.  ASC 815 is intended to improve financial standards
for derivative instruments and hedging activities by requiring enhanced
disclosures to enable investors to better understand their effects on an
entity's financial position, financial performance and cash flows. Entities are
required to provide enhanced disclosures about: how and why an entity uses
derivative instruments; how derivative instruments and related hedged items are
accounted for under ASC 815; and how derivative instruments and related hedged
items affect an entity's financial position, financial performance and cash
flows.  ASC 815 was effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008, which for
the Company was the fiscal year beginning January 1, 2009.  The
Company adopted ASC 815-10-65 at January 1, 2009 however the adoption of this
statement did not have a material effect on its financial results.
 
 ASC
260-10-45
 The FASB
issued ASC 260-10-45, Earnings
Per Share,which clarifies that all outstanding unvested share-based
payment awards that contain rights to nonforfeitable dividends participate in
undistributed earnings with common shareholders.  Awards of this
nature are considered participating securities and the two-class method of
computing basic and diluted earnings per share must be applied.  The
restricted stock awards the Company has granted to employees and directors are
considered participating securities as they receive nonforfeitable
dividends.  The Company adopted AC 260-10-45 effective January 1, 2009
however there has been no material effect on its financial results.
 
 ASC
350-30
 In April
2008, the FASB issued ASC 350-30, General Intangibles Other Than
Goodwill.  ASC 350-30 amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset.  The intent of ASC
350-30 is to improve the consistency between the useful life of a recognized
intangible asset and the period of expected cash flows used to measure the fair
value of the asset.  ASC 350-30 was effective for financial statements
issued for fiscal years beginning after December 15, 2008, which for the Company
was the fiscal year beginning January 1, 2009.  The Company adopted
ASC 350-30 at January 1, 2009 however the adoption of this statement did not
have a material effect on its financial results.
  F-16
  Live
Current Media Inc.
 Notes
to the Consolidated Financial Statements
 For
the year ended December 31, 2009
 NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 
 Recently
Adopted Accounting Pronouncements (continued)
 
 ASC
805
 In
December 2007, the FASB issued revised authoritative guidance in ASC 805,
Business
Combinations.  ASC 805 establishes principles and requirements
for how the acquirer in a business combination: (i) recognizes and measures in
its financial statements the identifiable assets acquired, the liabilities
assumed, and any noncontrolling interest in the acquiree, (ii) recognizes and
measures the goodwill acquired in the business combination or a gain from a
bargain purchase, and (iii) determines what information to disclose to enable
users of the financial statements to evaluate the nature and financial effects
of the business combination.  ASC 805 is effective for financial
statements issued for fiscal years and interim periods beginning after December
15, 2008, which for the Company was the fiscal year beginning January 1,
2009.  The Company adopted ASC 805 at January 1, 2009, however the
adoption of this statement did not have a material effect on its financial
results.  ASC 805 will be applied to any future business
combinations.
 
 ASC
810
 In
December 2007, the FASB issued authoritative guidance related to noncontrolling
interests in consolidated financial statements, which was an amendment of ARB
No. 51.  This guidance is set forth in ASC 810, Consolidation.  ASC
810 establishes accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a
subsidiary.  This accounting standard is effective for fiscal years
beginning on or after December 15, 2008, which for the Company was the fiscal
year beginning January 1, 2009. The Company adopted ASC 810 at January 1, 2009,
however the adoption of this statement did not have a material effect on its
financial results.
 
 ASC
820
 In
September 2006, the FASB issued ASC 820, Fair Value Measurements and
Disclosures.  This Statement defines fair value, establishes a
framework for measuring fair value in GAAP, and expands disclosures about fair
value measurements.  This standard does not require any new fair value
measurements.
 
 In 2008,
the Company adopted ASC 820 for financial assets and liabilities recognized at
fair value on a recurring basis. The adoption did not have a material effect on
its financial results. The disclosures required by ASC 820 for financial assets
and liabilities measured at fair value on a recurring basis as at December 31,
2009 are included in Note 4.
 
 In
February 2008, the FASB issued authoritative guidance which deferred the
effective date of ASC 820 to fiscal years beginning after November 15, 2008 for
nonfinancial assets and nonfinancial liabilities, except for those items that
are recognized or disclosed at fair value in the financial statements on a
recurring basis, which for the Company was the fiscal year beginning January 1,
2009.  The Company applied the requirements of ASC 820 for fair value
measurements of financial and nonfinancial assets and liabilities not valued on
a recurring basis at January 1, 2009.  The adoption of this statement
did not have a material effect on its financial reporting and
disclosures.
 
 Recently
Issued Accounting Pronouncements
 
 Accounting
Standards Update (“ASU”) 2010-06
 In
January 2010, the FASB issued ASU 2010-06, Fair Value Measurements and
Disclosures (Topic 820), Improving Disclosures about Fair Value Measurements,amending ASC 820. ASU 2010-06 requires entities to provide new
disclosures and clarify existing disclosures relating to fair value
measurements.  The new disclosures and clarifications of existing
disclosures are effective for interim and annual reporting periods beginning
after December 15, 2009, except for the disclosures about purchases, sales,
issuances, and settlements in Level 3 fair value measurements, which are
effective for fiscal years beginning after December 15, 2010 and for interim
periods within those fiscal years. The Company is currently evaluating the
impact of ASU 2010-06, but does not expect its adoption to have a material
impact on the Company’s financial position or results of
operations.
  F-17
  Live
Current Media Inc.
 Notes
to the Consolidated Financial Statements
 For
the year ended December 31, 2009
 NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 
 Recently
Issued Accounting Pronouncements (continued)
 
 Accounting
Standards Update (“ASU”) 2009-13
 In
October 2009, the FASB issued ASU 2009-13, Revenue Recognition (Topic 605),
Multiple-Deliverable Revenue Arrangementsamending ASC 605. ASU 2009-13
requires entities to allocate revenue in an arrangement using estimated selling
prices of the delivered goods and services based on a selling price hierarchy.
ASU 2009-13 eliminates the residual method of revenue allocation and requires
revenue to be allocated using the relative selling price method. ASU 2009-13 is
effective prospectively for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010. The Company
is currently evaluating the impact of ASU 2009-13, but does not expect its
adoption to have a material impact on the Company’s financial position or
results of operations.
 
 NOTE
4 – FINANCIAL INSTRUMENTS
 
 Interest
rate risk exposure
 The
Company currently has limited exposure to any fluctuation in interest
rates.
 
 Foreign
exchange risk
 The
Company is subject to foreign exchange risk for sales and purchases denominated
in foreign currencies. Foreign currency risk arises from the fluctuation of
foreign exchange rates and the degree of volatility of these rates relative to
the United States dollar. The Company does not actively manage this
risk.
 
 Concentration
of credit risk
 Financial
instruments, which potentially subject the Company to concentrations of credit
risk, consist primarily of cash and cash equivalents, trade accounts receivable
and receivable from sales-type lease.  The Company limits its exposure
to credit loss by placing its cash and cash equivalents on deposit with high
credit quality financial institutions. Receivables arising from sales to
customers are generally immaterial and are not collateralized. Management
regularly monitors the financial condition of its customers to reduce the risk
of loss.
 
 Fair
values of Financial Instruments
 As
described in Note 3, the Company adopted all provisions of ASC 820 as of January
1, 2009.  ASC 820 defines fair value, establishes a consistent
framework for measuring fair value, and expands disclosures for each major asset
and liability category measured at fair value on either a recurring or
nonrecurring basis. ASC 820 clarifies that fair value is an exit price,
representing the amount that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants. As
such, fair value is a market-based measurement that should be determined based
on assumptions that market participants would use in pricing an asset or
liability. As a basis for considering such assumptions, ASC 820 establishes a
three-tier fair value hierarchy which prioritizes the inputs used in measuring
fair value as follows:
 
 Level 1 -
observable inputs such as quoted prices in active markets for identical assets
and liabilities;
 
 Level 2 -
observable inputs such as quoted prices for similar assets or liabilities in
active markets, quoted prices for identical or similar assets or liabilities in
markets that are not active, other inputs that are observable, or can be
corroborated by observable market data; and
 
 Level 3 -
unobservable inputs for which there are little or no market data, which require
the reporting entity to develop its own assumptions.
  F-18
  Live
Current Media Inc.
 Notes
to the Consolidated Financial Statements
 For
the year ended December 31, 2009
 NOTE
4 – FINANCIAL INSTRUMENTS (continued)
 
 Fair
values of Financial Instruments (continued)
 
 This
hierarchy requires the Company to minimize the use of unobservable inputs and to
use observable market data, if available, when estimating fair value. The fair
value of warrants using the following inputs at December 31, 2009
is:
 
 Fair
Value Measurements at Reporting Date Using
  Total
              Quoted Prices in
      Active
                Markets for Identical Assets
                (Level 1)
              Significant
      Other
                Observable Inputs
                (Level 2)
              Significant
                Unobservable Inputs
                (Level 3)$125,207
              -
              $125,207
              -
 
 The
Company’s financial instruments consist of cash and cash equivalents, accounts
receivable, receivable from sales-type lease, accounts payable, bonuses payable,
amounts due to shareholders of Auctomatic, and warrants.  The Company
believes that the recorded values of all of its financial instruments
approximate their fair values because of their nature and respective
durations.
 NOTE
5 – NON-CONTROLLING INTEREST
 
 The
Company currently holds 98.2% of the issued and outstanding shares of its
principal operating subsidiary, DHI.  During Q1 2008, DHI issued
40,086,645 shares to Live Current at fair value in exchange for a conversion of
intercompany debt of $3,000,000, therefore diluting the non-controlling interest
by 3.3%. This conversion was accounted for using the purchase method resulting
in an increase to goodwill of $66,692, and a credit against the non-controlling
interest of $75,478 charged to income during the year ended December 31,
2008.
 
 The 2009
income of DHI has resulted in a balance of $28,353 in the Non-Controlling
Interest (“NCI”) at December 31, 2009.
 
 NOTE
6 – GLOBAL CRICKET VENTURE
 
 Memoranda
of Understanding
 On April
17, 2008, the Company signed a Memorandum of Understanding (“MOU” or “Original
MOU”) with each of the Board of Control for Cricket in India (“BCCI”) and the
DLF Indian Premier League (“IPL”).  The MOUs, which would have been
preliminary to a final agreement, started the Company’s planned exploitation of
its cricket.com domain name.
 
 Certain
other subsidiaries and ventures were incorporated or formed to further this
business opportunity.  However, none of these companies were used for
that purpose or had significant assets or operations, nor were any material
binding contracts signed.
 
 During
the year ended December 31, 2009 and up to the date of transfer of the original
MOU as disclosed below, the Company incurred $452,307 (2008 - $1.47 million) in
furtherance of this plan which have been included in corporate marketing,
management fees and employee salaries, and corporate general and administrative
expenses.  As the plan to exploit cricket.com was in its early stages,
all expenditures were charged to operations.
 
 On August
20, 2009, GCV transferred and assigned to an unrelated third party, Mauritius,
all of the rights, title, and interest in and to the Original MOU with the IPL,
as the Original MOU was amended by the Novation Agreement that was signed on
March 31, 2009.  Pursuant to this agreement, Mauritius also agreed to
assume and be liable for all past and future obligations and liabilities of GCV
arising from the original MOU, as it was amended by the
Novation.  Mauritius made the $750,000 payment as required under the
Novation Agreement during Q3 of 2009, therefore Live Current was released from
all accrued liabilities under the BCCI MOU.
 
 F-19
  Live
Current Media Inc.
 Notes
to the Consolidated Financial Statements
 For
the year ended December 31, 2009
 
 NOTE
6 – GLOBAL CRICKET VENTURE (continued)
 
 The
Company also agreed to sell the domain name cricket.com, along with the
associated website, content, copyrights, trademarks, etc, to Mauritius, for
consideration of four equal payments of $250,000 each.  The first
instalment of $250,000 was received in September 2009 and the second instalment
was received subsequent to year end.  The cricket.com domain name
shall remain the property of the Company until all payments have been
made.  In order to facilitate the transfer of the cricket.com website,
the Company has agreed to provide Mauritius with support services for a period
of no more than 6 months (the “Transition Period”).  In exchange for
the support services, Mauritius has agreed to the payment of certain expenses
related to the support services.
 
 The
Company has accounted for this transaction under ASC 605-25, Multiple Element
Arrangements.As a result, the gain on the sales type lease of
cricket.com, the gain on settlement upon assignment and assumption of amounts
due under the Novation Agreement, as well as the support services to be provided
by the Company to Mauritius during the Transition Period, are to be recognized
over the six month Transition Period, or from September 2009 to February
2010.  Since the collectability of the two remaining future payments
relating to the sales-type lease of cricket.com is not reasonably assured, the
Company has only recorded the first and second $250,000 instalments in its
analysis under ASC 605-25.  As a result, during the year ended
December 31, 2009, the Company recognized four month’s gain on settlement of the
amounts owing under the Novation Agreement, four month’s gain on the first
instalment and one month’s gain on the second instalment received for the
sales-type lease of cricket.com.
  Settlement of
      amounts due regarding Global Cricket Venture
              
              $
              750,000Less: Recognized
      gain on settlement during 2009
              
              
              (500,000
              )$
              250,000Q3 Gain on
      sales-type lease of cricket.com
              
              
              250,000Less: Recognized
      gain on sales-type lease of cricket.com
              
              
              (166,667
              )83,333Q4 Gain on
      sales-type lease of cricket.com
              
              
              250,000Less: Recognized
      gain on sales-type lease of cricket.com
              
              
              (83,333
              )166,667Deferred gains of
      amounts regarding Global Cricket Venture at December 31, 2009
              
              
              
              
              
              $
              500,000
 
 NOTE
7 – 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 merger agreement was consummated on May 22, 2008
(the “Closing Date”).  In connection with the Merger Agreement, the
stockholders of Auctomatic received in total (i) $2,000,000 cash minus $152,939
in certain assumed liabilities and (ii) 1,000,007 shares of common stock of the
Company (equal to $3,000,000 divided by $3.00 per share, the closing price of
the Company’s common stock on the business day immediately preceding the Closing
Date) in exchange for all the issued and outstanding shares of
Auctomatic.
 
 The
consideration was payable as follows: (i) 340,001 shares, or 34%, of the common
stock and (ii) $1,200,000 less $152,939 in assumed liabilities.  An
additional 246,402 shares of common stock were issued and were to be distributed
in equal amounts to the Auctomatic shareholders on each of the first, second and
third anniversaries of the Closing Date. The remaining $800,000 of the total
Cash Consideration was to be distributed on the first anniversary of the Closing
Date.  All amounts of cash and common stock are to be distributed pro
rata among the Auctomatic Stockholders.
 
 The
distribution of the remaining 413,604 shares of the common stock payable on the
first, second and third anniversary of the Closing Date to the Auctomatic
founders was subject to their continuing employment with the Company or a
subsidiary on each Distribution Date.  As these shares were contingent
on future employment, they were considered contingent consideration and were
required to be accounted for under ASC 718 as stock-based
compensation.  During the first quarter of 2009, one of the founders
resigned from Live Current, and therefore the distribution of 137,868 shares of
the common stock on the first, second and third anniversaries was no longer
payable.  At that date, the remaining 275,736 shares of the common
stock owing to the other founders remained payable on the anniversary dates as
noted above.  During the second quarter of 2009, 91,912 of these
shares were issued to the two founders who remained with the
Company.  In August 2009, these two founders were
terminated.  The remaining 183,824 shares of common stock payable
under the Merger Agreement on the second and third anniversaries to these two
Auctomatic founders contingent on employment were forgone pursuant to the
separation agreements with these two individuals.  See also Note
11.
  F-20
 Live
Current Media Inc.
 Notes
to the Consolidated Financial Statements
 For
the year ended December 31, 2009
 NOTE
7 – MERGER AGREEMENT (continued)
 
 The
purchase price to affect the merger was allocated as following on the Closing
Date:
 
 Purchase
      Price PaidCash
      (net of assumed liabilities)
              
              $
              1,046,695Transaction
      Costs
              
              
              387,358Cash
      consideration for Auctomatic
              
              
              1,434,053Present
      value of shares of common stock paid and payable to shareholders of
      Auctomatic
              
              
              1,248,865Present
      value of amounts payable to shareholders of Auctomatic
              
              
              640,000Total
              
              $
              3,322,918
 
 Net
      Assets AcquiredAssetsCash
              
              $
              3,066Share
      subscriptions receivable
              
              
              780Computer
      hardware
              
              
              7,663Auction
      software(Note
      8)
              
              
              925,000Goodwill
              
              
              2,539,348Less
      LiabilitiesAccounts
      payable and accrued liabilities
              
              
              (85,622
              )Loan
      payable
              
              
              (67,317
              )Net
      Assets Acquired
              
              $
              3,322,918
 
 To show
effect to the merger of Auctomatic and Delaware as if the merger had occurred on
January 1, 2008, the pro forma information for the year ended December 31, 2008
would have resulted in revenues that remain unchanged from those reported in the
consolidated financial statements, no cumulative effect of accounting changes,
and income before extraordinary items and net income which both would have
decreased by $106,035.
 
 At May
22, 2008, the fair value of the amounts payable in cash to shareholders of
Auctomatic on the first anniversary of the closing date was
$640,000.  The fair value discount was accreted in full by $63,300 by
the first anniversary date, May 22, 2009 (2008 accretion -
$96,700).  As a result, the full $800,000 of the amounts payable in
cash to the shareholders of Auctomatic due on the first anniversary of the
closing date had been accrued by the Company.  The funds due to the
Auctomatic shareholders at the first anniversary date were not paid by the
Company as required.
 
 In August
2009, the Company issued convertible notes to twelve of the eighteen
shareholders covering $424,934 of the total $800,000.  These
convertible notes are interest bearing at 10% per annum, with such interest
accruing as of May 22, 2009 and payable quarterly in arrears.  The
convertible notes mature on May 22, 2010.
  Convertible
      Notes to Shareholders of AuctomaticConvertible
      notes issued August 21, 2009
              
              $
              424,934Interest
      accrued May 22, 2009 – December 31, 2009
              
              
              25,845Interest
      paid up to December 31, 2009
              
              
              (21,279
              )Balance,
      December 31, 2009
              
              $
              429,500
  F-21
 Live
Current Media Inc.
 Notes
to the Consolidated Financial Statements
 For
the year ended December 31, 2009
 NOTE
7 – MERGER AGREEMENT (continued)
 
 Also in
August 2009, the Company reached an agreement with the remaining two founders of
Auctomatic to terminate their employment.  Under their separation
agreements, the Company will repay the amounts owed to them under the Merger
Agreement at a 10% discount to face value as discussed below.  The
Company also recorded $60,000 of severance costs in Q3 of 2009 due to them under
their employment agreements.  The severance costs were reimbursed
pursuant to the Cricket agreements as discussed in Note 6.  In
consideration of these payments, these individuals have each agreed to forfeit
their rights to 91,912 shares of Live Current common stock that were due to be
issued to each of them in May 2010 and May 2011 under the Merger
Agreement.
 
 The
amounts owing to the two founders of Auctomatic pursuant to the Merger Agreement
totalled $334,224 prior to their separation agreement.  These amounts
were discounted at 10% to face value in August 2009 and a gain on restructure of
the Auctomatic payable of $29,201 was recorded in the statements of operations
during the third quarter of 2009.  Payments of $75,200 were made
against the amounts owing to the founders upon execution of the separation
agreements.  The agreements provided for the balance of the payments
to be made on October 1, 2009, with simple interest accruing on unpaid amounts
after October 1, 2009 at 10% per annum.  Amounts owing to the other
four of the eighteen shareholders of Auctomatic who did not take part in the
convertible note offering total $40,841.
  Due
      to Shareholders of AuctomaticAmounts
      payable to Auctomatic founders
              
              $
              334,224Amounts
      paid to Auctomatic founders
              
              
              (227,200
              )Amounts
      payable to other Auctomatic shareholders
              
              
              40,841Gain
      on restructure of Auctomatic payable
              
              
              (29,201
              )Balance,
      December 31, 2009
              
              $
              118,664
 
 At
December 31, 2009, the Company recognized an impairment charge of the goodwill
acquired pursuant to the merger of $2,539,348 as noted above.
 
 NOTE
8 – PROPERTY & EQUIPMENT
 
 December
      31, 2009
              
              Cost
              
              
              Accumulated
      Amortization
              
              
              Net
      Book ValueOffice
      Furniture and Equipment
              
              $
              167,464
              
              
              $
              57,956
              
              
              $
              109,508Computer
      Equipment
              
              
              119,737
              
              
              
              69,167
              
              
              
              50,570Computer
      Software
              
              
              27,276
              
              
              
              27,276
              
              
              
              -Leasehold
      Improvements
              
              
              142,498
              
              
              
              71,249
              
              
              
              71,249$
              456,975
              
              
              $
              225,648
              
              
              $
              231,327
 
 December
      31, 2008 (as restated)
              
              Cost
              
              
              Accumulated
      Amortization
              
              
              Net
      Book ValueOffice
      Furniture and Equipment
              
              $
              165,868
              
              
              $
              30,778
              
              
              $
              135,090Computer
      Equipment
              
              
              100,789
              
              
              
              51,554
              
              
              
              49,235Computer
      Software
              
              
              27,276
              
              
              
              13,638
              
              
              
              13,638Auction
      Software
              
              
              925,000
              
              
              
              179,861
              
              
              
              745,139Leasehold
      Improvements
              
              
              142,498
              
              
              
              42,749
              
              
              
              99,749$
              1,361,431
              
              
              $
              318,580
              
              
              $
              1,042,851
 
 At June
30, 2009, the Company analyzed the potential for impairment of the auction
software that was acquired pursuant to the Merger Agreement.  At this
date, the Company considered the significant changes that were made to the
direction and to staffing within the Company.  The lack of a strategy,
plans, or use of the Auction software a year subsequent to the acquisition of
the software indicated impairment of the asset at the end of the second quarter
of 2009.  Therefore, the Company believed that the auction software
was impaired and has written off the net book value of the asset of $590,973 at
that date.
 F-22
 Live
Current Media Inc.
 Notes
to the Consolidated Financial Statements
 For
the year ended December 31, 2009
 NOTE
9 – WEBSITE DEVELOPMENT COSTS
 
 Website
development costs are related to infrastructure development of various websites
that the Company operates.  In previous years, costs qualifying for
capitalization were immaterial and therefore were expensed as
incurred.  Website maintenance, training, data conversion and business
process reengineering costs are expensed in the period in which they are
incurred.  Costs incurred in the application development phase are
capitalized, and when the related websites reach the post-implementation
operating phase, the Company begins amortizing these costs on a straight-line
basis over 36 months beginning in the month following the implementation of the
related websites.
  December
      31,
                2009
              
              
              December
      31, 2008
                (as
      restated)Website
      Development Costs
              
              $
              359,929
              
              
              $
              405,001Less:
      Accumulated Amortization
              
              
              (142,046
              )
              
              
              (49,610
              )$
              217,883
              
              
              $
              355,391
 
 The
Company capitalized website development costs of $47,804 during the year ended
December 31, 2009 and recorded $123,395 in accumulated
amortization.  The Company expensed website development costs of
$92,876 and corresponding accumulated amortization of $30,959 related to domain
names that were sold during the year.  The net effect of these amounts
was offset against the gain from sales of domain names.
 NOTE
10 – DEFERRED LEASE INDUCEMENTS
 
  December
      31,
                2009
              
              
              December
      31, 2008
                (as
      restated)Deferred
      Lease Inducements
              
              $
              55,379
              
              
              $
              75,518Less:
      Current Portion
              
              
              (20,138
              )
              
              
              (20,138
              )$
              35,241
              
              
              $
              55,380
 NOTE
11 – COMMON STOCK
 
 a)    
Authorized
 
 The
authorized capital of the Company consists of 50,000,000 common shares with a
par value of $0.001 per share. No other shares have been
authorized.
 
 b)    
Issued
 
 At
December 31, 2009, there were 24,026,180 (December 31, 2008 – 23,546,370) shares
issued and outstanding.
 
 2009
 
 On
January 2, 2009, the Company issued 15,000 shares with a value of $5,700 to the
investor relations firm that was engaged to provide investor relations services
to the Company.  This was the Company’s final share issuance to this
investor relations firm.  The agreement has since been
terminated.
 
 On
January 8, 2009, the Company entered into an agreement whereby $120,776 of its
accounts payable was extinguished in exchange for the issuance of 345,075 shares
of its common stock.  As a result of this agreement, 172,538 shares
were issued on January 22, 2009 and 172,537 shares were issued on February 20,
2009.
 
 On April
9, 2009, the Company entered into an agreement whereby $8,625 of its accounts
payable was extinguished in exchange for the issuance of 27,823 shares of its
common stock.  These shares were issued on April 14,
2009.
 
 On June
19, 2009, the Company issued 45,956 shares of its common stock to each of the
two remaining Auctomatic founders for a total of 91,912 shares pursuant to the
Merger Agreement as discussed in Note 7.
  F-23
 
  Live
Current Media Inc.
 Notes
to the Consolidated Financial Statements
 For
the year ended December 31, 2009
 NOTE
11 – COMMON STOCK
 
 2008
 
 The
Company issued 50,000 warrants to an investor relations firm in May 2008, and
expensed $45,500 in relation to the value of the warrants.  See also
Note 11(e).
 
 In June
2008, the Company issued 586,403 shares of common stock in relation to the May
22, 2008 merger with Auctomatic.  Of those total issued shares,
340,001 shares were distributed to the shareholders and an additional 246,402
shares were being held for future distribution in three equal installments on
the three anniversary dates following the merger pursuant to the terms of the
Merger Agreement.  The value of the stock consideration was added to
the cash consideration in the Company’s determination of the purchase
price.  See also Note 7.  The remaining 413,604 shares of
common stock were reserved for future issuance to the Auctomatic founders and
are accounted for as stock-based compensation pursuant to ASC 718. See also Note
11(c) and Note 11(d).
 
 In May
and June 2008, the Company issued 45,000 shares to an investor relations firm
that had been engaged to provide investor relations services to the
Company.  Of the 45,000 shares, 30,000 shares with a value of $85,350
were issued as partial consideration for services rendered, while the remaining
15,000 shares with an estimated value of $42,300 were recorded as a prepaid
expense in June 2008 for services to be rendered in July 2008.  In
July 2008, this amount was revalued to $36,573 based on the July average stock
price and expensed with the difference between the estimated and actual values
adjusted to Additional Paid-In Capital.
 
 In August
2008, the Company issued 33,000 shares to an investor relations firm that had
previously been engaged to provide investor relations services to the
Company.  The contract with this former investor relations firm
terminated August 1, 2008.  The 33,000 shares owing to the firm had a
value of $85,682 and were issued as full consideration for services
rendered.
 
 In August
and September 2008, the Company issued 30,000 shares to an investor relations
firm that had been engaged to provide investor relations services to the
Company.  These shares, which were valued at $57,254, were issued as
partial consideration for services rendered during the year.
 
 In
October 2008, the Company cancelled 300,000 shares of common stock that had been
pre-maturely issued in a prior year in anticipation of a transaction that was
never consummated.
 
 During
November 2008, the Company accepted subscriptions from 11 accredited investors
pursuant to which the Company issued and sold 1,627,344 units consisting of one
share of the Company’s common stock and two warrants, each for the purchase of
one-half a share of common stock.  The price per unit was
$0.65.  The Company raised gross proceeds of $1,057,775 (the
“Offering”). The Offering closed on November 19, 2008.  One warrant is
exercisable at $0.78 (a 20% premium) and expires November 19,
2010.  The other warrant is exercisable at $0.91 (a 40% premium) and
expires November 19, 2011.  The Company incurred $86,803 in share
issuance costs related to the Offering.  The Company filed an S-1
Registration Statement with the SEC on May 1, 2009 to register for resale the
common stock and the common stock underlying the warrants.  The
securities were offered and sold by the Company to accredited investors in
reliance on Section 506 of Regulation D of the Securities Act of 1933, as
amended.  Refer to Note 11(e).
 
 In
December 2008, the Company extinguished $16,500 of accounts payable by issuing
33,000 shares to the investor relations firm that had previously been engaged to
provide investor relations services to the Company.
 
 In
October, November and December 2008, the Company issued 45,000 shares to an
investor relations firm that had been engaged to provide investor relations
services to the Company.  These shares, which were valued at $39,000,
were issued as partial consideration for services rendered.
  F-24
 
  Live
Current Media Inc.
 Notes
to the Consolidated Financial Statements
 For
the year ended December 31, 2009
 NOTE
11 – COMMON STOCK (continued)
 
 c)    
Reserved
 
 Auctomatic
 
 At
December 31, 2008, the Company had reserved 413,604 shares of common stock for
future issuance and distribution in relation to the May 22, 2008 merger with
Auctomatic. These shares were to be issued to the Auctomatic founders in three
equal instalments on the next three anniversary dates of the merger contingent
on their continued employment with the Company pursuant to the terms of the
Merger Agreement. In the first quarter of 2009, one of the Auctomatic founders
resigned from the Company. As a result, 137,868 shares reserved for distribution
to this individual were released and are no longer
payable.    In the second quarter of 2009, the Company
issued 91,912 shares to the remaining two Auctomatic founders pursuant to the
Merger Agreement as noted above.
 
 In August
2009, the remaining two Auctomatic founders were terminated.  The
shares of common stock contingent on their continued employment with the Company
were forgone pursuant to separation agreements signed with the two
individuals.  Therefore, at December 31, 2009, there are no further
reserved shares for future issuance and distribution to the Auctomatic founders.
See also Note 7 and Note 11(d).
 
 Former
President
 
 Effective
January 31, 2009, the Company’s former President and Chief Operating Officer
resigned.  Pursuant to his separation agreement, the Company was
required to pay an accrued special bonus in the amount of CDN$250,000 less any
statutory deductions.  This amount was included in accounts payable
and accrued liabilities at that time.  The net payment of this bonus
was to be converted to equity and paid as restricted shares of the Company’s
common stock.
 
 On
November 13, 2009 the Company entered into a second amendment to the separation
agreement noted above.  Pursuant to the second amendment, the
severance allowance remaining to be paid and all additional benefits owed to Mr.
Ehrlich as of November 16, 2009 in the gross amount of $109,375 was to be paid
in a lump sum payment less all applicable withholdings, rather than over a
period of 10 remaining months.  Furthermore, Mr. Ehrlich waived the
CDN$250,000 in net monthly equity payments that the Company was obligated to pay
him under the initial separation agreement, and accepted $20,000 cash, less all
applicable withholdings, in lieu thereof.
 
 d)   
Stock Options
 
 The Board
of Directors and stockholders approved the 2007 Stock Incentive Plan and adopted
it on August 21, 2007 (the “Plan”).  The Company has reserved
5,000,000 shares of its common stock for issuance to directors, employees and
consultants under the Plan.  The Plan is administered by the Board of
Directors.  Vesting terms of the options range from immediately to
five years and no options will be exercisable for a period of more than ten
years.
 
 All stock
options noted herein vest over three years and are exercisable for a period of
five years based on the date of grant.  The Company historically
valued the options granted to employees and directors using the Black Scholes
option pricing model at the date of grant.  The Company values the
options to consultants at each reporting period under ASC 718 for non-employees
using the Black Scholes option pricing model.  The assumptions used in
the pricing model include:
  2009
              2008
                (as
      restated)Dividend
      yield
              0%
              0%Expected
      volatility
              97.02%-124.52%
              64.86%-75.68%Risk
      free interest rate
              1.29%-1.70%
              1.62%
      - 3.07%Expected
      lives
              3.375
      years
              3.375
      years
  F-25
 
 Live
Current Media Inc.
 Notes
to the Consolidated Financial Statements
 For
the year ended December 31, 2009
  
 NOTE
11 – COMMON STOCK (continued)
 
 d)   Stock
Options (continued)
  (i)
              On
      January 1, 2008, the Company granted to its Chief Corporate Development
      Officer (“CCDO”) 1,000,000 options at an exercise price of $2.06 per
      share.  These options have a fair value of $1.26 per option
      granted.(ii)
              On
      January 7, 2008, the Company granted to its Vice President, Finance (“VP
      Finance”) 150,000 options at an exercise price of $1.98 per
      share.  These options have a fair value of $1.20 per option
      granted.(iii)
              On
      March 14, 2008, the Company granted to a director 100,000 options at an
      exercise price of $2.49 per share.  These options have a fair
      value of $1.40 per option granted.(iv)
              On
      May 27, 2008, the Company granted to its Vice President, General Counsel
      (“VP GC”) 125,000 options at an exercise price of $3.10 per
      share.  These options have a fair value of $1.71 per option
      granted.(v)
              Between
      January 1, 2008 and December 31, 2008, the Company granted to its
      full-time corporate directors a total of 425,000 options at a range of
      exercise prices between $2.06 and $3.30 per share.  These
      options have a fair value of between $1.26 and $1.92 per option
      granted.  25,000 of these options were forfeited during 2008 and
      the remaining 400,000 options were forfeited in 2009.(vi)
              Between
      January 1, 2008 and December 31, 2008, the Company granted to its
      full-time employees a total of 290,000 options at a range of exercise
      prices between $0.65 and $3.10 per share.  These options have a
      fair value of between $0.30 and $1.71 per option
      granted.  17,500 of these options have been forfeited during
      2008 and 167,500 options were forfeited in 2009.(vii)
              Between
      January 1, 2008 and December 31, 2008, the Company granted to consultants
      a total of 70,000 options at exercise prices ranging from $2.06 to $2.49
      per share.  All of these options were forfeited during
      2008.(viii)
              On
      March 25, 2009, the Board of Directors approved a reduction of the
      exercise price of stock option grants made prior to this
      date.  As a result, all grants issued prior to March 25, 2009
      currently have an exercise price of $0.65.  The stock option
      grants included in the repricing initially had exercise prices between
      $0.65 and $3.30.  The incremental value of $213,895 relating to
      the fair values at the date of the reduction in price has been included in
      the period expense.(ix)
              On
      March 25, 2009, the Company granted to its full-time employees a total of
      115,000 options at an exercise price of $0.30 per share.  These
      options have a fair value of $0.19 per option granted.  In 2009,
      100,000 options were forfeited.(x)
              On
      April 8, 2009, the Company granted to one of its full-time employees a
      total of 5,000 options at an exercise price of $0.35 per
      share.  These options have a fair value of $0.23 per option
      granted.(xi)
              On
      May 28, 2009, the Company granted to one of its full-time employees a
      total of 5,000 options at an exercise price of $0.30 per
      share.  These options have a fair value of $0.21 per option
      granted.(xii)
              On
      September 1, 2009, the Company granted to two of its full-time corporate
      directors a total of 75,000 stock options at an exercise price of $0.22
      per share.  These options have a fair value of $0.16 per option
      granted.(xiii)
              On
      November 30, 2009, the Company granted to one of its full-time employees a
      total of 15,000 options at an exercise price of $0.16 per
      share.  These options have a fair value of $0.12 per option
      granted.
  F-26
 Live
Current Media Inc.
 Notes
to the Consolidated Financial Statements
 For
the year ended December 31, 2009
 NOTE
11 – COMMON STOCK (continued)
 
 d) Stock
Options (continued)
 The
Company recognizes stock-based compensation expense over the requisite service
period of the individual grants.  ASC 718 requires forfeitures to be
estimated at the time of grant and revised, if necessary, in subsequent periods
if actual forfeitures differ from those estimates. Due to recent economic
developments, the Company has experienced a high level of forfeitures during
late 2008 and early 2009. The Company assesses forfeiture rates for each class
of grantees; executive management and directors, corporate directors, and
general staff members.  Executive management and directors are
relatively few in number and turnover is considered remote, therefore the
Company estimates forfeitures for this class of grantees to be 10%. Corporate
directors are high level senior staff members with a forfeiture rate of 25% and
general staff members have a higher forfeiture rate due to higher average
turnover rates at 35%. Estimate of forfeitures is reviewed on an annual basis.
Stock-based compensation is expensed on a straight-line basis over the requisite
service period.
 
 The fair
value of these options at December 31, 2009 of $5,013,896 (2008 - $5,824,833)
will be recognized on a straight-line basis over a vesting term of 3.375 years
and an expense has been recognized in the year ended December 31, 2009 of
$1,596,847 (2008 - $1,992,461) and included in management fees and employee
salaries expense.
 On May
22, 2008, the Company reserved 413,604 shares of common stock for future
issuance and distribution in relation to the merger with
Auctomatic.  These shares were to be issued to the Auctomatic founders
in equal instalments on the three subsequent anniversary dates of the merger
contingent on their continued employment with the Company pursuant to the terms
of the Merger Agreement.  As these shares were contingent on future
employment, they were considered contingent consideration and are required to be
accounted for under ASC 718 as stock-based compensation.  During the
first quarter of 2009, 137,868 of these shares were forfeited.  During
the second quarter of 2009, 91,912 of these shares were issued out of
treasury.  During the third quarter of 2009, the remaining 183,824
shares were forfeited.  See also Note 7 and Note
11(c).  Before August 2009, the shares were valued using the Black
Scholes option pricing model at the date of grant using a 3 year term and a 33%
forfeiture rate.  Beginning in August 2009, the shares were valued
using a 100% forfeiture rate as all of the founders had forfeited their
shares.
 
 The fair
value of these shares at July 31, 2009 of $1,077,773 (December 31, 2008 -
$1,157,049) was recognized on a straight-line basis over a vesting term of 3
years at date of grant and accordingly, an expense had been recognized in the
year ended December 31, 2009 of $160,955 (2008 - $170,065) and included in
management fees and employee salaries expense.  In August 2009, the
forfeiture rate changed to 100% and therefore at December 31, 2009, the fair
value was $0.
 
 A summary
of the option activity under the 2007 Plan during 2008 and 2009 is presented
below:
 
 Options
              
              Shares
              
              
              Weighted
      Average
                Exercise
      Price
                $
              
              
              Weighted
      Average Fair Value
                $Options
      outstanding, December 31, 2007
              
              
              2,750,000
              
              
              
              1.41
              
              
              
              1.50Granted
              
              
              2,160,000
              
              
              
              0.81
              
              
              
              1.36Exercised
              
              
              -
              
              
              
              -
              
              
              
              -Forfeited
      or expired
              
              
              (112,500
              )
              
              
              2.29
              
              
              
              0.47Options
      outstanding, December 31, 2008
              
              
              4,797,500
              
              
              
              1.12
              
              
              
              1.46Granted
              
              
              215,000
              
              
              
              0.26
              
              
              
              0.18Exercised
              
              
              -
              
              
              
              -
              
              
              
              -Forfeited
      or expired
              
              
              (2,167,500
              )
              
              
              1.67
              
              
              
              1.44Options
      outstanding, December 31,2009
              
              
              2,845,000
              
              
              
              0.63
              
              
              
              1.38Options
      vested at December 31, 2009
              
              
              1,783,334
              
              
              
              0.65
              
              
              
              1.45Aggregate
      Intrinsic Value
              
              $
              0Weighted
      average remaining life
              
              2.97
      Years
 F-27
 Live
Current Media Inc.
 Notes
to the Consolidated Financial Statements
 For
the year ended December 31, 2009
 NOTE
11 – COMMON STOCK (continued)
 
 e)    Common
Stock Purchase Warrants
 
 On June
11, 2007, the Company issued 1,000,000 shares of common stock and 1,000,000
common stock share purchase warrants to a company owned and controlled by the
Company’s Chief Executive Officer in exchange for $1,000,000
cash.  The warrants expired June 10, 2009.
 
 On May 1,
2008, the Company issued 50,000 common stock share purchase warrants with an
exercise price of $2.33 to its investor relations firm in connection with a
services agreement.  The warrants expire May 1, 2010.  The
Company valued these warrants using the Black Scholes option pricing model using
the following assumptions: no dividend yield; expected volatility rate of
69.27%; risk free interest rate of 2.37% and an expected life of 2 years
resulting in a fair value of $0.91 per warrant granted, and a total fair value
of $45,500.
  In
connection with the private placement in November 2008, the Company issued
1,627,344 warrants, each for the purchase of one-half share of the Company’s
common stock, with an exercise price of $0.78 expiring November 19, 2010 and
1,627,344 warrants, each for the purchase of one-half share of the Company’s
common stock, with an exercise price of $0.91 expiring November 19,
2011.  The Company valued the warrants expiring November 19, 2010
using the Black Scholes option pricing model using the following assumptions: no
dividend yield; expected volatility rate of 75.24%; risk free interest rate of
1.09% and an expected life of 1 year.  This resulted in a fair value
of $0.09 per warrant.  The Company valued the warrants expiring
November 19, 2011 also using the Black Scholes option pricing model using the
following assumptions: no dividend yield; expected volatility rate of 70.53%,
risk free interest rate of 1.36% and an expected life of 2
years.  This resulted in a fair value of $0.10 per
warrant.  The total fair value of both warrants at December 31, 2009
was $250,710 (2008 - $157,895).  The warrants issued are contingently
redeemable in cash in certain circumstances which may not all be within the
Company’s control.  As a result, the accounting treatment for the
warrants falls under ASC 815-40-25, and their fair value of $157,895 at December
31, 2008 was recorded as a liability.  Any future changes to the fair
value of the warrants will be adjusted to the statement of operations in the
period in which the change in fair value occurs.  During the year
ended December 31, 2009, the increase to the fair value of the warrants was
$92,815 which was charged against corporate general and administrative expenses
during the year.
 
 As of
December 31, 2009, 3,304,688 warrants to purchase the Company’s common stock
remain outstanding as follows:
 
 WeightedWarrants
              
              Outstanding
              
              
              Average
              
              
              Date
      ofExercise
      Price
              
              
              Expiry$Warrants
      outstanding, December 31, 2007
              
              
              1,000,000
              
              
              
              1.25
              
              
              June
      10, 2009Granted
      May 1, 2008
              
              
              50,000
              
              
              
              2.33
              
              
              May
      1, 2010Granted
      November 19, 2008
              
              
              1,627,344
              
              
              
              0.78
              
              
              November
      19, 2010Granted
      November 19, 2008
              
              
              1,627,344
              
              
              
              0.91
              
              
              November
      19, 2011Warrants
      outstanding and exercisableDecember
      31, 2008
              
              
              4,304,688
              
              
              
              0.96Granted
              
              
              -
              
              
              
              -Cancelled
      or expired
              
              
              (1,000,000
              )
              
              
              1.25Warrants
      outstanding and exercisableDecember
      31, 2009
              
              
              3,304,688
              
              
              
              0.89Weighted
      average remaining life
              
              1.35
      Years
  F-28
 Live
Current Media Inc.
 Notes
to the Consolidated Financial Statements
 For
the year ended December 31, 2009
 NOTE 12 – DOMAIN NAME LEASES AND SALES
 
 2009
 
 In
December 2009, the Company sold two domain names for $152,700 net of commission
and the purchase prices were paid in full upon the execution of the
agreement.  The resulting $122,327 in net gain was reported in the
fourth quarter of 2009.
 
 In
December 2009 (the “Effective Date”), the Company entered into an agreement to
lease two domain names to an unrelated third party for $400,000 less 10%
commission.  The terms of the agreement provided for the receipt of
this amount in irregular lease payments to be received by May
2010.  The first payment of $40,000 less half of the commission was
due upon execution of the agreement, and three instalments of $120,000 each
(less commission) are due on March 31, 2010, April 30, 2010, and May 31,
2010.  The Company will lease the domain name to the purchaser
exclusively during the term of the agreement.  Title and rights to the
domain name will be transferred to the purchaser only when full payment is
received at the end of the lease term.  If the purchaser defaults on
any payments, the agreement would terminate, funds received to date would be
forfeited by the purchaser, and rights to the domain name would return to the
Company.  Due to the uncertainty regarding the collectability of the
funds in the future, only the first payment received has been recorded as a gain
on sale of a domain name.
 
 In August
2009, the Company sold the domain name www.cricket.com.  Due
to the uncertainty regarding the collectability of the funds receivable under
the sale agreement in the future, the Company recognized the first instalment of
$250,000 received during the third quarter of 2009 and recognized the second
instalment of $250,000 during the fourth quarter of 2009.  These
amounts were included in the Company’s analysis under ASC 605-25 as disclosed in
Note 6.  Therefore four/sixths of the first instalment of $250,000, or
$166,667, and one/third of the second instalment of $250,000, or $83,333, were
recorded as a gain on sales-type lease of a domain name during the
year.
 
 In July
2009, the Company sold three domain names for $725,000 less 10% commission and
the purchase prices were paid in full upon the execution of each
agreement.  The resulting $374,887 in net gain was reported in the
third quarter of 2009.
 
 On April
15, 2009, the Company sold one domain name to an unrelated third party for
$400,000 less 10% commission, resulting in a $261,934 net gain in the second
quarter of 2009.
 
 On
February 27, 2009 (the “Effective Date”), the Company entered into an agreement
to lease one domain name to an unrelated third party for
$1,250,000.  The terms of the agreement provided for the receipt of
this amount in irregular lease payments over a one-year term.  The
first payment of $225,000 was due within 7 days of the Effective Date, $65,000
was due on each of the first to the fifth monthly anniversaries of the Effective
Date, $100,000 was due on each of the sixth to the ninth monthly anniversaries
of the Effective Date, and $300,000 was due on the first year anniversary of the
Effective Date.  The Company was to lease the domain name to the
purchaser exclusively during the term of the agreement.  Title and
rights to the domain name would be transferred to the purchaser only when full
payment was received at the end of the lease term.  If the purchaser
defaulted on any payments, the agreement would terminate, funds received to date
would be forfeited by the purchaser, and rights to the domain name would return
to the Company.  Due to the uncertainty regarding the collectability
of the funds in the future, only the amounts received were recorded as a gain on
sale of a domain name.  During Q1 of 2009, a resulting gain of
$290,000 was recorded based on the payments received.  During Q2 of
2009, a resulting gain of $65,000 was recorded based on the payment received in
April 2009.  In May 2009, the purchaser breached the
agreement.  As a result, the purchaser forfeited the total of $355,000
that had already been paid to the Company as of that date and that was recorded
as a gain on sales-type lease of domain name.  Under the terms of the
agreement, the Company retained the funds and the domain name.  In
August 2009, the Company subsequently sold this domain name to an unrelated
third party for $1,100,000 less $110,000 in commission and the purchase price
was paid in full upon the execution of the agreement. The resulting gain of
$740,000 was reported as a gain on sale of domain name in the third quarter of
2009.
 
 On
February 24, 2009, the Company sold one domain name to an unrelated third party
for $400,000, resulting in a gain of $327,933 in the first quarter of
2009.
  F-29
 Live
Current Media Inc.
 Notes
to the Consolidated Financial Statements
 For
the year ended December 31, 2009
 NOTE 12 – DOMAIN NAME LEASES AND SALES
(continued)
 
 2008
 
 On
December 31, 2008, the Company entered into an agreement to sell one domain name
to an unrelated third party for CDN$500,000.  The terms of the
agreement provided for the receipt of CDN$476,190 on December 31, 2008 and the
balance of CDN$23,810 by March 31, 2009.  The title of the domain name
transferred to the buyer at December 31, 2008 as collection of the balance was
reasonably assured, therefore the disposal and resulting gain of $293,215 was
recorded on December 31, 2008.  Both payments were received in
accordance with the terms of the agreement.
 
 On
January 17, 2008, the Company entered into an agreement to lease one domain name
to an unrelated third party for CDN$200,000.  The terms of the
agreement provide for the receipt of this amount in five irregular lease
payments over a two-year term.  The first payment of CDN$25,000 was
due on January 17, 2008 (the “Effective Date”), CDN$45,000 was due 3 months
after the Effective Date, CDN$80,000 was due 6 months after the Effective Date,
CDN$25,000 is due 1 year after the Effective Date, and CDN$25,000 is due 2 years
after the Effective Date.  The Company will lease the domain name to
the third party exclusively during the term of the agreement.  Title
and rights to the domain name will be transferred to the purchaser only when
full payment is received at the end of the lease term.  If the third
party defaults on any payments, the agreement terminates, funds received to date
are forfeited by the lessee, and rights to the domain name return to the
Company.  This transaction was recorded as a sales-type lease in
2008.  The investment in a sales-type lease of $163,963 was recorded
on the balance sheet on a net basis after the lease payments received to
date.  The gain of $168,206 was recorded at the present value of the
lease payments over the term, net of the cost of the domain name, at an implicit
rate of 6%.  Payments have been collected to date in accordance with
the terms of the agreement.
 NOTE
13 – OTHER EXPENSES
 
 During Q1
of 2009, the Company incurred various restructuring costs of $264,904 consisting
of severance payments to the former President and Chief Operating Officer and to
other staff terminated in the first quarter as a result of restructuring the
Company’s staffing requirements.  There were no such expenses in Q2 or
Q3 of 2009.
 
 During Q1
of 2008, the Company incurred various restructuring costs totaling $629,856
relating to establishing the new management team.  During the period,
such costs included severance payments to the Company’s former Chief Financial
Officer of $168,429, $25,657 in consulting fees to the former Chief Financial
Officer, $317,109 in signing bonuses to the Company’s new Chief Corporate
Development Officer and new Vice President Finance, a severance payment of
$53,582 to one full time employee, $39,778 in costs related to changing the
Company name and rebranding, and $25,301 in some final windup costs related to
the FrequentTraveller disposition in late 2007.  During Q2 of 2008,
the Company incurred similar restructuring costs including $31,691 in valuation
costs relating to the issuance of DHI shares to its parent company, which
occurred in Q1 of 2008, and $2,000 in some final windup costs related to the
FrequentTraveller disposition in late 2007.   During Q3 of 2008,
the Company incurred $20,000 in costs related to engaging a firm to pursue
capital financing opportunities that were terminated subsequent to the 2008 year
end.
 
 NOTE
14 – INCOME TAXES
 
 The
Company’s subsidiaries, DHI, Importers, and 612793 are subject to federal and
provincial taxes in Canada.  The Company and its subsidiary, Delaware,
are subject to United States federal and state taxes.
 
 As at
December 31 2009, the Company and its US subsidiaries have net operating loss
carryforwards from previous tax years of approximately $4,320,900 and capital
loss carryforwards of $120,000 that result in deferred tax
assets.  The Company’s Canadian subsidiaries have non capital loss
carryforwards of approximately $7,552,600 that result in deferred tax
assets.  These loss carryforwards will expire, if not utilized,
through 2029.  The Company’s subsidiary DHI also has approximately
$417,500 in undepreciated capital costs relating to property and equipment that
have not been amortized for tax purposes.  The costs may be amortized
in future years as necessary to reduce taxable income.  Management
believes that the realization of the benefits from these deferred tax assets is
uncertain and accordingly, a full deferred tax asset valuation allowance has
been provided and no deferred tax asset benefit has been recorded.
  F-30
 Live
Current Media Inc.
 Notes
to the Consolidated Financial Statements
 For
the year ended December 31, 2009
 NOTE
14 – INCOME TAXES (continued)
 
 The
Company’s actual income tax provisions differ from the expected amounts
determined by applying the appropriate combined effective tax rate to the
Company’s net income before taxes. The significant components of these
differences are as follows:
 2009
              
              
              2008
                (As
      Restated)Income
      (Loss) before income taxes
              
              $
              (4,091,076
              )
              
              $
              (10,027,659
              )Combined
      corporate tax rate
              
              
              35.0%
              
              
              
              35.0%Expected
      corporate tax recovery (expense)
              
              
              1,431,877
              
              
              
              3,509,681Effective
      foreign tax rate adjustment
              
              
              27,301
              
              
              
              (158,651
              )Increase
      (decrease) resulting from:Effect
      of tax rate changes
              
              
              -
              
              
              
              (129,720
              )Reduction
      in future tax benefits related to Auctomatic
              
              
              (103,875
              )
              
              
              (219,980
              )Reduction
      in future tax benefits related to intangible assets
              
              
              46,735
              
              
              
              (91,309
              )Non-taxable
      portion of domain name sales
              
              
              760,145
              
              
              
              143,041Stock
      based compensation
              
              
              (548,806
              )
              
              
              (701,983
              )Non-deductible
      items and other
              
              
              (141,140
              )
              
              
              (176,776
              )Exchange
      adjustment to foreign denominated future tax assets
              
              
              (111,076
              )
              
              
              (71,806
              )Non-deductible
      impairment charges
              
              
              (888,772
              )
              
              
              -Change
      in valuation allowance
              
              
              (472,389
              )
              
              
              (2,102,497
              )Provision
      for income taxes
              
              $
              -
              
              
              $
              -
 
 The tax
effects of temporary differences that give rise to significant components of
future income tax assets and liabilities are as follows:
 2009
              
              
              2008
                (As
      Restated)Deferred
      income tax assets:Operating
      losses available for future periods
              
              $
              3,350,224
              
              
              $
              3,056,863Property
      and equipment in excess of net book value
              
              
              108,663
              
              
              
              -Other
      differences
              
              
              66,174
              
              
              
              24,1343,525,061
              
              
              
              2,846,302Deferred
      income tax liabilitiesProperty
      and equipment in excess of net book value
              
              
              -
              
              
              
              (28,325
              )Indefinite
      life intangible assets
              
              
              (125,207
              )
              
              
              (206,370
              )3,399,854
              
              
              
              2,846,302Valuation
      allowance
              
              
              (3,525,061
              )
              
              
              (3,052,672
              )Net
      deferred income tax liability
              
              $
              (125,207
              )
              
              $
              (206,370
              )
 
 The
Company has a deferred tax liability related to potential taxes owing on
potential gains on disposal of our domain name intangible
assets.  GAAP does not permit taxable temporary differences associated
with indefinite life intangible assets to be considered as evidence to otherwise
reduce a valuation allowance associated with deductible timing differences in
the same entity.  The Company has recorded a related deferred tax
liability in its consolidated financial statements of $125,207 at December 31,
2009 (2008 - $206,370).  There was a deferred tax recovery during the
year ended December 31, 2009 of $81,163 (2008 - $40,389).
  F-31
 Live
Current Media Inc.
 Notes
to the Consolidated Financial Statements
 For
the year ended December 31, 2009
 NOTE
15 – SEGMENTED INFORMATION
 
 In 2008
and 2009, the Company’s operations were conducted in two business segments:
eCommerce Products, and Advertising and Other.
 
 During
2008, the Company began offering international shipping on its Perfume.com
website.  The operations of Perfume.com are included as the eCommerce
Products business segment.  The sales generated from regions other
than North America have been immaterial during the years ended December 31, 2009
and 2008, and therefore no geographic segment reporting is
required.
 
 Revenues,
operating profits and net identifiable assets by business segments are as
follows:
  For the year ended December 31,
      2009Advertising
                                    
                                    
                                    eCommerce
                                    
                                    
                                    eCommerce
                                    
                                    
                                    Total&
      Other
                                    
                                    
                                    Products
                                    
                                    
                                    Services$
                                    
                                    
                                    
                                    $
                                    
                                    
                                    
                                    $
                                    
                                    
                                    
                                    $Revenue
                                    
                                    
                                    390,412
                                    
                                    
                                    
                                    7,216,479
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    7,606,891Segment
      Loss
                                    
                                    
                                    (1,326,812
                                    )
                                    
                                    
                                    (2,873,556
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (4,200,368
                                    )As
      at December 31, 2009
                                    
                                    
                                    $
                                    
                                    
                                    
                                    $
                                    
                                    
                                    
                                    $
                                    
                                    
                                    
                                    $Total
      Assets
                                    
                                    
                                    1,772,290
                                    
                                    
                                    
                                    921,669
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    2,693,959Intangible
      Assets
                                    
                                    
                                    804,284
                                    
                                    
                                    
                                    158,849
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    963,133
 
 For the year ended December 31, 2008 (as
      restated)Advertising
                                
                                
                                eCommerce
                                
                                
                                eCommerce
                                
                                
                                Total&
      Other
                                
                                
                                Products
                                
                                
                                Services$
                                
                                
                                
                                $
                                
                                
                                
                                $
                                
                                
                                
                                $Revenue
                                
                                
                                93,140
                                
                                
                                
                                9,271,693
                                
                                
                                
                                -
                                
                                
                                
                                9,364,833Segment
      Loss
                                
                                
                                (4,312,730
                                )
                                
                                
                                (5,219,404
                                )
                                
                                
                                -
                                
                                
                                
                                (9,532,134
                                )As
      at December 31, 2008
                                
                                
                                $
                                
                                
                                
                                $
                                
                                
                                
                                $
                                
                                
                                
                                $Total
      Assets
                                
                                
                                1,665,723
                                
                                
                                
                                6,082,595
                                
                                
                                
                                -
                                
                                
                                
                                7,748,318Intangible
      Assets
                                
                                
                                1,398,417
                                
                                
                                
                                189,046
                                
                                
                                
                                -
                                
                                
                                
                                1,587,463
 
 The
reconciliation of the segment loss from operations to net loss as reported in
the consolidated financial statements is as
follows:
 2009
                                                
                                                
                                                2008Segment
      Loss
                                                
                                                $
                                                (4,200,368
                                                )
                                                
                                                $
                                                (2,414,328
                                                )Non-Operating
      (Income) and ExpensesGlobal
      Cricket Venture payments
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (1,000,000
                                                )Gain on
      settlement of amounts due regarding Global Cricket Venture
                                                
                                                
                                                750,000
                                                
                                                
                                                
                                                -Gains
      from sales and sales-type lease of domain names
                                                
                                                
                                                2,452,081
                                                
                                                
                                                
                                                461,421Accretion
      expense
                                                
                                                
                                                (63,000
                                                )
                                                
                                                
                                                (96,700
                                                )Interest
      expense
                                                
                                                
                                                (25,845
                                                )
                                                
                                                
                                                -Interest and
      investment income
                                                
                                                
                                                1,534
                                                
                                                
                                                
                                                67,683Foreign
      exchange loss
                                                
                                                
                                                (88,571
                                                )
                                                
                                                
                                                (3,407
                                                )Gain on
      restructure of severance payable
                                                
                                                
                                                212,766
                                                
                                                
                                                
                                                -Gain on
      restructure of Auctomatic payable
                                                
                                                
                                                29,201
                                                
                                                
                                                
                                                -Impairment of
      Auction Software
                                                
                                                
                                                (590,973
                                                )
                                                
                                                
                                                -Impairment of
      Goodwill
                                                
                                                
                                                (2,539,348
                                                )
                                                
                                                
                                                -Net
      loss before taxes for the year
                                                
                                                $
                                                (4,062,823
                                                )
                                                
                                                $
                                                (10,103,137
                                                )
 Substantially
all property and equipment and intangible assets are located in
Canada.
  F-32
  Live
Current Media Inc.
 Notes
to the Consolidated Financial Statements
 For
the year ended December 31, 2009
 NOTE
16 – COMMITMENTS
 
 Premise
Lease
 
 Effective
October 1, 2007 the Company leased its office in Vancouver, Canada from an
unrelated party for a 5-year period from October 1, 2007 to September 30,
2012.  Pursuant to the terms of the lease agreement, the Company is
committed to basic rent payments expiring September 30, 2012 as
follows.
  CDN
      $2010
              
              
              121,5312011
              
              
              126,8732012
              
              
              98,159
  The
Company will also be responsible for common costs currently estimated to be
equal to approximately 74% of basic rent.
 
 Global Cricket
Venture
 
 On March
31, 2009, the Company, its subsidiary GCV, the BCCI and the IPL amended the
MOUs.  The Company and the BCCI jointly entered into a Termination
Agreement, pursuant to which the MOU with the BCCI (“BCCI MOU”) was
terminated.  The agreement constitutes full and final settlement of
any and all historic and future outstanding obligations due from Live Current
under the BCCI MOU.  Per the Termination Agreement, Live Current would
be released from all accrued liabilities under the BCCI MOU after the $750,000
payment was made under the Novation Agreement described below.
 
 The
Company, GCV and the BCCI, on behalf of the IPL, entered into a Novation
Agreement with respect to the MOU with the IPL (“IPL MOU”).  The
responsibility for this payment was assumed by, and the benefits associated with
the MOU formerly held by the Company were transferred to, GCV.  The
IPL MOU’s payment schedule was also amended.
 
 These
terms were further renegotiated in August 2009 whereby GCV transferred and
assigned to an unrelated third party, Mauritius, all of the rights, title, and
interest in and to the IPL MOU, as amended by the Novation
Agreement.  Mauritius made the $750,000 payment as required under the
Novation Agreement during Q3 of 2009, therefore Live Current was released from
all accrued liabilities under the BCCI MOU.  In order to facilitate
the transfer of the Cricket.com website, the Company has agreed to provide
Mauritius with support services for a period of no more than 6 months (the
“Transition Period”).  In exchange for the support services, Mauritius
has agreed to the payment of certain expenses related to the support
services.  Refer to Note 6.
 NOTE
17– CONTINGENCY
 
 A former
Chief Executive Officer of DHI commenced a legal action against DHI on March 9,
2000 for wrongful dismissal and breach of contract.  He is seeking, at
a minimum, 18.39% of the outstanding shares of DHI, specific performance of his
contract, special damages in an approximate amount of $30,000, aggravated and
punitive damages, interest and costs. On June 1, 2000, DHI filed a Defense and
Counterclaim against this individual claiming damages and special damages for
breach of fiduciary duty and breach of his employment contract. The outcome of
these legal actions is currently not determinable and as such the amount of
loss, if any, resulting from this litigation is presently not
determinable.  To date, there has been no further action taken by the
plaintiff since the filing of the initial legal action on March 9,
2000.
 F-33
 
 Live
Current Media Inc.
 Notes
to the Consolidated Financial Statements
 For
the year ended December 31, 2009
 NOTE
18– RELATED PARTY TRANSACTIONS
 
 2009
 
 On March
1, 2009, the Company began charging $6,000 per month to a company controlled by
its Chief Executive Officer.  Live Current is providing this company
with IT, administrative, and marketing support.  This arrangement
allows Live Current to share its resources while earning revenues for support
services.
 
 On
November 10, 2009, the Company’s Board of Directors approved an Amendment to the
Employment Agreement (the “Amendment”) of the Company’s Chief Executive Officer
(“CEO”).  The Amendment modified the CEO’s base salary in that
effective as of February 1, 2009, his base salary decreased to
$120,000.  The Amendment recognizes that the salary related to $80,000
owing for his services from February 1, 2009 to September 30, 2009 had remained
unpaid, and this amount was to be converted to shares of the Company’s common
stock.  The effect of the decrease in salary for the period of
February 1 to September 30, 2009 was reflected in the Company’s interim
financial statements ended September 30, 2009.
 
 On
December 28, 2009, the Company’s Board of Directors approved a Second Amendment
to the Employment Agreement (the “Second Amendment”) of the CEO.  The
Second Amendment decreased the unpaid salary that had been deferred for the
period of February 1, 2009 to September 30, 2009 to $72,000.  It also
modified the method of payment of the deferred salary, and approved this amount
to be paid in cash, less any and all statutory deductions, instead of by way of
shares of the Company’s common stock.  The effects of the decrease of
the salary payable, as well as the subsequent payment, were reflected in the
Company’s financial statements ended December 31, 2009.
 
 2008
  The
Company issued shares of common stock to related parties pursuant to private
placements in 2008 as follows:
  On
November 19, 2008, the Company closed a private placement financing in which C.
Geoffrey Hampson, the Company’s Chief Executive Officer, invested
$126,750.  Mr. Hampson received 195,000 restricted shares of common
stock, two-year warrants to purchase 97,500 common shares at an exercise price
of $0.78, and three-year warrants to purchase 97,500 common shares at an
exercise price of $0.91.
  On
November 19, 2008, the Company closed a private placement financing in which
Jonathan Ehrlich, the Company’s then President and Chief Operating Officer,
invested $25,000.  Mr. Ehrlich received 38,461 restricted shares of
common stock, two-year warrants to purchase 19,230 common shares at an exercise
price of $0.78, and three-year warrants to purchase 19,230 common shares at an
exercise price of $0.91.
  On
November 19, 2008, the Company closed a private placement financing in which
Mark Melville, the Company’s Chief Corporate Development Officer, invested
$35,000.  Mr. Melville received 53,846 restricted shares of common
stock, two-year warrants to purchase 26,923 common shares at an exercise price
of $0.78, and three-year warrants to purchase 26,923 common shares at an
exercise price of $0.91.
  NOTE
19 – SUBSEQUENT EVENTS
 
 Subsequent
to year end, the Company is transferring its domain names related to its
Perfume.com business, along with brand-related assets, from its 98.2% owned
subsidiary DHI, to its wholly-owned subsidiary Delaware.  Since it is
an intercompany transfer of assets, the Company is determining the fair market
value of the assets to be transferred as well as what effect, if any, this
transaction will have on its consolidated financial statements.
 
 NOTE
20 – COMPARATIVE FIGURES
 
 Certain
comparative figures have been reclassified to conform to the basis of
presentation adopted in the current period.
   F-34