UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest reported) November 10, 2000
------------------------------------------------------------
Communicate.com Inc.
--------------------
(Exact name of registrant as specified in its chapter)
Nevada 000-29929 88-0346310
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
#360 - 220 Cambie Street, Vancouver, BC V6B 2M9
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (604) 687-2142
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(Former name or former address, if changed since last report)
INFORMATION TO BE INCLUDED IN REPORT
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
(a) On November 10, 2000, Communicate.com Inc., a Nevada corporation (the
"Company"), pursuant to a Purchase Agreement entered into on November 8, 2000
(the "Purchase Agreement"), acquired 11,714,080 shares, or approximately 52%, of
the outstanding capital stock of Communicate.com Inc., an Alberta corporation
("Communicate Alberta"), from Bryan Liew. In consideration for the Communicate
Alberta shares, the Company (i) issued an aggregate of 1,000,000 shares of its
Common Stock to the Mr. Liew, (ii) made a cash payment of $400,000 to Mr. Liew,
and (iii) agreed to either (a) make additional cash payments totaling an
aggregate of $1,100,000 to Mr. Liew, or (b) if the Company is unable or fails to
make such payments, to issue up to an additional 2,200,000 shares of Common
Stock to Mr. Liew. The Company financed the acquisition through a loan (the
"Loan") provided by Pacific Capital Markets Inc. ("PCMI") providing for up to
$1,500,000 to be used solely for the acquisition of the shares from Mr. Liew.
The Loan is due and payable on demand and is secured by substantially all of the
assets of the Company, as evidenced by a Loan and Security Agreement dated
November 10, 2000 between the Company and PCMI.
The Company negotiated the purchase price and terms of payment through
arms-length negotiations with Mr. Liew. The Company reviewed and analyzed
Communicate Alberta's assets, liabilities, management and prospects in
determining the amount of the consideration to pay for the shares of Communicate
Alberta.
On November 9, 2000 Mr. Liew resigned all positions held at Communicate Alberta
and, as part of a Severance Agreement with Communicate Alberta, received
payments and debt forgiveness totaling $13,000 and the rights to three domain
names, formerly owned by Communicate Alberta. (b) On November 30, 2000 the
Company made an offer to acquire all of remaining outstanding shares of
Communicate Alberta not held by the Company by exchanging such shares for shares
of the Company's common stock at a rate of one share of the Company's common
stock for each 5.1470588 shares of Communicate Alberta common stock. The offer
was terminated on December 29, 2000. During the period of the offer 7,079,039
shares, or 31%, of Communicate Alberta were exchanged for 1,375,339 shares of
the Company's common stock.
As a result of the above transactions Communicate owns 83% of Communicate
Alberta's common stock.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
FINANCIAL STATEMENTS
(a) Financial Statements of Communicate.com Inc. ("Communicate Alberta") as
of June 30, 2000 and 1999 (audited).
(b) Pro-Forma Financial Information:
2
1. Communicate Pro-Forma Condensed Consolidated Balance Sheet as
of September 30, 2000 (unaudited).
2. Communicate Pro-Forma Condensed Consolidated Statement of
Operations for the year ended December 31, 1999 (unaudited).
3. Communicate Pro-Forma Condensed Consolidated Statement of
Operations for the nine month period ended September 30, 2000
(unaudited).
EXHIBITS
10.1 Purchase Agreement, dated November 8, 2000, between Communicate.com
Inc. and Bryan Liew. (incorporated by reference from the Company's
report on Form 10-QSB for the period ended June 30, 2000, filed
November 14, 2000).
10.2 Loan and Security Agreement between Pacific Capital Markets, Inc. and
Communicate.com Inc. (incorporated by reference from the Company's
report on Form 10-QSB for the period ended June 30, 2000, filed
November 14, 2000).
10.3 Form of Share Exchange Agreement, dated November 29, 2000, between
Communicate.com Inc. the shareholders of Communicate.com Inc. (Alberta)
10.4 Letter Agreement, dated January 26, 2000, between Communicate.com Inc.
(Communicate Alberta) and Sierra Systems Group Inc.
3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Communicate.com Inc. has duly caused this report to be signed on its behalf by
the undersigned, who is duly authorized.
COMMUNICATE.COM INC.
Dated: March 30, 2001 By: /s/ Graham Heal
------------------------------------
Graham Heal, President
Dated: March 30, 2001 By /s/ Cameron Pan
------------------------------------
Cameron Pan, Chief Financial Officer
4
COMMUNICATE.COM INC.
Financial Statements
JUNE 30, 2000 AND 1999
Auditors' Report
Balance Sheets
Statements of Operations
Statements of in Shareholders' Equity
Statements of Cash Flows
Notes to the Financial Statements
LABONTE & CO. 1205 - 1095 WEST PENDER STREET
- ------------------------------------------ VANCOUVER, B.C. CANADA
C H A R T E R E D A C C O U N T A N T S V6E 2M6
- ------------------------------------------ TELEPHONE (604) 682-2778
FACSIMILE (604) 689-2778
EMAIL RJL@LABONTECO.COM
AUDITORS' REPORT
- --------------------------------------------------------------------------------
TO THE DIRECTORS OF COMMUNICATE.COM INC.
We have audited the balance sheets of Communicate.com Inc. as at June 30, 2000
and 1999 and the statements of operations, shareholders' equity and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with Canadian and United States generally
accepted auditing standards. Those standards require that we plan and perform an
audit to obtain reasonable assurance whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at June 30, 2000 and 1999 and
the results of its operations and its cash flows for the years then ended in
accordance with generally accepted accounting principles in the United States.
"LaBonte & Co."
CHARTERED ACCOUNTANTS
Vancouver, B.C.
February 13, 2001
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA-UNITED STATES REPORTING
DIFFERENCES
- --------------------------------------------------------------------------------
In the United States, reporting standards for auditors' would require the
addition of an explanatory paragraph following the opinion paragraph when the
financial statements are affected by conditions and events that cast substantial
doubt on the Company's ability to continue as a going concern, such as those
described in Note 1. Our report to the Directors dated February 13, 2001 is
expressed in accordance with Canadian reporting standards which do not permit a
reference to such conditions and events in the auditors' report when these are
adequately disclosed in the financial statements.
"LaBonte & Co."
CHARTERED ACCOUNTANTS
Vancouver, B.C.
February 13, 2001
COMMUNICATE.COM INC.
Balance Sheets
JUNE 30, 2000 AND 1999
- --------------------------------------------------------------------------------
2000 1999
$ $
ASSETS
CURRENT ASSETS
Cash and cash equivalents 1,618,937 23,801
Accounts receivable (net of allowances of $284,555 and $19,656) 524,451 317,982
Due from shareholder (note 6) 69,410 --
Prepaid expenses 122,359 89,556
--------- --------
2,335,157 431,339
FIXED ASSETS (note 4) 1,497,303 321,679
OTHER ASSETS 31,733 27,500
---------- ---------
3,864,193 780,518
========== =========
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness -- 33,297
Accounts payable and accrued liabilities (note 5) 1,863,131 684,005
Due to shareholders 24,521 68,021
Current portion of lease obligation (note 5) 94,736 69,674
---------- ---------
1,982,388 854,997
LEASE OBLIGATION (note 5) 84,182 124,889
---------- ---------
2,066,570 979,886
---------- ---------
COMMITMENTS AND CONTINGENCIES (note 10)
SUBSEQUENT EVENTS (note 11)
SHAREHOLDERS' EQUITY (CAPITAL DEFICIENCY)
CAPITAL STOCK (note 7)
Authorized
Unlimited (1999 - 2,000,000) Class A common shares, no par value
Issued
22,454,238 (1999 - 16,542,750) Class A common shares, no par value 7,129,438 534,428
Subscriptions receivable (16,227) (25,000)
---------- ---------
7,113,211 509,428
DEFICIT (5,315,588) (708,796)
---------- ---------
1,797,623 (199,368)
---------- ---------
3,864,193 780,518
========== =========
See accompanying notes to the financial statements
COMMUNICATE.COM INC.
Statements of Operations
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
- --------------------------------------------------------------------------------
2000 1999
$ $
REVENUE 2,143,016 1,441,210
--------- ---------
EXPENSES
General and administration 3,757,738 1,672,198
Sales and marketing 1,547,135 261,048
Depreciation and amortization 540,226 83,819
Stock-based compensation 708,989 --
---------- ----------
6,554,088 2,017,065
---------- ----------
Operating loss (4,411,072) (575,855)
---------- ----------
INTEREST
Expense (4,641) (20,082)
Income 69,442 801
---------- ----------
64,801 (19,281)
---------- ----------
Loss before income taxes (4,346,271) (595,136)
RECOVERY OF INCOME TAXES -- 13,326
---------- ----------
NET LOSS FOR THE YEAR (4,346,271) (581,810)
---------- ----------
BASIC LOSS PER SHARE (0.22) (0.04)
---------- ----------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 19,554,186 16,152,901
---------- ----------
See accompanying notes to the financial statements
COMMUNICATE.COM INC.
Statements of Operations
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
- --------------------------------------------------------------------------------
CLASS A COMMON SHARES
---------------------------------------------
TOTAL
SHAREHOLDER'S
SUBSCRIBED (DEFICIENCY)
NUMBER OF ISSUED AMOUNT DEFICIT EQUITY
SHARES $ $ $ $
------------------------------------------------------------------------
Balance - June 30, 1998 17,902,610 181,009 -- (112,018) 68,991
Issuance of 77,076 common shares at $0.26
per share 77,076 20,000 -- 20,000
Issuance of 600,649 common shares at $0.25
per share - net of issuance costs 600,649 136,452 -- 136,452
Issuance of 286,125 common shares at $0.30
per share 286,127 85,000 -- 85,000
Issuance of 135,235 common shares at $0.37
per share 135,235 50,000 -- 50,000
Issuance of 181,161 common shares at $0.43
per share - net of issuance costs 181,162 75,000 -- 75,000
Share subscription -- -- (25,000) -- (25,000)
Repurchase of common shares (2,640,112) (13,033) (14,968) (28,001)
Net loss for the year -- -- (581,810) (581,810)
------------ --------- ------- -------- --------
Balance - June 30, 1999 16,542,747 534,428 (25,000) (708,796) (199,368)
Issuance of 257,058 common shares at $0.43
per share 257,058 110,000 -- 110,000
Issuance of 1,658,500 common shares on
exercise of options at $0.0004 per share 1,658,500
for cash 717 -- 717
For stock-based compensation (note 7) 708,989 -- 708,989
Issuance of 40,191 common shares at $0.60
per share 40,191 24,006 -- 24,006
Issuance of 16,788 common shares at $0.60
per share 16,788 10,000 -- 10,000
Issuance of 342,922 common shares at $0.71
per share 342,922 245,000 -- 245,000
Issuance of 51,546 common shares at $1.16
per share 51,546 60,000 -- 60,000
Issuance of 500,000 common shares at $1.08
per share 500,000 540,550 -- 540,550
Issuance of 3,500,000 common shares at
$1.45 (U.S. $1.00) per share - net of
issuance costs 3,500,000 4,702,651 -- 4,702,651
Issuance of 181,750 common shares at $1.45
(U.S. $1.00) per share 181,750 263,475 -- 263,475
Issuance of 1,388 common shares from
exercise of options 1,388 1,013 -- 1,013
Share subscription -- -- 15,000 -- 15,000
Share subscriptions -- -- (6,227) -- (6,227)
Repurchase of shares (228,900) (71,391) (260,521) (331,912)
Common shares returned to treasury and
cancelled (409,752) -- -- --
Net loss for the year -- -- (4,346,271) (4,346,271)
------------ --------- ------- -------- --------
Balance - June 30, 2000 22,454,238 7,129,438 (16,227) (5,315,588) 1,797,623
============ ========= ======= ========= =========
See accompanying notes to the financial statements
COMMUNICATE.COM INC.
Statements of Operations
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
- --------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN):
2000 1999
$ $
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the year (4,346,271) (581,810)
Adjustments to reconcile net loss to net cash used in operating activities
Stock-based compensation 708,989 -
Depreciation and amortization 540,226 83,819
Changes in operating working capital items
Accounts receivable (206,469) (177,018)
Due from shareholder (69,410) -
Other (32,803) (74,964)
Accounts payable and accrued liabilities 1,179,126 502,088
---------- --------
(2,226,612) (247,885)
---------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of loan payable - (12,000)
Bank indebtedness (33,297) 33,297
Lease obligation (15,645) 162,800
Advances to (from) shareholders (43,500) 50,000
Repurchase of capital stock during the year (331,912) (28,001)
Proceeds from issuance of capital stock under stock option plans 1,730 -
Share subscriptions received 15,000 -
Proceeds from issuance of capital stock - net of issuance costs of $367,000
(1999 - $16,048) 5,949,454 341,452
---------- --------
5,541,830 547,548
---------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (1,712,732) (319,265)
Purchase of other assets (7,350) (27,500)
---------- --------
(1,720,082) (346,765)
---------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,595,136 (47,102)
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 23,801 70,903
---------- --------
CASH AND CASH EQUIVALENTS - END OF YEAR 1,618,937 23,801
========== ========
SUPPLEMENTAL CASH FLOW INFORMATION (note 3)
See accompanying notes to the financial statements
COMMUNICATE.COM INC.
Notes to the Financial Statements
JUNE 30, 2000 AND 1999
- --------------------------------------------------------------------------------
1. NATURE OF CONTINUED OPERATIONS
Prior to June 30, 2000, the Company provided services as web design
consultants to corporations in British Columbia, Canada. For the years
ended June 30, 2000 and 1999, the consulting services provided the
majority of the revenues. Communicate.com owns a large portfolio of
simple, intuitive domain names. During the 2000 fiscal year the Company
changed its focus to developing these domain names into an e-commerce
network. Substantial costs were incurred in developing this business plan
such that the Company was forced to change its focus again subsequent to
year-end due to the lack of funds. The Company's current business strategy
is to seek partners to develop its domain names to include content,
commerce and community applications. Refer to note 11(d).
At June 30, 2000, the Company has an accumulated deficit of $5,315,588
(1999 - $708,796) and has incurred significant losses since inception on
February 7, 1994. These financial statements have been prepared on the
going concern basis of accounting. The Company's ability to continue its
operations is dependent upon the continued support of its shareholders,
obtaining additional financing and/or settling its outstanding debts and
generating future profitable operations. There is no assurance that the
Company will be successful in achieving any or all of these objectives
over the coming year.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements are presented in Canadian dollars
and are prepared in accordance with accounting principles generally
accepted in the United States.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consists of cash on deposit and highly liquid
short-term interest bearing securities with maturities at the date of
purchase of three months or less.
FIXED ASSETS
Fixed assets are recorded at cost. Depreciation and amortization are
computed at the following ratesover the estimated useful lives of the
assets:
Computer equipment 30% declining balance
Automobiles 30% declining balance
Furniture and fixtures 20% declining balance
Office equipment 20% declining balance
Leasehold improvements 4 years straight line
Computer software 2 years straight line
Intangible assets 1 - 10 years straight line
One-half year depreciation and amortization is taken in the year of
acquisition on certain capital assets.
COMMUNICATE.COM INC.
Notes to the Financial Statements
JUNE 30, 2000 AND 1999
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
To date the Company has derived the majority of its revenue from web
consulting services agreements. The Company recognizes revenue on a
completed time and materials basis upon issuance of the invoice.
Domain name revenue consists primarily of commissions earned from the
referral of visitors to the Company's sites to other parties.
Collectibility of these referral commissions is subject to a high level of
uncertainty; accordingly revenues are recognized only as received in cash.
ADVERTISING EXPENSES
The Company accounts for advertising expenses in accordance with AICPA
Statement of Position 93-7, Reporting on Advertising Costs, whereby costs
are expensed as incurred. Advertising expenses totalled $706,924 and
$6,992 during the years ended June 30, 2000 and 1999 respectively.
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees", ("APB No. 25") and
complies with the disclosure provisions of Statement of Financial
Accounting Standard No. 123 "Accounting for Stock-Based Compensation"
("SFAS No. 123"). Under APB No. 25, compensation expense is recognized
based on the difference, if any, on the date of grant between the
estimated fair value of the Company's stock and the amount an employee
must pay to acquire the stock. Compensation expense is recognized
immediately for past services and pro-rata for future services over the
option-vesting period.
The Company accounts for equity instruments issued in exchange for the
receipt of goods or services from other than employees in accordance with
SFAS No. 123 and the conclusions reached by the Emerging Issues Task Force
in Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring or in Conjunction with Selling Goods or
Services" ("EITF 96-18"). Costs are measured at the estimated fair market
value of the consideration received or the estimated fair value of the
equity instruments issued, whichever is more reliably measurable. The
value of equity instruments issued for consideration other than employee
services is determined on the earlier of a performance commitment or
completion of performance by the provider of goods or services as defined
by EITF 96-18.
INCOME TAXES
The Company follows the liability method of accounting for income taxes.
Under this method, future tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax balances. Future tax assets and liabilities are
measured using enacted or substantially enacted tax rates expected to
apply to the taxable income in the years in which those differences are
expected to be recovered or settled. The effect on future tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the date of enactment or substantive enactment.
A valuation allowance is provided for deferred tax assets if it is more
likely than not that the Company will not realize the future benefit, or
if the future deductibility is uncertain.
COMMUNICATE.COM INC.
Notes to the Financial Statements
JUNE 30, 2000 AND 1999
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses for the periods that the financial statements are prepared.
Actual amounts could differ from these estimates.
FOREIGN CURRENCY TRANSACTIONS
The Company's functional currency is the Canadian dollar. Monetary assets
and liabilities denominated in a foreign currency are translated into
Canadian dollars at the exchange rate prevailing at the balance sheet
date. Revenue and expenses denominated in foreign currencies are
translated at the exchange rate prevailing at the transaction date.
Exchange differences are included in income as they arise. Material
exchange differences arising on translation are included in a separate
component of shareholders' equity.
FINANCIAL INSTRUMENTS
Financial instruments are initially recorded at historical cost. If
subsequent circumstances indicate that a decline in fair value of a
financial asset is other than temporary, the financial asset is written
down to its fair value. Refer to Note 8.
LOSS PER SHARE
Basic loss per share is computed by dividing loss for the period by the
weighted average number of common shares outstanding for the period. Fully
diluted loss per share reflects the potential dilution of securities by
including other potential common stock, including convertible preferred
shares, in the weighted average number of common shares outstanding for a
period and is not presented where the effect is anti-dilutive. The Company
has no dilutive securities.
COMPREHENSIVE INCOME
Comprehensive income is defined as the change in equity from transactions,
events and circumstances, other than those resulting from investments by
owners and distributions to owners. Comprehensive income consists of net
loss, as the Company has no other comprehensive income or loss.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews the carrying amount of capital assets for impairment
whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. 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. No
impairment losses have been recorded through June 30, 2000.
COMMUNICATE.COM INC.
Notes to the Financial Statements
JUNE 30, 2000 AND 1999
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
In March, 2000, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 44, Accounting for Certain Transactions Involving
Stock Compensation - an interpretation of APB Opinion No. 25 ("FIN 44")
which clarifies the application of APB 25 for certain issues. This
interpretation is effective July 1, 2000, but certain conclusions in this
interpretation cover specific events that occur after either December 15,
1998, or January 12, 2000. The Company has determined that this
pronouncement will not have a material impact on the reporting and
measurement of stock based compensation by the Company.
In June 1998, The FASB issued Statement Number 133 "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133
establishes accounting and reporting standards for derivative instruments,
embedded in other contracts, and for hedging activities. It requires that
an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair
value. The accounting for changes in fair value of the derivative depends
on the intended use of the derivative and the resulting designation. The
Company does not expect that the adoption of SFAS 133 will have a material
impact on its financial statements.
The Securities and Exchange Commission Staff Accounting Bulletin No. 101
and subsequent amendments and related releases ("SAB 101") released during
the year ended September 30, 1999 provide guidance for the recognition of
revenue in financial statements. The Company has considered the guidance
presented therein and believes that the Company's practices for the
recording of revenue are consistent with this guidance.
3. SUPPLEMENTAL CASH FLOW INFORMATION
2000 1999
$ $
Cash paid for interest 76,300 19,000
Supplemental non-cash investing and financing activities
Share subscriptions receivable 6,227 25,000
Stock-based compensation 708,989 --
4. FIXED ASSETS
2000 1999
$ $
Property and equipment
Computer equipment 1,484,538 347,447
Computer software 558,497 22,583
Automobiles 26,060 26,060
Furniture and fixtures 60,163 29,672
Office equipment 9,336 5,906
Leasehold improvements 39,667 33,860
----------- ---------
2,178,261 465,528
Accumulated depreciation and amortization (680,958) (143,849)
----------- ---------
1,497,303 321,679
=========== =========
COMMUNICATE.COM INC.
Notes to the Financial Statements
JUNE 30, 2000 AND 1999
- --------------------------------------------------------------------------------
4. FIXED ASSETS (CONTINUED)
Equipment held under capital lease is included in property and equipment
and at June 30, 2000 was $826,209 (1999 - $202,065). Accumulated
amortization of leased equipment at June 30, 2000 was $181,973 (1999 -
$39,616).
As of June 30, 2000, future minimum annual lease payments under capital
leases together with their present value were:
$
2001 115,487
2002 46,629
2003 22,688
2004 6,115
2005 2,652
----------
Total minimum lease payments 193,571
Amount representing interest (14,653)
----------
Present value of minimum lease payments 178,918
==========
5. ACCOUNTS PAYABLE
2000 1999
$ $
Trade payables 1,266,311 231,868
Financing fees payable 367,000 --
Accrued liabilities 229,820 452,137
------------ -----------
--
1,863,131 684,005
============ ===========
6. RELATED PARTY TRANSACTIONS
The amounts due to shareholders bear interest at 3% per annum and have no
stated terms of repayment.
The amount due from a shareholder is non-interest bearing and, at June 30,
2000 had no stated terms of repayment.
Refer to note 11.
7. CAPITAL STOCK
Holders of Class A common shares are entitled to one vote per share on all
matters submitted to a vote of the shareholders of the Company. Upon the
occurrence of a liquidation, dissolution or winding up of the assets of
the Company, the holders of Class A common shares will be entitled to
share pro-rata in the distribution of all assets remaining available for
distribution after satisfaction of all liabilities.
COMMUNICATE.COM INC.
Notes to the Financial Statements
JUNE 30, 2000 AND 1999
- --------------------------------------------------------------------------------
7. CAPITAL STOCK (CONTINUED)
As at June 30, 1999, the authorized common shares of the company consisted
of 2,000,000 Class A common shares with no par value of which 715,362
pre-split shares were issued and outstanding. On February 29, 2000, the
Board of Directors passed a resolution to adopt a forward stock split at a
ratio of 1:23.125 with the effect that the total issued and outstanding
shares increased to 18,500,000 shares. The stock split has been applied
retroactively to all periods presented.
On February 29, 2000, the Company's Articles of Incorporation were amended
to increase the Company's authorized common shares to an unlimited number
of common shares.
STOCK OPTION PLAN
The Company has a Share Award Plan that permits the grant of incentive
stock options to employees and directors. A maximum of 25% of issued and
outstanding Class A common shares may be subject to awards under the plan,
which generally have a vesting period of two years. The stock options have
terms expiring on or before December 31, 2004.
On February 29, 2000, the company completed an option split at a ratio of
1:9.25 with the effect that the total options granted increased to 79,514.
The option split has been applied retroactively to all periods presented.
Stock option transactions were as follows:
WEIGHTED-AVERAGE
NUMBER OF EXERCISE PRICE
OPTIONS U.S. $
Balance - June 30, 1998 24,513 0.50
Options granted 55,001 0.50
Options cancelled -- --
Options exercised -- --
---------- ----
Balance - June 30, 1999 79,514 0.50
Options granted 4,163,656 0.51
Options cancelled (377,103) 0.64
Options exercised (1,659,888) 0.01
---------- ----
Balance - June 30, 2000 2,206,179 0.87
========== =====
The following table summarizes information about stock options outstanding
at June 30, 2000 (note 11(f)):
WEIGHTED
RANGE OF NUMBER OF AVERAGE
EXERCISE OPTIONS REMAINING OPTIONS
PRICES OUTSTANDING AT CONTRACTUAL LIFE EXERCISABLE AT
U.S. $ JUNE 30,2000 (YEARS) JUNE 30,2000
0.50 107,779 4.50 --
0.70 1,808,000 4.50 210,500
1.00 90,400 4.75 --
2.50 200,000 5.75 --
COMMUNICATE.COM INC.
Notes to the Financial Statements
JUNE 30, 2000 AND 1999
- --------------------------------------------------------------------------------
7. CAPITAL STOCK (CONTINUED)
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees". This method recognizes
compensation cost as the amount by which the fair value of the stock
exceeds the exercise price at the date of grant.
Had the company determined compensation costs based on fair value at the
date of grant for its awards under the method prescribed by Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-based
Compensation" no additional pro forma compensation expense would have been
reflected using the Black Scholes option-pricing model. Assumptions used
in the pricing model included:
a) Risk free interest rate of 7.5%;
b) Expected volatility of 0.0% (private company);
c) Expected dividend yield of $nil; and
d) An estimated average life of 4.5 to 4.75 years.
8. INCOME TAXES
The Company is subject to Canadian federal and British Columbia provincial
taxes in Canada.
The Company has accumulated net operating loss ("NOL") carryforwards
totalling $4,790,000 that can be applied to reduce taxable income in
future taxation years. The NOL expire as follows:
$
2006 474,000
2007 4,316,000
The potential tax benefit of these losses, if any, has not been recorded
in these financial statements.
Net deferred tax assets consist of the following:
2000 1999
$ $
Net operating loss carryforwards 4,790,000 474,000
Deferred tax asset valuation allowance (4,790,000) (474,000)
-------------- -------------
Net deferred tax assets -- --
-------------- -------------
Based on a number of factors including, the lack of a history of profits,
management believes that there is sufficient uncertainty regarding the
realization of deferred tax assets such that a full valuation allowance
has been provided.
The income tax provisions for the years ended June 30, 2000 and 1999 do
not differ materially from the amount obtained by applying the applicable
statutory income tax rates to loss before income taxes.
COMMUNICATE.COM INC.
Notes to the Financial Statements
JUNE 30, 2000 AND 1999
- --------------------------------------------------------------------------------
9. FINANCIAL INSTRUMENTS
INTEREST RATE RISK EXPOSURE
The Company has limited exposure to any fluctuation in interest rates.
FOREIGN EXCHANGE RISK
The Company has limited exposure to any fluctuation in foreign exchange.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist primarily of cash and cash
equivalents and trade accounts receivable. The Company limits its exposure
to credit loss by placing its cash and cash equivalents on deposit with
high credit quality financial institutions. Receivables arising from sales
to customers are generally not significant individually and are not
collateralized; as a result, management continually monitors the financial
condition of its customers to reduce the risk of loss.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company's financial instruments include cash and cash equivalents,
accounts receivable, bank indebtedness, accounts payable and accrued
liabilities, loan payable, due to shareholders and capital lease
obligation. The fair values of these financial instruments approximate
their carrying values. The fair value of the Company's capital leases are
estimated based on market value of financial instruments with similar
terms. Management believes that the fair value of the debt approximates
its carrying value.
10. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
As of June 30, 2000, future minimum annual lease payments for operating
leases (excluding capitalized leases discussed in note 4) are as follows:
$
2001 160,263
2002 138,520
2003 138,520
2004 103,890
Rent expense for June 30, 2000 was $203,355 (1999 - $21,515).
CONTINGENCIES
The former Chief Executive Officer of Communicate.com has commenced a
legal action on March 9, 2000 for wrongful dismissal and breach of
contract. He is seeking, at minimum, 18.39% of the outstanding shares of
Communicate.com, specific performance of his contract, special damages in
an amount of $37,537, aggravated and punitive damages, interest and costs.
On June 1, 2000, Communicate.com commenced an action against this
individual claiming damages and special damages for breach of fiduciary
duty and breach of his employment contract. The amount of loss, if any,
resulting from this litigation is presently not determinable.
COMMUNICATE.COM INC.
Notes to the Financial Statements
JUNE 30, 2000 AND 1999
- --------------------------------------------------------------------------------
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Subsequent to year-end the Company has been threatened with legal action
by Don King Productions ("DKP") for alleged infringements on a
pay-per-view telecast in March 2000. DKP is seeking damages of $100,000
and rights to one of the Company's domain names. The Company denies any
wrongdoing and will defend any action undertaken by DKP.
11. SUBSEQUENT EVENTS
a. Acquisition
Subsequent to June 30, 2000, the Company entered into a
conditional purchase agreement to acquire the assets of
Tourdex.com Inc., Cyberstore Systems Inc. and Whistler Networks
Inc. for $1,750,000. The Company loaned $89,700 to these entities
as part of the conditional purchase agreement. On October 3, 2000
the Company terminated negotiations and commenced seeking
repayment of the $89,700 demand loan, which to date has not been
repaid.
b. Change in ownership
On November 10, 2000, Communicate.com Inc. (Nevada) (formerly
Troyden Corp) a U.S. publicly traded Company which shares are
listed on the OTC Bulletin Board, purchased 11,714,080 shares of
the Company from Brian Liew, President and CEO representing 52% of
the outstanding shares of the Company. Concurrent with the
purchase, Brian Liew resigned from the Company. As part of his
Termination Agreement, he received severance payments and debt
forgiveness totalling $19,410. The balance of his shareholder loan
is being repaid by monthly installments commencing November 9,
2000. Also as part of his termination, he received the rights to
three domain names owned by the Company.
c. Offer to minority shareholders
On November 30, 2000, Communicate.com Inc. (Nevada) made an offer
to purchase all of the outstanding minority shareholdings in the
Company on the basis of one share for each 5.1470556 shares held
until December 29, 2000. A total of 7,079,039 shares were
exchanged and effective December 29, 2000, Communicate.com Inc.
(Nevada) owns 83% of the common stock of the Company.
d. Minority Shareholder oppression action
Subsequent to year-end certain minority shareholders threatened to
take legal action in the Court of Queens Bench of Alberta pursuant
to the Alberta Business Corporation Act to obtain remedies based
on alleged shareholder oppression.
These shareholders have also notified certain directors and
investors of their intention to proceed with derivative claims
that will be proceeded with in combination with the shareholder
oppression action. As of the date of the auditors' report no
statement of claim has been filed. Should a claim be started, the
Company intends to vigorously defend this action.
COMMUNICATE.COM INC.
Notes to the Financial Statements
JUNE 30, 2000 AND 1999
- --------------------------------------------------------------------------------
11. SUBSEQUENT EVENTS (CONTINUED)
e. Change in operations and restructuring
Due to financial constraints, the Company changed the nature of
its operations from developing domain names into an e-commerce
network to entering into strategic partnerships to develop domain
names. As a result, all but three of the Company's employees were
laid off between September 2000 and October 31, 2000. The Company
also disposed of capital assets with a net book value of $469,684
for proceeds of $360,924. The Company has also renegotiated its
office lease agreements, downsizing as a result of employee
lay-offs.
f. Cancellation of stock options
As part of the restructuring described above, all 2,206,179 stock
options outstanding at June 30, 2000 were cancelled in accordance
with termination provisions in the Company's Stock Option Plan.
The Company currently has no stock options outstanding.
g. Sale of cricket.com
Subsequent to year-end the Company entered into an agreement to
sell one of its URL domain names for $1,000,000 US structured as
follows:
1. $25,000 US, paid on closing,
2. Communicate.com will receive 90% of the net revenues to a
maximum of $500,000 US, from Cricket.com Ltd. (a newly
formed company of which Communicate.com will own 40%),
and
3. Communicate.com will receive 50% of the net revenues from
Cricket.com Ltd. until the balance of $500,000 US is
paid.
h. Sale of vietnam.com
Subsequent to year-end the Company entered into an agreement to
sell one of its URL domain names for $500,000 US structured as
follows:
1. $200,000 US paid 10 days after closing
2. $300,000 US paid within 90 days following the transfer of
the domain name, and
3. Communicate.com will receive ordinary shares equal to 20%
of the new company, which holds the rights to the domain
name.
COMMUNICATE.COM INC.
PRO-FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On November 10, 2000, Communicate.com Inc., a Nevada corporation (the "Company"
or "CMNN") acquired approximately 52% of the issued and outstanding shares of
the common stock of Communicate.com Inc. ("AlbertaCo") from Bryan Liew for (a)
$400,000 cash, plus (b) $1,100,000 payable in $275,000 payments every thirty
days over the 120 days following the acquisition in either cash or, if CMNN
failed to pay or chose not to pay in cash, in shares of CMNN's $0.001 par value
common stock at an agreed price of $0.50 per share, plus (c) one million shares
of CMNN common stock. The one million shares were recorded at $0.50 per share
that was the agreed price per share stated in the Purchase Agreement. The
$400,000 cash was paid with the proceeds of a demand loan from Pacific Capital
Markets, Inc. and the $1,100,000 payable has been recorded as an issuance of
2,200,000 shares which were recorded at $0.50 per share, as it is more likely
than not the Company will repay the debt with shares of its common stock.
Concurrently with the acquisition, AlbertaCo entered into a severance agreement
with Mr. Liew, which includes forgiveness of debt of $13,000 and the rights to
three domain names with an estimated fair value of $205,000.
Following its acquisition of shares from Mr. Liew, between November 30 and
December 29, 2000 CMNN acquired from minority shareholders an additional 31% of
AlbertaCo by exchanging one share of CMNN's common stock for each 5.147058
shares of AlbertaCo's common stock tendered. CMNN issued 1,375,339 shares of its
common stock in exchange for 7,078,950 shares of AlbertaCo's common stock. These
shares have been recorded at $0.64 per share which was the average trading price
of the Company's common stock during the share exchange discounted by 20%.
In connection with the acquisition of AlbertaCo there was a change in business
operations of AlbertaCo and all but three employees were laid-off and certain
fixed assets were disposed of. The results of these non-recurring operations
have been eliminated from the pro-forma condensed consolidated statements of
operations.
The acquisition of AlbertaCo will be accounted for as a purchase, with the
assets acquired and liabilities assumed recorded at 83% of fair value and the
results of AlbertaCo's operations included in CMNN's consolidated financial
statements from the date of acquisition net of the allocation to the minority
interest. Because AlbertaCo has a negative net book value on acquisition, no
minority interest is recorded.
The accompanying condensed consolidated financial statements illustrate the
effect of the acquisition on the Company's financial position and results of
operations. The condensed consolidated balance sheet as of September 30, 2000 is
based on the historical balance sheets of the Company and AlbertaCo as of that
date and assumes the acquisition took place on that date. The condensed
consolidated statements of operations for the year ended December 31, 1999 and
the nine months ended September 30, 2000 are based on the historical statements
of operations of the Company and AlbertaCo for those periods. The pro-forma
condensed consolidated statements of income assume the acquisition took place at
the beginning of each period.
The pro-forma condensed consolidated financial statements may not be indicative
of the actual results of the acquisition. In particular, the pro-forma condensed
consolidated financial statements are based on management's current estimate of
the allocation of the purchase price, the actual allocation of which may differ.
The accompanying condensed consolidated pro-forma financial statements should be
read in connection with the historical financial statements of the Company and
AlbertaCo.
22
COMMUNICATE.COM INC.
PRO-FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(unaudited)1
Combined Adjustments Adj Pro-Forma
AlbertaCo AlbertaCo CMNN Statements #
Can$ US$0.673 of Operations
Revenues $ 1,792,113 $1,428,876 $ -- $ 1,428,876 $ (1,392,876) 2 $ 36,000
----------- ---------- -------- ----------- --------
Operating Expenses
Administrative 2,714,968 1,827,173 25 1,827,198 (1,342,638) 3 484,560
Sales & marketing 904,092 608,454 -- 608,454 (572,454) 3 36,000
Depreciation and amortization 312,023 209,991 -- 209,991 (121,155) 3 88,836
Stock-based compensation 354,495 238,575 -- 238,575 (238,575) 3 -
----------- ---------- -------- ----------- --------
4,285,578 2,884,194 25 2,884,219 609,396
----------- ---------- -------- ----------- --------
Operating Loss 2,493,465 1,455,318 25 1,455,343 573,396
Interest & Other (Income) Expenses 22,760 15,317 2,103 17,420 (16,340) 4 33,760
----------- ---------- -------- ----------- --------
Net operating loss for the year $ 2,516,225 $1,470,635 $ 2,128 $ 1,472,763 $607,156
=========== ========== ======== ============ ========
Loss per share $ 0.0002 $ 0.0438
========= ========
Weighted average number
of shares outstanding 9,300,000 4,575,339 1 13,875,339
========= ========= ==========
See Notes to Pro-Forma consolidated Financial Statements
23
COMMUNICATE.COM INC.
PRO-FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2000
(unaudited)
Combined Adjustments Ref Pro-Forma
AlbertaCo AlbertaCo CMNN Statements #
Can$ US$0.6795 of Operations
Revenue $ 657,876 $ 447,027 $ -- $ 447,027 $ (420,027) 2 $ 27,000
------------ ------------ ---------- ------------ -----------
Operating Expenses
Administrative 3,536,648 2,403,152 12,462 2,415,614 (2,048,614) 3 367,000
Sales & marketing 1,397,719 949,750 -- 949,750 (922,750) 3 27,000
Depreciation and amortization 1,065,496 724,005 -- 724,005 (656,005) 3 68,000
Stock-based compensation 145,000 98,528 -- 98,528 (98,528) 3 --
------------ ------------ ---------- ------------ -----------
6,144,863 4,175,434 12,462 4,187,896 462,000
------------ ------------ ---------- ------------ -----------
Operating Loss 5,486,987 3,728,408 12,462 3,740,870 435,000
Interest & Other (Income) Expenses (75,161) (51,072) 1,989 (49,083) 78,642 4 29,559
------------ ------------ ---------- ------------ -----------
Net Operating Loss for the Period $ 5,411,826 $ 3,677,336 $ 14,451 $ 3,691,787 $ 464,559
============ ============ ========== ============= ============
Loss per share from Continuing
Operations $ 0.002 $ 0.033
========== ===========
Weighted average number
of shares outstanding 9,300,000 4,575,339 1 13,875,339
========= ========= ==========
See Notes to Pro-Forma Consolidated Financial Statements
24
COMMUNICATE.COM INC.
PRO-FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As at September 30, 2000
(Unaudited)
Combined Adjustments Ref Pro-Forma
AlbertaCo AlbertaCo CMNN Balance #
Can$ US$0.666 Sheets
ASSETS
Cash and equivalents $ 449,972 $ 299,681 $ -- $ 299,681 $ -- $ 299,681
Accounts receivable & other assets 371,029 247,105 -- 247,105 -- 247,105
----------- ----------- --------- ----------- ----------- ----------
Total current assets 821,001 546,786 -- 546,786 -- 546,786
Intangibles, licenses and other 31,733 21,134 -- 21,134 3,400,975 1 3,422,109
Capital assets 781,808 520,684 -- 520,684 -- 520,684
----------- ----------- --------- ----------- ----------- ----------
Total assets $ 1,634,542 $ 1,088,604 $ -- $ 1,088,604 $ 3,400,975 $4,489,579
=========== =========== ======= =========== =========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Accounts payable & accrued
liabilities $ 1,978,354 $ 1,317,583 $ 30,836 $ 1,348,419 $ -- $1,348,419
----------- ----------- --------- ----------- ----------- ----------
Total current liabilities 1,978,354 1,317,583 30,836 1,348,419 -- 1,348,419
Demand loan -- -- -- -- 400,000 1 400,000
Lease & other long term liabilities 84,182 56,065 -- 56,065 -- 56,065
----------- ----------- --------- ----------- ----------- ----------
Total liabilities 2,062,536 1,373,648 30,836 1,404,484 400,000 1,804,484
Common shares 7,256,136 4,832,586 310 4,832,896 (4,828,011) 1 4,885
Additional paid in capital -- -- 3,690 3,690 2,475,667 1 2,479,357
Deficit (7,684,130) (5,117,630) (34,836) (5,152,466) 5,353,319 1 200,853
----------- ----------- --------- ----------- ----------- ----------
Total stockholders equity (427,994) (285,044) (30,836) (315,880) 3,000,975 2,685,095
----------- ----------- --------- ----------- ----------- ----------
Total liabilities & stockholders' equity $ 1,634,542 $ 1,088,604 $ -- $ 1,088,604 $ 3,400,975 $ 4,489,579
=========== =========== ======= =========== =========== ===========
See Notes to Pro-Forma Consolidated Financial Statements
25
COMMUNICATE.COM INC.
NOTES TO PRO-FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
NOTE (A) - The pro-forma adjustments to the condensed consolidated balance sheet
are as follows:
(1) To reflect the acquisition of 83% of AlbertaCo and the allocation
of the purchase price on the basis of the fair values of the
assets acquired and liabilities of AlbertaCo are as follow:
Components of purchase price:
Cash advanced by Pacific Capital Markets Inc.
and paid to Bryan Liew $ 400,000
1,000,000 Communicate Class A common
shares issued to Bryan Liew 500,000
Conversion of Bryan Liew debt into
2,200,000 Communicate Class A common shares 1,100,000
1,375,339 Communicate Class A common shares
issued to AlbertaCo minority shareholders 880,217
-------------
Allocation of purchase price: (a) 2,880,217
Stockholders' equity of AlbertaCo (b) 520,758
Increase in intangibles - domain names (7,526,618)
-------------
Asset value in excess of cost (4,125,643)
Intangibles (c) 4,125,643
-------------
Total $ --
=============
(a) Recorded at 83%
(b) 100% of negative net book value of AlbertaCo
(c) Asset value in excess of cost applied against
carrying value of intangibles
NOTE B - The pro-forma adjustments to the condensed
consolidated statements of operations areas follows:
Year Ended Nine Months Ended
December 31, 1999 September 30, 2000
(2) Adjustments to revenue
Elimination of revenue
from non-recurring operations $ 1,392,876 $ 420,027
============== ============
(3) Adjustments to operating expenses
Elimination of administrative expenses
from non-recurring operations $ 1,342,638 $ 2,048,614
Elimination of sales & marketing expenses
from non-recurring operations 572,454 922,750
Elimination of depreciation & amortization expenses
from non-recurring operations 121,155 656,005
Elimination of stock-based compensation expenses
from non-recurring operations 238,575 98,528
------------- ------------
Total adjustments to operating expenses $ 2,274,823 $ 3,725,897
============== ============
(4) Adjustments to interest & other (income) expenses
Elimination of interest & other (income) expenses
from non-recurring operations $ (17,420) $ 51,072
Interest on Pacific Capital Markets Inc. $400,000
demand loan at the Royal Bank of Canada
average prime rate plus 2% which approximates
8.44% for the year ended December 31, 1999
and 9.19% for the nine months ended
September 30, 2000 33,760 27,570
------------- -----------
Total adjustments to interest & other (income) expenses $ 16,340 $ 78,642
============== ============
26