UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 000-29929
COMMUNICATE.COM INC.
(Exact name of small business as specified in its charter)
Nevada 33-0786959
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
#1300 - 1090 West Georgia Street, Vancouver, B.C. V6E 3V7
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(Address of principal executive offices)
(604) 697-0136
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(Issuer's telephone number)
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Common Stock 14,191,339 shares outstanding
$.001 Par Value as of August 10, 2001
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
COMMUNICATE.COM INC.
REPORT ON FORM 10-QSB
QUARTER ENDED JUNE 30, 2001
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance sheets as of June 30, 2001 and December 31, 2000
Statements of Operations as of June 30, 2001 and June 30, 2000
Statements of Cash Flows as of June 30, 2001
Notes to the Financial Statements
Item 2. Management's discussion and analysis of financial condition and results
of operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Item 2. Changes in Securities.
Item 3. Defaults Upon Senior Securities.
Item 4. Submission of Matters to a Vote of Security Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
Signatures
2
PART I
ITEM 1: FINANCIAL STATEMENTS.
- -----------------------------
The response to Item 1 has been submitted as a separate section of this Report
beginning on page F-1.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS
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On November 10, 2000, Registrant acquired approximately 52% of the issued and
outstanding shares of the common stock of Communicate.com Inc., an Alberta
corporation (the "Subsidiary") from Bryan Liew. Following its acquisition of
shares from Mr. Liew, on December 29, 2000, Registrant consummated the
acquisition from certain minority shareholders of the Subsidiary an additional
31% of the issued and outstanding shares of the common stock of the Subsidiary
by exchanging one share of the Registrant's common stock for each 5.147058
shares of the Subsidiary's common stock from minority shareholders of the
Subsidiary pursuant to a Share Exchange Offer made on November 30, 2000.
Following the exchange, Registrant holds approximately 83% of the outstanding
common stock of the Subsidiary.
The Subsidiary is in the business of developing and marketing its portfolio of
domain names, at least 30 of which generate high amount of internet traffic
because of their generic descriptive nature of a specific product or services
category.
Registrant's twelve-month plan of operation is to: (i) establish partnerships
and other relationships with established businesses that are leaders or
near-leaders in their respective industry verticals that match with the
Subsidiary's online businesses; (ii) build out online businesses that have
established partnerships in place; (iii) develop more revenue generating
programs; (iv) expand through the acquisition of strategic domain names, web
sites and online businesses; and (v) invest into strategic portfolio companies
using the domain name assets held by the Subsidiary.
Registrant will attempt to generate more revenue by (i) partnering with
established businesses that have existing revenue streams that can be easily
ported over to one of the Subsidiary's online business models, (ii) growing
those revenue streams by leveraging the Subsidiary's domain name asset's
inherent traffic flow, and (iii) leasing the traffic arising from as yet
undeveloped domain name assets to existing on-line e-commerce businesses that
fall under the product or service category described by the generic domain name.
Registrant presently has 3 employees employed by the Subsidiary. Registrant will
hire employees through the Subsidiary as the need arises and its finances allow.
Positions will include web programmers, graphic artists, web masters, multimedia
designers, web writers, marketing representatives, sales representatives and
administrators. These positions may be required directly by the Subsidiary or
through the Subsidiary's online businesses, and may be located in Vancouver, or
other offices as required by the Subsidiary's online businesses and partners.
3
(A) SELECTED FINANCIAL DATA
The following selected financial data was derived from Communicate's unaudited
financial statements. The information set forth below should be read in
conjunction with the Company's financial statements and related notes included
elsewhere in this report.
For the Quarters Ended June 30, 2001 June 30, 2000
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Statements of Operations Data
-----------------------------
Domain and Advertising Sales $ 84,136 --
----------------------------
General and Administrative $ (55,480) --
--------------------------
Professional Fees (52,873) $ (6,975)
-----------------
Depreciation (21,178) --
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Interest (9,420) (749)
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Income Tax -- (800)
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Net (Loss) $ (56,754) $ (8,574)
Basic (Loss) per Share $ (0.01) $ (0.01)
Weighted Average Shares Outstanding 12,722,658 9,300,000
Balance Sheet Data As of June 30, As of December 31,
------------------ 2001 2000
Current Assets $ 154,410 $ 251,359
Fixed Assets 182,730 233,620
Intangible Assets 3,322,515 3,364,875
Total Assets $ 3,659,655 $ 3,849,854
Accounts Payable & Accrued Liabilities $ 823,893 $ 838,484
Loan Payable 423,109 405,399
Note Payable 0 825,000
Lease Obligations 58,731 92,357
Total Liabilities $ 1,305,733 $ 2,161,240
Common Stock $ 5,201 $ 3,535
Additional Paid in Capital 2,772,016 1,928,682
Accumulated Deficit $ (420,124) $ (236,739)
4
(B) RESULTS OF OPERATION
Registrant has not generated any significant revenues or expenses until the
acquisition of the Subsidiary on November 10, 2000. Prior to that date,
Registrant was a developing stage company in search of business acquisition. The
results of operation discussed hereon shall describe business activities from
November 10, 2000 onward.
REVENUES. In a prior sales of a geographical category domain name in the last
quarter of 2000 Registrant had expected to generate additional net revenue in
the first and the second quarter of 2001. However, the purchaser of the
geographical category domain name has not been able to obtain further financing
to make the contracted payment. Management has exercised its remedy under the
terms of the purchase agreement in July of 2001 whereby the Subsidiary will
assume effective majority control of the purchaser. Management intends to seek
other acceptable bids for the domain name in the coming months. However, as of
the date of this filing, the purchaser has not authorized the transfer of the
title of the common shares held in escrow in order for the Subsidiary to assume
effective majority control. Management intends to notify the purchaser of its
obligation under the purchase agreement and expects to have the matter resolved.
The Registrant entered into an agreement to lease one of its domain names for a
ten-year period and received an advance of $32,000 against future revenue to be
calculated at the end of each annual anniversary based on a percentage of gross
revenue. The lessee also has the options to purchase the domain name prior to
the fifth anniversary date and eighth anniversary date for specified amounts.
The Registrant entered into an agreement to sell one of its sports category
domain name for GBP$100,000 payable in three equal annual instalments and
received additionally a 10% interest in the purchaser and a share of revenues
generated from the site over the two-year period. Proceeds of the first annual
instalment net of costs amounted to $5,000.
Management will continue to market its portfolio of domain names in fiscal 2001
and identify potential purchasers who have substantial liquid assets to complete
any contemplated purchase transactions, including the outright sale of the
Subsidiary. Management believe that its portfolio of generic product or services
category domain names will continue to generate interest from potential partners
or purchasers despite a softened and depressed domain names aftersales market
because of the intuitive and traffic-generating characteristics of Registrant's
domain names.
Registrant generated advertising and click-through revenues of $33,000 from the
leasing of internet traffic from idle domain names redirected to potential
partners and purchasers who would be interested in making an offer on a domain
name in Registrant's portfolio or would want to receive internet traffic that
were product or service category specific and would benefit any online business
in or near the same product or service category. Management cannot reasonably
forecast revenue generated by these agreements but expect revenue to remain
consistent on a quarter over quarter basis.
Other revenues of $13,000 were generated from realized foreign exchange gain and
miscellaneous income.
5
GENERAL AND ADMINISTRATIVE. Registrant's general and administrative expenses
consist primarily of salaries and related costs for general and corporate
functions, including all facilities fees. These expenses have been reduced
substantially from the preceding quarters as a result of management's cost
savings program implemented in the last quarter of 2000 and the change in
business focus in the Subsidiary's business.
PROFESSIONAL FEES. A substantial amount of the professional fees were for legal
and auditing fees which were related to costs of regulatory filings and
financial statement preparation. Registrant continues to seek ways to reduce
these costs.
(C) LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2001 Registrant had current liabilities in excess of current assets
resulting in a working capital deficit of $1,128,809. The Registrant exercised
its option to settle an $825,000 note payable owing to one of its major
shareholders by issuing common shares towards the end of the current quarter.
During the quarter ended June 30, 2001 Registrant had a net loss of $56,754 and
a decrease in cash of $9,554. The decrease in cash was primarily due to the
operating loss and to extinguishing certain capital leases, offset by the
collection of certain receivables and add-back of non-cash related expenses.
Registrant has accumulated a deficit of $420,124 since inception and has a
stockholders' equity of $2,353,922 at June 30, 2001. Based on these factors,
there is substantial doubt about Registrant's ability to continue as a going
concern. Registrant will only be able to continue operations if it raises
additional funds, either through operations or outside funding. Registrant
cannot predict whether it will be able to do so.
Registrant is in the early stages of operation and is just beginning to generate
business revenues. Revenue generating programs will include: (i) the sale
through e-commerce of products and services to consumers through the
Subsidiary's online businesses; (ii) data mining of visitor and customer
information to provide aggregate market research to corporate partners and
business customers; (iii) infrastructure and shared service fees to corporate
partners and business customers to provide them with exposure and e-commerce
capabilities on the Subsidiary's online businesses; (iv) sponsorship and
advertising programs for business customers who want to target specific
consumers; and (v) dividends and cash flows from the Subsidiary's portfolio
companies that are not part of its network of operating online businesses.
Registrant and the Subsidiary cannot satisfy its cash requirements for the next
12 months without having to raise additional funds. The Subsidiary's expected
cash requirement for the next 12 months is one million dollars. Registrant
expects to raise any additional funds by way of equity and/or debt financing,
and through the sale of non-strategic domain name assets. However, Registrant
may not be able to raise the required funds from such financings, particularly
in light of existing market conditions and the perception by investors of those
companies which, like the Registrant, engage in e-commerce and related
businesses. In that case Registrant will proceed by approaching current
shareholders for loans or equity capital to cover operating costs.
Although the foregoing actions are expected to cover Registrant's anticipated
cash needs for working capital and capital expenditures for at least the next
twelve months, no assurance can be given that Registrant will be able to raise
sufficient cash to meet these cash requirements.
6
Registrant has no current plans to purchase any plant or significant equipment.
(D) UNCERTAINTIES RELATING TO FORWARD-LOOKING STATEMENTS
Management's discussion and analysis of Registrant's financial condition and the
results of its operations and other sections of this report, contain forward
looking statements, that are based upon the current beliefs and expectations of
Registrant's management, as well as assumptions made by, and information
currently available to, Registrant's management. Because these statements
involve risks and uncertainties, actual actions and strategies and the timing
and expected results may differ materially from those expressed or implied by
the forward-looking statements. As well, Registrant's future results,
performance or achievements could differ materially from those expressed in, or
implied by, any forward-looking statements. Future events and actual results
could differ materially from those set forth in or underlying the
forward-looking statements.
7
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
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During the quarter ended June 30, 2001, Registrant is not a party to any
additional material pending legal proceedings and, to the best of its knowledge,
no such action by or against Registrant has been threatened.
Item 2. Changes in Securities.
- ------------------------------
On June 20, 2001, the Board of Directors issued 1,650,000 shares of common stock
to Bryan Liew in accordance with the terms of Share Purchase Agreement entered
into on November 10, 2000. The Registrant had exercised its option to issue the
common stock to satisfy $825,000 of debt owing to Liew. Registrant relied on an
exemption from registration under Section 4(2) of the Securities Act of 1933 in
issuing the shares. No underwriter was involved in the issuance of these shares.
Item 3. Defaults Upon Senior Securities.
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None.
Item 4. Submission of Matters to a Vote of Security Holders.
- -------------------------------------------------------------
No matter was submitted to a vote of security holders, through the solicitation
of proxies or otherwise, during the first quarter of the fiscal year covered by
this report.
Item 5. Other Information.
- --------------------------
None.
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Item 6. Exhibits and Reports on Form 8-K.
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(A) Index to and Description of Exhibits.
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EXHIBIT DESCRIPTION
F-1 Financial Statements.
27 Financial Data Schedule.
(B) Reports on Form 8-K.
- ----------------------------
There were no report on Form 8-K filed by Registrant during the quarter ending
June 30, 2001.
8
PART II - SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
COMMUNICATE.COM INC.
Date: August 13, 2001 By: /s/ Graham B. Heal
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Date: August 13, 2001 By: /s/ J Cameron Pan
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9
Exhibits
Financial Statements.........................................................F-1
10
COMMUNICATE.COM INC.
(FORMERLY TROYDEN CORPORATION)
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
(unaudited)
BALANCE SHEETS
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
F-1
COMMUNICATE.COM INC.
(FORMERLY TROYDEN CORPORATION)
CONSOLIDATED BALANCE SHEETS
December 31,
June 30, 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 38,269 $ 47,823
Prepaid expenses 32,018 40,043
Other receivables 84,123 163,493
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154,410 251,359
FIXED ASSETS (Note 4) 182,730 233,620
INTANGIBLE ASSETS HELD FOR RESALE (Note 3) 3,322,515 3,364,875
- ------------------------------------------------------------------------------------------------------------------------------------
$ 3,659,655 $ 3,849,854
====================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 823,893 $ 838,484
Loan Payable (Note 5) 423,109 405,399
Note Payable (Note 3) -- 825,000
Current portion of capital lease obligations 36,217 36,217
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1,283,219 2,105,100
CAPITAL LEASE OBLIGATIONS 22,514 56,140
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1,305,733 2,161,240
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COMMITMENTS AND CONTINGENCIES (Notes 1 and 8)
STOCKHOLDERS' EQUITY
Capital stock (note 6)
Authorized
50,000,000 Common shares, $.001 par value
Issued and outstanding
14,191,339 (2000 - 12,525,339) Common shares 5,201 3,535
Additional paid in capital 2,772,016 1,928,682
Accumulated deficit (420,124) (236,739)
Accumulated other comprehensive income (loss) (3,171) (6,864)
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2,353,922 1,688,614
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$ 3,659,655 $ 3,849,854
====================================================================================================================================
The accompanying notes are an integral part of these interim consolidated financial statements
F-2
COMMUNICATE.COM INC.
(FORMERLY TROYDEN CORPORATION)
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
Three months Three months Six months Six months
ended June 30, ended June 30, ended June 30, ended June 30,
2001 2000 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
REVENUES
Domain name revenue (net of cost) $ 70,912 $ -- $ 121,728 $ --
Other 13,224 -- 25,744 --
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84,136 -- 147,472 --
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EXPENSES
General and administrative 55,480 -- 105,417 --
Professional fees 52,873 6,975 154,906 6,975
Sales and marketing 82 -- 1,698 --
Depreciation and amortization 21,178 50 44,313 50
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129,613 7,025 306,334 7,025
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OPERATING LOSS (45,477) (7,025) (158,862) (7,025)
INTEREST EXPENSE (9,420) (749) (22,666) (749)
LOSS ON DISPOSAL OF ASSETS (1,857) -- (1,857) --
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LOSS BEFORE INCOME TAX (56,754) (7,774) (183,385) (7,774)
INCOME TAX -- (800) -- (800)
- ------------------------------------------------------------------------------------------------------------------------------------
NET LOSS FOR THE PERIOD $ (56,754) $ (8,574) $ (183,385) $ (8,574)
====================================================================================================================================
BASIC LOSS PER SHARE $ (0.01) $ (0.01) $ (0.01) $ (0.01)
====================================================================================================================================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 12,722,658 9,300,000 12,630,466 9,300,000
====================================================================================================================================
The accompanying notes are an integral part of these interim consolidated financial statements
F-3
COMMUNICATE.COM INC.
(FORMERLY TROYDEN CORPORATION)
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months Six months
ended June 30, ended June 30,
2001 2000
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(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period $(183,385) $ (8,574)
Adjustments to reconcile net loss to net cash
used in operating activities
- loss on disposal of assets 1,857 --
- non-cash cost of sales 42,360 --
- depreciation and amortization 44,313 50
- accrued interest 17,710 749
- other receivables 79,370 --
- prepaid expenses 8,025 --
- accounts payable 5,409 1,500
- accrued income taxes -- 800
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CASH USED IN OPERATING ACTIVITIES 15,659 (5,475)
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CASH FLOWS FROM INVESTING ACTIVITIES
- proceeds on disposal of assets 4,720 --
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CASH FLOWS FROM INVESTING ACTIVITIES 4,720 --
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CASH FLOWS FROM FINANCING ACTIVITIES
- lease obligation repayments (33,626) --
- advances from shareholders' -- 5,475
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CASH FLOWS FROM FINANCING ACTIVITIES (33,626) 5,475
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EFFECT OF EXCHANGE RATE CHANGES ON CASH
CASG 3,693 --
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INCREASE IN CASH AND CASH EQUIVALENTS (9,554) --
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 47,823 --
- ------------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 38,269 $ --
====================================================================================================================================
SUPPLEMENTAL CASH FLOW INFORMATION
During the period the Company issued 16,000 common shares in settlement of certain trade accounts payable of $20,000.
During the period the Company issued 1,650,000 common shares in settlement of notes payable of $825,000.
The accompanying notes are an integral part of these interim consolidated financial statements
F-4
COMMUNICATE.COM INC.
(FORMERLY TROYDEN CORPORATION)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
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(UNAUDITED)
NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION
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The Company was incorporated October 10, 1995 under the laws of the State of
Nevada and effective August 24, 2000 changed its name from Troyden Corporation
to Communicate.com Inc. ("CMNN" or "the Company"). CMNN has previously been a
development stage company seeking business acquisition opportunities. Effective
November 10, 2000 the Company acquired a 52% controlling interest in
Communicate.com Inc., an Alberta private company ("AlbertaCo") and during
December 2000 acquired from minority shareholders an additional 31% of the
outstanding shares of AlbertaCo. As a result, CMNN owns 83% of the outstanding
shares of AlbertaCo.
AlbertaCo owns a large portfolio of simple, intuitive domain names. AlbertaCo's
current business strategy is to seek partners to develop its domain names to
include content, commerce and community applications. AlbertaCo is generating
revenues from the sale of interests in certain of its domain names and
accordingly the Company is no longer considered to be in the development stage.
The interim consolidated financial statements have been prepared on the basis of
a going concern, which contemplates the realization of assets and satisfaction
of liabilities in the normal course of business. At June 30, 2001 the Company
has a working capital deficiency of $1,128,809 and has incurred ongoing losses
since inception raising substantial doubt as to the Company's ability to
continue as a going concern. The Company's continued operations are dependent on
its ability to obtain additional financing, settling its outstanding debts and
ultimately to attain profitable operations.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited interim consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB of Regulation
S-B. They do not include all information and footnotes required by generally
accepted accounting principles for complete financial statements. However,
except as disclosed herein, there have been no material changes in the
information disclosed in the notes to the financial statements for the year
ended December 31, 2000 included in the Company's Annual Report on Form 10-KSB
filed with the Securities and Exchange Commission. The interim unaudited
consolidated financial statements should be read in conjunction with those
financial statements included in the Form 10-KSB. In the opinion of Management,
all adjustments considered necessary for a fair presentation, consisting solely
of normal recurring adjustments, have been made. Operating results for the three
months ended June 30, 2001 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2001.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
BASIS OF PRESENTATION
The accompanying financial statements are presented in United States dollars and
are prepared in accordance with accounting principles generally accepted in the
United States.
PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of the Company and the 83%
interest in its subsidiary AlbertaCo. All significant intercompany balances and
transactions are eliminated on consolidation.
FIXED ASSETS
Fixed assets are recorded at cost. Depreciation is computed at the following
rates over the estimated useful lives of the assets:
Computer equipment 30% declining balance
Furniture and fixtures 20% declining balance
Office equipment 20% declining balance
Other intangibles 5 years straight-line
One-half year depreciation is taken in the year of acquisition on certain
capital assets.
F-5
COMMUNICATE.COM INC.
(FORMERLY TROYDEN CORPORATION)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
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(UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
- --------------------------------------------------------------------------------
REVENUE RECOGNITION
The Company generates revenues from the licensing, leasing and sale of the
rights to its domain names. Collectibility of the proceeds in connection with
these transactions is subject to a high level of uncertainty; accordingly
revenues are recognized only as received in cash and are shown net of direct
selling costs. The carrying amount of the domain names held for resale is
charged against revenue on a proportionate basis concurrent with the recognition
of the revenue.
Web advertising 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.
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.
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 financial statements are presented in United States dollars. In accordance
with Statement of Financial Accounting Standards No. 52, "Foreign Currency
Translation", foreign denominated monetary assets and liabilities are translated
to their United States dollar equivalents using foreign exchange rates that
prevailed at the balance sheet date. Revenue and expenses are translated at
average rates of exchange during the year. Related translation adjustments are
reported as a separate component of stockholders' equity, whereas gains or
losses resulting from foreign currency transactions are included in results of
operations.
F-6
COMMUNICATE.COM INC.
(FORMERLY TROYDEN CORPORATION)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
- --------------------------------------------------------------------------------
(UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
- --------------------------------------------------------------------------------
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 11.
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. Because the Company does not have any
potentially dilutive securities, the accompanying presentation is only of basic
loss per share.
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 to date consists only of the
net loss resulting from translation of the foreign currency financial statements
of AlbertaCo.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews the carrying amount of capital assets and intangible assets
held for resale 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
assets held.
NOTE 3 - ACQUISITION OF ALBERTACO
- --------------------------------------------------------------------------------
By agreement dated November 10, 2000 the Company acquired 11,714,080 Class A
common shares of AlbertaCo, representing 52% of the outstanding shares of
AlbertaCo, in consideration for 1,000,000 shares of the Company's common stock,
a cash payment of $400,000 and an additional $1,100,000 payable in four equal
amounts of $275,000 due 30, 60, 90 and 120 days following the acquisition or as
otherwise agreed to by the parties. The Company may, at its option, satisfy the
additional $1,100,000 payable by the issuance of 2,200,000 shares of the
Company's common stock.
In connection with this acquisition, the Company borrowed $400,000 from Pacific
Capital Markets Inc. (refer to Note 5)
On December 14, 2000, 550,000 shares of common stock were issued at an agreed
value of $0.50 per share as settlement of $275,000 of the $1,100,000. On June
20, 2001, 1,650,000 shares of common stock were issued at an agreed value of
$0.50 per share as settlement of the $825,000 balance of this agreement.
In addition, effective November 30, 2000, the Company made an offer to purchase
all of the remaining minority shareholdings of AlbertaCo on the basis of one
share of the Company for each 5.1470556 shares of AlbertaCo. This offer remained
in effect until December 29, 2000. In connection with this offer, the Company
acquired an additional 7,079,039 shares of AlbertaCo, representing 31% of the
outstanding shares of AlbertaCo, for consideration of 1,375,339 shares of the
Company's common stock at a fair value of $0.64 per share.
The Company owns 83% of the outstanding shares of common stock of AlbertaCo.
F-7
COMMUNICATE.COM INC.
(FORMERLY TROYDEN CORPORATION)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
- --------------------------------------------------------------------------------
(UNAUDITED)
NOTE 4 - FIXED ASSETS
- --------------------------------------------------------------------------------
June 30, 2001 December 31, 2000
-----------------------------------
Computer equipment $ 196,322 $ 216,252
Furniture and fixtures 6,568 6,568
Office equipment 3,993 3,993
Other intangibles 20,160 20,160
-----------------------------------
227,043 246,973
Less: accumulated depreciation (44,313) (13,353)
-----------------------------------
$ 182,730 $ 233,620
===================================
As at June 30, 2001, computer equipment includes $71,890 of equipment held under
capital lease. Accumulated depreciation of leased equipment at June 30, 2001 is
$20,162.
NOTE 5 - LOAN PAYABLE
- --------------------------------------------------------------------------------
In connection with the acquisition of AlbertaCo, the Company entered into a Loan
and Security Agreement dated November 10, 2000 with Pacific Capital Markets Inc.
("PCMI"), a British Columbia corporation. Under the terms of the agreement, PCMI
agreed to loan the Company up to $1,500,000 to satisfy its obligation pursuant
to the AlbertaCo purchase agreement dated November 10, 2000. Amounts loaned by
PCMI are secured by a promissory note payable on demand and bearing interest at
the Royal Bank of Canada prime rate plus 2%. In the event that the Company fails
to repay the amounts due under this agreement, PCMI may, at its option, convert
the balance of principal and interest due pursuant to this agreement into shares
of the Company's common stock of at a price equal to 80% of the average selling
price of the Company's common stock for the fifteen days prior to conversions.
As at June 30, 2001, $400,000 has been loaned by PCMI to the Company and $23,109
of interest has been accrued.
PCMI and certain of its officers and directors were also shareholders of
AlbertaCo and sold their shareholdings in AlbertaCo to the Company in connection
with the minority shareholder offer as described in Note 3, and as a result
became shareholders of the Company.
NOTE 6 - CAPITAL STOCK
- --------------------------------------------------------------------------------
The authorized capital of the company consists of 50,000,000 Common Shares with
a par value of $.001.
During January 2001, the Company issued 16,000 shares of common stock in
settlement of certain trade accounts payable of AlbertaCo in the amount of
$20,000. During June 2001, the Company issued 1,650,000 shares of common stock
in settlement of a note payable in the amount of $825,000.
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.
The Company has no stock options outstanding as at June 30, 2001 and to date the
Company has not granted any stock options.
F-8
COMMUNICATE.COM INC.
(FORMERLY TROYDEN CORPORATION)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
- --------------------------------------------------------------------------------
(UNAUDITED)
NOTE 7 - RELATED PARTY TRANSACTIONS
- --------------------------------------------------------------------------------
During the period management fees and salaries of totalling $24,934 were paid to
two directors of the Company.
NOTE 8 -CONTINGENCIES
- --------------------------------------------------------------------------------
FOREIGN EXCHANGE RISK
The Company is subject to foreign exchange risk for sales and purchases
denominated in foreign currencies. Foreign currency risk arises form 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.
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 and capital lease obligations. 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.
CONTINGENCIES
The former Chief Executive Officer of AlbertaCo commenced a legal action against
AlbertaCo on March 9, 2000 for wrongful dismissal and breach of contract. He is
seeking, at minimum, 18.39% of the outstanding shares of AlbertaCo, specific
performance of his contract, special damages in an amount of CAN$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.
AlbertaCo has been threatened with legal action by Don King Productions ("DKP")
for alleged infringements on a pay-per-view telecast in March 2000 on
AlbertaCo's website, boxing.com. DKP is seeking damages of $100,000 and the
rights to the boxing.com domain name. The Company denies any wrongdoing and will
defend any legal action undertaken by DKP.
Certain minority shareholders of AlbertaCo 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. To date no statement of
claim has been filed and should a claim be started, the Company intends to
vigorously defend this action.
NOTE 9 - DOMAIN NAME REVENUE
- --------------------------------------------------------------------------------
During the period the Company entered into a number of agreements related to the
domain names included in intangible assets held for resale as follows:
SALE OF CRICKET.COM
AlbertaCo has entered into an agreement to sell one of its URL domain names for
proceeds of $25,000 which has been including in domain name related revenue, 90%
of the net revenues from Cricket.com Ltd. (a newly formed company of which
AlbertaCo will own 40%) to a maximum of $500,000, and 50% of the net revenues
from Cricket.com Ltd. until an additional $500,000 is paid.
SALE OF RUGBY.COM
AlbertaCo has entered into an agreement to sell its URL domain name (rugby.com)
for proceeds of (pound)100,000 payable in three equal annual instalments
starting in April 2001. Additionally the Company receives a 10% interest in
Rugbee.com Ltd. and a share of revenues generated from the site over the
two-year period.
F-9
COMMUNICATE.COM INC.
(FORMERLY TROYDEN CORPORATION)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
- --------------------------------------------------------------------------------
(UNAUDITED)
NOTE 9 - DOMAIN NAME REVENUE (CONT'D)
- --------------------------------------------------------------------------------
LEASE OF VANCOUVER.COM
AlbertaCo entered into an agreement to lease its URL domain name (vancouver.com)
for a ten year period for consideration of 2% of the gross revenue (exclusive of
applicable taxes) generated by the lessee in respect of on-line revenues
originating from the domain name URL and 1% of the gross revenue (exclusive of
applicable taxes) generated by the lessee in respect of offline revenues
originating from the domain name URL. The lessee has the right to purchase the
domain name URL prior to the fifth anniversary date for CAN$400,000 less all
amounts previously paid to AlbertaCo during the lease term. The lessee also has
the right to purchase the domain name URL prior to the eighth anniversary date
for CAN$800,000 less all amounts previously paid to AlbertaCo during the lease
term. The lessee may cancel this agreement with 60 days notice of the annual
anniversary date.
F-10