-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q49hslHS3ziPkqRSJT0dW/EoVNNbKE3oKVfk8/KTefAXR4QhknGhsozqt07JCqdD SiLxRpXaroE7K+lODtlFEw== 0001005150-01-500485.txt : 20010815 0001005150-01-500485.hdr.sgml : 20010815 ACCESSION NUMBER: 0001005150-01-500485 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TROYDEN CORP CENTRAL INDEX KEY: 0001108630 STANDARD INDUSTRIAL CLASSIFICATION: [9995] IRS NUMBER: 880346310 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-29929 FILM NUMBER: 1707911 BUSINESS ADDRESS: STREET 1: #360 220 CAMBLE ST STREET 2: 6TH FLOOR CITY: VANCOUVER BC V6E 4A6 STATE: A1 ZIP: 89502 BUSINESS PHONE: 6046892944 MAIL ADDRESS: STREET 1: 360 220 CAMBLE ST CITY: VANOURVER BC V6E 4A6 STATE: A1 ZIP: 89502 10QSB 1 form10qsb.txt FORM 10-QSB 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 --------- ---------- Commission File Number 000-29929 COMMUNICATE.COM INC. (Exact name of small business as specified in its charter) Nevada 33-0786959 ------------------------------------------------------ (State or other jurisdiction of (IRS Employer incorporation or organization) Identification Number) #1300 - 1090 West Georgia Street, Vancouver, B.C. V6E 3V7 --------------------------------------------------------- (Address of principal executive offices) (604) 697-0136 -------------- (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 - -------------------------------------------------------------------------------- OF OPERATIONS - ------------- 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 ------------------------------------------------------------------------------------------------ Statements of Operations Data ----------------------------- Domain and Advertising Sales $ 84,136 -- ---------------------------- General and Administrative $ (55,480) -- -------------------------- Professional Fees (52,873) $ (6,975) ----------------- Depreciation (21,178) -- ------------ Interest (9,420) (749) -------- Income Tax -- (800) ---------- 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. - -------------------------- 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. - ---------------------------------------- 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. - ----- Item 6. Exhibits and Reports on Form 8-K. - ----------------------------------------- (A) Index to and Description of Exhibits. - ---------------------------------------------- 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 --------------- --- ------------------- Date: August 13, 2001 By: /s/ J Cameron Pan --------------- --- ------------------- 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 - ------------------------------------------------------------------------------------------------------------------------------------ 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 - ------------------------------------------------------------------------------------------------------------------------------------ 1,283,219 2,105,100 CAPITAL LEASE OBLIGATIONS 22,514 56,140 - ------------------------------------------------------------------------------------------------------------------------------------ 1,305,733 2,161,240 - ------------------------------------------------------------------------------------------------------------------------------------ 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) - ------------------------------------------------------------------------------------------------------------------------------------ 2,353,922 1,688,614 - ------------------------------------------------------------------------------------------------------------------------------------ $ 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 -- - ------------------------------------------------------------------------------------------------------------------------------------ 84,136 -- 147,472 -- - ------------------------------------------------------------------------------------------------------------------------------------ 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 - ------------------------------------------------------------------------------------------------------------------------------------ 129,613 7,025 306,334 7,025 - ------------------------------------------------------------------------------------------------------------------------------------ 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) -- - ------------------------------------------------------------------------------------------------------------------------------------ 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 - ------------------------------------------------------------------------------------------------------------------------------------ (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 - ------------------------------------------------------------------------------------------------------------------------------------ CASH USED IN OPERATING ACTIVITIES 15,659 (5,475) - ------------------------------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM INVESTING ACTIVITIES - proceeds on disposal of assets 4,720 -- - ------------------------------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM INVESTING ACTIVITIES 4,720 -- - ------------------------------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES - lease obligation repayments (33,626) -- - advances from shareholders' -- 5,475 - ------------------------------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES (33,626) 5,475 - ------------------------------------------------------------------------------------------------------------------------------------ EFFECT OF EXCHANGE RATE CHANGES ON CASH CASG 3,693 -- - ------------------------------------------------------------------------------------------------------------------------------------ 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 - -------------------------------------------------------------------------------- (UNAUDITED) NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- (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 -----END PRIVACY-ENHANCED MESSAGE-----