Here are the details of the licensing agreement:
During the three months ended February 28, 2014, the Company executed a Licensing Agreement with Wazzamba SA (the “Licensor”). The agreement provides the Company an exclusive license to use certain technology (which permits third-party subscribers to integrate a fully equipped online shop into their websites) in Canada and the United States for an initial term ending July 31, 2015. The agreement provides for the Company to pay the Licensor “Flat Fee” compensation of $ 300,000 in 3 installments of $100,000 each (first installment payable within 5 days of the signing of the agreement, second installment payable on July 1, 2014, and third installment payable on February 1, 2015) plus “Revenue Share” compensation equal to 50% of Net Commissions generated by the Company payable monthly. In the event that the Company does not generate $500,000 in Net Commissions by January 31, 2015, the Licensor has the right to cancel the agreement with one month notice (in which case the third $100,000 installment will no longer be due). With respect to an Extended License Term after July 31, 2015, the agreement provides the Company a right of first refusal to match any offer received by the Licensor from a third party.
At February 28, 2014, the Company recorded an intangible asset for “Licensing Agreement with Wazzamba SA” in the amount of $300,000, and included the liability under the Licenses net of accumulated amortization. Commencing March 1, 2014, the Company will amortize the $300,000 intangible asset on a straight line basis over the remaining 17 months of the Initial Term ending July 31, 2015 (approximately $17,647 per month).
On March 27, 2014, the Company paid $25,000 of the first $100,000 “Flat Fee” installment due the Licensor under the agreement. The other $75,000 due is presently past due.
So assuming that the company has made good on the remainder of the 1st installment, and can also make the 2nd $100k installment due July 1, DOMK needs to generate at least $500k in net commissions (50% of which goes to Wazzamba) by the end of the year in order to continue with the licensing arrangement. Since this $500k is a minimum target, let's assume for the moment they are successful in attaining it. After paying out the 50% to Wazzamba, and the $300k licensing fee, the company would need to generate another $100k (for a total of $600k) to break even on their gross margin. Factor in that the Company has an accumulated deficit of $17.8 million since inception, and is currently losing about $1 million per quarter, it is difficult for me to see how they will crawl out of this hole anytime soon, even with the equity interest in Imagic, and this licensing deal ongoing.
On the (short term) flip side, burning thru another 125-150 million shares for the upcoming dilution will probably not be too difficult, especially if they can get any momentum with a little PR.
