LiveDeal, Inc. (NASDAQ: LIVE) — Form 10-Q Summary
Reporting period: Fiscal quarter and nine months ended June 30, 2015; filed August 14, 2015. The financial statements are unaudited. The company provides online marketing and promotional services to small and medium-sized businesses and operates an online marketplace platform and legacy/merchant services businesses. Comparisons below are against the corresponding 2014 periods.
Financial performance
| Metric | Three months ended June 30 | Nine months ended June 30 |
|---|---|---|
| Revenue | $2.94 million, up 10% from $2.67 million | $15.21 million, up 285% from $3.95 million |
| Gross profit | $1.14 million, versus $0.29 million | $6.32 million, versus $1.20 million |
| Gross margin | Approximately 38.9%, versus 11.0% | 41.5%, versus 30.4% |
| Operating loss | $4.14 million, versus $1.47 million | $6.10 million, versus $2.87 million |
| Net loss | $4.21 million, versus $1.54 million; loss per share $0.26 versus $0.11 | $10.25 million, versus $2.93 million; loss per share $0.65 versus $0.23 |
| Cash used in operating activities | Not presented for the quarter | $1.50 million, compared with $4.03 million |
Management attributed higher revenue mainly to businesses acquired in fiscal 2014. Marketplace-platform revenue for the nine months was $14.04 million, while legacy/merchant-services revenue was $1.17 million. Management said it expects marketplace revenue to grow and legacy-services revenue to continue declining. Nine-month gross margin improved, which management attributed to higher-margin products.
Liquidity, debt and capital
- At June 30, cash and cash equivalents were $6.61 million, down from $8.11 million at September 30, 2014. Working capital was $6.06 million, down from $9.50 million.
- Current assets were $10.40 million and current liabilities $4.33 million. Total liabilities were $4.83 million. Reported current note payable, net of discount, was $0.48 million and long-term loans were $0.22 million.
- Operating cash outflow improved year over year despite the larger net loss, in part because of substantial noncash expenses and changes in working capital. Investing cash outflow was $0.10 million; financing cash inflow was $0.08 million.
- Stockholders’ equity was $10.63 million, down from $13.07 million. Common shares outstanding increased to 16.90 million from 14.53 million at September 30, 2014; the filing reports 16.90 million outstanding on August 10, 2015.
Material changes and unusual items
- Operating expenses rose materially: nine-month general and administrative expense increased 103% to $7.43 million and sales and marketing expense increased to $4.54 million. General and administrative expense included $1.52 million in shares issued to executives as bonuses for services in fiscal 2012–2014 and $0.49 million in shares issued for employee and consultant services.
- The company recorded a $0.45 million intangible-asset impairment in the June quarter. Nine-month other expense was $4.15 million, principally reflecting debt-related, largely noncash charges, including $2.19 million associated with convertible debt and warrants and $2.00 million for Kingston financing fees paid in shares. Interest expense was $4.20 million for the nine months.
- At June 30, a $1.50 million software purchase was recorded as an intangible asset and accrued liability; the company had made no payment and could pay in cash or 800,000 common shares under the agreement.
- The filing describes a $10 million Kingston convertible-note facility with potentially dilutive conversion and warrant terms. A related-party note transaction and other debt conversions also resulted in equity issuance. The CEO, Jon Isaac, is associated with ICG and the lender Isaac Capital Fund.
Outlook, risks and subsequent events
- Management said cash on hand was believed sufficient for the next 12 months, but also stated the company would require additional capital for operations, marketing, product development and possible acquisitions. It warned that failure to generate positive cash flow or obtain financing could force it to delay or abandon plans or cease operations; future financing could dilute shareholders.
- Management’s outlook for the marketplace and legacy services is described above. It cautioned that new products may not generate sufficient revenue or profitability and that results may be volatile during the strategy transition.
- After quarter-end, on July 6–7, 2015, the company acquired an 80% interest in Marquis Industries through a subsidiary; former owners retained 20%. The transaction and financing were valued at approximately $30 million. Funding included approximately $7.8 million of Bank of America term debt, a revolving facility of approximately $15 million (with borrowing subject to eligibility), and a related-party mezzanine loan of up to $7 million bearing 12.5% interest. Bank of America payments were approximately $79,000 monthly plus interest; the term debt was due in July 2020 and mezzanine principal in January 2021. Marquis reported unaudited 2014 revenue of approximately $59.1 million and net income of approximately $5.0 million. Purchase accounting was incomplete at filing.
- Other risks include customer and receivable concentration and reliance on third-party billing companies. Three entities represented 26%, 16% and 11% of gross receivables at June 30. The company reported a $273,500 liability for a minimum-share-value guarantee related to the Modern Everyday acquisition. Management did not expect pending litigation to have a material adverse effect based on information then available, but outcomes were uncertain.
- The company planned to change its corporate name to Live Ventures, Inc., while retaining ticker LIVE, and expected the name change within 45 days. Management reported disclosure controls effective and no material change in internal control over financial reporting during the quarter.
Key investor verification points
- Determine how much of revenue growth reflects acquired businesses versus organic performance, and whether marketplace growth can offset declining legacy-services revenue.
- Track cash burn, working capital, and the company’s ability to fund operations and acquisition plans without further dilutive financing.
- Review the complete terms, availability, covenants and repayment obligations of the Kingston facility and Marquis acquisition financing, including the related-party mezzanine loan.
- Assess the impact of stock compensation, warrants, convertible securities and potential software payment in shares on dilution and per-share value.
- Monitor Marquis integration, final purchase accounting, acquisition results and any subsequent disclosures, including the promised Form 8-K information.