Business context and reporting period
LiveDeal, Inc. (the issuer named in the filing; the request metadata identifies LIVE Ventures) filed this Form 10-Q for the quarter and nine months ended June 30, 2013. The company provides online customer-acquisition and marketing services for small and medium-sized businesses. It was transitioning from legacy products to newer LiveDeal promotional marketing and Velocity Local online-presence services; most revenue still came from legacy customers, and the new offerings had not yet contributed materially.
Amounts below are in U.S. dollars. The filing’s financial statements are unaudited.
Financial performance and liquidity
| Metric | Three months ended June 30, 2013 | Three months ended June 30, 2012 | Nine months ended June 30, 2013 | Nine months ended June 30, 2012 |
|---|---|---|---|---|
| Revenue | $606,867 | $777,857 | $1,734,486 | $2,450,971 |
| Gross profit | $427,946 | $669,196 | $1,336,016 | $1,879,883 |
| Gross margin | 70.5% | 86.0% | 77.0% | 76.7% |
| Operating loss | $(511,871) | $(74,869) | $(1,624,315) | $(453,003) |
| Net loss | $(511,169) | $(281,770) | $(4,786,695) | $(732,401) |
| Basic and diluted loss per share | $(0.15) | $(0.12) | $(1.64) | $(0.38) |
- For the nine months, operating cash flow was $(1,400,894), versus positive $130,160 a year earlier. Investing cash flow was $(121,234), and financing cash flow was $1,250,000. Cash decreased by $272,128 to $1,033,657.
- At June 30, current assets were $1,431,137 and current liabilities were $897,393, yielding working capital of $533,744 and a current ratio of approximately 1.59. The filing reports working capital of $370,780 at September 30, 2012.
- Total assets were $3,757,140; total liabilities were $897,393; and stockholders’ equity was $2,859,747. The balance sheet lists no outstanding notes payable at June 30. Related-party convertible notes were converted to common stock; see unusual items below.
- Operating lease commitments totaled $416,282, primarily due in fiscal 2014 and 2015. No off-balance-sheet arrangements were reported.
Material changes versus the prior comparable period
- Revenue declined 22% in the quarter and 29% over nine months, mainly because legacy revenue fell; management said growth in online-presence marketing partly offset the decline.
- Quarterly cost of services rose 65%, which management attributed primarily to fulfillment costs for new products. Nine-month cost of services fell 30%, alongside fewer legacy customers and a shift to internal fulfillment.
- Quarterly gross margin fell to 70.5% from 86.0%; the nine-month margin was approximately flat year over year.
- General and administrative expense rose 25% in both the quarter and nine-month period, with call-center compensation a major factor. The nine-month operating loss widened to $1.62 million.
- Nine-month net loss increased substantially, primarily reflecting operating deterioration and $3.29 million of interest expense associated with convertible debt and warrants. The filing identifies this interest as noncash.
Outlook, risks, contingencies, and unusual items
- Management said existing cash was expected to fund operations for the next 12 months, but cautioned that profitability and positive operating cash flow were uncertain. The financial-statement notes state that recurring losses raise substantial doubt about the company’s ability to continue as a going concern; continued operations depend on generating sufficient revenue or raising additional capital.
- The company was developing new promotional-marketing and online-presence products and expected online advertising demand to support revenue, but provided no quantified financial guidance. Management warned that results and business conditions could be volatile.
- A shelf registration statement effective May 16, 2013 permits offerings of up to $10 million of securities. Future issuance could provide funding but may dilute shareholders; the filing does not report sales under the shelf during the period.
- In fiscal 2013, the company issued $1.25 million of convertible notes to Isaac Capital Group, owned by CEO Jon Isaac. The notes were converted into shares, with warrants also issued. Conversion-related discounts and warrant values drove substantial noncash interest expense. At June 30, 955,502 warrants were outstanding; the filing also reports 225,000 options. Potential dilution was excluded from diluted loss per share as anti-dilutive.
- The CEO’s employment agreement provides a $200,000 annual base salary, discretionary performance bonuses, housing-expense reimbursement, and a one-time $150,000 bonus for prior services. It also provides for options to purchase 150,000 shares, subject to vesting.
- The company accrued $100,000 at June 30 for the Global Education Services class-action settlement and had paid $60,000 during the quarter. A separate lease dispute was settled for $112,500, with a $24,000 security deposit retained, and dismissed with prejudice.
- Receivables are exposed to billing-company holdbacks, dilution, customer credits, and collection risk. Three entities represented 45%, 24%, and 18% of gross receivables, respectively, at June 30. The company also maintained a valuation allowance against deferred tax assets.
Important facts for investors to verify
- Confirm the issuer identity: the filing names LiveDeal, Inc., while the request metadata says LIVE Ventures Inc.
- Review whether new products can replace declining legacy revenue and improve operating margins, given the limited material revenue contribution reported to date.
- Assess cash runway and financing needs in light of operating cash burn, the going-concern uncertainty, and management’s stated 12-month liquidity expectation.
- Reconcile the $3.29 million of noncash debt- and warrant-related interest, the related-party note conversions, and the resulting potential dilution from warrants, options, and any future shelf offerings.
- Monitor collection quality and concentration of receivables, the remaining settlement accrual, and other legal or contractual exposures.