LIVE VENTURES Inc quarterly report, Q1 FY2015

Business context and reporting period

This summary covers LiveDeal, Inc.’s unaudited Form 10-Q for the quarter ended December 31, 2014 (fiscal Q1 2015), compared with the quarter ended December 31, 2013. The filing describes an online marketing and marketplace business serving small and medium-sized businesses, with legacy merchant services and an online marketplace platform. The request metadata names LIVE VENTURES Inc.; the filing itself identifies the registrant as LiveDeal, Inc.

Management attributed the sharp increase in marketplace activity mainly to fiscal 2014 acquisitions. The marketplace includes LiveDeal.com and acquired consumer-product businesses; DealTicker operations had subsequently been closed. The company no longer accepts new customers under its legacy product offerings.

Key financial results

Marketplace revenue was $7.60 million, versus $1,392; services revenue was $409,984, down from $592,066. Marketplace gross profit was $2.88 million, while services gross profit was $357,033. Overall gross margin fell substantially as the business mix shifted toward acquired product sales.

Cash and cash equivalents were $6.52 million at December 31, 2014, down from $8.11 million at September 30, 2014. Working capital was $7.86 million, compared with $9.50 million at September 30. Total assets were $17.88 million and total liabilities were $5.06 million. Outstanding debt was reported at $911,481, including $277,252 current and $634,229 long term; it was $1.56 million at September 30. Cash used in investing was $49,512; financing cash outflow was $246,182, including $346,182 of note repayments and $100,000 of convertible-debt proceeds.

Material changes versus the prior comparable period

• Revenue rose 1,249%, chiefly reflecting acquisitions; management said legacy-services revenue was expected to continue declining.
• Sales and marketing expense increased to $2.19 million from $27,072, and general and administrative expense increased to $1.92 million from $870,699, primarily due to acquired businesses and marketing activity.
• Interest expense was $4.19 million, compared with $516. Management attributed the increase largely to non-cash debt discounts, warrants issued upon debt conversion, and the Kingston financing commitment fee. Net loss consequently increased despite much higher revenue.
• Operating cash use increased to $1.30 million. The cash-flow reconciliation included $2.19 million of non-cash interest on convertible debt and warrants and $2.00 million related to loan fees.
• Common shares outstanding increased from 14.53 million at September 30 to 15.98 million at December 31. The quarter included shares issued for services, debt conversions, and the Kingston commitment fee.

Outlook, risks, contingencies and unusual items

• Management expected marketplace revenue to grow and legacy-services revenue to decline. It cited the platform’s scalability and restaurant adoption, but gave no quantified revenue, earnings, or cash-flow guidance.
• Management believed available cash, operating cash generation, and potential debt or equity financing would fund operations for 12 months. It also cautioned that profitability and positive operating cash flow were uncertain, and that failure to raise capital or generate cash could force changes to plans or cessation of operations.
• The October 2014 Kingston agreement amendment raised the maximum convertible-note amount to $10 million and replaced the original issue discount with a 5% execution payment. The company issued 630,252 shares valued at $2.00 million for that fee, recognized as interest expense. Conversion terms, warrants, anti-dilution provisions, and potential shareholder-approval limits may affect dilution.
• In December 2014, the company acquired software for $1.50 million, recorded as an intangible asset and accrued liability. No payment had been made by quarter-end; the company could pay cash or shares within six months.
• A $500,000 related-party note from Isaac Capital Group, owned by CEO and director Jon Isaac, was converted into 674,370 shares; the associated warrant’s fair value of $1.85 million was recorded as interest expense. Related-party terms and the accounting for conversion-related charges merit attention.
• The company recorded a $243,000 liability for a guarantee of the value of acquisition-related shares. It also accrued $52,261 for an unpaid lease judgment. Management said other pending matters were not expected to have a material adverse effect, while acknowledging litigation outcomes are uncertain.
• Receivables depend partly on third-party billing companies and include significant estimated dilution, fees, and holdbacks. Three entities represented 21%, 13%, and 9% of gross receivables at quarter-end. Inventory obsolescence allowance was $347,196.
• The company maintained a full valuation allowance against deferred tax assets because of current and expected near-term losses. Management also warned of volatility as it implements its changing strategy.

Important facts for investors to verify

1. Whether marketplace revenue growth and gross margins are sustainable, particularly given acquisition-driven results and the shift in product mix.
2. Cash burn, near-term liquidity needs, and the assumptions supporting management’s 12-month liquidity outlook.
3. The full economic and dilution effects of the Kingston facility, including any further borrowing, conversions, warrants, fees, and required shareholder approvals.
4. Whether the $1.50 million software purchase will be settled in cash or stock, and the asset’s commercial value and recoverability.
5. Collection quality and concentration in receivables, including third-party billing holdbacks, customer dilution, and inventory valuation.
6. Progress on reducing losses, the status of the share-value guarantee and legal judgment, and any material changes in litigation or contingencies.