LiveDeal, Inc. — Form 10-Q Summary
Reporting period: Three months ended December 31, 2011 (first quarter of fiscal 2012); comparison is the three months ended December 31, 2010. The filing identifies the registrant as LiveDeal, Inc. (formerly YP Corp.), not LIVE VENTURES Inc.
Business context and results
LiveDeal provides online marketing and directory services for small businesses. Continuing operations focus on its InstantAgency products, including InstantProfile. The company had stopped new sales in July 2011 while it explored sales programs and improved marketing and fulfillment. Direct sales operations were discontinued in 2011.
| Metric | Q1 FY2012 | Q1 FY2011 |
|---|---|---|
| Revenue | $851,413 | $994,622 |
| Cost of services | $235,819 | $894,577 |
| Gross profit / margin | $615,594 / 72.3% | $100,045 / 10.1% |
| Operating expenses | $766,868 | $1,986,161 |
| Operating loss | $(151,274) | $(1,886,116) |
| Net loss | $(191,638) | $(1,730,394) |
| Basic and diluted loss per share | $(0.18) | $(2.72) |
| Operating cash flow | $48,903 | $(1,460,470) |
Revenue fell 14%, reflecting the pause in new sales. Gross profit rose substantially as service costs declined, including from lower customer volume and bringing fulfillment in-house. General and administrative expense fell 61%, principally due to workforce reductions, lower professional fees and other cost cuts. The filing reports the quarterly net loss narrowed by about 89%.
Financial position and liquidity
- At December 31, 2011, cash and equivalents were $2.18 million, compared with $244,470 at September 30, 2011. Working capital was approximately $866,000, versus a deficit of approximately $1.05 million at September 30.
- Current liabilities were $1.94 million. They included $900,000 of notes payable and a $21,224 current capital lease obligation; no noncurrent capital lease balance was reported. The filing does not clearly state the maturity terms of the notes payable.
- Operating cash flow was positive by $48,903. Financing provided $1.88 million net, primarily from a $2.0 million common-stock issuance, offset by $100,000 of note repayments and capital-lease payments. There were no investing cash flows.
- Total assets were $4.54 million and stockholders’ equity was $2.60 million at quarter-end. The company reported $420,710 of operating-lease commitments and $21,224 of capital-lease obligations.
Material changes, outlook and risks
- On December 12, 2011, the company sold 1,612,899 shares to five investors for $2.0 million ($1.24 per share). The financing was intended to restore Nasdaq stockholders’ equity compliance. Shares issued and outstanding at December 31 were 2,338,377, compared with 698,491 issued and 694,239 outstanding at September 30.
- The financing gave three lead investors director designation and nomination rights, and certain corporate actions and withdrawals from the proceeds account require specified board and new-director approvals. An ad hoc Restructuring Committee was formed.
- Nasdaq notified the company on December 21 that it could remain listed after meeting the applicable requirements; monitoring continues through November 30, 2012.
- Management said existing cash was expected to fund operations for the next 12 months, but cautioned that profitability and positive operating cash flow were not assured and that results could remain volatile. No specific revenue or earnings guidance was provided. Management’s forward-looking assumptions included investment in online advertising to increase traffic and revenue.
- After quarter-end, CEO Kevin Hall’s employment was terminated effective January 20, 2012, and Jon Isaac was appointed CEO effective that date at an annual salary of $1, with potential discretionary bonuses. These events are described in MD&A, although Note 13 states there were no subsequent events.
- A Washington consumer-fraud class action concerning activator checks remained pending; class certification was scheduled for hearing on April 27, 2012. The company recorded no litigation accrual, stating the criteria were not met. Management cautioned that an unfavorable ruling could adversely affect results.
- Receivables were concentrated: three entities represented 33%, 25% and 16% of gross receivables. The company also reported that bank balances could exceed FDIC-insured limits. A valuation allowance remained against deferred tax assets because of losses and uncertainty about future profits.
Key facts for investors to verify
- Whether sales resumed and revenue, customer retention and cash generation improved after the new-sales pause.
- Use and restrictions on the $2.0 million financing proceeds, investor governance rights, and the impact of the substantial share issuance on existing shareholders.
- Repayment terms and sources for the $900,000 notes payable, and whether cash remains adequate given continuing losses and lease commitments.
- Current Nasdaq compliance status and the outcome of the GES class-certification motion and any settlement.
- Subsequent-event disclosure and the terms, governance implications and execution of the CEO transition and restructuring process.