LiveDeal, Inc. — Fiscal 2011 Form 10-K
Reporting period: Fiscal year ended September 30, 2011; comparative figures are for fiscal 2010. The filing is for LiveDeal, Inc., although the request metadata identifies LIVE VENTURES Inc.
Business context
LiveDeal provided online marketing and directory services to small businesses. Its strategy shifted toward lower-priced subscription products, including InstantProfile, distributed through its Velocity Marketing Concepts subsidiary. LiveDeal discontinued its Direct Sales business in May 2011 and paused new Velocity sales on July 15, 2011 while it reviewed products, sales programs, distribution and vendors. The prior-year financial statements were restated to present Direct Sales as discontinued operations.
Financial performance and liquidity
| Metric | FY2011 | FY2010 |
|---|---|---|
| Revenue | $4.083 million | $4.239 million |
| Gross profit / margin | $0.477 million / 11.7% | $3.111 million / 73.4% |
| Operating loss | $(5.302) million | $(8.850) million |
| Net loss | $(5.502) million | $(7.457) million |
| Net cash used in operating activities | $(4.321) million | $(3.940) million |
- Cost of services rose 220% to $3.606 million, mainly reflecting commissions, fulfillment and lead costs for the new Velocity program. General and administrative expense fell 51% to $5.721 million following restructuring; sales and marketing expense fell 75% to $58,000.
- Quarterly net losses improved during the year, from $1.730 million in Q1 to $313,777 in Q4. Q4 revenue was $845,649 and gross profit was $695,095.
- Cash and cash equivalents were $244,470 at year-end, down from $3.227 million. Working capital was negative $1.050 million, versus positive $3.201 million a year earlier. Total assets were $2.809 million and stockholders’ equity was $746,134.
- Year-end notes payable were $1.0 million. The secured loan carried 18% annual interest, with $50,000 monthly principal installments beginning November 2011 and remaining principal due in May 2012. Capital lease obligations were $36,992, current.
- Management reported that three entities accounted for 31%, 25% and 20% of gross accounts receivable. A reserve of $703,732 related to a Chapter 11 bankruptcy filing by an LEC aggregator; collectability of receivables and processor holdbacks remained uncertain.
Material changes, outlook and risks
- Revenue declined 4%, but gross profit fell 85%, reflecting the sharply higher cost base of the new sales program. The lower annual net loss resulted primarily from expense reductions, not stronger gross profit.
- Management said existing cash alone was insufficient to sustain current operations. It expected to seek funding through equity, loans, LEC advances or receivables-based financing; it warned there was no assurance of profitability, positive operating cash flow or acceptable financing.
- After year-end, a previously proposed $2.0 million stock sale failed to close. LiveDeal then completed a separate $2.0 million equity financing on December 12, 2011, issuing shares at $1.24 each. The proceeds were subject to account restrictions and the transaction included investor board-designation rights and a restructuring committee. NASDAQ subsequently confirmed continued listing after the company addressed equity and public-float requirements; further compliance monitoring was disclosed.
- The Direct Sales shutdown included $367,588 in noncash intangible-asset impairment charges and $7,083 in employee termination charges. That segment generated $1.341 million of revenue in FY2011 and $3.838 million in FY2010, reported as discontinued operations.
- A Washington consumer class action alleges the company’s former use of “activator checks” violated consumer-protection law. The company denies the allegations; class certification was scheduled for January 2012, and no litigation accrual was recorded. An unfavorable outcome could affect results.
- Key risks include continuing losses and cash burn, customer churn, reliance on third-party billing processors and LEC channels, competitive pressure from larger firms, regulatory exposure, and the need to secure financing. The auditor issued an unqualified opinion on the financial statements; auditor attestation of internal control was not provided.
Important facts for investors to verify
- Cash runway, operating cash burn and the May 2012 maturity and repayment terms of the secured 18% loan.
- Availability and permitted use of the December 2011 equity proceeds, and whether the restricted proceeds account terms have since changed.
- Whether paused Velocity sales resumed, and evidence that the business can achieve sustainable customer acquisition economics and gross margins.
- Recoverability of LEC and other receivables, including the bankrupt aggregator exposure and the adequacy of reserves.
- Developments in the Washington class action and any subsequent NASDAQ compliance status.
- The filing gives inconsistent post-financing share counts: it reports 1,612,899 shares in one passage and 1,612,889 elsewhere; verify the actual issuance and resulting shares outstanding.