LiveDeal, Inc. — Form 10-Q Summary
Reporting period: Three months ended December 31, 2013, the company’s fiscal first quarter of 2014. The filing identifies the registrant as LiveDeal, Inc.; the request metadata names LIVE VENTURES Inc. Financial statement amounts are unaudited and in U.S. dollars.
Business context
LiveDeal provides online marketing services to small and medium-sized businesses. Its strategy centers on the LiveDeal.com restaurant deal platform, launched in San Diego in September 2013 and Los Angeles in December 2013, alongside Velocity Local online-presence services and revenue from existing legacy customers. The company says it expects initially to monetize LiveDeal.com through premium placement and is exploring other options.
Key financial results
| Metric | Q1 FY2014 | Q1 FY2013 |
|---|---|---|
| Revenue | $593,458 | $572,535 |
| Gross profit | $472,129 | $469,899 |
| Gross margin | 79.6% | 82.1% |
| Operating loss | $(425,642) | $(311,918) |
| Net loss | $(408,158) | $(1,060,509) |
| Net loss per share, basic and diluted | $(0.04) | $(0.13) |
| Cash used in operating activities | $(243,163) | $(261,372) |
| Cash and cash equivalents, quarter-end | $511,565 | $1,169,100 |
Revenue rose 4%, mainly from approximately $110,000 of higher online-products revenue, partly offset by an approximately $89,000 decline in legacy revenue. Cost of services increased 18% to $121,329, primarily due to fulfillment costs. Operating expenses rose to $897,771, including higher general and administrative and sales and marketing costs. Operating margin was approximately (71.7%), versus (54.5%) a year earlier; net margin was approximately (68.8%), versus (185.2%).
The year-over-year net loss improvement principally reflects the absence of the prior-year $750,554 net interest expense associated with convertible debt and warrants. The current quarter included $18,000 of other income. The company reported no income tax benefit because it maintained a valuation allowance against deferred tax assets.
Financial position and liquidity
- At December 31, 2013, current assets were $733,279 and current liabilities were $775,593, resulting in negative working capital of $42,314 and a current ratio of approximately 0.94. Working capital was positive $179,968 at September 30, 2013.
- Total assets were $3.63 million, total liabilities $775,593, and stockholders’ equity $2.85 million. The balance sheet lists accounts payable and accrued liabilities, with no debt balance reported at quarter-end.
- Cash declined $249,893 during the quarter. Investing cash outflow was $6,730; there were no financing cash flows in the quarter.
- Net receivables were $185,185 against gross receivables of $1.21 million. The allowance for doubtful accounts was $1.03 million; three entities represented 46%, 26%, and 19% of gross receivables.
- Operating lease commitments totaled $507,215 through fiscal 2017. The company disclosed no off-balance-sheet arrangements requiring disclosure.
Material changes, outlook, and risks
- General and administrative expense increased 14% to $870,699. Management cited higher depreciation and amortization and other corporate costs, partly offset by lower professional fees and compensation. Sales and marketing expense increased 39% to $27,072.
- The filing states that recurring losses and the need for sufficient revenue or additional capital raise substantial doubt about the company’s ability to continue as a going concern. Management believed then-available cash would support operations for the next 12 months, but cautioned that profitability and positive operating cash flow were not assured.
- After quarter-end, the company sold 2,214,612 shares in an at-the-market offering for $10.0 million gross proceeds and $8,343,744 net proceeds. It also entered into a convertible-note agreement allowing up to $5 million of borrowing, subject to conditions, with 8% interest, a 5% issuance discount, conversion and warrant provisions, and potential dilution. A $500,000 note to related party Isaac Capital Group was issued January 23, 2014.
- Management said continued development and marketing of LiveDeal.com and Velocity Local, and possible acquisitions or strategic investments, may require additional capital. If operating cash flow or acceptable financing is unavailable, the company may delay or abandon plans or cease operations. New product adoption and monetization remain uncertain.
- Outstanding litigation included a J3 Harmon lease judgment; the company accrued $52,261 and expected to pay it in the quarter ending March 31, 2014. The Global Education Services class action settlement was fully paid and closed.
- A 3-for-1 forward stock split became effective February 11, 2014; share and per-share information in the filing is adjusted for the split.
No formal financial guidance is provided. Management described the new platform’s potential scalability and its belief that internet, mobile, and local-search demand would support the business, while emphasizing that these expectations are forward-looking and subject to risks.
Important facts for investors to verify
- Whether the post-quarter equity proceeds and any borrowing materially improve liquidity, and how quickly cash is being used.
- LiveDeal.com restaurant adoption, user engagement, monetization, and the revenue contribution of new products versus declining legacy revenue.
- The quality and collectability of receivables, including the large allowance and concentration among three counterparties.
- The full dilution and potential warrant impact of the $5 million convertible-note facility and the 2014 equity incentive plan, which reserved up to 1.8 million shares subject to stockholder approval.
- Resolution and payment of the J3 Harmon judgment, and any changes to the company’s going-concern assessment.