LiveDeal, Inc. — FY2014 Form 10-K
Reporting period: Fiscal year ended September 30, 2014. This is an annual report, not a standalone fourth-quarter report. Comparative figures are for FY2013.
Business context
LiveDeal provides online marketing services to small and medium-sized local businesses. Its strategy shifted toward LiveDeal.com, a real-time restaurant-deal platform, and an online marketplace for consumer goods. The company reported two segments: Online Marketplace Platform and Legacy/Merchants’ Services. During FY2014 it acquired DA Stores’ assets, DealTicker, and Modern Everyday (MEI); it later closed DealTicker’s operations. Legacy product sales were no longer open to new customers.
Financial performance and liquidity
| Metric | FY2014 | FY2013 |
|---|---|---|
| Revenue | $7.27 million | $2.35 million |
| Gross profit / margin | $2.04 million / 28.1% | $1.44 million / 61.0% |
| Operating loss | $4.50 million | $2.74 million |
| Net loss | $4.66 million | $5.75 million |
| Net cash used in operations | $5.19 million | $1.81 million |
- Revenue rose 209%, primarily because of the FY2014 acquisitions. Marketplace revenue was $5.27 million, with $435,830 gross profit and a $5.54 million operating loss. Legacy/Services revenue declined to $1.99 million; the segment generated $1.60 million gross profit and $1.04 million operating income.
- Cost of services increased to $5.23 million, or 71.9% of revenue, from 39.0%. Company gross margin fell to 28.1% from 61.0%; the marketplace segment’s gross margin was 8.3%.
- Net loss narrowed despite a larger operating loss, chiefly because FY2013 included substantially higher non-cash interest expense related to convertible debt and warrants.
- Cash and cash equivalents were $8.11 million at year-end, versus $761,458 a year earlier. Working capital was $9.50 million, versus $179,968. Operating cash use increased to $5.19 million.
- Total debt was $1.56 million, of which $920,360 was current and $638,969 long-term. Contractual obligations totaled $2.38 million, including debt and operating leases.
- Financing provided $13.91 million net cash, including $13.68 million net proceeds from common-stock sales and $823,595 from convertible debt, partly offset by debt repayments and preferred dividends. Shares outstanding increased to 14,525,248 at September 30, 2014, from 11,335,674.
Material changes, outlook, and risks
- Management said revenue from the marketplace segment was expected to grow and Legacy/Services revenue to continue declining. The filing gives no quantified revenue, earnings, or margin guidance.
- Management believed cash on hand, operating cash generation, and potential debt or equity financing would fund operations for the next 12 months, but cautioned that profitability and positive operating cash flow were not assured and additional capital might be needed.
- The company reported more than 10,000 deals at over 8,000 restaurants in a campaign spanning 35 cities. Its iOS and Android apps became available in 2014. Monetization plans included premium placement and other options still under consideration.
- MEI was acquired for cash, stock, and a promissory note; its purchase terms included a $251,000 recorded liability related to a share-price guarantee. DA Stores also had conditional performance-based compensation provisions. DealTicker operations were closed, and the company wrote off acquired assets other than its customer list.
- After year-end, ICG converted a $500,000 note and accrued interest into shares. Kingston issued a $100,000 note that was subsequently converted; the credit agreement was amended to increase its maximum from $5 million to $10 million. The company also entered into a $1.5 million software purchase agreement, payable in cash or stock.
- Key risks include recurring operating losses and cash burn, uncertain adoption of new offerings, intense competition, dependence on third-party partners and billing channels, potential equity dilution, and acquisition integration. Three stockholders beneficially owned about 60.9% of shares; the CEO owned about 39.6%.
- Receivables carried a $1.10 million allowance against $1.96 million gross receivables; the filing reports different allowance-to-gross-receivable percentages in different sections (89.0% and 92.3%). Inventory included a $252,569 obsolescence allowance. Cash deposits exceeded FDIC-insured limits by $7.51 million.
- The J3 Harmon lease dispute was concluded with a judgment against the company; $52,261 was accrued and remained unpaid at year-end. Management said other routine proceedings were not expected to have a material adverse effect, while noting litigation uncertainty.
- Auditors issued an unqualified opinion on the FY2014 financial statements. Management assessed disclosure controls and internal control over financial reporting as effective; the auditor did not provide an internal-control attestation.
Investor verification priorities
- Reconcile acquisition-related revenue, segment costs, and the marketplace’s very low gross margin; verify whether growth translates into improved unit economics.
- Track cash burn against year-end cash, near-term debt maturities, and management’s 12-month liquidity assessment.
- Review the terms and conversion effects of ICG and Kingston financing, subsequent share issuances, and remaining at-the-market offering capacity for dilution risk.
- Validate the collectability of receivables, the inventory valuation and obsolescence reserve, and the differing receivables-allowance percentages in the filing.
- Assess integration and performance of MEI and DA Stores, DealTicker’s asset write-off, the MEI share-price guarantee, and the subsequent $1.5 million software commitment.
- Confirm settlement/payment status of the J3 judgment and monitor other litigation, related-party arrangements, and the concentration of voting control.