LiveDeal, Inc. — Form 10-Q summary
Entity note: The supplied filing identifies the registrant as LiveDeal, Inc. (NASDAQ: LIVE), not “LIVE VENTURES Inc.” Figures below are from the unaudited quarter ended December 31, 2012, compared with the quarter ended December 31, 2011 unless stated otherwise.
Business context and reporting period
LiveDeal provides online customer-acquisition and marketing services to small and medium-sized businesses. It had launched promotional marketing under the LiveDeal brand in August 2012 and online-presence marketing under Velocity Local in November 2012. These new lines had not materially contributed to revenue during the quarter; most revenue still came from legacy products, for which the company no longer accepted new customers. The former direct-sales business is reported as discontinued operations.
Key financial metrics
| Metric | Quarter ended Dec. 31, 2012 | Prior-year quarter / comparison |
|---|---|---|
| Revenue | $572,535 | $851,413; down 33% |
| Gross profit and margin | $469,899; 82.1% | $615,594; 72.3% |
| Operating expenses | $781,817 | $766,868 |
| Operating loss | $(311,918) | $(151,274) |
| Net loss | $(1,060,509); $(0.40) per share | $(191,638); $(0.18) per share |
| Interest expense, net | $750,554 | $43,944 |
| Operating cash flow | $(261,372) | $48,903 provided |
| Investing cash flow | $(125,313) | No investing cash flow |
| Financing cash flow | $250,000 provided | $1,884,232 provided |
| Cash and cash equivalents | $1,169,100 at Dec. 31 | $1,305,785 at Sept. 30, 2012 |
| Working capital | $274,000 | $371,000 at Sept. 30, 2012 |
| Total assets / liabilities | $4,403,647 / $1,604,294 | $4,256,721 / $1,427,467 at Sept. 30, 2012 |
Management attributed the decline in revenue mainly to shrinking legacy business, partly offset by new-product revenue. Cost of services fell 56%, reflecting fewer customers and fulfillment work shifted in-house. General and administrative expense was nearly flat, while sales and marketing expense increased from a very low base, largely due to promotional video costs. The gross margin percentage improved, but gross profit declined as revenue fell.
Material changes, financing, and unusual items
- The net loss included substantial noncash interest expense related to the CEO-owned Isaac Capital Group (ICG) convertible-note financing and warrants. The company reported $750,754 of noncash interest expense associated with convertible debt and warrants in its cash-flow reconciliation.
- ICG, owned by CEO and director Jon Isaac, provided a $250,000 note in December 2012. ICG converted it into 123,829 common shares and a warrant for 123,829 shares; the filing says the remaining debt discount and warrant fair value were recognized immediately as interest expense. The earlier $250,000 note was also converted in September 2012. The filing describes an agreement permitting additional notes, subject to its terms.
- Cash decreased by $136,685 during the quarter. Investing outflows included $109,500 for intangible assets and $15,813 for equipment. The filing reports 2,752,684 common shares outstanding at December 31 and 2,758,212 as of February 7, 2013; warrants and other potentially dilutive securities were excluded from diluted EPS because they were anti-dilutive.
- Receivables were concentrated: three entities represented 36%, 26%, and 15% of gross receivables at quarter end. The allowance for doubtful accounts was approximately $1.54 million against gross receivables of approximately $2.29 million. The company relies on third-party billing companies and describes historical dilution, holdbacks, and collection uncertainty.
Outlook, risks, and contingencies
Management said existing cash was believed sufficient to finance operations for the next 12 months, but cautioned that profitability and positive operating cash flow were not assured. It expected online advertising and website demand to support growth, while continuing to develop new product lines and revise marketing strategies; no quantified revenue or earnings guidance was provided. Management also noted that results may be volatile as the business strategy changes.
Operating lease commitments totaled $503,817, including $131,303 due in fiscal 2013. The GES class-action settlement had a $160,000 accrual at December 31, 2012 and was awaiting final court approval; the company anticipated payment in the second quarter of fiscal 2013. A separate Sunpark lease dispute was settled after quarter end for a $112,500 payment, with Sunpark retaining a $24,000 security deposit; dismissal with prejudice was entered January 31, 2013.
After quarter end, the company entered into a three-year CEO employment agreement providing for a $200,000 annual salary, a discretionary $150,000 bonus for prior service, housing reimbursement, and options for 150,000 shares subject to vesting and exercise-price terms. Management reported effective disclosure controls and no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the registrant identity: the filing is for LiveDeal, Inc., despite the request metadata naming LIVE VENTURES Inc.
- Review the convertible-note amendment, conversion-price floor, warrant terms, related-party status, and any remaining borrowing capacity or debt obligations.
- Assess whether new products can replace declining legacy revenue and whether operating cash burn can be reduced; management’s 12-month liquidity view is not a profitability assurance.
- Evaluate receivable collectability, third-party billing dependence, customer concentration, and the adequacy of the large receivables allowance.
- Track final approval and payment of the GES settlement, as well as the cost and dilution implications of the CEO compensation and option agreement.