LiveDeal, Inc. — Form 10-Q Summary
Business context and period. The filing covers the quarter and nine months ended June 30, 2014, LiveDeal’s fiscal third quarter. The company provides online marketing and promotional services for small and midsized businesses. Its strategy centers on the LiveDeal.com real-time local-deals platform, while it continues servicing legacy customers. Acquisitions of DA Stores assets and DealTicker expanded its e-commerce and product-sales activities. The filing identifies the registrant as LiveDeal, Inc.
Financial results and liquidity
| Metric | Three months ended June 30 | Nine months ended June 30 |
|---|---|---|
| Revenue, 2014 / 2013 | $2.67 million / $0.61 million | $3.95 million / $1.73 million |
| Gross profit, 2014 / 2013 | $0.29 million / $0.43 million | $1.20 million / $1.34 million |
| Gross margin, 2014 / 2013 | 11.0% / 70.5% | 30.4% / 77.0% |
| Operating loss, 2014 / 2013 | $1.47 million / $0.51 million | $2.87 million / $1.62 million |
| Net loss, 2014 / 2013 | $1.54 million / $0.51 million | $2.93 million / $4.79 million |
| Net loss per share, 2014 / 2013 | $0.11 / $0.05 | $0.23 / $0.55 |
- Revenue rose 341% for the quarter and 127% for the nine-month period, mainly from online product sales following the acquisitions. Cost of services increased substantially with fulfillment costs, driving down gross profit and margins.
- Operating expenses were $1.77 million for the quarter and $4.07 million for nine months. Higher general and administrative costs and corporate marketing contributed to larger operating losses. Nine-month net loss improved year over year primarily because the prior-year period included significant noncash interest expense tied to convertible notes and warrants.
- Cash was $10.34 million at June 30, 2014, versus $0.76 million at September 30, 2013. Working capital was $11.03 million, versus $0.18 million. Current assets were $13.29 million and current liabilities $2.26 million.
- Operating cash use was $4.03 million for nine months, compared with $1.40 million in 2013. Investing cash use was $0.38 million; financing provided $13.99 million, including $13.19 million from common-stock issuance and $0.82 million from convertible debt and warrants.
- Current liabilities included a $0.47 million note payable, net of debt discount, and a $0.20 million derivative liability. The company also had a $5 million convertible-note facility, with no advances outstanding at June 30. The February 2014 convertible note had $323,595 principal; the January ICG note had $500,000 principal.
Material changes, outlook, and risks
- During the first nine months, the company raised $10.0 million gross through an at-the-market equity offering; it raised a further $3.60 million gross in the quarter. Combined net proceeds were about $13.19 million. Common shares outstanding increased from 11.34 million at September 30, 2013 to 14.38 million at June 30, 2014.
- The company acquired DA Stores assets for $200,000 and DealTicker for $228,000. Potential additional acquisition-related payments depend on specified performance targets or, for DealTicker, management’s discretion based on performance. The DA Stores arrangement also included $300,000 in retention compensation and three-year employment commitments.
- Management stated that existing cash should fund operations for the next 12 months, but warned that profitability and positive operating cash flow are not assured. It may need further equity or debt financing; additional financing could dilute shareholders. No specific financial guidance was provided.
- Management expects volatility as it implements its strategy. Risks include continued losses and cash burn, whether new products can generate adequate revenue, higher fulfillment costs and weaker margins, and the need for additional capital. The company also relies on third-party billing providers and reports historical collection difficulties and significant receivables allowances.
- Operating lease commitments totaled $740,338. A lease-related judgment was accrued at $52,261; the company expected to pay it in the quarter ending September 30, 2014. Management did not expect other pending matters to materially affect results, while noting litigation outcomes remain uncertain.
- After quarter-end, a director resigned effective August 10, 2014, and a replacement was appointed August 11. The filing reported effective disclosure controls and no material changes to internal controls during the quarter.
Investor verification priorities
- Verify whether the acquired product businesses are producing sustainable revenue and whether fulfillment costs allow gross margins to recover.
- Track operating cash burn, cash runway, and any further borrowing or equity issuance, including the dilution and conversion terms of outstanding notes and warrants.
- Review receivable collections, billing-company holdbacks, and the adequacy of allowances for doubtful accounts and dilution.
- Confirm any contingent acquisition payments, achievement of their performance conditions, and the resolution and payment of the J3 Harmon judgment.