LiveDeal, Inc. (10-Q) — Quarter and Six Months Ended March 31, 2015
Filing identity: The supplied filing is for LiveDeal, Inc. (NASDAQ: LIVE), not “LIVE VENTURES Inc.” Verify that this is the intended issuer. This is the fiscal second quarter of 2015; the filing also reports six-month year-to-date results. Financial statements are unaudited.
Business context
LiveDeal provides online marketing services to small and medium-sized businesses and operates an online marketplace platform, including LiveDeal.com and consumer-product businesses acquired in fiscal 2014. Management attributes much of the revenue growth to those acquisitions. DealTicker’s operations were subsequently closed. The company expects marketplace revenue to grow and legacy and merchants’ services revenue to continue declining.
Financial performance
| Metric | Three months ended March 31, 2015 | Six months ended March 31, 2015 | Comparable 2014 period |
|---|---|---|---|
| Revenue | $4.264 million | $12.271 million | $0.678 million and $1.271 million, respectively |
| Gross profit | $1.935 million | $5.172 million | $0.432 million and $0.904 million, respectively |
| Gross margin | 45.4% | 42.1% | 63.8% and 71.1%, respectively |
| Operating expenses | $3.024 million | $7.129 million | $1.403 million and $2.301 million, respectively |
| Operating loss | $(1.089) million | $(1.957) million | $(0.971) million and $(1.397) million, respectively |
| Net loss | $(1.095) million | $(6.043) million | $(0.976) million and $(1.384) million, respectively |
| Loss per share, basic and diluted | $(0.07) | $(0.39) | $(0.07) and $(0.11), respectively |
Six-month revenue rose 865%, led by the online marketplace platform, which generated $11.477 million versus $0.164 million in the prior-year period. Legacy and merchants’ services revenue declined to $0.794 million from $1.107 million. For the six months, the marketplace platform recorded a $2.540 million operating loss, while services recorded $0.583 million of operating income. Higher cost of revenue and marketing and administrative expenses accompanied the expansion; consolidated gross margin fell to 42.1% from 71.1%.
Six-month net loss widened substantially, primarily due to $4.197 million of net interest expense. The filing attributes the increase largely to debt discounts, warrants issued on debt conversions, and a $2.004 million stock issuance recorded as interest expense for fees under the amended Kingston financing agreement. This made the reported loss materially larger than the operating loss.
Cash, liquidity, and debt
- Cash and cash equivalents were $7.189 million at March 31, 2015, down from $8.115 million at September 30, 2014. Working capital was $7.068 million, versus $9.497 million.
- Operating cash outflow was $0.943 million for the six months, compared with $1.503 million in 2014. Investing cash outflow was $0.070 million; financing provided $0.087 million. Ending cash was $7.189 million.
- Total debt was $0.710 million, including $0.481 million current and $0.229 million long-term, compared with $1.559 million at September 30, 2014. Current liabilities were $4.182 million.
- Management said cash on hand, operating cash generation, and potential debt or equity financing should fund operations for the next 12 months, but also stated the company may need additional capital. It cautioned that it may not achieve profitability or positive operating cash flow and that unavailable or unacceptable financing could force changes to plans or cessation of operations.
Material changes, outlook, and risks
- The company issued 155,000 shares through its at-the-market offering for $0.538 million net proceeds, and issued 801,378 shares to convert notes and accrued interest. Shares outstanding increased to 16,141,805 at March 31, 2015 from 14,525,248 at September 30, 2014.
- The Kingston agreement was amended to provide for up to $10 million in principal. The filing describes conversion-price and anti-dilution provisions; use of the facility and any equity financing could dilute existing shareholders. A $10 million facility is not equivalent to cash already received.
- The company acquired $1.5 million of software during the period, unpaid at quarter-end and recorded in accrued liabilities. It could pay in cash or 800,000 common shares within six months of acquisition.
- Inventory declined to $2.828 million from $4.277 million; the obsolete-inventory allowance increased to $0.447 million from $0.253 million. The company reported reliance on third-party billing processors and significant receivable concentrations: three entities represented 21%, 13%, and 9% of gross receivables.
- A $0.243 million liability relates to a purchase-price share-value guarantee. A lease judgment remains unpaid, with a $52,261 accrual; the company reports no further basis for appeal. Other proceedings could result in adverse financial effects, though management did not expect other pending matters to be materially adverse based on information available.
- Management’s growth expectations for the marketplace, city expansion, and monetization are forward-looking and subject to execution, demand, financing, and profitability risks. The filing says disclosure controls were effective and there were no material changes to internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Confirm issuer identity: the request names LIVE VENTURES Inc., but the filing names LiveDeal, Inc.
- Assess the quality and sustainability of marketplace revenue growth, including acquisition contribution, gross-margin decline, and ongoing segment losses.
- Reconcile the unusually large six-month interest expense to the debt conversions, warrant valuations, and Kingston stock-based fee; distinguish cash costs from noncash charges.
- Verify the actual availability and terms of Kingston financing, the software payment election, and potential share dilution.
- Monitor cash burn, working capital, customer/billing-processor concentration, inventory reserves, and the status of the accrued legal judgment and share-price guarantee.