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| LIVE > SEC Filings for LIVE > Form 10-Q on 14-Aug-2012 | All Recent SEC Filings |
14-Aug-2012
Quarterly Report
For a description of our significant accounting policies and an understanding of the significant factors that influenced our performance during the three and nine months ended June 30, 2012, this "Management's Discussion and Analysis of Financial Condition and Results of Operations" (hereafter referred to as "MD&A") should be read in conjunction with the condensed consolidated financial statements, including the related notes, appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the fiscal year ended September 30, 2011.
Our Company
LiveDeal, Inc. primarily provides local internet marketing services for small businesses. LiveDeal, through our wholly owned subsidiary (Velocity Marketing Concepts, Inc.), offers an affordable way for small businesses to extend their marketing reach to local, relevant customers via the Internet.
We use the latest technologies to deliver best-in-breed online marketing solutions to our small business customers. We have online advertising solutions to help small businesses grow their company and realize online success.
Summary Business Description
We deliver affordable acquisition services to the small business segment through the InstantAgency® Suite of products and services. These products are currently sold through Velocity Marketing Concepts which targets complimentary aspects of the small business market.
The InstantAgency products include:
InstantProfile distributes a small business' key contact and service information to the top Internet destinations (based on popularity), including search engines, internet directories, and social media networks. This gives the advertiser the ability to manage their business information in one location and maximize their reach to the many destinations a consumer may search for local business services.
InstantProfile's social media platform, InstantBUZZ, not only creates a presence for the advertiser in select social media networks, it also allows the advertiser to use one location to broadcast their messages across their entire social media network. By leveraging this automation, our customers avoid the need to manage multiple logins for individual websites and duplicate submissions, thereby decreasing the time required to broadcast their messages through multiple social media channels.
Additionally, InstantProfile customers enjoy a suite of communication tools that assist them in communicating directly with their customers and employees. These communication tools include a conferencing solution to host calls with up to 10 participants and an online electronic fax solution with unlimited faxes included.
The key attribute the InstantAgency® products and services all have in common is high value, low cost marketing options that service the many needs of the small business customer. The suite of products and services was strategically chosen to be entry level products and services that can grow with a small business as it grows. For those starting with the more customized products and services, InstantAgency® can continue to drive more online visitors and callers and in turn customers based on the customer budget. Our strategic advantage is the ability to service the small business customer regardless of their budget or online knowledge.
We plan to implement a new business line primarily focused on developing mobile solutions to exploit local commerce opportunities. We plan to develop strategic relationships with larger, well-known companies in the industry that can add value to our local merchant customer base, and to leverage these strategic relationships and alliances to move quickly to market a suite of state-of-the-art local commerce solutions. We plan to target our existing subscribers, as well as new customers, for our new product offerings.
Recent Developments
Financial Performance
We have embarked on a significant change in business strategy to maintain our legacy business (directory services offering) and update it to meet current market requirements and move ahead of our competitors in this market segment. We have continued to experience a decline in revenues due to the stop in new sales in July 2011. However, we have also reduced our costs of sales, primarily due to fulfillment cost reductions, ongoing costs and expenses and reduced ongoing operating losses. Our losses have decreased from $1,143,377 and $5,188,471, for the three and nine months ended June 30, 2011 to $281,770 and $732,401 for the three and nine months ended June 30, 2012 respectively.
Discontinued Operations
As part of our strategy to evaluate each of our business segments as separate entities, management noted that the direct sales business segment had incurred operating losses and declining revenues and did not fit with our change in strategic direction. Accordingly, in March 2011, we made the strategic decision to discontinue our direct sales business and product offerings. Prior financial statements have been restated to present the direct sales business segment as a discontinued operation.
The direct sales business segment accounted for no net revenues for the three and nine months ended June 30, 2012 and $105,293 and $1,341,430 of net revenues for the three and nine months ended June 30, 2011, respectively. Net revenues from this business segment are now included as part of income from discontinued operations in the accompanying unaudited interim condensed consolidated statements of operations.
Restructuring Activities
On November 30, 2010, the Board approved a reduction in force that resulted in the termination of 36 of our employees or approximately 60% of our workforce, effective December 1, 2010. The reduction in force was related to our ongoing restructuring and cost reduction efforts and strategy of focusing our resources on the development and expansion of our core InstantProfile product, the successor to our LEC-billed directory product. All terminated employees were involved in the marketing and sale of our InstantPromote product by its subsidiary, Local Marketing Experts, Inc.
During the three and nine months ended June 30, 2011, we incurred expenses of $0 and $99,319 respectively, in connection with this reduction in force. Of the $99,319 incurred in the fiscal quarter ended December 31, 2010, $37,500 were incurred for one-time employee termination benefits payable in cash and the remaining expenses related to salaries and wages payable in cash to the affected employees. No expenses were incurred in the three or nine months ended June 30, 2012 in connection with the restructuring activities.
Termination of Principal Officer
On May 20, 2012, the Company's employment agreement with Lawrence W. Tomsic, our Chief Financial Officer, expired in accordance with its terms. Both parties agreed not to extend the employment agreement. During the three months ended June 30, 2012, the Company accelerated the unvested portion of Mr. Tomsic's stock options as described above in Note 5 (Stock-based compensation) to the Company's unaudited interim condensed consolidated financial statements.
Change of Address of Principal Executive Offices
We have changed the address of our principal executive offices to 6240 McLeod Drive, Suite 120, Las Vegas, Nevada, 89120. Our telephone number remains (702) 939-0230.
Acquisition of LiveOpenly, Inc.
In connection with our new business strategy, on August 9, 2012, we entered into an agreement to acquire substantially all of the assets of LiveOpenly, Inc., a California corporation engaged in sourcing, publishing and selling discounted offers for goods and services through local retail merchants, for a purchase price of 75,000 shares of our common stock. The acquisition is subject to customary closing conditions and is expected to close at a future date to be agreed by both parties. We are in the process of evaluating the accounting treatment of this transaction.
Results of Operations
The following sets forth a discussion of our financial results for the three and nine months ended June 30, 2012 as compared to the three and nine months ended June 30, 2011. In evaluating our business, management reviews several key performance indicators including new customers, total customers in each line of business, revenues per customer, and customer retention rates. However, given the changing nature of our business strategy, we do not believe that presentation of these metrics would reveal any meaningful trends in our operations that are not otherwise apparent from the discussion of our financial results below.
Net Revenues
Net Revenues
2012 2011 Change Percent
Three Months Ended June 30, $ 777,857 $ 1,124,976 $ (347,119 ) (31 )%
Nine Months Ended June 30, $ 2,450,971 $ 3,237,763 $ (786,792 ) (24 )%
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Net revenues decreased in the third quarter and first nine months of fiscal 2012 as compared to the third quarter and first nine months of fiscal 2011 primarily due to the fact that new sales were paused July 15, 2011 when we began exploring new sales programs and improving our marketing and fulfillment services.
Cost of Services
Cost of Services
2012 2011 Change Percent
Three Months Ended June 30, $ 108,661 $ 1,048,229 $ (939,568 ) (90 )%
Nine Months Ended June 30, $ 571,088 $ 3,455,589 $ (2,884,501 ) (83 )%
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Cost of services decreased in the third quarter and first nine months of fiscal 2012 as compared to the third quarter and first nine months of fiscal 2011 primarily due to decreased costs associated with the decline in the number of our customers and the provisioning of fulfillment activities which are now done by us rather than outside vendors.
Gross Profit
Gross Profit
2012 2011 Change Percent
Three Months Ended June 30, $ 669,196 $ 76,747 $ 592,449 772 %
Nine Months Ended June 30, $ 1,879,883 $ (217,826 ) $ 2,097,709 963 %
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Gross profit increased in the third quarter and first nine months of fiscal 2012 as compared to the third quarter and first nine months of fiscal 2011 primarily due to the decreased cost of fulfillment services as described above.
General and Administrative Expenses
General and Administrative Expenses
2012 2011 Change Percent
Three Months Ended June 30, $ 742,353 $ 1,172,531 $ (430,178 ) (37 )%
Nine Months Ended June 30, $ 2,330,595 $ 4,756,487 $ (2,425,892 ) (51 )%
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General and administrative expenses decreased in the third quarter of fiscal 2012 as compared to the third quarter of fiscal 2011 primarily due to the following:
· Decreased compensation costs of approximately $44,000 reflecting the reduction of employees from 21 at June 30, 2011 to 13 at June 30, 2012;
· Other expense decreases of $94,000, including, but not limited to, rent and utilities, services and fees, office and supplies expenses, office closure expenses, travel and entertainment and other corporate expenses associated with our office closures, reductions in force and other cost containment initiatives;
· Decreased professional fees of approximately $268,000 related to reductions in IT consulting fees of $63,000 (due to the movement of IT functions to virtual servers), legal fees of $160,000 (due to the reduction of litigation), accounting fees of $11,000, marketing consultant fees of $13,000, outside sales service costs of $40,000 (due to the termination of third party sales consultants), partially offset by an increase in other miscellaneous consultants costs of $19,000; and
· Decreased depreciation and amortization expense of $24,000.
General and administrative expenses decreased in the first nine months of fiscal 2012 as compared to the first nine months of fiscal 2011 primarily due to the following:
· Decreased compensation costs of approximately $880,000 reflecting the reduction of employees at June 30, 2011 and June 30, 2012;
· Other expense decreases of $372,000, including, but not limited to, rent and utilities, services and fees, office and supplies expenses, office closure expenses, travel and entertainment and other corporate expenses associated with our office closures, reductions in force and other cost containment initiatives;
· Decreased professional fees of approximately $891,000 related to reduction in IT consulting fees of $207,000 (due to the movement of IT functions to virtual servers), legal fees of $352,000 (due to the reduction of litigation), accounting fees of $25,000, marketing consultant fees of $41,000, outside sales service costs of $221,000 (due to the termination of third party sales consultants) and other miscellaneous consultants costs of $45,000; and
· Decreased depreciation and amortization expense of $283,000.
The following table sets forth our recent operating performance for general and administrative expenses:
Q3 2012 Q2 2012 Q1 2012 Q4 2011 Q3 2011
Compensation for employees,
officers and directors $ 378,700 $ 295,333 $ 341,325 $ 340,888 $ 422,901
Professional fees 110,706 226,403 143,805 360,221 378,960
Depreciation and
amortization 55,669 67,391 69,281 88,868 79,227
Other general and
administrative costs 197,278 232,307 212,397 174,887 291,448
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Sales and Marketing Expenses
Sales and Marketing Expenses
2012 2011 Change Percent
Three Months Ended June 30, $ 1,712 $ 19,543 $ (17,831 ) (91 )%
Nine Months Ended June 30, $ 2,291 $ 56,318 $ (54,027 ) (96 )%
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Sales and marketing expenses decreased in the third quarter and first nine months of fiscal 2012 as compared to the third quarter and first nine months of fiscal 2011 primarily due to the reduction in spending for marketing materials. This reduction is in conjunction with the pausing of new sales effective July 2011.
Operating Loss
Operating Loss
2012 2011 Change Percent
Three Months Ended June 30, $ (74,869 ) $ (1,115,327 ) $ 1,040,458 (93 )%
Nine Months Ended June 30, $ (453,003 ) $ (5,030,631 ) $ 4,577,628 (91 )%
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The reduction in operating loss for the third quarter and first nine months of fiscal 2012 as compared to the third quarter and first nine months of 2011 reflect a variety of changes in net revenues, cost of sales, general and administrative expenses and sales and marketing expenses, each of which is described above.
Total Other Income (Expense)
Total Other Income (Expense)
2012 2011 Change Percent
Three Months Ended June 30, $ (214,845 ) $ (35,606 ) $ (179,239 ) (503 )%
Nine Months Ended June 30, $ (291,151 ) $ (34,354 ) $ (256,797 ) (748 )%
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In the third quarter of fiscal 2012, the Company accrued $150,000 in conjunction with the settlement of the GES litigation. See Note 10 (Commitments and Contingencies) to our unaudited interim condensed consolidated financial statements above for additional information. For the third quarter and the first nine months of fiscal 2012, the Company incurred $65,000 and $151,000 in interest expense, respectively, primarily for an outstanding loan.
Income from Discontinued Operations
Income (Loss) from Discontinued Operations
2012 2011 Change Percent
Three Months Ended June 30, $ 7,944 $ 7,561 $ 383 (5 )%
Nine Months Ended June 30, $ 11,753 $ (123,486 ) $ 135,239 110 %
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In March 2011, we decided to discontinue the direct sales business and closed that business segment in May 2011 and reflected the change for previously reported periods. For more information, see discussions under the heading "Recent Developments-Discontinued Operations" above. The decline in loss between the nine months ended June 30, 2012 as compared to the nine months ended June 30, 2011 reflects a decline in expenses as we discontinued that business in May 2011.
Net Loss
Net Loss
2012 2011 Change Percent
Three Months Ended June 30, $ (281,770 ) $ (1,143,372 ) $ 861,602 (75 %)
Nine Months Ended June 30, $ (732,401 ) $ (5,188,471 ) $ 4,456,070 (86 )%
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The reduction in net loss for the third quarter and first nine months of fiscal 2012 as compared to the third quarter and first nine months of 2011 are primarily attributable to changes in operating income, other income (expense) and discontinued operations, each of which is described above.
Liquidity and Capital Resources
Net cash generated in operating activities was approximately $130,000 for the first nine months of fiscal 2012 as compared to cash used in operating activities of approximately $3,980,000 for the first nine months of fiscal 2011, an improvement of $4,110,000. A decrease of approximately $4,456,000 in our net loss accounted for the majority of this variance. The cash impacts of the decreased net loss were partially offset by a reduction of non-cash expenses of $918,000 including depreciation expense, stock compensation and bad debt expense. Changes in working capital and other current assets caused an increase in operating cash flows of $469,000 during the first nine months of fiscal 2012 as compared to a decrease in operating cash flows of $104,000 for the first nine months of 2011. This working capital variance resulted primarily from the changes in accounts receivable and accrued liabilities. Our primary source of cash inflows has historically been net remittances from directory services customers processed in the form of ACH billings and LEC billings.
We discontinued the direct sales services business in March 2011 as discussed above under the heading "Recent Developments-Discontinued Operations". We previously received upfront payments averaging approximately one-sixth of the gross contract amount. Subsequent payments were received on an installment basis after the application of the initial payment amounts and were billed ratably over the remaining life of the contract.
Our most significant cash outflows include payments for general operating expenses, including payroll costs, and general and administrative expenses that typically occur within close proximity of expense recognition.
In the first nine months of fiscal 2012, we invested $202,000 in intangible assets, primarily trade names and software development. In the first nine months of fiscal 2011, we redeemed $101,000 of certificates of deposits.
During the first nine months of fiscal 2012, our cash flows from financing activities consisted of $2,350,000 received from the issuance of stock to investors and $250,000 received from the issuance of convertible debt, partially offset by $37,000 of payments on capital lease obligations and $1,000,000 of repayments of notes payable. During the first nine months of fiscal 2011, our cash flows from financing activities consisted of $300,000 received from the issuance of stock to investors, $1,000,000 received from the issuance of notes payable and payments of $46,000 on capital lease obligations.
We had working capital of $851,000 as of June 30, 2012 compared to $(1,050,000) as of September 30, 2011 with current assets increasing by $1,331,000 and current liabilities decreasing by $570,000 from September 30, 2011 to June 30, 2012. Increases in working capital are primarily attributable to the proceeds received from the issuance of stock to our investors and proceeds received from the issuance of convertible debt partially offset by our operating net loss.
While we believe that our existing cash on hand is sufficient to finance our operations for the next twelve months, there can be no assurance that we will generate profitability or positive operating cash flows in the near future. To the extent that we cannot achieve profitability or positive operating cash flows, our business will be materially and adversely affected. Further, our business is likely to experience significant volatility in our revenues, operating losses, personnel involved, products or services for sale, and other business parameters, as management implements our new strategies and responds to operating results.
Contractual Obligations
The following table summarizes our contractual obligations at June 30, 2012 and
the effect such obligations are expected to have on our future liquidity and
cash flows:
Payments Due by Fiscal Year
Total 2012 2013 2014 2015 2016 Thereafter
Operating lease
commitments $ 241,472 $ 98,482 $ 115,996 $ 25,190 $ 1,031 $ 773 $ -
Noncanceleable
service contracts - - - - - - -
$ 241,472 $ 98,482 $ 115,996 $ 25,190 $ 1,031 $ 773 $ -
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Off-Balance Sheet Arrangements
At June 30, 2012, we had no off-balance sheet arrangements, commitments or guarantees that require additional disclosure or measurement.
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