Description
LiveDeal, Inc. President and CEO, 10% Owner Isaac John bought 512,364 shares on 9-20-2012 at $ 1.48
BUSINESS OVERVIEW
Our Company
LiveDeal, Inc., a Nevada corporation (the “Company”, “LiveDeal”, “we”, “us” or “our”) provides online marketing internet directory services for small businesses. LiveDeal, through our wholly-owned subsidiary Velocity Marketing Concepts, Inc., offers an affordable way for businesses to extend their marketing reach to local, relevant customers and manage their online presence.
Summary Business Description
LiveDeal first started in the online marketing industry as YP.com. At the time, YP.com was the first company to bring the print yellow pages to the Internet in 1994. From there we moved into the online classifieds business when we merged with LiveDeal in 2007. Subsequently the company sold YP.com in March 2009 and discontinued the classifieds business in June 2009.
LiveDeal develops and markets tools that help local businesses manage their online presence. These tools include a variety of cloud-based solutions that help businesses extend their marketing reach to local, relevant customers and manage their online presence.
Originally founded as YP.com in 1994, LiveDeal has traditionally provided affordable, entry level, online products to local businesses. Today, we have adapted and adjusted our company goals to reflect the latest online trends in internet marketing with the aim of reaching as many small and medium-sized businesses as possible. In March 2010, we adopted the strategy of developing successor products to our directory business and rebuilding our customer base through mass market sales using LEC billing channels and moving away from the higher-end direct sales products offered through Local Marketing Experts, Inc. (which focused on search engine marketing and website creation services together with additional add-on advertising products.) Since July 2010, the line of business historically known as our yellow page directory service was rebranded and upgraded to the InstantProfile ® product and marketed under our subsidiary Velocity Marketing Concepts, Inc. This new product, which is part of the InstantAgency suite of products, provides online subscription tools and services to broadcast information about a business to the top (based on popularity) Internet directories, search engines results, social media networks, and Points-of-Interest (POI) databases embedded on the leading navigational devices. This ensures that our customers are distributed to sites such as Google, Yahoo, Bing, Facebook, Twitter and others through our distribution network. Additionally, customers receive a communication suite that allows both conference call hosting and electronic fax services. We are focusing our efforts on increasing our sales under Velocity Marketing Concepts, Inc. and expanding the range of products offered to the market through this sales outlet by selling the Instant Profile and Instant Award products. This strategy has culminated in the cessation of all new sales under the Local Marketing Experts, Inc. subsidiary (Direct Sales) on December 1, 2010. In May 2011, the Company assigned its remaining Direct Sales customers to ReachLocal. Also Velocity Marketing Concepts, Inc. sales were paused on July 15, 2011 while the Company evaluates its sales program, products, distribution methods and vendor programs.
Our current strategy is to market to small office/home office businesses as well as local businesses across the country. Our products are affordable and useful to a large portion of the small business market. Our customers include retail businesses such as restaurants, home repair and services companies, as well as professional firms providing legal, accounting and medical services. All share the common challenges of managing their online presence and acquiring customers online.
We rely on telemarketing and online lead generation to drive customer acquisition. We partner with companies that are highly automated and specialize in creating, deploying and managing telemarketing campaigns quickly and efficiently. Our partners have a strong ability to quickly build and scale programs tailored for small businesses.
In recent months, LiveDeal has reworked its product offerings and company structure around this mass-market business model. In the past fiscal year, we have greatly reduced expenses and streamlined the company. LiveDeal managed the expense of acquiring a new customer base while reducing operating losses to their lowest levels in several years. Presently our focus is acquiring additional investment and working capital that will allow us to continue to grow our revenues. The company stopped new sales under Velocity Marketing Concepts July 15, 2011 to improve the current Instant Profile Products and develop new products as we look for additional investments.
Industry Overview
According to BIA/Kelsey, U.S. Local online/digital advertising revenues will rise to $23.3 billion in 2011. “Local search,” that is, searches for products, services and businesses within a geographic region is an increasingly significant segment of the online advertising industry. Local search allows consumers to search for local businesses’ products or services by including geographic area, zip code, city and other geographically targeted search parameters in their search requests. According to a May 2011 study The Kelsey Group estimates that the local search market in the United States will grow from $5.1 billion in 2010 to $8.2 billion in 2015. Consumers who conduct local searches on the Internet (“local searchers”) tend to convert into buying customers at a higher rate than other types of Internet user. As a result, advertisers often pay a significant premium to place their ads in front of local searchers on websites like Local.com or our Network partner websites. Additionally, local small and medium-sized businesses that would not normally compete at the national level for advertising opportunities are increasingly engaging in and competing for local advertising opportunities, including local search, to promote their products and services.
Local search is still relatively new, and as a result it is difficult to determine our current market share or predict our future market share. However, we have a number of competitors that have announced an intention to increase their focus on local search with regard to U.S. online advertising, including some of the leading online advertising companies in the world, Google, Yahoo!, and Microsoft, among many others with greater experience and resources than we have.
We believe that small businesses that can take advantage of emerging Internet capabilities will be able to acquire customers with greater efficiency than before and those that cannot will suffer in comparison. It is becoming widely recognized among small business owners that mastering the Internet arts is essential.
These new Internet services are inherently technological. They require a deep dedication of time, technological skills, language and presentation expertise and other masteries that few small business operators have, or have the intention of acquiring. We recognize that, to succeed, a small business person needs to remain intensely focused on the fundamentals of his/her business. Small businesses therefore need a partner with the necessary expertise and understanding to manage emerging Internet audience acquisition services on their behalf. They need this partner to operate quickly, proactively and at the lowest possible cost.
To that end, we have strategically created and delivered a suite of products and services designed to deliver agency quality products at an affordable cost. This new suite of products delivers high end agency products and services without the costs typically associated with a high end, online, agency firm. The suite of services has a variety of online products and various price points. These products allow LiveDeal to become the small business audience acquisition partner.
LiveDeal customers are small business owners who work long hours to deliver real value to their customers in their own communities with little time left over to develop and master the powerful, multi-faceted, online marketing and advertising programs that today’s world demands. LiveDeal has stepped up to this challenge, drawing from a decade of experience as a directory provider.
Products and Services
InstantProfile. As described above, our Internet Advertising Product (“IAP”) package was discontinued in 2010 with the launch of the InstantProfile and InstantProfile premium products. All IAP customers were moved to InstantProfile to take advantage of the new product and features. Under this package, the advertiser pays for exposure utilizing our InstantProfile product. The advertiser enjoys the benefit of having its business distributed to top Internet destinations (based on popularity), including search engines, top directories, and social media networks. This gives the advertiser the ability to manage its business information in one location and maximize its reach to many locations, as a consumer may search broadly for local business services. InstantProfile customers also enjoy additional benefits with tools to communicate directly with their customers and employees. The InstantProfile platform includes:
Instant Profile Basic Package
Instant Profile gives customers the benefit of having its business distributed to top Internet destinations (based on popularity), as well as online tools allowing companies to communicate directly with their customers, employees and partners.
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Business profile syndication – InstantProfile broadcasts information about a business to top Internet directories, search engines, and Points-of-Interest (POI) databases embedded on the leading navigational devices. This ensures that our customers are distributed to sites such as Google, Yahoo, Bing, and others through our distribution network. Customers benefit from the ability to manage business information in one location and maximize its reach to many locations, as a consumer may search broadly for local business services.
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Social Media Broadcast - Allows customers to use one location to broadcast their messages across their entire social media network. By leveraging this automation the advertiser eliminates the need to manage multiple logins for individual websites and duplicate submissions and decreases the time required to broadcast their messages from hours to one click of a button.
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Electronic fax – Customers can send and receive unlimited faxes through the InstantProfile product dashboard.
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Conference call services – Customers can host conference calls with up to 10 participants.
InstantProfile Pricing. We generally price our InstantProfile product between $27.50 and $39.95 per month, which includes all of the service benefits previously described. We believe that these prices are comparable to the prices of our competitors, and we believe that our product provides superior value to our customers when considering the many benefits that they receive, including the ease of use, broad internet distribution and communication tools.
Instant Profile Premium Pricing . The Instant Profile Premium product is sold for $49.95 per month and includes the features mentioned above.
Instant Profile Premium - The Instant Profile premium product includes all InstantProfile Standard functionality with two additional features:
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Virtual PBX voice messaging - Provides a professional phone tree for callers that presents any business in a professional light. Voicemails left through this service are conveniently delivered as audio files to the company email; meaning messages are never lost and remain archived as long as needed.
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Online Data Storage – Customers can store up to 10 gigabytes of data on our cloud server and retrieve it from any computer or device with an Internet connection
Product Solutions
Small businesses that take advantage of emerging Internet capabilities will be better equipped to acquire customers and operate with greater efficiency than those that do not. Companies widely understand that engaging with online and social tools is essential. This creates a large market for service providers that help companies leverage this new technology efficiently and at the lowest possible cost.
In 2010, we formed Velocity Marketing, Inc. with the strategy of developing successor products to our directory business and goal of rebuilding our customer base through mass-market sales. This direction moved us away from the higher-end direct sales products offered through Local Marketing Experts, Inc. (search engine marketing, custom website creation, and online video products), which ceased operation in December 2010 and sold its remaining customers to ReachLocal in May 2011.
Velocity Marketing Concepts targets monthly subscription revenue in the $30.00 to $50.00 range. This price range, combined with the value of our offerings, results in a stable level of monthly subscription revenue without the unpredictable margin and churn issues that were associated with Local Marketing Experts.
Billing . Our billing process allows us to deliver high levels of service to our customers through convenient and timely billing and payment options. We currently bill our customers through (i) their local exchange carrier (“LEC”), (ii) Automated Clearing House (“ACH”) billing, (iii) their credit card or (iv) direct bill invoices.
Similar to the local Regional Bell Operating Companies, we are approved to bill our products and services directly on customers’ local telephone bill through their LEC, commonly referred to as their local telephone company. We believe that this is an efficient and cost-effective billing method as compared to direct billing methods.
In order to bill our customers through their LECs, we are required to use one or more billing service aggregators. These aggregators have been approved by various LECs to provide billing, collection, and related services through the LECs. Under these agreements, our service aggregators bill and collect our charges to our customers through LEC billing and remit to us the proceeds, net of fees, bad debt reserves, customer returns, and unbillable accounts, typically within 90 days of submission.
We also use billing service providers to process billings via recurring direct bank account withdrawal options through ACH billings. These service providers process direct bank withdrawals through an Automated Clearing House and remit the proceeds, net of fees and refunds to customers that cancel their service, typically within 15 days of settlement.
Under our contractual agreements with our LEC billing service aggregators, these third parties are entitled to withhold certain amounts from our net proceeds to serve as a security deposit or “holdbacks” or “reserves.” Such amounts are generally remitted to us over a 12-18 month period, depending on the terms of the respective agreements. An ACH processor maintains a fixed security deposit as a reserve.
LiveDeal Capabilities
LiveDeal has considerable capabilities in areas of online marketing and product development in addition to the features included in our current product offering. LiveDeal is well-versed in online marketing campaign creation and management. These areas include search engine marketing, search engine optimization, and affiliate marketing. Our company capabilities include both mass and custom website development, as well as marketing video production. These capabilities may be deployed at any time as part of product offerings, of our product offers or as services assisting partners or clients.
The Market - Online Local, Social and Mobile Products
LiveDeal has long offered customer acquisition services for local businesses. Increasingly, that means offering products that make use of local, social and mobile marketing.
According to BIA/Kelsey forecasts, traditional media business segments such as print advertising, Yellow Pages and newspapers are experiencing large reductions in advertising revenues. Meanwhile, U.S. local online/digital advertising revenues will rise to $23.3 billion in 2011, compared with $22.3 billion predicted earlier this year.
Social media advertising revenues will grow from $5.1 billion in 2010 to $8.2 billion in 2015, representing a compound annual growth rate of 10.0 percent , according to BIA/Kelsey’s U.S. Local Media Annual Forecast (2010-2015).
The rise of smart phones has changed the game for marketing. Given that smart phones out-sell traditional mobile phones, the consumption of online advertising is quickly moving to mobile devices.
Local mobile advertising targets users with offers or location-based marketing. According to Borrell Associates, local advertisers are on track to spend nearly $800 million this year on mobile advertising and more than $400 million on mobile promotions, including contests, coupons and deals. Borrell’s August 2011 Mobile report projects the amount spent on mobile advertising will double every year for the next 5 years. That projection means that mobile advertising would exceed the amount spent on local search advertising today.
LiveDeal will continue to be active in offering online solutions for small and medium sized local businesses.
Marketing
For well over 10 years, LiveDeal has had a long-standing relationship with data and lead providers. We are able to source the highest quality leads available and are able to focus our telemarketing efforts toward the demographics we believe will result in long term customers.
LiveDeal’s products are designed and delivered online. LiveDeal will likely expand its customer acquisition strategy to include online marketing through search engines, ad networks and affiliate relationships.
Competition
We operate in the highly competitive, rapidly expanding and evolving business-to-business Internet services market. Our largest competitors are LECs, which are generally known as local telephone companies, and national search engines such as Yahoo! and Google that have recently expanded their presence in the local search market. We compete with other online Yellow Pages services, website operators, advertising networks, and traditional offline media, such as traditional Yellow Pages directory publishers, television, radio, and print share advertising. Our services also compete with many directory website production businesses and Internet information service providers. Our audience acquisition services compete with advertising agencies and other businesses providing somewhat similar services.
The principal competitive factors in the markets in which we compete include personalization of service, easy to use directories, quality and responsiveness of search results, availability of quality content, value-added products and services, and access to end-users. We compete for advertising listings with the suppliers of Internet navigational and informational services, high-traffic websites, Internet access providers, and other media. This competition could result in significantly lower prices for advertising and reductions in advertising revenues. Increased competition could have a material adverse effect on our business.
Many of our competitors have greater capital resources than we have. These capital resources could allow our competitors to engage in advertising and other promotional activities that will enhance their brand name recognition at levels we cannot match. The LECs and national search engines also have advantages in terms of brand name recognition.
We believe that we are in a position to successfully compete in these markets due to our experience at sourcing, selling and servicing large numbers of small business accounts, the comprehensiveness of our database, the effectiveness of our marketing programs and our distribution network. We also believe that our products provide a simple and affordable way of creating a web presence to market products and services to local audiences. We further believe that we can compete effectively by continuing to provide quality services at competitive prices and by actively developing new products and services for customers that enable us to become a one-stop shop for all online marketing needs of the small business regardless of the price point.
CEO BACKGROUND
Richard D. Butler, Jr., 62
Audit Committee Member
Corporate Governance and Nominating Committee Chairman
Mr. Butler is Chairman of the Corporate Governance and Nominating Committee and has served as a director and member of the Audit Committee of our Company since August 2006 (including YP.com from 2006-2007). He is a veteran savings and loan and mortgage banking executive, co-founder and major shareholder of Aspen Healthcare, Inc. and Ref-Razzer Corporation, former Chief Executive Officer of Mt. Whitney Savings Bank, Chief Executive Officer of First Federal Mortgage Bank, Chief Executive Officer of Trafalgar Mortgage, and Executive Officer & Member of the President’s Advisory Committee at State Savings & Loan Association (peak assets $14 billion) and American Savings & Loan Association (NYSE: FCA; peak assets $34 billion). Mr. Butler attended Bowling Green University in Ohio, San Joaquin Delta College in California and Southern Oregon State College.
Specific Qualifications :
•Relevant educational background and business experience.
•Extensive experience as Chief Executive Officer for several companies in the banking and finance industries.
•Experience as a public company director.
•Experience in workouts and restructurings, mergers, acquisitions, business development, and sales and marketing.
•Background and experience in finance required for service on Audit Committee.
Thomas J. Clarke, Jr., 54
Compensation Committee Chairman
Corporate Governance and Nominating Committee Member
Mr. Clarke is Chairman of the Compensation Committee and has served as a director of our Company since November 2007. Mr. Clarke is currently a director of Reis, Inc. (NASDAQ: REIS), a leading provider of commercial real estate performance information and analysis, and Chief Executive Officer of Weiss Group, LLC, a leading provider of independent research. Mr. Clarke was Chief Executive Officer of TheStreet.com (NASDAQ: TSCM) from October 1999 until March 2009. Prior to joining that company, Mr. Clarke was Chief Executive Officer of Thomson Financial Investor Relations. At that company, Mr. Clarke oversaw the sale of what was then Technimetrics Inc. from Knight-Ridder to Thomson Corporation in 1998. Mr. Clarke has also held management positions at companies such as McAuto Systems Corp. and Media Records. Mr Clarke has over 30 years of experience in the financial information sector and is an active investor of early stage companies in that sector. Mr. Clarke holds an MBA from Hofstra University and a Bachelor’s Degree in Marketing from St. John’s University.
Specific Qualifications :
•Relevant educational background and business experience.
•Experience in venture capital, mergers, acquisitions and other strategic transactions.
•Experience as public company director and executive officer (including as Chief Executive Officer).
Dennis Gao, 31
Audit Committee Member
Mr. Gao has served as a director of our Company since January 2012 and has served as a member of the Audit Committee of our Company since January 2012. In July 2010, Mr. Gao co-found and became the CFO at Oxstones Capital Management, a privately held company and a social and philanthropic enterprise, serving as an idea exchange for the global community. Prior to establishing Oxstones Capital Management, from June 2008 until July 2010, Mr. Gao was a product owner at Procter and Gamble for its consolidation system and was responsible for the Procter and Gamble’s financial report consolidation process. From May 2007 to May 2008, Mr. Gao was a financial analyst at the Internal Revenue Service's CFO division. Mr. Gao has a dual major Bachelor of Science degree in Computer Science and Economics from University of Maryland, and an M.B.A. specializing in finance and accounting from Georgetown University’s McDonough School of Business.
Specific Qualifications :
•Relevant educational background and business experience.
•Background and experience in finance required for service on Audit Committee.
Jon Isaac, 29
Mr. Jon Isaac has served as a director of our Company since December 2011 and became our President and Chief Executive Officer in January 2012. He is the founder of Isaac Organization, a privately held investment company. At Isaac Organization, Mr. Isaac has closed a variety of multi-faceted real estate deals and has experience in aiding public companies to implement turnarounds and in raising capital. Mr. Isaac studied Economics and Finance at the University of Ottawa, Canada.
Specific Qualifications :
•Relevant educational background and business experience.
•Experience in aiding public companies to implement turnarounds and in raising capital.
Tony Isaac, 57
Mr. Tony Isaac has served as a director of our Company since December 2011. He is the Chairman and Co-Founder of Isaac Organization, a privately held investment company. Mr. Isaac has invested in various companies, both private and public from 1980 to present. Mr. Isaac's specialty is negotiation and problem-solving of complex real estate and business transactions. Mr. Isaac graduated from Ottawa University in 1981, where he majored in Commerce and Business Administration.
Specific Qualifications :
•Relevant educational background and business experience.
•Experience in negotiation and problem-solving of complex real estate and business transactions
John Kocmur, 67
Mr. Kocmur has served as a director of our Company since December 2011. Since 1986 until the present, Mr. Kocmur has served as president and co-owner of Janez Properties, Inc., a private real estate company, specializing in developing, acquiring and managing office, industrial, commercial, mixed use and residential properties throughout Southern California. Mr. Kocmus has experience in development, acquisitions/dispositions , asset and property management, leasing and reporting to the owners/investors.
Specific Qualifications:
•Relevant educational background and business experience.
•Extensive experience as president of a private real estate company
Greg A. LeClaire, 42
Audit Committee Chairman
Compensation Committee Member
Mr. LeClaire has served as a director of our Company since May 2008. He currently serves as Chief Financial Officer of ePercipio LLC, an online training company. He is also a member of the board of directors of IA Global, Inc. (OTC: IAGI). From June 2009 to January 2010, he served as a financial, operational and strategic development consultant in the technology sector. He was Chief Financial Officer and Corporate Secretary of ClearOne Communications, Inc. (NASDAQ: CLRO), a manufacturer and marketer of audio conferencing and related products, from September 2006 until May 2009. From April 2006 until August 2006, Mr. LeClaire served as Vice President – Finance and Administration for LiveDeal, Inc., the Internet classifieds company that the Company acquired in 2007. Prior to that, Mr. LeClaire was Vice President and Chief Financial Officer of Utah Medical Products, Inc. (NASDAQ: UTMD), a multi-national medical device corporation, from January 2001 until April 2006. Mr. LeClaire has significant experience in the areas of finance and accounting, SEC reporting, Sarbanes-Oxley compliance, budgeting and financial management. He holds a M.S. degree in management from Stanford University’s Graduate School of Business and a Bachelor of Science degree in accounting from the University of Utah.
Specific Qualifications :
•Relevant educational background and business experience, including in the technology sector.
•Experience as public company director and executive officer (including as principal financial officer).
•Experience having ultimate responsibility for the preparation and presentation of financial statements (“financial literacy” required by applicable NASDAQ rules for service as Audit Committee chairman).
•“Audit Committee Financial Expert” for purposes of SEC rules and regulations (required for service as Audit Committee chairman).
MANAGEMENT DISCUSSION FROM LATEST 10K
Executive Overview
Our Company
LiveDeal, Inc. provides local internet marketing services for small businesses. LiveDeal, through our wholly-owned subsidiary (Velocity Marketing Concepts, Inc.), offers an affordable way for businesses to extend their marketing reach to local, relevant customers via the Internet.
LiveDeal first started in the online marketing industry as YP.com. At the time, we were the first company to bring the print yellow pages to the Internet in 1994. From there we moved into the online classifieds business when we merged with LiveDeal in 2007. The YP.com URL was sold March 2009 and the classifieds business was sold June 2009.
LiveDeal uses 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
LiveDeal delivers 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 the 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 them to use one location to broadcast their messages across their entire social media network. By leveraging this automation our customers eliminate the need to manage multiple logins for individual websites and duplicate submissions and decreases the time required to broadcast their messages from hours to one click of a button.
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 conference 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 were strategically chosen service entry level products and services that can grow with the small business as it continues to grow. For those starting with the more customized products and services, InstantAgency® can continue to drive more online visitors, 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.
Recent Events & Transactions
Financial Performance
We have embarked on a significant change in business strategy to re-emphasize our legacy business (directory services offering) and update it to meet current market requirements and move ahead of our competitors in this market segment. As a result, we have continued to experience a decline in revenues and gross profit over the last several quarters, but have also reduced our ongoing costs and expenses and reduced ongoing losses. Within fiscal year 2011, the quarterly losses have decreased from $1,730,000 in the first quarter to $314,000 in the fourth quarter. While we have yet to achieve sufficient sales in our new InstantProfile business to allow us to achieve operating profitability, we began to achieve growth in revenues in this business segment during fiscal 2010 with sales officially launching in July 2010. The company has not yet achieved profitability with the InstantProfile business and ceased sales in July 2011 in order to review and improve our sales program, products, distribution methods and vendor programs.
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 year financial statements have been restated to present the Direct Sales business segment as a discontinued operation.
We initiated shutdown activities in March 2011 and completed such activities in May 2011. In conjunction with the discontinued operations, we recorded the following charges in fiscal 2011:
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Employee contract termination charges of $7,083 reflecting the reduction in force of 7 employees;
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Non cash impairment charges of $367,588 consisting of the write-off of net intangible assets;
The Direct Sales business segment accounted for $1,341,430 and $3,838,479 of net revenues for the years ended September 30, 2011 and 2010, respectively, which are now included as part of income (loss) from discontinued operations, including disposal costs, in the accompanying consolidated statements of operations.
Management Changes
On November 23, 2009, we and Richard F. Sommer, our then-current Chief Executive Officer, entered into an amendment to Mr. Sommer's Employment Agreement dated as of May 19, 2009. This amendment, provided that Mr. Sommer was entitled to an option to purchase 26,316 shares of our common stock at an exercise price of $18.53 per share, which was equal to the closing price of our common stock on the date of grant. The option was granted pursuant to our 2003 Stock Plan and was scheduled to vest according to the following schedule: 25% on October 29, 2010 (the first anniversary of the date of grant) and 1/36 of the remainder each month beginning on November 29, 2010.
Previously, the Employment Agreement provided that Mr. Sommer was entitled to a success fee payable in cash equal to 2% of the excess above $9,000,000 of any cash distributed to or received by our stockholders in the form of a dividend, in the event of liquidation or upon a change of control. Pursuant to this amendment, that provision was deleted and replaced with the option grant described above. Other than as described above, the original terms of Mr. Sommer’s Employment Agreement remained in full force and effect.
Effective January 2, 2010, Rajeev Seshadri resigned as our Chief Financial Officer and was replaced by Lawrence W. Tomsic. Mr. Tomsic recently served as Controller for Alliance Residential Company, an apartment complex with 3,221 units and $90 million in annual sales. Previously, he was a Controller and Chief Financial Officer for various clients of JKL Consulting (including a planned unit development and a concrete contractor) from 2006-2008 and Chief Financial Officer of John R. Wood, Inc. (a real estate brokerage focusing on luxury residential housing and commercial properties) from 1997-2006. Mr. Tomsic worked as a financial officer and in other management positions for various companies (including U.S. Home Corporation and Collier Enterprises) from 1983-1997. He was also a senior auditor for Deloitte &Touche for three years. Mr. Tomsic earned a B.S. in Accounting from the University of Delaware and M.B.A. from the University of Denver.
On January 4, 2010, Richard Sommer resigned as our Chief Executive Officer. As a result of his departure, Mr. Sommer also resigned as a member of our Board of Directors. Following Mr. Sommer’s departure, Kevin A. Hall was appointed as our interim Chief Operating Officer (COO). Mr. Hall had been serving as our General Counsel and Vice President of Human Resources and Business Development since April 2009. Prior to that time, Mr. Hall was a partner in the San Francisco, California and New York, New York offices of Reed Smith LLP, an international law firm with more than 1,500 attorneys worldwide, from 2006 until 2008. Previously, he was a senior associate and later a partner in the New York, New York office of Linklaters, a London-based global law firm, from 1998 until 2006. Mr. Hall, who is admitted to practice law in California and New York, specializes in general corporate law, finance, structured finance, and other complex commercial and financial transactions (including mergers and acquisitions). He holds a B.A. in History and French Literature from Columbia College, a Master's Degree in International Affairs from Columbia University, and a law degree from Cornell School of Law.
On May 20, 2010, we appointed Kevin A. Hall as our President and Chief Operating Officer. Mr. Hall’s compensation and benefits were not affected by his appointment as President.
On March 24, 2011 Mr. Hall was appointed as our Chief Executive Officer. In connection with his appointment, Mr. Hall entered into an employment agreement which provides for a two-year term of employment, which may be extended upon the parties’ mutual agreement, and an annual base salary of $225,000. Mr. Hall will be entitled to receive an annual performance bonus in the event that we reach certain performance measures established by our Board of Directors or our Compensation Committee. The performance milestones will be weighted 75% financial and 25% personal, and Mr. Hall’s target bonus will be equal to 50% of his base salary.
The agreement further provides that Mr. Hall is entitled to an option to purchase 13,487 shares of our common stock at an exercise price of $3.53 per share, which was equal to the closing price of our common stock on the date of grant. The option was granted pursuant to our 2003 Stock Plan and will vest according to the following schedule: 25% on March 24, 2012 (the first anniversary of the grant date) and 1/36 of the remainder each month beginning on April 24, 2012. Notwithstanding the foregoing, all unvested shares will immediately vest and become exercisable upon a change in control.
If we terminate Mr. Hall’s employment during the first year of his term of employment without cause (as defined in the agreement) and certain other conditions are met (including that Mr. Hall provide a valid release of claims in favor of the Company), Mr. Hall will be entitled to receive a lump sum severance payment equal to his then current monthly salary for three months. After March 24, 2012 but prior to the end of his term of employment, if we terminate Mr. Hall’s employment without cause, Mr. Hall will be entitled to a severance payment equal to his then current monthly salary for six months. The agreement also provides that we will reimburse Mr. Hall for reasonable business expenses and allows him to participate in its regular benefit programs.
On May 20, 2011, in connection with our continued employment of Mr. Tomsic as its Chief Financial Officer, we entered into an employment agreement with Mr. Tomsic. The agreement provides for a one-year term of employment, which may be extended upon the parties’ mutual agreement, and an annual base salary of $220,000. Mr. Tomsic will be entitled to receive an annual performance bonus in the event that we reach certain performance measures established by the Chief Executive Officer or the Board of Directors (or its Compensation Committee). Mr. Tomsic’s target bonus will be equal to $80,000.
Pursuant to the employment agreement, on May 20, 2011, Mr. Tomsic was granted an option to purchase 10,526 shares of our common stock at an exercise price of $3.77 per share, which was equal to the closing price of our common stock on the date of grant. The options will vest and be exercisable according to the following schedule: 3,728 options vesting immediately and the remainder shall vest 1/31 at the end of each month thereafter over the next 31 months so long as Mr. Tomsic continues to provide services to our company. Notwithstanding the foregoing, all unvested shares shall become immediately vested and exercisable upon a change of control.
Restructuring Activities
On January 4, 2010, our Board of Directors approved a reduction in force that resulted in the termination of approximately 33% of the Company's workforce, effective January 7, 2010. On February 23, 2010, our Board of Directors approved an additional reduction in force that resulted in the termination of approximately 20% of our workforce, effective March 4, 2010. These reductions in force were related to our ongoing restructuring and cost reduction efforts as the Board of Directors explores a variety of strategic alternatives, including the potential sale of the Company or certain of its assets and/or the acquisition of other entities or businesses.
We incurred charges of $143,000 in connection with the reductions in force, consisting of one-time employee termination benefits. All amounts were paid as of September 30, 2010.
On November 30, 2010, our Board of Directors approved a reduction in force that resulted in the termination of 36 employees of the Company, or approximately 60% of the Company’s workforce, effective December 1, 2010. The reduction in force was related to the Company’s ongoing restructuring and cost reduction efforts and strategy of focusing its resources on the development and expansion of its core InstantProfile product, the successor to the Company’s LEC-billed directory product. All terminated employees were involved in the marketing and sale of the Company’s InstantPromote product by its subsidiary, Local Marketing Experts, Inc.
We incurred expenses of $99,319 in connection with the reduction in force, of which $37,500 was incurred for one-time employee termination benefits payable in cash. The remaining expenses relate to salaries and wages payable in cash to the affected employees which were paid in the first quarter of fiscal 2011.
In May 2011, we ceased the Direct Sales business and transferred the remaining customers to Reach Local in exchange for ten and five percent of gross revenues derived from such customers during the first and second year, respectively. We recorded $5,773 in revenues for this agreement during the year ended September 30, 2011. In connection with the discontinued Direct Sales business, seven employees were terminated and we recorded employee contract termination charges of $7,083.
Critical Accounting Estimates and Assumptions
The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires our management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. As such, in accordance with the use of accounting principles generally accepted in the United States of America, our actual realized results may differ from management’s initial estimates as reported. Summaries of our significant accounting policies are detailed in the notes to the consolidated financial statements, which are an integral component of this filing.
MANAGEMENT DISCUSSION FOR LATEST QUARTER
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.
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.
CONF CALL
John Evans
Good afternoon everyone, I’m John Evans. Thank you for your interest in LiveDeal. With me today are the Chief Executive Office of LiveDeal, Richard Sommer and Rajeev Seshadri, the Chief Financial Officer.
Some of the questions of the discussion today will involve forward-looking statements and I will read to you the following warnings about reliance and forward-looking statements. During the course of this presentation, we may discuss LiveDeal’s business outlook which contains forward-looking statements. These particular forward-looking statements and all other statements that maybe made during this presentation that are not historical facts are subject to a number risks and uncertainties and actual results may differ materially. Please refer to our periodic filings on the Forms 10-K and 10-Q made with the SEC for more information on the risk factors that could cause actual results to differ.
Important factors that could cause actual results to differ materially from the company’s expectations include, but are not limited to, those factors that are disclosed under the heading, risk factors and elsewhere in the company’s documents filed from time to time with the United States Securities and Exchange Commission and other regulatory authorities. Forward-looking statements made during today’s call are only made as the date of this conference call. And the company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events.
This conference is being webcast and will be on our website for replay following the call. And at the end of the call we will give a replay number on this call. Now let me turn it over to Richard Sommer.
Richard F. Sommer
Thanks, John. And thanks to everyone for taking time to listen to our conference call today. Since the last conference call we’ve had many changes at LiveDeal. I am pleased to discuss the third quarter fiscal 2009 results and especially excited to discuss LiveDeal’s ongoing transition with new opportunities that I and the board members, and the company’s management team see as (inaudible) substantial.
As you know, since the second quarter conference call the board of LiveDeal decided that the company under the leadership of Mike Edelhart had moved substantially to correct certain operational aspects of the business. (Inaudible) needed management that had relevant small business marketing experience provide the vision and operational know-how to take full advantage of the multi-billion dollar market for providing small and medium sized businesses with real help to use the Internet to bring customers to their door.
According to a recent Barel Association report the outlook for small business marketing remains a bright spot in the slowing advertising market. Approximately two fifths of all small businesses still don’t have a website. The forecasted growth in search engine marketing by this sector is expected to grow by 39% over the next four years. LiveDeal’s focus on search engine marketing reflects the growth SEM as a tool for ROI driven customer acquisition by businesses and the use of search engines by consumers.
At LiveDeal’s premium segment division that focuses on this market, the company has seen monthly sales growth over the past year. While we are going to have many strides towards fully realizing the opportunity we are not resting until this opportunity is maximized, for all of our shareholders, the company and a customer and our shareholders.
First order of business was to streamline the company. As we announced during the quarter, the company has reduced head-count and reduced expenses by 10%-15% on a quarterly basis and is expected to save approximately $1.8 million over the next 12 months or approximately $0.29 per share.
Second, we have focused all of our staff on a program to grow sales and products substantially over the next 12 months. There is no single solution for small businesses as they migrate their dollars away from traditional print advertising to Internet customer acquisitions. We have found as small businesses move up the Internet adoption curve they need ROI driven products that will help them grow even as their advertising dollars grow in understanding the use of technology to improve their businesses.
The new approach to customer engagement should provide us with the range of products and pricing to grow our customer base rapidly and keep our customers for a long time. Small business customers that we are engaged know that they must spend their time growing and managing their businesses. They need an Internet partner who can provide the expertise and the products to help them use technology to improve their businesses. This is our new mission statement. Be the partner who helps small businesses use Internet and technology to bring them customers and grow their business.
Now, this is not the first time I’ve done this. The small business local marketplace, reminds me of a space where real estate market was approximately six years ago. There were thousands of real estate brokers who wanted to use the Internet to grow their businesses and they needed the tools and expertise to do this.
At Realtor.com and then again at HomeGain, we were one of many sites that we broke through the cacophony of companies and became acknowledged as the leaders of the space. At LiveDeal we plan on doing the same thing. In order to do this, we had to assemble a first rate team and a sense of urgency. In the past 70 days since I’ve arrived we have done that and we’ve brought together a team with years of Internet and technology experience to solve the problem. It includes the addition of Kevin Hall as Corporate Counsel and the other staff members we’ll be hopefully announcing over the course of the next call.
The other major imperative is to do this and make a profit as well. The reduction of force was a start. But we have committed ourselves to growing sales and reducing our burn rate to become not just cash-flow break even, cash-flow profitable.
Over the next month and quarters you will hear more about specific steps we are taking to one, expand and enhance our products and services; two, package those services in a way that make sense for small business; three, increase sales. Our team is very excited by the opportunity to grow this business and look forward to updating you in the future. I would like to turn the call over to Rajeev, our CFO to discuss financial results of the quarter.
Rajeev Seshadri
Thank you, Richard. For the third quarter of fiscal 2009, total revenue was $2.48 million compared to $5.43 million in the same quarter of fiscal 2008. Approximately $4.1 million of the decline in revenue was (inaudible) to a reduction in LiveDeal’s Yellow Pages directory services business, which resulted in part from the sale of a large portion of the company’s customer list during the second quarter.
This decrease is partially offset by approximate $1.14 million in revenue from LiveDeal’s premium segment direct sales business, which provides lead-based customer acquisition services for small local businesses.
The company reported a net loss for the quarter of $2.1 million or a net loss of $0.35 per fully diluted share. The loss included a net impact of approximate $420,000 restructuring charges and expenses related to the separation of its former CEO.
Net revenues for the first nine months of fiscal 2009 decreased $11 million from $17.9 million in the same period of last year for reasons similar to those stated above. The company expects the percentage of its total revenues derived from its direct sales business to continue to increase as the company emphases this premium segment, which includes the LiveSites, LiveAdvisor and LiveClicks products, over its legacy Yellow Pages directory services business.
The company reported a net loss of $20.3 million for the first nine months of fiscal 2009 down from a net loss of $1.25 million for the same period in fiscal 2008. The net loss for the first nine months of fiscal 2009 included a charge of $16.1 million for the impairment of goodwill intangible assets, added to its legacy Yellow Pages business, and that was announced in the previous call regarding the Q2 results for fiscal (inaudible). As of June 30th, 2009 LiveDeal had cash on hand of $9.2 million (inaudible).
I would like to turn the call back to Richard. Richard?
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Fund Letters
