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Tuesday, October 09, 2007

LiveWorld (LVWD)

LiveWorld (LVWD, collected entries, sec): Still around 55 cents. I sold the last of my stock on Valentine's Day 2006.

They picked up BBC as a customer and the client list seems bigger. Same management team. They started filing with the SEC and got OTC:BB approval! They increased the team size to scale for future projects which killed operating income for the quarter.

Q2 results:
31 million shares on June 30, 2007.
22 million options outstanding.
10 million options available for granting.
Assume 60 million totally diluted shares. [update: that could be 80 million or effectively more, see comments]

Balance sheet
Cash *********************************
AR ************
misc *
PP&E, net ***********
joint venture **********

AP ***
Salaries *
Vacation ***
Total Curr Liab **************
Total Liabilities***************

Equity ***************************************************

Revenues are up 17%. 65% gross margin.
They ramped up product development, sales and marketing, and G&A. So operating expenses went up 54%.
Operating loss.

Free cash flow pretty much matches the net loss.

Backlog is $4.8 million.

Q2 2007:
Revenue $2.49 million
Gross margin $1.63 million (65.3%)
Operating expenses $2.25 million
other expenses are close to zero
Net loss $0.64 million

But here's the real story:
AOL revenues have been understandably dropping... a lot. It was 37% of their business in Q2 2006. It's 11% of their business in Q2 2007.
eBay has been fairly steady at about 34% of their business.
No other client was more than 9%

Q2 2007:
AOL was $270K revenue (down from $790K)
eBay was a steady $850K
Other business grew by $879K!

Sales and marketing probably scales quite a bit along with revenue. It's currently $605K in Q2 or 24% of revenue.

New clients in the last 6 months that launched services (could that mean existing clients with new services?):
AOL Europe
Digitas -- American Express
Wildfire -- Proctor and Gamble
Hillary Clinton Presidential Campaign
Wildfire -- Glaxo-Smith Klein

They filed with the SEC, but the SEC had some issues. The use of Adjusted EBITDA and the purpose of some warrants. This SEC comment is funny:
...please revise the disclosure to elaborate on why the reduction in adjusted EBITDA is "directly related to [your] investing in future growth."
Vague but enthusiatic.
Specifically, tell us why management believes that the fair market value [of issued warrants] should not be factored into your basis in your investment in the joint venture.
Jeff Easton owns 3.3 million shares as part of a hedge fund.
CEO owns $708K shares (options).
CFO owns 250K shares (options).
Jenna Woodul (the online relationship guru or something like that) owns a whole lot of options.
WPP (joint venture people) own 4.6 million.

Ok, what happens if they double their business? We'd be looking at $5 million in quarterly revenue and perhaps a net profit of one-to-two million or four-to-eight million per year, 6 to 11 cents per totally diluted share. At that point, they might be worth as much as $2.00 per share, depending on fast they got there.

I'd say the shares are probably a reasonable price for a gamble. When I had looked at them before (and invested in them), they were scaling up rapidly and consistently, but then hit a brick wall. Seems the wall is crumbling. These are some good people running the business with a lot of experience at what they're doing. But I don't see it being more compelling than what I have now unless the price drops a lot, which could happen.

If you are out of the stock since 2/06 why are you bothering to post. Your analysis required some research and it seems on the "mark" but why exhaust your time with a company you do not have an investment in....or do you?

This company (LVWD) has been a sleeper for a long time and whether they can a achieve a 5 million revenue stream/qtr is very difficult to say....

For years I thought they were simply ahead of the curve but a wonder given the popularity of the net as a market research tool whether they are really excuting. I have felt for years that management has made some wrong moves which IMO have allowed competition to gain a stronger foothold. They somewhat turned it more positive with the WPP Jt Venture but that has not materialized much in the past 15 months given their size and worldwide reach so one has to wonder what is the overall market appetite for their services. I am inclined to think that based on the past it may not be as explosive as most of us envisioned at the start...

Can they do 20 million/yr but expect this will be achieved by 12/31/09, as for profits I would place it more on the light side unless I see a leveling off of expenses. This story is not an exceptionally good one given the past history and the inability in my opinion to execute. They are too thin at the top and we are without a creditable Board of Directors.

From a shareholders point of view the best return may only be realized if WPP buys 100% of the company and perhaps we may see 2-3/share!
I look at a lot of companies that I don't own because I want to stay on the lookout for opportunity.

I don't own LVWD. I agree that they haven't done well so far but I'd be more likely to gamble on someone who's been trying for a while than someone completely new.
How do you look at the potential dilution from the WPP joint venture? It's based on some formula that could result in the issuance of a huge number of warrants to WPP. Any thoughts would be appreciated.
I didn't dig much into the details (other than seeing the 2 million warrants) to see if there are any "toxic convertibles". But now that you mentioned it, I looked back at the 10-SB form and see a mention of it. Max potential dilution is 53%: ouch!

"Specifically, the number of warrants WPP would earn would increase if the percentage of our overall net revenue attributable to our joint venture increases or if the number of our shares outstanding (or issuable upon exercise or conversion of our convertible securities) increases. As an example if the percentage of our net revenue contributed by the joint venture remained constant, but the number of shares of our common stock issued or issuable increased by 10% the number of warrants WPP could be entitled to would increase by approximately 6.7%. The inability to determine with certainty the exact number of warrants to be issued in the future may make it more difficult for investors to determine the value our common stock."

I guess I should change my totally diluted count to something like 80 million and then chop off the upper end up what they might make in the success case.

Thanks for the info!
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