Annual report pursuant to Section 13 and 15(d)

17. Business Combination

v2.4.1.9
17. Business Combination
 12 Months Ended
Sep. 30, 2014
Business Combinations [Abstract]  
Business Combination

Asset Purchase Agreement – DA Stores, LLC

 

On March 7, 2014, the Company incorporated Live Goods, LLC (“Live Goods”), a California limited liability company, which became a wholly-owned subsidiary of the Company. Also, on March 7, 2014, the Company signed an agreement for the acquisition of substantially all of the assets of DA Stores, LLC, through its Live Goods. The acquisition of the assets is intended to assist in the implementation of the Company’s new business line. Under the terms of the acquisition, the Company acquired DA Stores, LLC’s retail store inventory and equipment, furniture, software, hardware, and domain names in exchange for $200,000 cash. The purchase price for the assets of DA Stores was determined to be the fair market value thereof. On May 16, 2014, DA Stores, LLC, executed the Deed of Transfer in respect of all the assets.

 

In connection with the transaction, the Company paid to the benefit of each of Akmal Hodjaev and David Rashidov the sum of $150,000 as retention compensation. The Company, through Live Goods LLC, also agreed to employ each of such individuals for a three-year term, commencing as of the date of the transaction. However, in the event that either or both of such individuals voluntarily terminates their respective employment prior to the expiration of such three-year term, such terminating individual has agreed to return such $150,000 sum.

  

Further, and in connection with such individual’s employment but subject to the achievement of certain performance metrics at the one-year anniversary of the acquisition of such assets, the Company will pay an aggregate, additional amount to Messrs. Hodjaev and Rashidov, in cash or stock options (based on the price of the Company’s common stock on March 7, 2014), as follows:

 

i.   $300,000 if the operations of the purchased assets of DA Stores, LLC, achieve $15,000,000 in revenue during such 12-month period with 5% profitability margin;
     
ii.   $250,000 if the operations of the purchased assets of DA Stores, LLC, achieve $12,000,000 in revenue during such 12-month period, with 5% profitability margin; or
     
iii.   $200,000 if the operations of the purchased assets of DA Stores, LLC, achieve $10,000,000 in revenue during such 12-month period with 5% profitability margin.

 

The Company will recognize this additional, conditional payment to such individuals, if, when, and any such performance metric has been achieved.

 

Share Purchase Agreement -- DealTicker, Inc.

 

On May 6, 2014, the Company, through Live Goods, acquired all of the issued and outstanding shares in the capital of DealTicker Inc., a Canadian corporation (“DealTicker”), from Julian Gleizer and Daniel Abramov, the shareholders of DealTicker (collectively the “Sellers”). Upon the closing of the transaction, the Sellers sold all of the shares of DealTicker to Live Goods for a purchase price in the aggregate amount of CAN$246,000 (US$228,000). Pursuant to the terms of the Agreement, Live Goods may, in its absolute discretion, increase the purchase price taking into account the financial performance and operation of the DealTicker business during the one-year period following the closing compared to historical performance. Subsequently the Company wrote off all the assets that were purchased except for the customer list.

 

Share Purchase Agreement – Modern Everyday, Inc.

 

On August 24, 2014, the Company entered into a Stock Purchase Agreement with Modern Everyday Inc., a Delaware corporation (“MEI”), and Byron Hsu, as the sole stockholder of MEI. Pursuant to the Agreement, LiveDeal acquired 100% of the issued and outstanding shares of common stock (the “Shares”) of MEI from Mr. Hsu.

 

The purchase price paid for the shares consisted of three components: shares of the Company’s common stock, cash and a promissory note:

 

i.   50,000 shares of LiveDeal restricted common stock valued at $395,500;
     
ii.   $1,100,000 of cash paid to Mr. Hsu; and
     
iii.   A $600,000 promissory note that bears no interest, with $200,000 due February 28, 2015, with the balance due on February 28, 2016, and is secured by a second-position security interest in the fair value of inventory, accounts receivable, and cash and deposit accounts of MEI.

  

In connection with the Agreement, the Company and Mr. Hsu also entered into an employment agreement pursuant to which Mr. Hsu is employed to serve as President, Chief Executive Officer and Chief Technical Officer of MEI. The initial term of the employment agreement is for eighteen months, and Mr. Hsu’s base annual salary will be $160,000.

  

A summary of the purchase price allocations is below:

                Modern        
    DA Stores     DealTicker     Everyday     Total  
Cash   $ –     $ 103,884       164,633     $ 268,517  
Accounts receivable      –       27,193       349,860       377,053  
Inventory     110,375       55,691       1,232,398       1,398,464  
Other current assets      –        –       229,400       229,400  
Property and equipment     48,500       12,855       7,755       69,110  
Developed technology      –        –       310,000       310,000  
Covenant not to compete      –        –       120,000       120,000  
Customer list      –       175,823       –       175,823  
Other intangible assets     30,000       69,839        –       99,839  
Goodwill      –        –       1,169,904       1,169,904  
Other assets     11,125       10,285       19,392       40,802  
Accounts payable      –       (28,106 )     (285,908 )     (314,014 )
Notes payable      –        –       (463,398 )     (463,398 )
Line of credit      –        –       (490,568 )     (490,568 )
Other liabilities      –       (199,464 )     (287,968 )     (487,432 )
Purchase price   $ 200,000     $ 228,000     $ 2,075,500     $ 2,503,500  

 

The developed technology, covenant not to compete and the customer list are being amortized over 3, 4 and 3 years, respectively.

 

The revenue from the acquisitions of DA Stores, DealTicker and Modern Everyday included in the results of operations from the respective dates of acquisition to September 30, 2014 were $3,297,206, 2,154 and $1,183,172, respectively

 

The pro forma information below present statement of operations data as if the acquisition of MEI (the most significant acquisition) took place on October 1, 2012.

 

    Years Ended September 30,  
    2014     2013  
    (unaudited)     (unaudited)  
Net revenue   $ 16,765,798     $ 9,511,211  
Gross profit     6,366,758       4,866,537  
Operating loss     (4,581,470 )     (2,753,240 )
Net income     (4,824,945 )     (5,054,123 )
Loss per share     (0.37 )     (0.54 )