UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
D.C. 20549
 ___________
 
 FORM
10-K
 ANNUAL
REPORT
 PURSUANT
TO SECTION 13 OR 15(d)
 OF
THE SECURITIES EXCHANGE ACT OF 1934
 
 (Mark
one)
 
 x
              ANNUAL REPORT PURSUANT TO SECTION
      13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
  1934
 
 For the
fiscal year ended September 30, 2009
 
  ̈
              TRANSITION REPORT UNDER SECTION
      13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
  1934
 
 For the
Transition period from ________ to  ____________
 
 Commission
File Number: 0-24217
 
 LiveDeal,
Inc.
 
 (Exact
Name of Registrant as Specified in Its Charter)
 
 Nevada
              
              85-0206668(State
      or Other Jurisdiction of Incorporation orOrganization)
              
              (IRS
      Employer Identification No.)
 
 2490
      East Sunset Road, Suite 100
                  Las
      Vegas, Nevada
                
                89120(Address
      of principal executive offices)
                
                (Zip
      Code)
 
 Registrant’s
telephone number, including area code: (702) 939-0230
 
 Securities
registered under Section 12(b) of the Exchange Act: None
 
 Securities
registered under Section 12(g) of the Exchange Act:
 
 Common Stock, $.001 Par
Value
 (Title of
Class)
 
 Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o No x
 
 Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o No x
 
 Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90
days.           Yes x No o
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web Site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).  Yes  ̈  No  ̈
 
 Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K o
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company.  See the definitions of “large accelerated filer”, “
accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
 
 Large
      accelerated filer o
                    
                    Accelerated
      filer oNon-accelerated
      filer o(Do
      not check if a smaller reporting company)
                    
                    Smaller
      reporting company x
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No x
 
 The
aggregate market value of the registrant’s common stock held by non-affiliates
computed based on the closing price of such stock on March 31, 2009 was
approximately $11,743,548.
 
 The
number of shares outstanding of the registrant’s common stock, as of December 7,
2009, was 6,095,040 shares.
 
 DOCUMENTS
INCORPORATED BY REFERENCE
 
 Portions
of the Proxy Statement relating to the Registrant’s 2010 Annual Meeting of
Stockholders are incorporated by reference in Part III of this Form
10-K.
  
  LIVEDEAL, INC.
 
 FORM
10-K
 For
the year ended September 30, 2009
 
 TABLE
OF CONTENTS
 (Edgar
service provider to update pages)
 
 PagePart IItem 1.
                                                    Business
                                                    
                                                    3Item 1A.
                                                    Risk
      Factors
                                                    
                                                    9Item 1B.
                                                    Unresolved Staff
      Comments
                                                    
                                                    16Item 2.
                                                    Properties
                                                    
                                                    17Item 3.
                                                    Legal
      Proceedings
                                                    
                                                    17Item 4.
                                                    Submission of Matters to a Vote
      of Security Holders
                                                    
                                                    18Part IIItem 5.
                                                    Market for Registrant’s Common
      Equity, Related Stockholder Matters and Issuer Purchases of Equity
      Securities
                                                    
                                                    18Item 6.
                                                    Selected Financial
      Data
                                                    
                                                    20Item 7.
                                                    Management’s Discussion and
      Analysis of Financial Condition and Results of
      Operations
                                                    
                                                    20Item 7A.
                                                    Quantitative and Qualitative
      Disclosures About Market Risk
                                                    
                                                    31Item 8.
                                                    Financial Statements and
      Supplementary Data
                                                    
                                                    32Report of Independent Registered
      Public Accounting Firm
                                                    
                                                    33Consolidated Financial
      Statements:Consolidated Balance
      Sheets at September 30, 2009 and 2008
                                                    
                                                    34Consolidated Statements of
      Operations for the Years Ended September 30, 2009 and
      2008
                                                    
                                                    35Consolidated Statements of
      Stockholders' Equity for the Years Ended September 30, 2009 and
      2008
                                                    
                                                    36Consolidated Statements of
      Cash Flows for the Years Ended September 30, 2009 and
      2008
                                                    
                                                    37Notes to Consolidated Financial
      Statements
                                                    
                                                    38Item 9.
                                                    Changes in and Disagreements With
      Accountants on Accounting and Financial
    Disclosure
                                                    
                                                    56Item 9T.
                                                    Controls and
      Procedures
                                                    
                                                    56Item
      9B.
                                                    Other Information
                                                    
                                                    63Part IIIItem 10.
                                                    Directors, Executive Officers
      and Corporate Governance
                                                    
                                                    57Item 11.
                                                    Executive
      Compensation
                                                    
                                                    57Item 12.
                                                    Security Ownership of Certain
      Beneficial Owners and Management and Related Stockholder
      Matters
                                                    
                                                    57Item 13.
                                                    Certain Relationships and
      Related Transactions, and Director
      Independence
                                                    
                                                    57Item 14.
                                                    Principal Accountant Fees and
      Services
                                                    
                                                    57Part IVItem 15.
                                                    Exhibits, Financial Statement
      Schedules
                                                    
                                                    57Signatures
                                                    
                                                    63
  2
 Table of Contents
  PART I
 
 Forward-Looking
Statements
 
 Part I of
this Annual Report on Form 10-K includes statements that constitute
“forward-looking statements.”  These forward-looking statements are
often characterized by the terms “may,” “believes,” “projects,” “expects,” or
“anticipates,” and do not reflect historical facts. Specific forward-looking
statements contained in Part I of this Annual Report include, but are not
limited to, our company’s (i) belief that local exchange carrier, or LEC,
billing will continue to be a significant billing channel in the future; (ii)
expectation of increasing revenues through our national accounts programs,
fulfillment contracts, web hosting and other arrangements; (iii) expectation
that our Telesold Suite Services will continue to grow in revenues and represent
a substantial portion of our revenue in the upcoming fiscal year and going
forward;  (iv) belief in the growth of Internet usage and the Internet
Yellow Page market as described in recent press releases by The Kelsey
Group;  (v) belief in the growth of the local search and information
market as described in recent reports by Borrell Associates;(vi) belief that
existing cash on hand will be sufficient to meet our needs for the next 12
months; and (vii) belief that existing facilities are adequate for our current
and anticipated future needs and that our facilities and their contents are
adequately covered by insurance.
 
 Forward-looking
statements involve risks, uncertainties and other factors, which may cause our
actual results, performance or achievements to be materially different from
those expressed or implied by such forward-looking statements. Factors and risks
that could affect our results and achievements and cause them to materially
differ from those contained in the forward-looking statements include those
identified in Item 1A. Risk
Factors, as well as other factors that we are currently unable to
identify or quantify, but may exist in the future.
 
 In
addition, the foregoing factors may affect generally our business, results of
operations and financial position.  Forward-looking statements speak
only as of the date the statement was made.  We do not undertake and
specifically decline any obligation to update any forward-looking
statements.
 
 ITEM 1. Business
 
 Our
Company
 
 LiveDeal,
Inc., a Nevada corporation (formerly known as YP Corp.) (the “Company,” “we,”
“us,” or “our”) is a provider of Internet directory, classified and audience
acquisition services to small businesses.  Through our wholly-owned
subsidiary, Telco Billing, Inc. (“Telco”), located in Las Vegas, Nevada, we
publish a small business directory online at
www.yellowpages.livedeal.com  Any information contained on such
website or any other websites referenced in this Annual Report are not a part of
this Annual Report.
 
 Summary
Business Description
 
 We have
two inter-related primary lines of business: (1) we deliver a suite of audience
acquisition services for small businesses, sold via telemarketing and supported
by our websites and software that we have developed to manage search and other
Internet services efficiently, and (2) we maintain an Internet Yellow Pages
service for every city and zip code across the U.S.
 
 Our
websites, by combining the benefits of business listings, mobile services,
advertising/distribution networks and e-commerce into a single online solution,
offer businesses and consumers an affordable and effective solution for creating
a web presence and marketing their products and services locally.
 
 Our
websites also support our audience acquisition services by providing locally and
vertically targeted Internet pages that are effective at producing website
traffic, form fills and phone calls and other valuable customer interactions on
behalf of our small business customers.  Our Telesold audience
acquisition services are not limited to our own websites. Our suite currently
includes the following activities, but the range of activities we deliver is
designed to shift over time, based on the needs of our small business customers
and the ever-changing state of Internet technology:
 
 §
              Website
      URL acquisition services whereby we obtain website address names on behalf
      of our small business clients;
 
 §
              Website
      development and deployment services where we create, house and manage
      websites on behalf of our small business
  clients;
 
 §
              Website
      traffic and audience development services which provides sophisticated
      search engine marketing techniques, access to our own websites,
      partnerships with other websites and other techniques to generate traffic
      to our customers’ websites, whether created and housed by us or
      not;
  3
 Table of Contents
  §
              Website
      analytics and performance reports that generate information for our
      customers about activities on their websites and lead activities for their
      businesses based on Internet
activities;
 
 §
              Directory
      services whereby we provide both basic and enhanced directory listings for
      our customers on our own directory and on partner
    directories:
 
 Business
Directory
 
 We use a
business model similar to print Yellow Pages publishers for our Yellow
Pages directory.  We publish basic directory listings on the
Internet free of charge.  Our basic listings contain the business
name, address and telephone number for almost 17 million U.S. businesses. We
strive to maintain a listing for almost every business in America in this
format.
 
 We
generate revenues from advertisers that desire increased exposure for their
businesses.  As described below, advertisers pay us monthly fees in
the same manner that advertisers pay additional fees to traditional print Yellow
Pages providers for enhanced advertisement font, location or
display.  The users of our website are prospective customers for our
advertisers, as well as the other businesses for which we publish basic
listings.  We also have arrangements with third parties to distribute
our advertisers’ information to other search engines, thereby enhancing our
advertisers’ presence on the Internet.
 
 Benefits to
Advertisers.   We provide added value to advertisers that have
purchased our Internet Advertising Package (“IAP”) through promotion and
branding of our website to bring customers to our advertisers. We believe that
the large number of IAPs, which include the Mini-WebPages described in more
detail below, provide users of our website with more information about our
advertisers and that this feature is more readily available on our website than
that of our competitors. We believe that we provide users of our website with
the information they are looking for, more quickly and more
efficiently.  We believe our call center provides the highest level of
customer service and therefore provides IAP advertisers with the necessary
resources to fully utilize the benefits of the IAP.  We also believe
the attraction of these users will, over the longterm, result in more sales for
our IAP advertisers.
 
 Moreover,
we provide additional value through our relationships.  We provide the
majority of our IAP advertisers additional exposure by circulating their
listings to other search engines.  We provide a listing service that
also ensures that our business listing customers are listed on hundreds of sites
including Google, Yahoo, MSN and others through an agreement with InfoUSA.
  We also have an agreement with Yahoo! Search Services to improve our IAP
advertisers’ appearance in search results at several high-profile
sites.
 
 Benefits to Users of our
Website.  We provide a national online Yellow Pages directory.
Users of our website can access information nationally rather than relying
exclusively on local listings such as those provided in print Yellow Pages
directories.  In addition, our product offerings allow users to find
and take advantage of our advertisers’ current special offerings and discounts.
Users can access such information easily through their desktop or laptop
computers, cellular telephones or hand-held devices, such as personal digital
assistants. We believe our offering of a national online Yellow Pages service
meets the growing demand for immediate access and the increasing need and trend
of Internet users who are more frequently traveling to areas outside the areas
serviced by their local print directories.
 
 Products
and Services
 
 Internet Advertising Package.Our primary revenue-producing directory product is our IAP. Under
this package, the advertiser pays for additional exposure by purchasing
enhancements to a basic listing, such as a Mini-WebPage.  This
Mini-WebPage contains, among other useful information, a 40-word description of
the business, hours of operation, and detailed contact
information.  The advertiser can easily access and modify its
Mini-WebPage.  This product is easily searched by users of our website
on their personal computers, as well as cellular telephones and other hand-held
devices.  In order to provide search traffic to an advertiser’s
Mini-WebPage, we elevate the advertiser to a preferred listing status at no
additional charge. As such, the preferred advertiser enjoys the benefit of
having its advertisement displayed in a primary position before all of the basic
listings in that particular category when users of our website perform searches
on our website.  We also provide our IAP advertisers with enhanced
presentation and additional unique products, including:
  ·
              Larger
    font.
 ·
              Bolded business
      name.
 ·
              A “tagline” whereby the
      advertiser can differentiate itself from its
      competitors.
 ·
              Submission of location to search
      engines.
 ·
              Map
      directions.
 ·
              A link to the advertiser’s own
      webpage and email address.
 ·
              Additional distribution network
      for preferred listings. This feature gives additional exposure to our IAP
      advertisers by placing their preferred listing on several online directory
      systems.  There currently is no charge to the IAP advertiser for
      these additional channels of
  distribution.
  4
 Table of Contents
  Our IAP
advertisers generally pay between $27.50 and $39.95 per month. Our IAP accounted
for approximately 69% of our net revenues in fiscal 2009.
 
 Directory 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 advertisers 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 some of our advertisers’ 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 advertisers 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 advertisers 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 advertisers 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.
 
 Directory Pricing.We
generally price our IAP 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
site provides superior value to our advertisers when considering the many
benefits that they receive, including the Mini-WebPage, mapping directions,
links to the advertiser websites, and the speed and ease of use of our
website.
 
 Our
pricing advantage is significant when compared with printed Yellow
Pages.  For a Yellow Pages listing with comparable information
content, an advertiser would typically pay over $200 per month.  This
listing in the printed Yellow Pages would include a business description of
comparable size to our IAP offering but would lack our mapping directions, and
link to the advertiser’s website.  Our online Yellow Pages provide
significant flexibility in terms of changing content and adding special
informational items at any time throughout the year.  Advertisers in
printed Yellow Pages are also limited by the publishers’ infrequent
re-publication schedule if they desire to change their
advertisement.
 
 Direct Sales, also known asTelesold Suite
Services.Since February 2008, we have added a new line
of business that utilizes, but is not entirely dependent on, our directory
websites and billing services. This line of business is based on using telesales
and sophisticated Internet audience acquisition technologies to deliver a suite
of audience acquisition services to small businesses.
 
 We
believe this approach represents an essential element in the local marketplace.
Small businesses turned to traditional Yellow Pages and Internet directories as
low-cost effective tools for identifying and delivering customers who are
geographically appropriate and ready to buy. These traditional approaches retain
value for small businesses, but that value is steadily waning as new waves of
Internet capabilities come into existence.
 
 The most
significant of these is Internet search and the linking of Internet advertising
services to search. This development makes it possible, even likely, that
customers can find the businesses they need without ever going to a directory.
The small business whose website information or advertising message is
associated with a successful search becomes the likely recipient of that
business. So, utilizing Internet search and related advertising is fast becoming
a necessity for small businesses.
 
 Another
key Internet development is the rise of locally oriented user review sites and
services, such as Yelp.com. At these sites, consumers let each other know about
their experiences with local businesses. They rate and comment on the
businesses. The sites also tend to provide some aspects of traditional
directories as well as new services, such as placing businesses on a local map,
providing driving directions, etc. At these sites, as with online search
engines, consumers can select businesses for their commerce without ever using a
traditional directory.
 
 With the
emergence of these new Internet capabilities, and others that are fast emerging,
the role of directories, both paper and Internet, is steadily moving toward the
back end of a customer acquisition process, where search and review sites
dominate the front end, where the greatest value for both customer and business
resides.
 
 We
believe that small businesses that can take advantage of the emerging Internet
capabilities will be able to acquire customers with efficiency
never-before-possible and that those that cannot will suffer in comparison. So,
it is becoming widely recognized among small business owners that mastering the
Internet arts is essential.
  5
 Table of Contents
  But there
is a gap. 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 businesspeople have, or have the
intention of acquiring. We recognize that, to succeed, a small businessperson
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.
 
 Our
Telesold Suite Services approach allows LiveDeal to become this small business
audience acquisition partner.
 
 By using
sophisticated telesales, rather than the far more expensive and inflexible
Yellow Pages field sales model, we are able to reach and serve more businesses
at lower cost than competitors.
 
 By using
that telesales channel to deliver a suite of services standing at the state of
the Internet market, but packaged for comprehensibility and affordability by
small businesses, we are bringing small businesses a product that may help them
succeed.
 
 By
backing these products with the most supple and sophisticated Internet audience
acquisition and customer feedback systems, we can achieve stability in margins,
pricing and profit from small business Internet services that have been
difficult for competitors to attain and sustain.
 
 Our
current Telesold Services Suite includes:
 
 §
              Website
      acquisition whereby we obtain website address names on behalf of our small
      business clients;
 
 §
              Website
      development and deployment services where we create, house and manage
      websites on behalf of our small business
  clients;
 
 §
              Website
      traffic and audience development whereby we provide sophisticated search
      engine marketing techniques, access to our own websites, partnerships with
      other websites and other techniques to generate traffic to our customers’
      websites, whether created and housed by us or
  not;
 
 §
              Website
      analytics and performance reports which generate information for our
      customers about activities on their websites and lead activities for their
      businesses based on Internet activities;
and
 
 §
              Directory
      services that provide both basic and enhanced directory listings for our
      customers on our own directory and on partner
  directories.
 
 In the
aggregate, these services represented 31% of our net revenue in fiscal 2009.
However, these services grew from nominal levels to approximately $800,000
in monthly contractual amounts by the end of fiscal 2009 (which may not
correlate with revenue recognition due to timing of revenue recognition). We
expect growth in this line of business to continue through fiscal 2010 and to
continue to represent a substantial portion of our revenue in the upcoming
fiscal year and going forward.
 
 The
Internet Yellow Pages Advertising Market
 
 According
to The Kelsey Group and the Yellow Pages Integrated Media Association, or YPIMA,
while there are approximately 200 major U.S. Yellow Pages print publishers, an
increasingly mobile and computer-sophisticated population is accessing the
Yellow Pages by way of the Internet at a sharply increasing rate.
 
 According
to a Borrell Associates forecast, local online advertising will grow 12% to
$14.2 billion in 2009. According to Borell Associates, online media buys
currently hold a 13.8 percent share of all local advertising, and Borell
believes it will peak at a 16 percent share by 2013.
 
 We
believe Internet Yellow Pages provide the following advantages over print Yellow
Pages:
 
 ·
              More current and extensive
      listing information;
 ·
              Immediate access to business
      listings across the nation from any location;
 ·
              Broad accessibility via computers
      and hand-held devices, such as mobile phones and personal digital
      assistants
 ·
              Features such as mapping, direct
      calling to the advertiser, and e-mail at the click of a button also may be
      available;
 
 Internet
Yellow Pages and online classifieds also offer lower costs for a given level of
content and the ability to easily access and modify displays and advertisements,
which allows for opportunistic or targeted specials or discounts.
 
 Internet
usage, in general, has increased dramatically in recent years. According to
Internet World Stats, 73.6% of the North American population uses the Internet,
a growth of 129.6% from 2000 to 2008.  Search engines are a common
method by which these users navigate the Internet.  We expect to
expand our distribution network to allow our advertisers to benefit from this
growth by seeking prominent placement for them in search engine
results.
  6
 Table of Contents
  Marketing
 
 In May
2009, we closed our classifieds website and concentrated our marketing resources
in developing our search engine marketing (SEM) services required by our
Telesold business. Earlier, we had discontinued our use of telemarketing to
acquire new IAP customers, and discontinued our overseas telemarketing facility.
We also sold our primary URL, www.yp.com, as well
as a portion of our customer list.  Further, certain fulfillment
contracts were terminated during the fiscal year.
 
 We
utilize various online marketing methods to drive users and advertisers to our
site.  However, our primary marketing method is
telemarketing.
 
 We
utilize our expertise and experience as an Internet company to identify other
marketing opportunities.  Through our referral networks, we have
generated revenue from national accounts programs (whereby revenues are
generated on a “per click” basis), fulfillment contracts, web hosting and other
arrangements.  We also have entered into various marketing
arrangements with other businesses whereby we pay commissions based on sales
leads and revenue generated from these businesses.  To date, such
commissions have not been material. We evaluate such business opportunities on a
case-by-case basis and expect to expand future revenues from such marketing
efforts.
  Technology
and Infrastructure
 
 We have
developed technologies to support the timely delivery of information requested
by a user of our online businesses.  A staff of senior engineers
experienced in large-scale distributed web 2.0 applications and computer
operation develops and maintains the technology.  We believe we are
particularly adept at scalable databases, design, data modeling, operations and
content management for a large-scale network of high volume websites and
distributed Internet fulfillment locations.  During the second half of
fiscal 2008 we began expanding our Internet product development, SEM and search
engine optimization (“SEO”) capabilities. SEM, SEO and platforms related to them
have begun to become a technical core competency of the Company during fiscal
2009.
 
 Our
technology efforts in fiscal 2009 fell into three key areas: website development
and support; sales and call center development and support and internal systems
development and support.
 
 Source Code.  We
own source code that includes widely deployed, cost-efficient, stable technology
(J2EE, Struts, XML, Spring, Hybernate, JBoss, Apache, etc):
 ·
              Linear scaling architecture using
      low cost commodity hardware;
 ·
              An architecture based on
      redundancy for scalable quick user responses;
 ·
              Proven search technology which
      scales for large volumes;
 ·
              Enhanced security using HTTPS,
      Encryption, and data obfuscation;and
 ·
              Internationalized Architecture
      for quick localization.
 
 Database Management
Systems.  At the core of our infrastructure are several
high-performance and proprietary database systems containing several giga-bytes
of data representing millions of records with hundreds of attributes each, such
as business name, telephone number, address, number of employees, description of
the business, classifieds listings and  feed back
reviews.  We maintain the data for internal operations on
high-performance servers and with large-scale storage systems in California and
at our Las Vegas, Nevada facility.  To meet the demand for our
products and services and to provide the highest level of reliability, we employ
technologies and techniques providing data redundancy and
clustering.  Clustering is the use of several computers deployed in a
manner that provides redundancy and additional computer processing
power.
 
 High-Performance Database and Search
Engine.  We believe we provide one of the most complete and
high-performing directory services in the market today.  Our
proprietary database enables us to collect and merge data from multiple sources
to provide extensive and accurate content for our users.  With our
technologies, we provide keyword search, synonym matching, automated content
delivery, and multiple source data merging in a simple to use
paradigm.  We believe these technologies simplify the search process
and provide the most relevant content to suit our customers’ and users’
needs.  Ultimately, we expect these technologies to increase recurrent
use of our system by users of our directory services.
 
 Content Syndication, Distribution,
and Private Label Networks.  We add value by increasing our IAP
advertisers’ visibility by providing automated conduits and content delivery to
numerous search engines besides our own.  We can deliver content both
on the Internet and on mobile devices such as cell phones and personal digital
assistants.  Our market position and volume allows us to provide
content to any of our strategic alliances, as discussed elsewhere in this Annual
Report, at a cost below what would be accomplished if one were to attempt to
duplicate our content and distribution network. We have further enhanced the
capabilities of this global distribution network with our AdWiz technology,
which provides high-volume automated record updates in real-time to our
distribution partners and private-label customers.
  7
 Table of Contents
  Strategic
Alliances
 
 In order
to service users of our website more effectively and to extend our brand to
other Internet sources, we have entered into strategic relationships with
business partners that offer content, technology, and distribution capabilities.
The following are descriptions of our most significant strategic
relationships:
 
 ·
              We
      have cross-marketing arrangements with reciprocal linking of websites
      without any compensation to either party. These arrangements increase the
      page views for our advertisers’ listings by being listed on the linked
      websites. These co-promotional arrangements typically are terminable with
      one month’s notice.
 We
      have an agreement with Google, Inc. designating us as an Authorized
      Reseller of the Google AdWords advertising system, which also provides us
      with access to Google training and services that we can then utilize on
      behalf of our small business
clients.
 
 ·
              We have an agreement with Yahoo!
      Search Services to provide visibility to our website so that we can
      provide traffic to our advertisers. In exchange for monthly fees, Yahoo!
      Search Services assists in helping us to be one of the highest placed
      sites when Yellow Pages searches are done on major search engines, such as
      MSN and Yahoo!.
 
 ·
              We began featuring Yelp’s 1.8 million
      customer reviews on our Yellow Pages platforms, giving LiveDeal users an
      enormous wealth of user-generated content about local area
      businesses.
 
 We are
members of the Yellow Pages Association (formerly known as Yellow Pages
Integrated Media Association) and the Association of Directory Publishers and
have been since 1998.  These organizations are trade associations for
Yellow Pages publishers or others that promote the quality of published content
and advertising methods.
 
 Competition
 
 We
operate in the highly competitive and 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 of the markets in which we compete include
personalization of service, ease of use of 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, and the effectiveness
of our marketing programs and our distribution network.  We also
believe that our Internet Yellow Pages provides businesses and consumers a
simple and affordable way of creating a web presence and marketing their
products and services to local audiences. The addition of our Telesold Suite
line of business opens new revenue channels for us and expands our
differentiation in the marketplace. 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.
 
 We
believe that our telesales capabilities are a competitive
advantage.  Through our calling center we can contact more businesses
at a lower cost than our competitors. This is true both for initial sales and
sales support, but for all aspects of customer support.  It also
provides us with lead generation capabilities many of our competitors
lack.
 
 Employees
 
 As of
September 30, 2009, we had 117 full-time and no part-time employees in the
United States.  None of our employees are covered by any collective
bargaining agreements.
  8
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  ITEM 1A. Risk Factors
 
 An
investment in our common stock involves a substantial degree of
risk.  Before making an investment decision, you should give careful
consideration to the following risk factors in addition to the other information
contained in this report.  The following risk factors, however, may
not reflect all of the risks associated with our business or an investment in
our common stock. The trading price of our common stock could decline
significantly due to any of these risks and investors may lose all or part of
their investments. In assessing these risks, investors should also refer to the
other information contained or incorporated by reference in this Annual Report
on Form 10-K, including our September 30, 2009 consolidated financial statements
and related notes.
 
 Risks
Related to Our Business
 
 Our
new business strategy is unproven.
  Our new
strategic focus is on delivering a suite of Internet-based, local
search-driven, customer acquisition services for small businesses, sold via
telemarketing and supported by our websites and internally developed
software. This strategy is unproven at this time and will require continued
expenditures to develop products and offerings and develop marketing and support
functions.  These expenditures may not be offset by corresponding
increases in revenues, leading to adverse impacts on our financial condition and
results of operations.
 
 The
demand and market acceptance for our services may be subject to a high level of
uncertainty.   Advertisers and users may not adopt or continue to
use our Internet-base marketing services and other online services that we may
offer in the future.  Advertisers may find our Internet-based
marketing services to be less effective for meeting their business needs than
other methods of advertising and marketing.  Our business, prospects,
financial condition or results of operations will be materially and adversely
affected if we do not execute our strategy or our services are not adopted by a
sufficient number of advertisers.
 
 We
will incur operating losses and significant volatility in operations while we
develop our new business segment.
  During
the fiscal year ended September 30, 2009, we incurred substantial operating
losses as we transitioned our business toward our new strategic
focus.  We will continue to incur operating losses as we develop our
new business segment which will be financed through existing cash on
hand.  While we believe our existing cash on hand is sufficient to
finance our operations for the next twelve months, there can be no assurance
that we will achieve profitability or positive operating cash
flows.  To the extent that we cannot achieve profitability or positive
operating cash flows, our business will be materially and adversely affected.
Further, this new business segment is likely to experience significant
volatility in its revenues, operating losses, personnel involved, products or
services for sale, and other business parameters, as management implements its
strategies and responds to operating results from this new business
segment.
 
 We
have sold a significant portion of our assets and customer list associated with
our directory services business.
 
 During
fiscal 2009, as part of our changing business strategy, we sold our primary URL,
www.yp.com, as
well as a portion of our customer list.  Further, certain fulfillment
contracts were terminated during the fiscal year. These transactions will result
in a significant loss of future revenue which could adversely impact our
financial condition and results of operations.
 
 As a
result of the cessation of billing of the accounts subject to these sales or
terminations of billing contracts during this fiscal year, the reserves held by
the LEC processors, and carried by us as accounts receivable, were no longer
increasing as a result of continued billing for services provided to customers.
Further, the LEC processors continue to deduct their expenses from these
reserves. We have made reasonable estimates of these potential expenses over the
expected period of collection of these reserve amounts held-back by the LEC
processors. However, it is possible that the actual expenses billed by the LEC
processors in the future could vary significantly from the estimates made by the
Company, thereby affecting the amounts collectible from the booked accounts
receivable.
 
 The
discontinuance of our classifieds business could adversely impact our financial
condition.
 
 We
recently made the strategic decision to discontinue our classifieds business and
product offerings which have historically generated a majority of our
revenues.  This discontinuance not only will reduce our revenues that
were generated from this product line but could also cause erosion of our Yellow
Pages customer base, particularly with respect to those customers who sought an
integrated Yellow Pages and classifieds product.  Further, we made
cash outlays to wind down our business including the termination of affected
employees and office closures.  This loss of revenues combined with
the wind-down costs could have an adverse impact on our financial condition and
results of operations in the short-term.
 
 The
closure of our Philippines-based call center operations could adversely impact
our financial condition.
 
 During
fiscal 2009, we discontinued the operations of our Philippines-based call
center, which had historically provided telemarketing services to support
our directory services business.  To the extent that we incur
additional closure costs or that the execution of our current or future business
strategies necessitates that we develop similar functions in the future to
support our directory services business, our business could be adversely
affected.
  9
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  We
face intense competition, including from companies with greater resources, which
could adversely affect our growth and could lead to decreased
revenues.
 
 Search
engine optimization and online marketing services are emerging fields with
a considerable amount of competitors in each field.  Additionally,
major Internet companies, including Google, Microsoft, Verizon, and Yahoo!,
currently market Internet Yellow Pages, local search services and other
products that directly compete with our legacy business as well as our new
product offerings.  We may not compete effectively with existing and
potential competitors for several reasons, including the following:
 
 ·
              some competitors have longer
      operating histories and greater financial and other resources than we have
      and are in better financial condition than we
  are;
  ·
              some competitors have better name
      recognition, as well as larger, more established, and more extensive
      marketing, customer service, and customer support capabilities than we
      have;
  ·
              some competitors may supply a
      broader range of services, enabling them to serve more or all of their
      customers’ needs;
  ·
              some competitors may be able to
      better adapt to changing market conditions and customer demand;
      and
  ·
              barriers to entry are not
      significant.  As a result, other companies that are not
      currently involved in the online marketing business may enter the market
      or develop technology that reduces the need for our
      services.
 
 Increased
competitive pressure could lead to reduced market share, as well as lower prices
and reduced margins, for our services.  If we experience reductions in
our revenue for any reason, our margins may continue to decline, which would
adversely affect our results of operations.  We cannot assure you that
we will be able to compete successfully in the future.
 
 Our
success depends upon our ability to establish and maintain relationships with
our advertisers.
 
 Our
ability to generate revenue depends upon our ability to maintain relationships
with our existing advertisers, to attract new advertisers to sign up for
revenue-generating services, and to generate traffic to our advertisers’
websites.  We primarily use telemarketing efforts to attract new
advertisers.  These telemarketing efforts may not produce
satisfactory results in the future.  We attempt to maintain
relationships with our advertisers through customer service and delivery of
traffic to their businesses.  An inability to either attract
additional advertisers to use our service or to maintain relationships with our
advertisers could have a material adverse effect on our business, prospects,
financial condition, and results of operations.
 
 If
we do not introduce new or enhanced offerings to our advertisers and users, we
may be unable to attract and retain those advertisers and users, which would
significantly impede our ability to generate revenue.
 
 We will
need to introduce new or enhanced products and services in order to attract and
retain advertisers and users and to remain competitive.  Our industry
has been characterized by rapid technological change, changes in advertiser and
user requirements and preferences, and frequent new product and service
introductions embodying new technologies.  These changes could render
our technology, systems, and website obsolete.  We may experience
difficulties that could delay or prevent us from introducing new products and
services.  If we do not periodically enhance our existing products and
services, develop new technologies that address our advertisers’ and users’
needs and preferences, or respond to emerging technological advances and
industry standards and practices on a timely and cost-effective basis, our
products and services may not be attractive to advertisers and users, which
would significantly impede our revenue growth. In addition, our reputation and
our brand could be damaged if any new product or service introduction is not
favorably received.
 
 Our
results of operations could fluctuate due to factors outside of our
control.
 
 Our
operating results have historically fluctuated significantly, and we have
experienced recent declines in net revenues and operating profits.  We
could continue to experience fluctuations or continued declining operating
results due to factors that may or may not be within our
control.  Such factors include the following:
 
 ·
              fluctuating demand for our
      services, which may depend on a number of factors including:
  o
              changes in economic conditions
      and our IAP advertisers’
profitability,
  o
              IAP advertiser refunds or
      cancellations, and
  o
              our ability to continue to bill
      through existing means;
  10
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  ·
              market acceptance of new or
      enhanced versions of our services or
  products;
  ·
              price competition or pricing
      changes by us or our
competitors;
  ·
              new product offerings or other
      actions by our competitors;
  ·
              the ability of our check
      processing service providers to continue to process and provide billing
      information regarding our solicitation
  checks;
  ·
              the amount and timing of
      expenditures for expansion of our operations, including the hiring of new
      employees, capital expenditures, and related
  costs;
  ·
              technical difficulties or
      failures affecting our systems or the Internet in
      general;
  ·
              a decline in Internet traffic at
      our website; and
  ·
              the fixed nature of a significant
      amount of our operating
expenses.
  The
loss of our ability to bill IAP advertisers through our ACH billing channel
would adversely impact our results of operations.
 
 We bill a
significant number of our Directory Services advertisers through our ACH billing
channel.  ACH transactions are closely regulated by NACHA – The
Electronic Payments Association, which develops operating rules and business
practices for the ACH network and for electronic payments in the areas of
Internet commerce and other electronic payment means.  Changes in
these rules and business practices could compromise our ability to bill a
significant number of our advertisers through ACH billing, and we would have to
transition these advertisers to other billing channels.  Such changes
would be disruptive and result in lost revenue.
 
 We depend upon our executive officers
and key personnel.
 
 Our
performance depends substantially on the performance of our executive officers
and other key personnel.  The success of our business in the future
will depend on our ability to attract, train, retain, and motivate high quality
personnel, especially highly qualified technical and managerial
personnel.  The loss of services of any executive officers or key
personnel could have a material adverse effect on our business, results of
operations or financial condition.
 
 Competition
for talented personnel is intense, and there is no assurance that we will be
able to continue to attract, train, retain or motivate other highly qualified
technical and managerial personnel in the future.  In addition, market
conditions may require us to pay higher compensation to qualified management and
technical personnel than we currently anticipate.  Any inability to
attract and retain qualified management and technical personnel in the future
could have a material adverse effect on our business, prospects, financial
condition, and results of operations.
 
 We
depend upon third parties to provide certain services and software, and our
business may suffer if the relationships upon which we depend fail to produce
the expected benefits or are terminated.
 
 We depend
upon third-party software to operate certain of our services.  The
failure of this software to perform as expected would have a material adverse
effect on our business.  Additionally, although we believe that
several alternative sources for this software are available, any failure to
obtain and maintain the rights to use such software would have a material
adverse effect on our business, prospects, financial condition, and results of
operations.  We also depend upon third parties to provide services
that allow us to connect to the Internet with sufficient capacity and bandwidth
so that our business can function properly and our websites can handle current
and anticipated traffic.  Any restrictions or interruption in our
connection to the Internet would have a material adverse effect on our business,
prospects, financial condition, and results of operations.
 
 We
may not be able to secure additional capital to expand our
operations.
 
 Although
we currently have no material long-term needs for capital expenditures, we will
likely be required to make increased capital expenditures to fund our
anticipated growth of operations, infrastructure, and personnel.  We
currently anticipate that our cash on hand as of September 30, 2009, together
with cash flows from operations, will be sufficient to meet our anticipated
liquidity needs for working capital and capital expenditures over the next 12
months.  In the future, however, we may seek additional capital
through the issuance of debt or equity depending upon our results of operations,
market conditions or unforeseen needs or opportunities.  Our future
liquidity and capital requirements will depend on numerous factors, including
the following:
  11
 Table of Contents
  ·
              the pace of expansion of our
      operations;
  ·
              our need to respond to
      competitive pressures; and
  ·
              future acquisitions of
      complementary products, technologies or
  businesses.
 
 Our
forecast of the period of time through which our financial resources will be
adequate to support our operations is a forward-looking statement that involves
risks and uncertainties and actual results could vary materially as a result of
the factors described above.  As we require additional capital
resources, we may seek to sell additional equity or debt
securities.  Debt financing must be repaid at maturity, regardless of
whether or not we have sufficient cash resources available at that time to repay
the debt.  The sale of additional equity or convertible debt
securities could result in additional dilution to existing stockholders. We
cannot provide assurance that any financing arrangements will be available in
amounts or on terms acceptable to us, if at all.
 
 Our business is subject to a strict
regulatory environment.
 
 Existing
laws and regulations and any future regulation may have a material adverse
effect on our business.  For example, we believe that our direct
marketing programs meet existing requirements of the United States Federal Trade
Commission (“FTC”).  Any changes to FTC requirements or changes in our
direct or other marketing practices, however, could result in our marketing
practices failing to comply with FTC regulations.
 
 On
December 14, 2006, we voluntarily entered into a settlement with thirty-four
states’ attorneys general to address their concerns regarding our promotional
activities, including the use of our check mailer for customer
acquisition.
  There can
be no absolute assurance that the other states or other parties, which were not
part of the above-mentioned state consortium, would not attempt to file similar
claims against us in the future.  However, we believe this risk is
somewhat mitigated by the fact that those states did not join the states in
filing complaints against us and the fact that we are discontinuing the use of
our check activators.  Finally, our utilization of ACH billing has
exposed us to greater scrutiny by the National Automated Clearing House
Association, or NACHA.  Future actions from these and other regulatory
agencies could expose us to substantial liability in the future, including fines
and criminal penalties, preclusion from offering certain products or services,
and the prevention or limitation of certain marketing practices.
 
 We
may not be able to adequately protect our intellectual property
rights.
 
 Our
success depends both on our internally developed technology and our third party
technology. We rely on a variety of trademarks, service marks, and designs to
promote our brand names and identity.  We also rely on a combination
of contractual provisions, confidentiality procedures, and trademark, copyright,
trade secrecy, unfair competition, and other intellectual property laws to
protect the proprietary aspects of our products and services.  Legal
standards relating to the validity, enforceability, and scope of the protection
of certain intellectual property rights in Internet-related industries are
uncertain and still evolving. The steps we take to protect our intellectual
property rights may not be adequate to protect our intellectual property and may
not prevent our competitors from gaining access to our intellectual property and
proprietary information.  In addition, we cannot provide assurance
that courts will always uphold our intellectual property rights or enforce the
contractual arrangements that we have entered into to protect our proprietary
technology.
 
 Third
parties may infringe or misappropriate our copyrights, trademarks, service
marks, trade dress, and other proprietary rights.  Any such
infringement or misappropriation could have a material adverse effect on our
business, prospects, financial condition, and results of
operations.  In addition, the relationship between regulations
governing domain names and laws protecting trademarks and similar proprietary
rights is unclear.  We may be unable to prevent third parties from
acquiring domain names that are similar to, infringe upon or otherwise decrease
the value of our trademarks and other proprietary rights, which may result in
the dilution of the brand identity of our services.
 
 We may
decide to initiate litigation in order to enforce our intellectual property
rights, to protect our trade secrets, or to determine the validity and scope of
our proprietary rights.  Any such litigation could result in
substantial expense, may reduce our profits, and may not adequately protect our
intellectual property rights.  In addition, we may be exposed to
future litigation by third parties based on claims that our products or services
infringe their intellectual property rights.  Any such claim or
litigation against us, whether or not successful, could result in substantial
costs and harm our reputation.  In addition, such claims or litigation
could force us to do one or more of the following:
 
 ·
              cease selling or using any of our
      products that incorporate the challenged intellectual property, which
      would adversely affect our
revenue;
  ·
              obtain a license from the holder
      of the intellectual property right alleged to have been infringed, which
      license may not be available on reasonable terms, if at all;
      and
  12
 Table of Contents
  ·
              redesign or, in the case of
      trademark claims, rename our products or services to avoid infringing the
      intellectual property rights of third parties, which may not be possible
      and in any event could be costly and
  time-consuming.
  Even if
we were to prevail, such claims or litigation could be time-consuming and
expensive to prosecute or defend, and could result in the diversion of our
management’s time and attention.  These expenses and diversion of
managerial resources could have a material adverse effect on our business,
prospects, financial condition, and results of operations.
 
 Capacity
constraints may require us to expand our infrastructure and advertiser support
capabilities.
 
 Our
ability to provide high-quality services largely depends upon the efficient and
uninterrupted operation of our computer and communications
systems.  We may be required to expand our technology, infrastructure,
and customer support capabilities in order to accommodate any significant
growth in customers.  We may not be able to project accurately
the rate or timing of increases, if any, in the use of our services or expand
and upgrade our systems and infrastructure to accommodate these increases in a
timely manner.  Our inability to upgrade and expand our infrastructure
and customer support capabilities as required could impair the reputation of our
brand and our services and diminish the attractiveness of our service offerings
to our advertisers.
 
 Any
expansion of our infrastructure may require us to make significant upfront
expenditures for servers, routers, computer equipment, and additional Internet
and intranet equipment, as well as to increase bandwidth for Internet
connectivity.  Any such expansion or enhancement will need to be
completed and integrated without system disruptions.  An inability to
expand our infrastructure or customer service capabilities either internally or
through third parties, if and when necessary, would materially and adversely
affect our business, prospects, financial condition, and results of
operations.
  Current
economic conditions may adversely affect our industry, business and results of
operations.
 
 The U.S.
and global economy is currently undergoing a recession and a period of
unprecedented volatility.  It is unclear how prolonged this recession
will be and how it will affect our industry in particular. Many believe that the
general future economic environment may continue to be less favorable than that
of recent years.  If the challenging economic conditions in the U.S.
and other key countries persist or worsen, our customers may delay or reduce
spending.  This could result in reductions in sales of our products
and services, longer sales cycles and increased price
competition.  Any of these events would likely harm our business,
results of operations and financial condition.
  We
may have an adverse resolution of litigation that may harm our operating results
or financial condition.
 
 At times,
we are a party to lawsuits in the normal course of our business. 
Litigation can be expensive, lengthy, and disruptive to normal business
operations.  Moreover, the results of complex legal proceedings are
difficult to predict. An unfavorable resolution of a particular lawsuit could
have a material adverse effect on our business, operating results, or financial
condition.
  We
have made strategic acquisitions and divestitures in the past few years and may
complete similar transactions in the future and cannot assure you that any
future transactions will be successful.
 
 We
regularly look for opportunities to support our new business strategy through
appropriate acquisitions, divestitures and/or strategic
alliances.  There can be no assurance that we will be successful in
identifying appropriate transaction partners or integrating the results of any
such transactions in a way that ultimately supports our business
strategy.  Any such transactions could also involve the dilutive
issuance of equity securities and/or the incurrence of debt.  In
addition, future strategic transactions may involve numerous other risks,
including but not limited to:
 
 ·
              exposure
      to unanticipated liabilities of an acquired company (or acquired
      assets);
 
 ·
              the
      potential loss of key customers or key personnel in connection with, or as
      the result of, a transaction;
 
 ·
              the
      recording of goodwill and intangible assets that will be subject to
      impairment testing on a regular basis and potential periodic impairment
      charges;
 
 ·
              the
      diversion of the attention of our management team from other business
      concerns, including the day-to-day management of our Company and/or the
      internal growth strategies that they are currently implementing;
      and
 
 ·
              the
      risk of entering into markets or producing products where we have limited
      or no experience, including the integration of the purchased technologies
      and products with our technologies and
products.
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  Risks
Related to the Internet
 
 We
may not be able to adapt as the Internet, Internet Yellow Pages services, and
IAP advertiser demands continue to evolve.
 
 Our
failure to respond in a timely manner to changing market conditions or client
requirements could have a material adverse effect on our business, prospects,
financial condition, and results of operations. The Internet, e-commerce, and
the Internet Yellow Pages industry are characterized by:
 
 ·
              rapid technological
      change;
  ·
              changes in advertiser and user
      requirements and
preferences;
  ·
              frequent new product and service
      introductions embodying new technologies;
  and
  ·
              the emergence of new industry
      standards and practices that could render our existing service offerings,
      technology, and hardware and software infrastructure
      obsolete.
  In order
to compete successfully in the future, we must:
  ·
              enhance our existing services and
      develop new services and technology that address the increasingly
      sophisticated and varied needs of our prospective or current IAP
      advertisers;
  ·
              license, develop or acquire
      technologies useful in our business on a timely basis;
      and
  ·
              respond to technological advances
      and emerging industry standards and practices on a cost-effective and
      timely basis.
  We
may be required to keep pace with rapid technological change in the Internet
industry.
 
 In order
to remain competitive, we will be required continually to enhance and improve
the functionality and features of our existing services, which could require us
to invest significant capital.  If our competitors introduce new
products and services embodying new technologies, or if new industry standards
and practices emerge, our existing services, technologies, and systems may
become obsolete.  We may not have the funds or technical know-how to
upgrade our services, technology, and systems.  If we face material
delays in introducing new services, products, and enhancements, our advertisers
and users may forego the use of our services and select those of our
competitors, in which event our business, prospects, financial condition, and
results of operations could be materially and adversely affected.
 
 Regulation
of the Internet may adversely affect our business.
 
 Due to
the increasing popularity and use of the Internet and online services such as
online Yellow Pages, federal, state, local, and foreign governments may
adopt laws and regulations, or amend existing laws and regulations, with respect
to the Internet and other online services.  These laws and regulations
may affect issues such as user privacy, pricing, content, taxation, copyrights,
distribution, and quality of products and services.  The laws
governing the Internet remain largely unsettled, even in areas where legislation
has been enacted.  It may take years to determine whether and how
existing laws, such as those governing intellectual property, privacy, libel,
and taxation, apply to the Internet and Internet advertising and directory
services. In addition, the growth and development of the market for electronic
commerce may prompt calls for more stringent consumer protection laws, both in
the United States and abroad, that may impose additional burdens on companies
conducting business over the Internet.  Any new legislation could
hinder the growth in use of the Internet generally or in our industry and could
impose additional burdens on companies conducting business online, which could,
in turn, decrease the demand for our services, increase our cost of doing
business, or otherwise have a material adverse effect on our business,
prospects, financial condition, and results of operations.
 
 We
may not be able to obtain Internet domain names that we would like to
have.
 
 We
believe that our existing Internet domain names are an extremely important part
of our business.  We may desire, or it may be necessary in the future,
to use these or other domain names in the United States and
abroad.  Various Internet regulatory bodies regulate the acquisition
and maintenance of domain names in the United States and other
countries.  These regulations are subject to change. Governing bodies
may establish additional top-level domains, appoint additional domain name
registrars or modify the requirements for holding domain names.  As a
result, we may be unable to acquire or maintain relevant domain names in all
countries in which we plan to conduct business in the future.
 
 The
extent to which laws protecting trademarks and similar proprietary rights will
be extended to protect domain names currently is not clear.  We
therefore may be unable to prevent competitors from acquiring domain names that
are similar to, infringe upon or otherwise decrease the value of our domain
names, trademarks, trade names, and other proprietary rights.  We
cannot provide assurance that potential users and advertisers will not confuse
our domain names, trademarks, and trade names with other similar names and
marks.  If that confusion occurs, we may lose business to a competitor
and some advertisers and users may have negative experiences with other
companies that those advertisers and users erroneously associate with
us.  The inability to acquire and maintain domain names that we desire
to use in our business, and the use of confusingly similar domain names by our
competitors, could have a material adverse affect on our business, prospects,
financial conditions, and results of operations in the future.
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Our
business could be negatively impacted if the security of the Internet becomes
compromised.





To the
extent that our activities involve the storage and transmission of proprietary
information about our advertisers or users, security breaches could damage our
reputation and expose us to a risk of loss or litigation and possible
liability.  We may be required to expend significant capital and other
resources to protect against security breaches or to minimize problems caused by
security breaches.  Our security measures may not prevent security
breaches. Our failure to prevent these security breaches or a misappropriation
of proprietary information may have a material adverse effect on our business,
prospects, financial condition, and results of operations.





Our
technical systems could be vulnerable to online security risks, service
interruptions or damage to our systems.





Our
systems and operations may be vulnerable to damage or interruption from fire,
floods, power loss, telecommunications failures, break-ins, sabotage, computer
viruses, penetration of our network by unauthorized computer users or “hackers,”
natural disaster, and similar events.  Preventing, alleviating, or
eliminating computer viruses and other service-related or security problems may
require interruptions, delays or cessation of service.  We may need to
expend significant resources protecting against the threat of security breaches
or alleviating potential or actual service interruptions.  The
occurrence of such unanticipated problems or security breaches could cause
material interruptions or delays in our business, loss of data, or
misappropriation of proprietary or IAP advertiser-related information or could
render us unable to provide services to our IAP advertisers for an indeterminate
length of time.  The occurrence of any or all of these events could
materially and adversely affect our business, prospects, financial condition,
and results of operations.





If
we are sued for content distributed through, or linked to by, our website or
those of our advertisers, we may be required to spend substantial resources to
defend ourselves and could be required to pay monetary damages.





We
aggregate and distribute third-party data and other content over the
Internet.  In addition, third-party websites are accessible through
our website or those of our advertisers. As a result, we could be subject to
legal claims for defamation, negligence, intellectual property infringement, and
product or service liability.  Other claims may be based on errors or
false or misleading information provided on or through our website or websites
of our directory licensees.  Other claims may be based on links to
sexually explicit websites and sexually explicit advertisements.  We
may need to expend substantial resources to investigate and defend these claims,
regardless of whether we successfully defend against them.  While we
carry general business insurance, the amount of coverage we maintain may not be
adequate.  In addition, implementing measures to reduce our exposure
to this liability may require us to spend substantial resources and limit the
attractiveness of our content to users.





Risks
Related to Our Securities





Stock
prices of technology companies have declined precipitously at times in the past
and the trading price of our common stock is likely to be volatile, which could
result in substantial losses to investors.




The
trading price of our common stock has been volatile over the past few years and
investors could experience losses in response to factors including the
following, many of which are beyond our control:




·
            decreased demand in the Internet
      services sector;




·
            variations in our operating
      results;




·
            announcements of technological
      innovations or new services by us or our
    competitors;




·
            changes in expectations of our
      future financial performance, including financial estimates by securities
      analysts and investors;




·
            our failure to meet analysts’
      expectations;




·
            changes in operating and stock
      price performance of other technology companies similar to
      us;




·
            conditions or trends in the
      technology industry;


15
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·
            additions or departures of key
      personnel; and




·
            future sales of our common
      stock.




Domestic
and international stock markets often experience significant price and volume
fluctuations that are unrelated to the operating performance of companies with
securities trading in those markets.  These fluctuations, as well as
political events, terrorist attacks, threatened or actual war, and general
economic conditions unrelated to our performance, may adversely affect the price
of our common stock.  In the past, securities holders of other
companies often have initiated securities class action litigation against those
companies following periods of volatility in the market price of those
companies’ securities.  If the market price of our stock fluctuates
and our stockholders initiate this type of litigation, we could incur
substantial costs and experience a diversion of our management’s attention and
resources, regardless of the outcome.  This could materially and
adversely affect our business, prospects, financial condition, and results of
operations.





Certain provisions of Nevada law and
in our charter may prevent or delay a change of control of our
company.





We are
subject to the Nevada anti-takeover laws regulating corporate takeovers. These
anti-takeover laws prevent Nevada corporations from engaging in a merger,
consolidation, sales of its stock or assets, and certain other transactions with
any stockholder, including all affiliates and associates of the stockholder, who
owns 10% or more of the corporation’s outstanding voting stock, for three years
following the date that the stockholder acquired 10% or more of the
corporation’s voting stock except in certain situations.  In addition,
our amended and restated articles of incorporation and bylaws include a number
of provisions that may deter or impede hostile takeovers or changes of control
or management.  These provisions include the following:





·
            the authority of our board to
      issue up to 5,000,000 shares of serial preferred stock and to
      determine the price, rights, preferences, and privileges of these shares,
      without stockholder
approval;




·
            all stockholder actions must be
      effected at a duly called meeting of stockholders and not by written
      consent unless such action or proposal is first approved by our board of
      directors;




·
            special
      meetings of the stockholders may be called only by the Chairman of the
      Board, the Chief Executive Officer, or the President of our company;
      and





·
            cumulative voting is not allowed
      in the election of our
directors.




These
provisions of Nevada law and our articles and bylaws could prohibit or delay
mergers or other takeover or change of control of our company and may discourage
attempts by other companies to acquire us, even if such a transaction would be
beneficial to our stockholders.




Our
common stock may be subject to the “penny stock” rules as promulgated under the
Exchange Act.





In the
event that no exclusion from the definition of “penny stock” under the Exchange
Act is available, then any broker engaging in a transaction in our common stock
will be required to provide its customers with a risk disclosure document,
disclosure of market quotations, if any, disclosure of the compensation of the
broker-dealer and its sales person in the transaction, and monthly account
statements showing the market values of our securities held in the customer’s
accounts.  The bid and offer quotation and compensation information
must be provided prior to effecting the transaction and must be contained on the
customer’s confirmation of sale.  Certain brokers are less willing to
engage in transactions involving “penny stocks” as a result of the additional
disclosure requirements described above, which may make it more difficult for
holders of our common stock to dispose of their shares.





Our
stock price may result in our failure to maintain compliance with NASDAQ
Marketplace Rules related to minimum stock price requirements, which could
result in NASDAQ delisting our common stock.





NASDAQ
Listing Rules require us to maintain a closing bid price of $1.00 per share for
our common stock.  In the event that our common stock closing bid
price falls below $1.00 per share for 30 consecutive business days, we would
likely receive notice from NASDAQ that we are not in compliance with Listing
Rules, which could ultimately lead to the delisting of our common stock from
NASDAQ if we were unable to maintain the requisite minimum stock price during
the subsequent probationary period.  In the event that we were
delisted from NASDAQ, our common stock would become significantly less liquid,
which would adversely affect its value.  Although our common stock
would likely be traded over-the-counter or on pink sheets, these types of
listings involve more risk and trade less frequently and in smaller volumes than
securities traded on NASDAQ.





ITEM 1B. Unresolved Staff Comments





Not
applicable.


16
 Table of Contents





ITEM 2. Properties





We
entered into a long-term lease, which began in November 2007, for a 12,635
square foot facility in Las Vegas, Nevada that functions as the operating
facility for LiveDeal, Inc. and our subsidiary, Telco Billing,
Inc.  We pay rent of approximately $315,000 annually under the lease
which expires on December 31, 2012.





We also
have a long-term lease for a 16,772 square foot facility in Mesa, Arizona that
was formerly used to house our corporate headquarters.  We pay rent of
approximately $120,000 annually under this lease, which expires in June
2011.  Although we are no longer utilizing this space for our operations,
we are responsible for the remaining lease payments.





We have a
short-term lease on a residential facility in Las Vegas that is used to house
personnel who travel to Las Vegas on Company business. We have a minimum
commitment of approximately $15,000 in rent during the remaining term of
the lease, which expires on January 31, 2010.





We
believe that these facilities are adequate for our current and anticipated
future needs and that all of these facilities and their contents are adequately
covered by insurance.





ITEM 3. Legal Proceedings





Except as
described below, as of September 30, 2009, we were not a party to any
pending material legal proceedings other than claims that arise in the
normal conduct of our business. While we currently believe that the
ultimate outcome of these proceedings will not have a material adverse
effect on our consolidated financial condition or results of operations,
litigation is subject to inherent uncertainties. If an unfavorable ruling
were to occur, there exists the possibility of a material adverse impact on
our net income in the period in which a ruling occurs. Our estimate of the
potential impact of the following legal proceedings on our financial
position and our results of operation could change in the
future.





Joe
Cunningham v. LiveDeal, Inc. et al.





On July
16, 2008, Joseph Cunningham, who was at the time a member of LiveDeal's Board of
Directors, filed a complaint with the U.S. Department of Labor's Occupational
Safety and Health Administration ("OSHA") alleging that the Company and certain
members of its Board of Directors had engaged in discriminatory employment
practices in violation of the Sarbanes-Oxley Act of 2002's statutory protections
for corporate whistleblowers when the Board of Directors removed him as Chairman
on May 22, 2008. In his complaint, Mr. Cunningham asked OSHA to order his
appointment as Chief Executive Officer of the Company or, in the alternative, to
order his reinstatement as Chairman of the Board. Mr. Cunningham also sought
back pay, special damages and litigation costs. The Company has not received any
correspondence from OSHA, and there have been no other developments in the
matter, since December 2008.





State
of Washington v. LiveDeal, Inc. et al.





On
December 16, 2006, the State of Washington Attorney General’s office entered
into a Consent Decree with LiveDeal, Inc. (known at the time as YP Corp.) and
its subsidiary, Telco Billing, Inc.  Pursuant to the Consent Decree,
the Company agreed to provide certain confidential, trade secret information to
the Attorney General’s office as part of the settlement of a regulatory dispute
between the State of Washington and the Company.





On July
14, 2009, the Attorney General’s office contacted the Company to request certain
confidential, trade secret information to which it was entitled under the
Consent Decree.  The Company acknowledged its obligation to provide
the requested information but asked the Attorney General’s office to verify that
it would not provide such information to third parties.  When the
Company was informed by opposing legal counsel in a private litigation matter
that the Attorney General’s office intended to provide its confidential, trade
secret information to such counsel’s client and other third parties immediately
upon receipt, the Company began taking certain steps to protect the sensitive
information while complying with its obligations under the Consent
Decree.




Following
unsuccessful settlement discussions in which the Attorney General’s office
refused to enter into any agreement not to share the confidential information
with third parties (including the Company’s opponents in pending private
litigation), the Company sought a protective order in the State of Washington’s
King County Superior Court (Case No. 06-2-39213-2 SEA) on September 8, 2009,
which was denied on November 16, 2009.  The Company is appealing that
decision with in State of Washington’s Court of Appeals (Division I, Case No.
64539-1) and has filed a motion to stay the effect of the November 16, 2009
ruling.  The appeal is pending.





Global
Education Services, Inc. v. LiveDeal, Inc.





On June
6, 2008, Global Education Services, Inc. ("GES") filed a consumer fraud class
action lawsuit against the Company in King County (Washington) Superior Court.
GES has alleged in its complaint that the Company's use of activator checks
violated the Washington Consumer Protection Act. GES is seeking injunctive
relief against our use of the checks, as well as a judgment in an amount equal
to three times the alleged damages sustained by GES and the members of the
class. LiveDeal has denied the allegations.  The parties have filed
dispositive motions and anticipate a ruling on such motions in early
2010.


17
 Table of Contents





Complaint
filed by Illinois Attorney General against LiveDeal, Inc.





On
November 12,2008, the Illinois Attorney General filed a complaint against us
requesting money damages and injunctive relief for claims that we employed
deceptive and unfair acts and practices in violation of the Illinois Consumer
Fraud and Deceptive Business Act in a telemarketing campaign that in part
promoted premium Internet Yellow Page listings to Illinois consumers. Based on a
preliminary investigation into the sales scripts and automated verification
system utilized in the telemarketing campaign, we denied the allegations raised
in the complaint and are vigorously defending the claim.





LiveDeal,
Inc. v. On-Call Superior Management (“OSM”)  and SMeVentures, Inc.
(“SMe”)





On April
6, 2009, LiveDeal filed a declaratory judgment to a termination of contract
claim and a complaint on May 29, 2009 against OSM and SMEVentures, Philippines
call center managers with which the Company had entered into contracts in
November of 2007 and earlier, to provide inbound and outbound telemarketing
services, respectively, alleging breach of contract.  OSM and SMe have
counterclaimed, alleging breach of contract.  Recent settlement
discussions have not resolved the matter and legal proceedings (including
discovery) are ongoing.





As of
September 30, 2009, we have not recorded any accruals pertaining to these legal
proceedings because they do not meet the criteria for accrual under Statement of
Financial Accounting Standards No. 5, “Accounting for
Contingencies”.





ITEM 4. Submission of Matters to a Vote of Security
Holders





None.





PART II





ITEM 5. Market for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities





Our
Common Stock





On
February 1, 2008, we began trading on the NASDAQ Capital
Market.   Concurrent with this change, our ticker symbol was
changed from LVDL.OB to LIVE.





The
following table sets forth the quarterly high and low sale prices per share of
our common stock during the last two fiscal years.





Fiscal Year
                                                                        
                                                                        
                                                                        Quarter Ended
                                                                        
                                                                        
                                                                        High
                                                                        
                                                                        
                                                                        Low2008
                                                                        
                                                                        
                                                                        December 31, 2007
                                                                        
                                                                        
                                                                        $
                                                                        7.00
                                                                        
                                                                        
                                                                        $
                                                                        3.30March 31, 2008
                                                                        
                                                                        
                                                                        $
                                                                        5.70
                                                                        
                                                                        
                                                                        $
                                                                        3.18June 30, 2008
                                                                        
                                                                        
                                                                        $
                                                                        3.94
                                                                        
                                                                        
                                                                        $
                                                                        2.35September 30, 2008
                                                                        
                                                                        
                                                                        $
                                                                        2.59
                                                                        
                                                                        
                                                                        $
                                                                        1.402009
                                                                        
                                                                        
                                                                        December 31, 2008
                                                                        
                                                                        
                                                                        $
                                                                        2.00
                                                                        
                                                                        
                                                                        $
                                                                        1.02March 31, 2009
                                                                        
                                                                        
                                                                        $
                                                                        2.20
                                                                        
                                                                        
                                                                        $
                                                                        1.24June 30, 2009
                                                                        
                                                                        
                                                                        $
                                                                        2.10
                                                                        
                                                                        
                                                                        $
                                                                        1.00September 30, 2009
                                                                        
                                                                        
                                                                        $
                                                                        1.70
                                                                        
                                                                        
                                                                        $
                                                                        1.01





Holders
of Record





On
December 1, 2009, there were approximately 319 holders of record of our
common stock according to our transfer agent. The Company has no record of the
number of stockholders who hold their stock in “street name” with various
brokers.





Dividend
Policy





We have
one class of authorized preferred stock (Series E Preferred Stock), of which
there are currently 127,840 shares issued and outstanding.  Each share
of Series E Preferred Stock is entitled to and receives a dividend of $0.015 per
year.  At September 30, 2009, we had accrued but unpaid dividends
totaling approximately $8,200.




Presently,
we do not pay dividends on our common stock.  The timing and amount of
future dividend payments by our Company, if any, will be determined by our Board
of Directors based upon our earnings, capital requirements and financial
position, general economic conditions, alternative uses of capital, and other
pertinent factors.


18
 Table of Contents





Issuer
Purchases of Equity Securities




On May
25, 2007, the Company’s Board of Directors terminated its existing stock
repurchase plan and replaced it with a new plan authorizing repurchases of up to
$1,000,000 of common stock from time to time on the open market.  The
Company acquired 148,820 shares of its common stock at market prices during the
year ended September 30, 2008 at an aggregate cost of $525,844.  All
of these shares have been retired.





During
the year ended September 30, 2009, the repurchase plan was increased by another
$500,000, and the Company acquired an aggregate of 346,110 shares of its common
stock at market prices at an aggregate cost of $532,521. All but 29,106 shares
of repurchased common stock were retired as of September 30, 2009.





Securities
Authorized for Issuance Under Equity Compensation Plans





Reference
is made to Note 13 of the notes to our consolidated financial statements for
certain disclosures about the Company’s equity compensation
plans.


19
 Table of Contents





Performance
Graph




Compare
5-Year Cumulative Total Return
 Among
LiveDeal, Inc., Wilshire 5000 Index
 And
Dow Jones Internet Index









Assumes
$100 Invested on September 30, 2004
 Assumes
Dividends, if any, Reinvested
 Fiscal
Year Ended September 30, 2009


9/30/2004
                  
                  
                  9/30/2005
                  
                  
                  9/30/2006
                  
                  
                  9/30/2007
                  
                  
                  9/30/2008
                  
                  
                  9/30/2009LiveDeal,
      Inc.
                  
                  $
                  100.00
                  
                  
                  $
                  83.06
                  
                  
                  $
                  86.87
                  
                  
                  $
                  63.10
                  
                  
                  $
                  14.32
                  
                  
                  $
                  15.27Wilshire
      5000 Index
                  
                  $
                  100.00
                  
                  
                  $
                  112.79
                  
                  
                  $
                  122.49
                  
                  
                  $
                  140.99
                  
                  
                  $
                  108.99
                  
                  
                  $
                  100.15Dow
      Jones Internet Services Index
                  
                  $
                  100.00
                  
                  
                  $
                  126.26
                  
                  
                  $
                  155.70
                  
                  
                  $
                  182.75
                  
                  
                  $
                  151.33
                  
                  
                  $
                  173.07





ITEM 6. Selected Financial Data





Not
required for smaller reporting companies.





ITEM 7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations





For a
description of our significant accounting policies and an understanding of the
significant factors that influenced our performance during the fiscal year ended
September 30, 2009, this “Management’s Discussion and Analysis” should be read
in conjunction with the Consolidated Financial Statements, including the related
notes, appearing in Item 8 of this Annual Report.




Forward-Looking
Statements




This
portion of this Annual Report on Form 10-K includes statements that constitute
“forward-looking statements.”  These forward-looking statements are
often characterized by the terms “may,” “believes,” “projects,” “expects,” or
“anticipates,” and do not reflect historical facts.  Specific
forward-looking statements contained in this portion of the Annual Report
include, but are not limited to our (i) expectation that continued investment in
online advertising to bring increased traffic to our websites will drive
increased revenues; (ii) expectation that there are no further impacts to our
results of operations from the Attorneys’ General settlement; (iii) expectation
that cost of sales will continue to be directly correlated to our use of the LEC
billing channel and (iv) belief that our existing cash on hand will provide us
with sufficient liquidity to meet our operating needs for the next 12
months.





Forward-looking
statements involve risks, uncertainties and other factors, which may cause our
actual results, performance or achievements to be materially different from
those expressed or implied by such forward-looking
statements.  Factors and risks that could affect our results and
achievements and cause them to materially differ from those contained in the
forward-looking statements include those identified in Item 1A. Risk Factors, as
well as other factors that we are currently unable to identify or quantify, but
that may exist in the future.




20
 Table of Contents




In
addition, the foregoing factors may affect generally our business, results of
operations, and financial position.  Forward-looking statements speak
only as of the date the statement was made.  We do not undertake and
specifically decline any obligation to update any forward-looking
statements.





Executive
Overview





Our
Company




LiveDeal,
Inc. provides local customer acquisition services for small businesses combined
with an Internet Yellow Pages directory to deliver an affordable way for
businesses to extend their marketing reach to local, relevant customers via the
Internet. Through its online property, www.livedeal.com,
LiveDeal delivers local search engine marketing (SEM) such as its LiveClicks TM
and LiveAdvisorTM products that combine leading technology with a strong
partnership model and an inside sales team to create an efficient platform local
businesses need to create and optimize their Internet search advertising
campaigns. LiveDeal partners with Google, Yahoo!, MSN and others. LiveDeal, Inc.
is headquartered in Las Vegas, Nevada. For more information, please visit www.livedeal.com.
Through its wholly-owned subsidiary, Telco Billing, Inc.,
LiveDeal  publishes a small business directory online at
www.yellowpages.livedeal.com.




We have
two inter-related primary lines of business: (1) we deliver a suite of audience
acquisition services for small businesses, sold via telemarketing and supported
by our websites and software that we have developed to manage search and other
Internet services efficiently, and (2) we maintain an Internet Yellow Pages
service for every city and zip code across the U.S.





Summary
Business Description





Direct Sales
Servicesalso
known as Telesold Suite Services.Since
February 2008, we have added a new line of business that utilizes, but is not
entirely dependent on, our directory websites and billing services. This line of
business is based around using telesales and sophisticated Internet customer
acquisition technologies to deliver a suite of customer acquisition services to
small businesses.





The most
significant of these customer acquisition services is Internet search and the
tying of Internet advertising services to search. This development is intended
to enable customers to find the businesses they need without ever going to a
directory.  The small business whose website information or
advertising message is associated with a successful search becomes the likely
recipient of that business.  So, utilizing Internet search and related
advertising is fast becoming a necessity for small businesses.





Another
key Internet development is the rise of locally oriented user review sites and
services, such as Yelp.com.  At these sites, consumers let each other
know about their experiences with local businesses. They rate and comment on the
businesses.  The sites also tend to provide some aspects of
traditional directories as well as new services, such as placing businesses on a
local map, providing driving directions, etc.  At these sites, as with
Internet search, consumers can select businesses for their commerce without ever
using a traditional directory.





With the
emergence of these new Internet capabilities, and others that are fast emerging,
the role of directories, both paper and Internet, is steadily becoming a less
preferred customer acquisition process, where search and review sites are
becoming the new standard, where we believe the greatest value for both customer
and business resides.





Our
websites, by combining the benefits of business listings, mobile services,
advertising/distribution networks and e-commerce into a single online solution,
offer businesses and consumers an affordable and effective solution for creating
a web presence and marketing their products and services locally.





Our
websites also support our audience acquisition services by providing locally and
vertically targeted Internet pages that are effective at producing website
traffic, form fills and phone calls and other valuable customer interactions on
behalf of our small business customers.  Our Telesold audience
acquisition services are not limited to our own websites. Our suite currently
includes the following activities, but the range of activities we deliver is
designed to shift over time, based on the needs of our small business customers
and the ever-changing state of Internet technology:





§
            Website
      URL acquisition services whereby we obtain website address names on behalf
      of our small business clients;





§
            Website
      development and deployment services where we create, house and manage
      websites on behalf of our small business
  clients;





§
            Website
      traffic and audience development services which provides sophisticated
      search engine marketing techniques, access to our own websites,
      partnerships with other websites and other techniques to generate traffic
      to our customers’ websites, whether created and housed by us or
      not;


21
 Table of Contents





§
            Website
      analytics and performance reports that generate information for our
      customers about activities on their websites and lead activities for their
      businesses based on Internet activities;
and





§
            Directory
      services whereby we provide both basic and enhanced directory listings for
      our customers on our own directory and on partner
    directories.





In the
aggregate, the contribution of these services to our overall revenues
has grown rapidly and represented 31% of our net revenues in fiscal
2009 as compared to 3% of our net revenues in the fiscal 2008.  In the
fourth quarter of fiscal 2009, these services represented 58% of net
revenues.





Business
Directory





We use a
business model similar to print Yellow Pages publishers for our Yellow Page
directory.  We publish basic directory listings on the Internet free
of charge.  Our basic listings contain the business name, address and
telephone number for almost 17 million U.S. businesses. We strive to maintain a
listing for almost every business in America in this format and we generate
revenue from the sale of various advertising packages to listed
businesses.  As we have shifted our business strategy away from this
line of business and sold our primary URL and a portion of our customer list, we
expect to experience declining future revenues from this segment.





Recent
Events & Transactions





Financial
Performance





We have
embarked on a significant change in business strategy to deemphasize our legacy
business (directory services offering) and focus on our new line of business
consisting of Internet-based customer acquisition strategies for small
businesses.  We have also completed transactions that have allowed us
to monetize certain assets associated with our directory services business,
including the sale of a portion of our customer list and our primary URL, www.yp.com, each of
which is described elsewhere in this section.  As a result, we have
experienced a decline in revenues and gross profit over the last several
quarters.  During this time our revenues from our new customer
acquisition services business segment has grown to $1,402,888, which represented
58% of net revenues during the fourth quarter of fiscal 2009, up from $343,240
or 6% of net revenues in the fourth quarter of fiscal 2008.  While we
have yet to achieve sufficient sales in our new business to allow us to achieve
operating profitability, we achieved significant growth in revenues in this
business segment during fiscal 2009.





Change in Business
Strategy




In and
around February 2009, we evaluated our business and adopted a new business
strategy that moved away from our Yellow Pages business to one which addressed
each of our business segments as separate entities. This evaluation was
necessitated by the growth in our Direct Sales - Customer Acquisition Services
business lines that provide Internet-based customer acquisition strategies for
small business, as well as declining revenues from our traditional business line
(i.e. directory services).  Additionally, current economic and
regulatory forces, both general and specific to our industry, impacted our
consideration of our existing business model and strategy.  Some of
these factors include the following:




·
            The
      current effects of the recession and general economic
      downturn;




·
            Our
      perception that the general economic downturn could lead our business
      customers to seek lower-cost customer acquisition methods, primarily
      through the Internet;


·
            The
      sale of our “www.yp.com” domain name in the first quarter of fiscal 2009,
      which domain name was associated with our traditional
      business;


·
            The
      reconstitution of our management team with additional capability in
      Internet-based technologies;


·
            The
      termination of certain significant directory business contracts related to
      the traditional business;


·
            The
      sale of certain of our traditional business assets including certain of
      our customer lists; and


·
            Continuing
      losses in our classifieds
business.




As a
result, we made significant changes to our business strategy during the second
quarter of fiscal 2009.  We decided to move our strategic focus
away from our directory services and Classified
businesses.   Additionally, we discontinued the operations
of our Philippines-based call center which had historically provided
telemarketing services to support our directory services business - specifically
those directory services which were sold during the second quarter of fiscal
2009.    These strategic changes impacted our financial
statements during the second quarter of fiscal 2009 in the following
manner:




·
            Impairment
      charges of $16,111,494 were recorded related to the write-down of our
      goodwill and other intangible
assets;


22
 Table of Contents




·
            We
      commenced a plan to discontinue our classifieds business and initiated
      shutdown activities;




·
            We
      sold our a customer list associated with its directory services business
      and recorded a gain of  $3,040,952;
  and




·
            We
      established a valuation allowance of $10,586,854 related to our deferred
      tax assets.




Our new
strategic focus is on delivering a suite of Internet-based, local search
driven, customer acquisition services for small businesses, sold via
telemarketing and supported by our websites and internally developed
software.




Sale ofwww.yp.com




On
November 5, 2008, we entered into an agreement to
sell our Internet domain name “www.yp.com” to YellowPages.com for a
cash payment of $3,850,000.  Although our future focus is on the sale of
customer acquisition services for small and medium-sized businesses, we still
receive revenues from the sale of Internet Advertising Packages, which targeted
users of our www.yp.com property.  We have transitioned these
customers to advertising on www.yellowpages.livedeal.com.





Management
Changes





On
January 20, 2009, we announced the following managerial changes, which occurred
during and shortly after the three months ended December 31, 2008:





·
            Rajeev
      Seshadri replaced Gary Perschbacher as Chief Financial Officer effective
      January 20, 2009; and


·
            John
      Raven submitted his resignation as President and Chief Operating Officer
      effective February 15, 2009.





On May
19, 2009, Richard F. Sommer was appointed as our new President and Chief
Executive Officer ("CEO"), effective immediately, to replace Mike Edelhart, the
outgoing CEO, whose employment as CEO terminated the same day.  Mr.
Sommer has served as a member of our Board of Directors since June
2008.  Following his appointment as President and Chief Executive
Officer, Mr. Sommer remained a director but has no longer been a member of our
Compensation Committee or Corporate Governance and Nominating Committee, both of
which are required to consist only of independent directors under NASDAQ Listing
Rules.





Mr.
Sommer, 46, is a former Chief Executive Officer of ZipRealty and served on the
Board of Directors of ZipRealty from September 2006 until December 15,
2008.  Prior to joining ZipRealty, Mr. Sommer was the Chief Executive
Officer of HomeGain.com.  In addition to his leadership of HomeGain,
Mr. Sommer served as Senior Vice President of Business Development for the
mortgage banking division of IndyMac Bank.  He also served as
President and Managing Director of international real estate operations for
Realtor.com.  Mr. Sommer also co-founded and was President and Chief
Executive Officer of Accordus, a technology infrastructure company serving the
health care products industry.  From 1988 until 1998, Mr. Sommer was
founder, President and Chief Executive Officer of De La Cruz Occupational
Healthcare.  He began his career with McKinsey & Co. Mr. Sommer
graduated cum laude in 1983 from Princeton University with a degree in politics
and was a Rhodes Scholar at Oxford University, where he earned a Master's Degree
in international political economy.  In 1990, Mr. Sommer earned a law
degree from the Stanford Law School.




In
connection with Mr. Edelhart’s termination, we entered into a separation
agreement dated July 8, 2009 that provided for a one-time payment of $62,500 to
Mr. Edelhart together with a payment for accrued vacation and certain other
expenses.  We recognized expenses totaling $93,195 associated with Mr.
Edelhart’s departure during the quarter ended June 30, 2009.  As of
September 30, 2009, we had an outstanding liability of $13,289 related to unpaid
termination costs.





Also, in
connection with the restructuring activities described below and as part of
refinements to our business strategy, certain managerial positions were
eliminated in June 2009, including the positions of Vice President of Product
Management and Vice President of Technology Strategy,
respectively.  See “Restructuring Activities” below.





Impairment of Goodwill and
Other Intangibles




In and
around February 2009, in connection with the strategic changes described above
and at the direction of our Audit Committee, we commenced an interim reporting
period review of our goodwill and intangible assets for
impairment.  We evaluate goodwill and other long-lived assets for
impairment on an annual basis or whenever facts and circumstances indicate that
impairment may exist.  Economic and regulatory forces, both general
and specific to our industry, caused management to consider our existing
business model and strategy as described in “Change in Business Strategy”
included herein.




In
light of the changes in our business, we determined that a triggering event had
occurred and initiated an impairment analysis.Based upon the analysis,
management determined that the following items were impaired:


23
 Table of Contents




·
            The
      goodwill acquired in our acquisition of LiveDeal, Inc., the business focus
      of which was online classified
advertising;




·
            The
      goodwill acquired in our acquisition of a Philippines call-center, OnCall
      Subscriber Management, the business focus of which was providing
      telemarketing services to acquire customers for our directory
      services business;




·
            Assets
      related to our call-center operations and non-compete agreements that were
      effectively made obsolete by the sale of a portion of our customer list
      associated with our directory services business;
  and




·
            Intangible
      assets related to our directory services business, including URLs,
      internally developed software, and other miscellaneous intangible
      assets.




The
following is a summary of these impaired assets and their net book values, which
were fully written off in the second quarter of fiscal 2009:





Continuing
                    Operations
                  
                  
                  Discontinued
                    Operations
                  
                  
                  Total
                    ImpairmentGoodwill
                  
                  $
                  4,350,041
                  
                  
                  $
                  7,356,365
                  
                  
                  $
                  11,706,406Domain
      name and marketing related intangibles
                  
                  
                  1,879,054
                  
                  
                  
                  -
                  
                  
                  
                  1,879,054Assets
      related to customer list
                  
                  
                  1,259,680
                  
                  
                  
                  -
                  
                  
                  
                  1,259,680Website
      and technology related intangibles
                  
                  
                  377,334
                  
                  
                  
                  889,020
                  
                  
                  
                  1,266,354$
                  7,866,109
                  
                  
                  $
                  8,245,385
                  
                  
                  $
                  16,111,494





Included
in the assets that became obsolete through the sale of a portion of our customer
list were $722,103 related to non-compete agreements and $537,577 of assets
associated with the Philippines call-center.





We
performed an initial assessment of impairment prior to filing our Form 10-Q for
the period ended December 31, 2008, and disclosed an estimated impairment charge
of $14,300,000.  We reevaluated these amounts and increased the
corresponding impairment charge to $14,676,568 after identifying additional
impaired website and technology related intangible assets related to the items
identified earlier.  Since that time, we sold a portion of our
customer list, which resulted in an additional impairment charge of
approximately $1,400,000, consisting of approximately $175,000 of website and
technology related intangibles and $1,200,000 of other assets made obsolete as
described above. We performed an annual goodwill and intangible assets
impairment review in connection with our fiscal year-end financial closing for
2009.  Management’s analysis considered input from an independent
third party business appraisal firm. Management confirmed the results of the
impairment review performed in the quarter ended March 31, 2009. The annual
impairment review assigned certain of the goodwill and intangible assets to the
Company’s classifieds business whose discontinuation was initiated in the
quarter ended March 31, 2009. The impairment charges associated with the
classifieds business are now included as part of discontinued operations in the
accompanying statement of operations.





Sale of Customer List and
Other Income





On March
9, 2009, in connection with our shift in strategic focus away from our
classified and directory services business, we entered into an agreement to sell
a portion of our customer list associated with our directory services
business.  This customer list was sold for $3,093,202, of which
$2,783,097 was paid by the buyer and received during the second quarter of
fiscal 2009 with the remaining amount held back in escrow pending the resolution
of potential claims, if any.  Such claims are contractually limited to
the amount held in escrow ($154,617 as of September 30, 2009) , and are expected
to be settled in fiscal 2010.  Net of certain accruals for transaction
costs and transaction-related contingencies, we recorded a gain of $3,040,952,
which is reflected in other income.





We also
amended another directory services contract in consideration of accelerated
payments on our outstanding accounts receivable and some anticipated future
billings that resulted in an increase in other income of $642,268 for the three
and nine months ended June 30, 2009, respectively.  Together with the
partial customer list sale described above, these customers and contract
accounted for $5,146,073 of revenue in fiscal 2009.  As a result of
these transactions, we have no future service obligations to these customers and
no longer expect to generate future revenues from these sources.





Discontinued
Operations





As part
of the Company’s strategy to evaluate each of its business segments as separate
entities, management noted that the classifieds business has incurred
significant operating losses and determined that it did not fit with the
Company’s change in strategic direction.  Accordingly, in and around
February 2009, we made the strategic decision to discontinue our classifieds
business and product offerings.  We initiated shutdown activities in
March 2009 (including the notification of certain impacted vendors and
employees)  and concluded such activities by the end of June 2009,
including the shutdown of the website previously used for classifieds
activities.  Accordingly, we do not expect any future revenues from
this business segment and are reflecting the results of the classifieds business
as discontinued operations.  Prior year financial statements have been
restated to present the classifieds operations as a discontinued
operation.


24
 Table of Contents





The
classifieds business accounted for $227,575 and $1,862,503 of net revenues in
the fiscal years ended September 30, 2009 and 2008, respectively, which are now
included as part of loss from discontinued operations in the accompanying
consolidated statements of operations.





Restructuring
Activities





On June
9, 2009, we implemented a restructuring plan previously approved by our Board of
Directors that included a reduction in force that resulted in the termination of
approximately 13% of our workforce. As part of this plan, we also initiated
activities to close certain of our facilities.  We took these actions
in order to reduce costs and improve our cost structure in the current operating
environment and in light of changes in our strategic
focus.  Substantially all restructuring activities were completed in
July 2009.





In
connection with these activities, we incurred expenses, consisting primarily of
cash expenditures, of $327,408 which have been reflected as part of general and
administrative expenses in the accompanying consolidated statement of operations
for the year ended September 30, 2009.  Of the restructuring charges
incurred, $277,059 related to severance costs and $50,349 related to office
closure costs.  As of September 30, 2009, we had an outstanding
liability of $13,289 related to unpaid office closure costs.  All
restructuring costs were related to the consolidation of operations at our Las
Vegas, Nevada facility.





Other Contractual
Agreements





On
November 30, 2008, each of the following agreements was terminated pursuant to
notices of termination delivered to us by our respective
counterparties:





·
            Fulfillment
      and Marketing Agreement dated October 10, 2007, by and between the Company
      and Sharednet.


·
            Fulfillment
      and Marketing Agreement dated October 16, 2007, by and between the Company
      and OneSource Web Hosting.


·
            Fulfillment
      and Marketing Agreement dated October 10,2007, by and between the Company
      and Blabb1e Networks.





Under the
agreements, we provided certain fulfillment and directory services to the
customers of Sharednet, OneSource Web Hosting and Blabble Networks, respectively
(collectively, the "Wholesalers"). In exchange for such services, the
Wholesalers remitted 90% of the related fees collected to us. Such fees
accounted for approximately $5.3 million, or 18%, of our net revenues in fiscal
2008.  The agreements accounted for about 12,000 of our approximately
65,000 customers as of that date.





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.





The
following summarizes critical estimates made by management in the preparation of
the consolidated financial statements.





Revenue
Recognition.





Direct Sales – Customer
Acquisition Services.  Our direct sales contracts typically
involve upfront billing for an initial payment followed by monthly billings over
the contractual period.  We recognize revenue on a straight line basis
over the contractual period.  Billings in excess of recognized revenue
are included as deferred revenue in the accompanying consolidated balance
sheets.





Previously,
we recognized the value of the noncancelable portion of the Direct Sales’
customer contract as a receivable and billed the customer for the amount of the
contract over the period of the contract. We only recognized a portion of the
contract value as revenue each month, approximately pro-rating the contract to a
monthly amount, with the remainder of the noncancelable portion of the contract
maintained as a deferred revenue liability.  In the quarter ended June
30, 2009, we corrected our balance sheet presentation related to our direct
sales contracts to include in accounts receivable only those amounts that are
outstanding receivables after having been billed in accordance with the terms of
the contract.


25
 Table of Contents





Directory
Services. We generate revenue from customer subscriptions for
directory and advertising services.  We recognize revenues as services
are rendered.  In some instances, we receive payments in advance of
rendering services, whereupon such revenues are deferred until the related
services are rendered.  Our billing and collection procedures include
significant involvement of outside parties, referred to as aggregators for LEC
billing and service providers for ACH billing.  We provide allowances
for customer refunds, non-paying customers and fees which are estimated at the
time of billing.




Allowance for Doubtful Accounts. We
estimate allowances for doubtful accounts for accounts that are billed directly
by us as well as those serviced by third party aggregators and service providers
(Processors).





During
fiscal 2009, several revenue streams that were billed through our various LEC
sales channels were terminated either as a result of a sale of assets or upon
the cessation of billing agreements. We reflect the amounts held in reserve by
the Processors as accounts receivable in the accompanying consolidated balance
sheet. During the period that we received settlements from our billings through
these LEC channels, the level of the reserves held by the Processors changed
accordingly and the Processors often calculated the holdback amounts from the
settlements due to us as ‘rolling reserves’ that we believe are actuarially
estimated by them based on the level of business, the expectation of future
billings from which to replenish such reserves, and other factors. The costs and
expenses related to such settlements and reserve holdback amounts were recorded
as expenses during the period that the settlements were received. With the
cessation of such settlements, the costs and expenses are now related to the
maintenance of the reserves held by the Processors. The reserves now held are
not changing due to the cessation of billing activities by us, and accordingly,
we have now made estimates of the costs and expenses that we are likely to incur
to collect the holdback amounts held as reserves. These estimates lead to an
accrual of expected costs over the expected length of the collection period of
the accounts receivable and, therefore, to an increase in the allowances,
instead of recording such expenses as period costs as they are actually incurred
as would have been the case if we continued to have regular billings through the
Processors.





The
allowance at September 30, 2009 included a reserve allowance of $723,489
resulting from the Chapter 11 Bankruptcy filing of one of our LEC aggregators,
representing a reduction in the estimated collectability of our entire
pre-petition outstanding receivable balance of $777,755. The aggregate of
accounts receivable balances from the LEC operations that do not have billing
activity as of September 30, 2009 was $3,554,149, and the aggregate of
corresponding allowances was $2,032,385. These aggregate amounts include the
accounts receivable balances and allowances for the accounts held by the Chapter
11 trustee.




Carrying Value of
Intangible Assets.Our intangible assets consist of
licenses for the use of Internet domain names or Universal Resource Locators, or
URLs, capitalized website development costs, other information technology
licenses and marketing and technology related intangibles acquired through the
acquisition of LiveDeal, Inc.  All such assets are capitalized at
their original cost (or at fair value for assets acquired through business
combinations) and amortized over their estimated useful lives.  We
capitalize internally generated software and website development costs in
accordance with the provisions of the FASB Accounting Standards Codification
(“ASC”) ASC 350, “Intangibles – Goodwill and Other”.





We
evaluate the recoverability of the carrying amount of intangible assets at least
annually and whenever events or changes in circumstances indicate that the
carrying amount of these assets may not be fully recoverable.  In the
event of such changes, impairment would be assessed if the expected undiscounted
net cash flows derived for the asset are less than its carrying
amount.


An
impairment was estimated and recorded as first described our Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 2009 and described elsewhere
in this Form 10-K. In 2009, the Company performed an intangible assets
evaluation using the appraisal methods as prescribed under the provisions of ASC
360, “Property Plant and Equipment”, which prescribes methods for determining
impairment of long-lived assets.  Management’s review considered input
from an independent third party business appraisal firm





Goodwill.    We
evaluate our goodwill for potential impairment on an annual basis or whenever
events or circumstances indicate that an impairment may have occurred in
accordance with the provisions of ASC 350, which requires that goodwill be
tested for impairment using a two-step process. The first step of the goodwill
impairment test, used to identify potential impairment, compares the estimated
fair value of the reporting unit containing our goodwill with the related
carrying amount. If the estimated fair value of the reporting unit exceeds its
carrying amount, the reporting unit’s goodwill is not considered to be impaired
and the second step is unnecessary.  As a result of this analysis,
first described in our Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 2009 and described elsewhere in this Form 10-K, it was
determined that the entire goodwill balance attributable to the Company’s
acquisitions of OnCall Subscriber Management and LiveDeal, Inc. were
impaired.





Customer Acquisition
Costs.We acquire customers primarily through outbound call
campaigns whereby we incur costs which include the acquisition of calling lists,
personnel costs, etc.  Customers subscribe to the services by
affirmatively responding to those campaigns, which serve as the contract for the
subscription.  Calling campaign costs are expensed as
incurred.  We also incur costs to acquire customers in connection with
certain fulfillment contracts.  Such costs are capitalized and
amortized over the expected life of the related revenue stream.





Income
Taxes.Income taxes are accounted for using the asset and
liability method as prescribed by ASC 740 “Income Taxes”. Under this method,
deferred income tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred income tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which these temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. A valuation
allowance would be provided for those deferred tax assets for which if it is
more likely than not that the related benefit will not be
realized.


26
 Table of Contents





We have estimated net deferred income
tax assets(net of
valuation allowances)of
$0 and $4,812,623 at September 30, 2009 and 2008, respectively, which relate to
various timing differences between book and tax expense recognition.A full valuation allowance
has been established against all net deferred tax assets as of September 30,
2009 based on estimates of recoverability.While we have optimistic plans for our
new business strategy,we determined that such a valuation
allowance was necessary given the current and expected near term losses and the
uncertainty with respect to our ability to generate sufficient profits from our
new business model.  Therefore, we established a valuation allowance
for all deferred tax assets in excess of those expected to be realizable through
the application of operating loss carrybacks.





We
performed an analysis of uncertain tax positions and we did not identify any
significant uncertainties that would affect the carrying value of our deferred
tax assets and liabilities or our income taxes receivable at September 30,
2009.




Stock-Based
Compensation.From time to time, we grant restricted
stock awards and options to employees, directors, executives, and
consultants.  Such awards are valued based on the grant date
fair-value of the instruments, net of estimated forfeitures. The value of each
award is amortized on a straight-line basis over the vesting period.  The
impacts of changes in such estimates on unamortized deferred compensation cost
are recorded as an adjustment to compensation expense in the period in which
such estimates are revised.




Results
of Operations




Net
Revenues




Year Ended
                              September 30,
                            
                            
                            Net
                              Revenues
                            
                            
                            Change from
                              Prior Year
                            
                            
                            Percent Change
                              from Prior Year2009
                            
                            
                            $
                            13,438,655
                            
                            
                            $
                            (9,982,003
                            )
                            
                            
                            (42.6
                            )%2008
                            
                            
                            $
                            23,420,658





Net
revenues in fiscal 2009 decreased by approximately $9,982,000, due primarily to
our change in business strategy away from our directory services business and
the sales of our www.yp.com URL and a
portion of our customer list in fiscal 2009, which was partially offset by an
increase in revenues from our customer acquisition services business
segment.  Net revenues in our directory services business decreased by
approximately $13,448,000 to $9,331,000 in fiscal 2009 as compared to
$22,779,000 in fiscal 2008.  Net revenues in our customer acquisition
services business segment increased by approximately $3,467,000 to $4,108,000 in
fiscal 2009 as compared to $641,000 in fiscal 2008.  The increase in
net revenues from our customer acquisition services reflects a change in
business strategy and our focus toward developing this portion of our
business.  We expect that revenues from our directory services
business will continue to decline in the future as we focus our efforts toward
our new business segment.  Although we anticipate our revenues from
customer acquisition services will continue to grow, this business is unproven
at this time and there can be no assurance that we will meet our objectives of
revenue growth and profitability.





Cost
of Services





Year Ended
                        September 30,
                      
                      
                      Cost of
                        Services
                      
                      
                      Change from
                        Prior Year
                      
                      
                      Percent Change
                        from Prior Year2009
                      
                      
                      $
                      6,391,778
                      
                      
                      $
                      2,050,524
                      
                      
                      
                      47.2
                      %2008
                      
                      
                      $
                      4,341,254




Cost of
services increased in fiscal 2009 as compared to fiscal 2008, as a result of
increasing per-customer costs in our directory services business and the growth
in net revenues in our customer acquisition services business which has higher
costs as compared to our directory services segment.





Cost of
services in our customer acquisition services business were approximately
$2,768,000 in fiscal 2009 as compared to $548,000 in fiscal 2008 which reflects
our growth in revenues in this business segment.  See discussion of
gross margins elsewhere in this section.


Cost of services in our directory
services business wereapproximately$3,624,000 in fiscal 2009 as compared to
$3,793,000 in fiscal 2008 despite a 60% reduction in revenues.  During
2009, we experienced cost increases in our directory services business on a per
customer basis due to increased regulatory requirements and an increase in
per-customer charges billed to us from our third party service
providers.  These factors contributed to our strategic shift away from
directory services as our primary line of business.


27
 Table of Contents


Gross
Profit





Year Ended
                          September 30,
                        
                        
                        Gross
                          Profit
                        
                        
                        Change from
                          Prior Year
                        
                        
                        Percent Change
                          from Prior Year2009
                        
                        
                        $
                        7,046,877
                        
                        
                        $
                        (12,032,527
                        )
                        
                        
                        (63.1
                        )%2008
                        
                        
                        $
                        19,079,404





Gross
profit decreased approximately $12,033,000 in fiscal 2009 as compared to fiscal
2008 reflecting a decrease in net revenues and a decline in gross margins in our
directory services business.  The following table sets forth changes
in our gross margin by business segment.





Year ended September 30,2009
                      
                      
                      2008Customer
      acquisition services -Gross
      profit
                      
                      $
                      1,339,997
                      
                      
                      $
                      93,759Gross
      margin
                      
                      
                      32.6
                      %
                      
                      
                      14.6
                      %Directory
      services -Gross
      profit
                      
                      $
                      5,706,880
                      
                      
                      $
                      18,985,644Gross
      margin
                      
                      
                      61.2
                      %
                      
                      
                      83.3
                      %





General
and Administrative Expenses





Year Ended
                        September 30,
                      
                      
                      General &
                        Administrative
                        Expenses
                      
                      
                      Change from
                        Prior Year
                      
                      
                      Percent Change
                        from Prior Year2009
                      
                      
                      $
                      15,179,981
                      
                      
                      $
                      (415,190
                      )
                      
                      
                      (2.7
                      )%2008
                      
                      
                      $
                      15,595,171





General and administrative expenses
decreased in fiscal 2009 as compared to fiscal 2008 due to the
following:





·
            A
      decrease in depreciation and amortization expense of approximately
      $542,000 due primarily to the effects of the impairment of depreciable
      intangible assets that occurred in the second quarter of fiscal
      2009;




·
            A
      decrease in investor relations expenses of approximately $245,000 stemming
      from cost containment initiatives;




·
            A
      decrease in customer related expenses of approximately $106,000 due to the
      decline in business activities associated with our directory services
      business as a result of our change in business
  strategy;




·
            A
      decrease in rent and office expenses of approximately $234,000 as a result
      of the closure of our Santa Clara facility and other cost-containment
      initiatives;




·
            A
      decrease in compensation expense of approximately $20,000 which was
      comprised of a decrease of $915,000 of stock based compensation resulting
      from the effects of true-ups of our estimated forfeiture rate and a
      reduction in the use of stock awards as part of our compensation,
      partially offset by an increase of $895,000 of compensation, payroll and
      benefits expenses associated with additional staffing in sales and
      technology development to support our change in business
      strategy;




·
            A
      decrease of other G&A expenses of approximately $118,000, partially
      offset by




·
            An
      increase in software expense of approximately $427,000 representing
      non-capitalizable costs associated with our new product offerings in our
      customer acquisition services
segment;




·
            An
      increase in professional and consulting fees of approximately $423,000
      attributable to legal costs incurred to defend the Company against certain
      claims in fiscal 2009.


28
 Table of Contents


The
following table sets forth our recent operating performance for general and
administrative expenses:





Q4 2009
                
                
                
                Q3 2009
                
                
                
                Q2 2009
                
                
                
                Q1 2009
                
                
                
                Q4 2008
                
                
                
                Q3 2008
                
                
                
                Q2 2008
                
                
                
                Q1 2008Compensation
      for employees, leased employees, officers and directors
                
                $
                2,054,709
                
                
                $
                2,392,081
                
                
                $
                2,311,056
                
                
                $
                2,508,835
                
                
                $
                1,810,383
                
                
                $
                3,181,375
                
                
                $
                2,377,412
                
                
                $
                1,928,272Professional
      fees
                
                
                336,273
                
                
                
                421,700
                
                
                
                411,564
                
                
                
                455,832
                
                
                
                456,180
                
                
                
                275,638
                
                
                
                191,330
                
                
                
                281,418Depreciation
      and amortization
                
                
                211,336
                
                
                
                186,077
                
                
                
                560,383
                
                
                
                559,289
                
                
                
                588,718
                
                
                
                505,095
                
                
                
                487,085
                
                
                
                478,433Other
      general and administrative costs
                
                
                451,300
                
                
                
                813,124
                
                
                
                771,352
                
                
                
                735,070
                
                
                
                707,665
                
                
                
                845,351
                
                
                
                789,318
                
                
                
                706,848





Sales
and Marketing Expenses





Year Ended
                        September 30,
                      
                      
                      Sales &
                        Marketing
                        Expenses
                      
                      
                      Change from
                        Prior Year
                      
                      
                      Percent Change
                        from Prior Year2009
                      
                      
                      $
                      2,457,063
                      
                      
                      $
                      (2,777,086
                      )
                      
                      
                      (53.1
                      )%2008
                      
                      
                      $
                      5,234,149





Sales and
marketing expenses decreased in fiscal 2009 as compared to fiscal 2008 due to
the following:




·
            $2,980,000
      of decreased telemarketing and other customer acquisition costs as we
      began transitioning away from marketing activities geared toward our
      directory services business; and




·
            $252,000
      of reduced branding, online advertising and other sales and marketing
      expenses; partially offset by




·
            $455,000
      of increased expenditures for click traffic that we believe is more cost
      effective than online advertising.




Impairment
of Goodwill and Intangible Assets





Year Ended
                            September 30,
                          
                          
                          Impairment of
                            Goodwill and Intangible
                            Assets
                          
                          
                          Change from
                            Prior Year
                          
                          
                          Percent Change
                            from Prior Year2009
                          
                          
                          $
                          7,866,109
                          
                          
                          $
                          7,866,109
                          
                          
                          
                          n/a2008
                          
                          
                          $
                          -





As described previously, we incurred an
impairment charge in the second quarter of fiscal 2009 to write-down goodwill
and other intangible assets.  No such charges were incurred in fiscal
2008.





Operating
Loss





Year Ended
                            September 30,
                          
                          
                          Operating
                            Loss
                          
                          
                          Change from
                            Prior Year
                          
                          
                          Percent Change
                            from Prior Year2009
                          
                          
                          $
                          (18,456,276
                          )
                          
                          $
                          (16,706,360
                          )
                          
                          
                          954.7
                          %2008
                          
                          
                          $
                          (1,749,916
                          )





The
increase in our operating loss for fiscal 2009 as compared to fiscal 2008 is
primarily due to the impairment charge, decreased gross profit and changes in
operating expenses, each of which is described above.




Total
Other Income (Expense)





Year Ended
                            September 30,
                          
                          
                          Total Other Income
                            (Expense)
                          
                          
                          Change from
                            Prior Year
                          
                          
                          Percent Change
                            from Prior Year2009
                          
                          
                          $
                          7,527,934
                          
                          
                          $
                          7,405,544
                          
                          
                          
                          6050.8
                          %2008
                          
                          
                          $
                          122,390





During
the second quarter of fiscal 2009, we entered into an agreement to sell a
portion of our customer list associated with our directory services business,
resulting in a gain of $2,816,000, which was increased to $3,041,000 in the
fourth quarter of fiscal 2009 through the adjustment of certain accruals
associated with the transaction.  We also amended another directory
services contract in consideration of accelerated payments on our outstanding
accounts receivables and some anticipated future billings that resulted in an
increase in other income of $642,000 in fiscal 2009.


29
 Table of Contents




During
the first quarter of fiscal 2009, we entered into an agreement to
sell our Internet domain name “www.yp.com” to
YellowPages.com for a cash payment of $3,850,000.   We had net
gain from the sale of that asset of $3,806,000, which is reflected in other
income.




The
remaining activity in fiscal 2009 and fiscal 2008 consisted primarily of
interest income on cash balances and short-term investments.




Income
Tax Provision (Benefit)





Year
      Ended
                    September
      30,
                  
                  Income
      Tax
                    Provision
      (Benefit)
                  
                  
                  Change
      from
                    Prior
      Year
                  
                  
                  Percent
      Change
                    from
      Prior Year2009
                  
                  $
                  3,393,515
                  
                  
                  $
                  3,548,230
                  
                  
                  
                  2293.4
                  %2008
                  
                  $
                  (154,715
                  )





The
change in our income tax provision (benefit) is due primarily to the
establishment of a $10,586,854 valuation allowance established during fiscal
2009 against our net deferred tax assets, partially offset by changes in our
pretax net loss and miscellaneous permanent differences.  While we
have optimistic plans for our new business strategy, we determined that
such a valuation allowance was necessary given the current and expected near
term losses and the uncertainty with respect to our ability to generate
sufficient profits from our new business model.  Therefore, we
established a valuation allowance for all deferred tax assets in excess of those
expected to be realizable through the application of operating loss
carrybacks.




Loss
from Discontinued Operations




Year
      Ended
                    September
      30,
                  
                  Loss
      from
                    Discontinued
                    Operations
                  
                  
                  Change
      from
                    Prior
      Year
                  
                  
                  Percent
      Change
                    from
      Prior Year2009
                  
                  $
                  (8,269,443
                  )
                  
                  $
                  (8,213,482
                  )
                  
                  
                  14677.2
                  %2008
                  
                  $
                  (55,961
                  )







During
the second quarter of fiscal 2009, we discontinued our classifieds business, as
described above.  All prior periods have been restated to reflect the
classifieds operating results, net of tax, as discontinued
operations.  Included in the loss for fiscal 2009 is the impairment of
goodwill and other intangibles as previously described.




Net
Loss








Year
      Ended
                    September
      30,
                  
                  NetLoss
                  
                  
                  Change
      from
                    Prior
      Year
                  
                  
                  Percent
      Change
                    from
      Prior Year2009
                  
                  $
                  (22,591,300
                  )
                  
                  $
                  (21,062,528
                  )
                  
                  
                  1377.7
                  %2008
                  
                  $
                  (1,528,772
                  )




Changes
in net loss are primarily attributable to changes in operating income, income
tax expense and discontinued operations, each of which is described
above.




Liquidity and
Capital Resources




Net cash
generated by operating activities decreased approximately $4,295,000, or 322%,
to ($2,963,000) for the year ended September 30, 2009, compared to $1,331,000
for the year ended September 30, 2008.  The increase of cash used in
operations is primarily due to a decrease in gross profit of $12,033,000
reflecting declines in our legacy businesses, partially offset by $3,098,000 of
increased collections of accounts receivable, $2,777,000 of reduced sales and
marketing expenses, $1,700,000 of reduced customer acquisition costs, and
$163,000 of changes in other operating expenses and working capital
balances.




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.  In the nine months ended September 30, 2009, we have been
transitioning away from directory services toward our Direct Sales Services,
whose billings experience shorter collection times.  Accordingly we
have been able to reduce our collection times and our outstanding accounts
receivable balances.  As of September 30, 2009, no single
customer  accounted for greater than 10% of accounts
receivable.




30
 Table of Contents




With
respect to our Direct Sales Services, we generally receive upfront payments
averaging approximately one-sixth of the gross contract
amount.  Subsequent payments are received on an installment basis
after the application of the initial payment amounts and are billed ratably over
the remaining life of the contract. Most customers purchasing these services
elect to use their credit cards to effect payments, and therefore our
collections are usually made within a few days of the installment due
date.




With
respect to our discontinued operations, our historical cash flows have
approximated our income (loss) from discontinued operations as set forth on our
consolidated statements of operations, except with respect to impairment charges
that were recorded during the second quarter of fiscal 2009.




Our most
significant cash outflows include payments for marketing expenses and general
operating expenses.  General operating cash outflows consist of
payroll costs, income taxes, and general and administrative expenses that
typically occur within close proximity of expense recognition.




Net cash
provided by investing activities during fiscal 2009 totaled approximately
$6,494,000 as compared to cash outflows of $1,817,000 during fiscal 2008. The
primary sources of the cash provided by our investing activities in fiscal 2009
were the sale of our Internet domain name www.yp.com, the sale
of a portion of our customer list related to our directory services business,
and an amendment to an existing directory services contract, which provided
aggregate cash inflows of $7,430,000.  Additionally, in fiscal 2009,
we had expenditures for purchases of equipment and intangible assets totaling
approximately $836,000.  During the year ended September 30, 2009, we
also invested $100,000 in certificates of deposit.  During the year
ended September 30, 2008, we had $1,227,000 of cash outflows for intangible
assets related to our website and internally developed software and $589,000 of
purchases of equipment.




Net cash
used for financing activities was approximately $603,000 during fiscal 2009 and
was attributable to $533,000 of treasury stock repurchases and $70,000 of
principal repayments on capital lease obligations.  Net cash used for
financing activities was $549,000 during fiscal 2008 and included $526,000 of
treasury stock repurchases and $23,000 of principal repayments on capital lease
obligations.





We had
working capital of $9,251,000 as of September 30, 2009 compared to $11,260,000
as of September 30, 2008.  Our cash position increased to $7,568,000
at September 30, 2009 compared to $4,640,000 at September 30, 2008, as we had a
significant decline in cash flows from operations, partially offset by cash
provided by investing activities as we monetized several of our assets
associated with our legacy business, including our primary URL and a portion of
our customer list.




On May
25, 2007, the Company’s Board of Directors terminated the previously enacted
2005 stock repurchase plan and replaced it with a new plan authorizing
repurchases of up to $1,000,000 of common stock from time to time on the open
market or in privately negotiated transactions.  We purchased a total
of 148,820 shares at an aggregate cost of $525,844 under the 2007 plan through
September 30, 2008. The repurchase plan was increased by another $500,000
on October 23, 2008, and we acquired an aggregate of 346,110 shares of common
stock for an aggregate repurchase price of $532,521 during fiscal
2009.





We
believe that our existing cash on hand and additional cash generated from
operations will provide us with sufficient liquidity to meet our operating needs
for the next 12 months.





The
following table summarizes our contractual obligations at September 30, 2009 and
the effect such obligations are expected to have on our future liquidity and
cash flows:




Payments
      Due by Fiscal YearTotal
                                        
                                        
                                        2010
                                        
                                        
                                        2011
                                        
                                        
                                        2012
                                        
                                        
                                        2013
                                        
                                        
                                        2014
                                        
                                        
                                        ThereafterOperating
      lease commitments
                                        
                                        $
                                        1,315,693
                                        
                                        
                                        $
                                        497,117
                                        
                                        
                                        $
                                        424,525
                                        
                                        
                                        $
                                        315,331
                                        
                                        
                                        $
                                        78,720
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -Capital
      lease commitments
                                        
                                        
                                        198,644
                                        
                                        
                                        
                                        76,876
                                        
                                        
                                        
                                        76,876
                                        
                                        
                                        
                                        44,892
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Noncanceleable
      service contracts
                                        
                                        
                                        1,029,362
                                        
                                        
                                        
                                        647,251
                                        
                                        
                                        
                                        361,111
                                        
                                        
                                        
                                        21,000
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -$
                                        2,543,699
                                        
                                        
                                        $
                                        1,221,244
                                        
                                        
                                        $
                                        862,512
                                        
                                        
                                        $
                                        381,223
                                        
                                        
                                        $
                                        78,720
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -





At
September 30, 2009, we had no other off-balance sheet arrangements, commitments
or guarantees that require additional disclosure or measurement.





ITEM 7A. Quantitative and Qualitative Disclosures about Market
Risk





As of
September 30, 2009, we did not participate in any market risk-sensitive
commodity instruments for which fair value disclosure would be required. We
believe that we are not subject in any material way to other forms of market
risk, such as foreign currency exchange risk or foreign customer purchases (of
which there were none in fiscal 2009 or 2008) or commodity price
risk.


31
 Table of Contents





ITEM 8. Financial Statements and Supplementary Data





LIVEDEAL,
INC.





INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS




PageReport of Independent Registered Public Accounting
      Firm
              33Consolidated
      Financial Statements:Consolidated Balance Sheets at September 30, 2009 and
      2008
              34Consolidated Statements of Operations for the years
      ended September 30, 2009 and 2008
              35Consolidated Statements of Stockholders’ Equity for
      the years ended September 30, 2009 and 2008
              36Consolidated Statements of Cash Flows for the years ended
      September 30, 2009 and 2008
              37Notes to Consolidated Financial
      Statements
              38


32
 Table of Contents





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM





To the
Stockholders and Board of Directors





LiveDeal,
Inc. and Subsidiaries





We have
audited the accompanying consolidated balance sheets of LiveDeal, Inc. and
Subsidiaries as of September 30, 2009 and 2008 and the related consolidated
statements of operations, stockholders’ equity and cash flows for the years then
ended.  These consolidated financial statements are the responsibility
of the Company’s management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe our audits provide a reasonable basis for
our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of LiveDeal, Inc. and
Subsidiaries as of September 30, 2009 and 2008, and the results of their
operations and their cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of
America.





As
discussed in Note 3 to the consolidated financial statements, the consolidated
balance sheet as of September 30, 2008 has been restated.





/s/ Mayer
Hoffman McCann P.C.





MAYER
HOFFMAN MCCANN P.C.


Phoenix,
Arizona


December
23, 2009


33
 Table of Contents





LIVEDEAL,
INC. AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS





September
      30,2009
                                  
                                  
                                  2008(as
      restated,see
      Note 3)AssetsCash
      and cash equivalents
                                  
                                  $
                                  7,568,030
                                  
                                  
                                  $
                                  4,639,787Certificates
      of deposit
                                  
                                  
                                  100,000
                                  
                                  
                                  
                                  -Accounts
      receivable, net
                                  
                                  
                                  1,478,183
                                  
                                  
                                  
                                  6,326,272Prepaid
      expenses and other current assets
                                  
                                  
                                  326,442
                                  
                                  
                                  
                                  792,309Customer
      acquisition costs, net
                                  
                                  
                                  -
                                  
                                  
                                  
                                  642,220Income
      taxes receivable
                                  
                                  
                                  1,490,835
                                  
                                  
                                  
                                  487,532Deferred
      tax asset, net of valuation allowance
                                  
                                  
                                  -
                                  
                                  
                                  
                                  949,121Total
      current assets
                                  
                                  
                                  10,963,490
                                  
                                  
                                  
                                  13,837,241Accounts
      receivable, long term portion, net
                                  
                                  
                                  1,039,403
                                  
                                  
                                  
                                  2,011,143Property
      and equipment, net
                                  
                                  
                                  615,906
                                  
                                  
                                  
                                  959,854Deposits
      and other assets
                                  
                                  
                                  81,212
                                  
                                  
                                  
                                  83,547Intangible
      assets, net
                                  
                                  
                                  2,336,714
                                  
                                  
                                  
                                  6,736,078Goodwill
                                  
                                  
                                  -
                                  
                                  
                                  
                                  11,706,406Deferred
      tax asset, long term, net of valuation allowance
                                  
                                  
                                  -
                                  
                                  
                                  
                                  3,863,502Total
      assets
                                  
                                  $
                                  15,036,725
                                  
                                  
                                  $
                                  39,197,771Liabilities
      and Stockholders' EquityLiabilities:Accounts
      payable
                                  
                                  $
                                  549,681
                                  
                                  
                                  $
                                  1,078,712Accrued
      liabilities
                                  
                                  
                                  1,092,811
                                  
                                  
                                  
                                  1,437,149Current
      portion of capital lease obligation
                                  
                                  
                                  69,612
                                  
                                  
                                  
                                  61,149Total
      current liabilities
                                  
                                  
                                  1,712,104
                                  
                                  
                                  
                                  2,577,010Long
      term portion of capital lease obligation
                                  
                                  
                                  117,073
                                  
                                  
                                  
                                  170,838Total
      liabilities
                                  
                                  
                                  1,829,177
                                  
                                  
                                  
                                  2,747,848Commitments
      and contingenciesStockholders'
      equity:Series
      E convertible preferred stock, $0.001 par value, 200,000 shares
      authorized,127,840
      issued and outstanding, liquidation preference $38,202
                                  
                                  
                                  10,866
                                  
                                  
                                  
                                  10,866Common
      stock, $0.001 par value, 100,000,000 shares authorized, 6,133,433 issued
      and6,104,327
      outstanding at September 30, 2009 and 6,513,687 issued andoutstanding
      at September 30, 2008
                                  
                                  
                                  6,133
                                  
                                  
                                  
                                  6,514Treasury
      stock (29,106 and 0 shares carried at cost) at September 30, 2009
      and
                                  
                                  
                                  (45,041
                                  )
                                  
                                  
                                  -2008,
      respectivelyPaid
      in capital
                                  
                                  
                                  20,280,377
                                  
                                  
                                  
                                  20,884,112Retained
      earnings (accumulated deficit)
                                  
                                  
                                  (7,044,787
                                  )
                                  
                                  
                                  15,548,431Total
      stockholders' equity
                                  
                                  
                                  13,207,548
                                  
                                  
                                  
                                  36,449,923Total
      liabilities and stockholders' equity
                                  
                                  $
                                  15,036,725
                                  
                                  
                                  $
                                  39,197,771





See
accompanying notes to consolidated financial statements.


34
 Table of Contents





LIVEDEAL,
INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF OPERATIONS





Year
      ended September 30,2009
                                
                                
                                2008Net
      revenues
                                
                                $
                                13,438,655
                                
                                
                                $
                                23,420,658Cost
      of services
                                
                                
                                6,391,778
                                
                                
                                
                                4,341,254Gross
      profit
                                
                                
                                7,046,877
                                
                                
                                
                                19,079,404Operating
      expenses:General
      and administrative expenses
                                
                                
                                15,179,981
                                
                                
                                
                                15,595,171Impairment
      of goodwill
                                
                                
                                4,350,041
                                
                                
                                
                                -Impairment
      of intangible assets
                                
                                
                                3,516,068
                                
                                
                                
                                -Sales
      and marketing expenses
                                
                                
                                2,457,063
                                
                                
                                
                                5,234,149Total
      operating expenses
                                
                                
                                25,503,153
                                
                                
                                
                                20,829,320Operating
      loss
                                
                                
                                (18,456,276
                                )
                                
                                
                                (1,749,916
                                )Other
      income (expense):Interest
      income, net
                                
                                
                                37,686
                                
                                
                                
                                134,694Other
      income (expense)
                                
                                
                                7,490,248
                                
                                
                                
                                (12,304
                                )Total
      other income (expense)
                                
                                
                                7,527,934
                                
                                
                                
                                122,390Loss
      before income taxes
                                
                                
                                (10,928,342
                                )
                                
                                
                                (1,627,526
                                )Income
      tax provision (benefit)
                                
                                
                                3,393,515
                                
                                
                                
                                (154,715
                                )Loss
      from continuing operations
                                
                                
                                (14,321,857
                                )
                                
                                
                                (1,472,811
                                )Discontinued
      operationsLoss
      from discontinued component, including disposal costs
                                
                                
                                (8,329,470
                                )
                                
                                
                                (89,337
                                )Income
      tax benefit
                                
                                
                                (60,027
                                )
                                
                                
                                (33,376
                                )Loss
      from discontinued operations
                                
                                
                                (8,269,443
                                )
                                
                                
                                (55,961
                                )Net
      loss
                                
                                $
                                (22,591,300
                                )
                                
                                $
                                (1,528,772
                                )Earnings
      per share - Basic:Loss
      from continuing operations
                                
                                $
                                (2.38
                                )
                                
                                $
                                (0.24
                                )Discontinued
      operations
                                
                                
                                (1.38
                                )
                                
                                
                                (0.01
                                )Net
      loss
                                
                                $
                                (3.76
                                )
                                
                                $
                                (0.25
                                )Earnings
      per share - Diluted:Loss
      from continuing operations
                                
                                $
                                (2.38
                                )
                                
                                $
                                (0.24
                                )Discontinued
      operations
                                
                                
                                (1.38
                                )
                                
                                
                                (0.01
                                )Net
      loss
                                
                                $
                                (3.76
                                )
                                
                                $
                                (0.25
                                )Weighted
      average common shares outstanding:Basic
                                
                                
                                6,005,664
                                
                                
                                
                                6,231,610Diluted
                                
                                
                                6,005,664
                                
                                
                                
                                6,231,610




See
accompanying notes to consolidated financial statements.


35
 Table of Contents





LIVEDEAL,
INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY





Common
      Stock
                              
                              
                              Preferred
      Stock
                              
                              
                              Treasury
                              
                              
                              Paid-In
                              
                              
                              RetainedShares
                              
                              
                              Amount
                              
                              
                              Shares
                              
                              
                              Amount
                              
                              
                              Stock
                              
                              
                              Capital
                              
                              
                              Earnings
                              
                              
                              TotalBalance,
      September 30, 2007
                              
                              
                              6,693,676
                              
                              
                              $
                              6,694
                              
                              
                              
                              127,840
                              
                              
                              $
                              10,866
                              
                              
                              $
                              (2,714,698
                              )
                              
                              $
                              23,325,888
                              
                              
                              $
                              17,079,121
                              
                              
                              $
                              37,707,871Series
      E preferred stock dividends
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (1,918
                              )
                              
                              
                              (1,918
                              )Common
      stock issued in restricted stock plan
                              
                              
                              53,000
                              
                              
                              
                              53
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (53
                              )
                              
                              
                              -
                              
                              
                              
                              -Stock
      based compensation - stock options
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              10,155
                              
                              
                              
                              -
                              
                              
                              
                              10,155Restricted
      stock cancellations
                              
                              
                              (84,169
                              )
                              
                              
                              (84
                              )
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              84
                              
                              
                              
                              -
                              
                              
                              
                              -Amortization
      of deferred stock compensation
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              788,431
                              
                              
                              
                              -
                              
                              
                              
                              788,431Treasury
      stock purchases
                              
                              
                              (148,820
                              )
                              
                              
                              (149
                              )
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (525,844
                              )
                              
                              
                              149
                              
                              
                              
                              -
                              
                              
                              
                              (525,844
                              )Treasury
      stock retired
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              3,240,542
                              
                              
                              
                              (3,240,542
                              )
                              
                              
                              -
                              
                              
                              
                              -Net
      income (loss)
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (1,528,772
                              )
                              
                              
                              (1,528,772
                              )Balance,
      September 30, 2008
                              
                              
                              6,513,687
                              
                              
                              
                              6,514
                              
                              
                              
                              127,840
                              
                              
                              
                              10,866
                              
                              
                              
                              -
                              
                              
                              
                              20,884,112
                              
                              
                              
                              15,548,431
                              
                              
                              
                              36,449,923Series
      E preferred stock dividends
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (1,918
                              )
                              
                              
                              (1,918
                              )Common
      stock issued in restricted stock plan
                              
                              
                              20,000
                              
                              
                              
                              20
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (20
                              )
                              
                              
                              -
                              
                              
                              
                              -Stock
      based compensation - stock options
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              82,036
                              
                              
                              
                              -
                              
                              
                              
                              82,036Restricted
      stock cancellations
                              
                              
                              (83,250
                              )
                              
                              
                              (84
                              )
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              84
                              
                              
                              
                              -
                              
                              
                              
                              -Amortization
      of deferred stock compensation
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (198,672
                              )
                              
                              
                              -
                              
                              
                              
                              (198,672
                              )Treasury
      stock purchases
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (532,521
                              )
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (532,521
                              )Treasury
      stock retired
                              
                              
                              (317,004
                              )
                              
                              
                              (317
                              )
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              487,480
                              
                              
                              
                              (487,163
                              )
                              
                              
                              -
                              
                              
                              
                              -Net
      income (loss)
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (22,591,300
                              )
                              
                              
                              (22,591,300
                              )Balance,
      September 30, 2009
                              
                              
                              6,133,433
                              
                              
                              $
                              6,133
                              
                              
                              
                              127,840
                              
                              
                              $
                              10,866
                              
                              
                              $
                              (45,041
                              )
                              
                              $
                              20,280,377
                              
                              
                              $
                              (7,044,787
                              )
                              
                              $
                              13,207,548





See
accompanying notes to consolidated financial statements.


36
 Table of Contents


LIVEDEAL,
INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS





Year
      ended September 30,2009
                  
                  
                  2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                  
                  $
                  (22,591,300
                  )
                  
                  $
                  (1,528,772
                  )Adjustments
      to reconcile net loss to net cashprovided
      by (used in) operating activities:Depreciation
      and amortization
                  
                  
                  2,297,626
                  
                  
                  
                  3,191,237Non-cash
      stock compensation expense
                  
                  
                  82,036
                  
                  
                  
                  10,155Amortization
      of stock-based compensation
                  
                  
                  (198,672
                  )
                  
                  
                  788,431Deferred
      income taxes
                  
                  
                  4,812,623
                  
                  
                  
                  285,166Provision
      for uncollectible accounts
                  
                  
                  2,703,067
                  
                  
                  
                  505,812Noncash
      impairment of goodwill and other intangibles
                  
                  
                  16,111,494
                  
                  
                  
                  -Gain
      on sale of customer list
                  
                  
                  (3,040,952
                  )
                  
                  
                  -Gain
      on sale of internet domain name
                  
                  
                  (3,805,778
                  )
                  
                  
                  -Gain
      on amendment of directory services contract
                  
                  
                  (642,268
                  )
                  
                  
                  -(Gain)
      loss on disposal of equipment
                  
                  
                  36,693
                  
                  
                  
                  15,352Changes
      in assets and liabilities:Accounts
      receivable
                  
                  
                  3,116,762
                  
                  
                  
                  17,949Customer
      acquisition costs
                  
                  
                  -
                  
                  
                  
                  (1,700,000
                  )Prepaid
      and other current assets
                  
                  
                  10,352
                  
                  
                  
                  (281,700
                  )Deposits
      and other assets
                  
                  
                  2,335
                  
                  
                  
                  19,510Accounts
      payable
                  
                  
                  (529,031
                  )
                  
                  
                  (59,553
                  )Accrued
      liabilities
                  
                  
                  (324,867
                  )
                  
                  
                  238,901Income
      taxes receivable
                  
                  
                  (1,003,303
                  )
                  
                  
                  (171,103
                  )Net
      cash  provided by (used in) operating activities
                  
                  
                  (2,963,183
                  )
                  
                  
                  1,331,385CASH
      FLOWS FROM INVESTING ACTIVITIES:Proceeds
      from sale of internet domain name
                  
                  
                  3,850,000
                  
                  
                  
                  -Proceeds
      from sale of customer list
                  
                  
                  2,937,501
                  
                  
                  
                  -Proceeds
      from amendment of directory services contract
                  
                  
                  642,268
                  
                  
                  
                  -Expenditures
      for intangible assets
                  
                  
                  (734,878
                  )
                  
                  
                  (1,227,334
                  )Investment
      in certificates of deposits
                  
                  
                  (100,000
                  )
                  
                  
                  -Purchases
      of equipment
                  
                  
                  (100,821
                  )
                  
                  
                  (589,338
                  )Net
      cash provided by (used in) investing activities
                  
                  
                  6,494,070
                  
                  
                  
                  (1,816,672
                  )CASH
      FLOWS FROM FINANCING ACTIVITIES:Principal
      repayments on capital lease obligations
                  
                  
                  (70,123
                  )
                  
                  
                  (23,615
                  )Purchase
      of treasury stock
                  
                  
                  (532,521
                  )
                  
                  
                  (525,844
                  )Net
      cash used in financing activities
                  
                  
                  (602,644
                  )
                  
                  
                  (549,459
                  )INCREASE
      (DECREASE) IN CASH AND CASH EQUIVALENTS
                  
                  
                  2,928,243
                  
                  
                  
                  (1,034,746
                  )CASH
      AND CASH EQUIVALENTS, beginning of year
                  
                  
                  4,639,787
                  
                  
                  
                  5,674,533CASH
      AND CASH EQUIVALENTS, end of year
                  
                  $
                  7,568,030
                  
                  
                  $
                  4,639,787Supplemental
      cash flow disclosures:Cash
      paid for interest
                  
                  $
                  -
                  
                  
                  $
                  3,586Cash
      paid for income taxes
                  
                  $
                  1,860
                  
                  
                  $
                  1,860Noncash
      financing and investing activities:Acquistion
      of equipment under capital leases
                  
                  $
                  24,821
                  
                  
                  $
                  255,602Accrued
      and unpaid dividends
                  
                  $
                  1,918
                  
                  
                  $
                  1,918





See
accompanying notes to consolidated financial statements.


37
 Table of Contents





1.
            ORGANIZATION AND BASIS OF
      PRESENTATION





The
accompanying consolidated financial statements include the accounts of LiveDeal,
Inc. (formerly YP Corp.), a Nevada corporation, and its wholly owned
subsidiaries (collectively the “Company”).  The Company delivers local
customer acquisition services for small and medium-sized businesses combined
with an Internet Yellow Pages directory to deliver an affordable way for
businesses to extend their marketing reach to local, relevant customers via the
Internet through its online property, www.livedeal.com.




In and
around February 2009, the Company re-evaluated its business and adopted a new
business strategy that moved away from the integration of the Yellow Pages and
classifieds businesses to one which addressed each of its business segments as
separate entities.  This re-evaluation was necessitated by the growth
of the Company’s Direct Sales – Customer Acquisition Services business line that
provides Internet-based customer acquisition strategies for small business, as
well as declining revenues from the Company’s traditional business lines (i.e.
directory services and classifieds).  Additionally, current economic
and regulatory forces, both general and specific to the Company’s industry,
impacted management’s considerations of the Company’s existing business model
and strategy.  Some of these factors included the
following:




1.   The
      current effects of the recession and general economic
      downturn;




2.
            Management’s
      perception that the general economic downturn could lead the Company’s
      business customers to seek lower-cost customer acquisition methods,
      primarily through the Internet;




3.
              The
      sale of the Company’s “www.yp.com” domain name in the first quarter of
      2009, which domain name was associated with the Company’s traditional
      business;




4.   
      The reconstitution of the Company’s management team with additional
      capability in Internet-based
technologies;




5.   
      The termination of certain significant directory business contracts
      related to the traditional
business;




6.   
      The sale of certain of the Company’s traditional business assets,
      including certain of its customer lists;
and




7.
              Continuing
      losses in the Company’s classifieds
  business




As a
result, the Company’s management made significant changes to its business
strategy during the second quarter of fiscal 2009.  Management has
decided to move the Company’s strategic focus away from its directory
services and classified businesses and focus its efforts on being the small
businesses “internet partner” who helps small businesses use the internet and
technology to bring them customers and grow their
business.   Additionally, the Company discontinued the
operations of its Philippines-based call center, which has historically
provided telemarketing services to support its directory services business,
specifically those directory services which were sold during the quarter ended
March 31, 2009.   These strategic changes impacted the Company’s
consolidated financial statements in the following manner:




1.
            Impairment
      charges of $16,111,494 were recorded related to the write-down of the
      Company’s goodwill and other intangible assets as discussed in Note
      5;




2.
            The
      Company commenced a plan to discontinue its classifieds business and
      initiated shutdown activities, as discussed in Note 6, and has reflected
      the operating results of this line of business as discontinued operations
      in the accompanying consolidated statements of
  operations;




3.
            The
      Company sold a portion of its customer list associated with its directory
      services business and recorded a gain of $3,040,952, as discussed in Note
      15; and




4.
            The
      Company established a valuation allowance of $10,586,854 related to its
      deferred tax assets, as described in Note
11.




The
Company’s new strategic focus is on delivering a suite of Internet-based, local
search driven, customer acquisition services for small businesses, sold via
telemarketing and supported by its websites and internally developed
software.





The
following sets forth historical transactions with respect to the Company’s
organizational development:





·
            Telco Billing, Inc. was formed in
      April 1998 to provide advertising and directory listings for businesses on
      its Internet website in a “Yellow Pages” format.  Telco provides
      those services to its subscribers for a monthly fee.  These
      services are provided primarily to businesses throughout the United
      States.  Telco became a wholly owned subsidiary of YP Corp.
      after the June 1999
acquisition.


38
 Table of Contents





·
            At the time that the transaction
      was agreed to, the Company had 12,567,770 common shares issued and
      outstanding.  As a result of the merger transaction with Telco,
      there were 29,567,770 common shares outstanding, and the former Telco
      stockholders held approximately 57% of the Company’s voting
      stock.  For financial accounting purposes, the acquisition was a
      reverse acquisition of the Company by Telco, under the purchase method of
      accounting, and was treated as a recapitalization with Telco as the
      acquirer.  Consistent with reverse acquisition accounting, (i)
      all of Telco’s assets, liabilities, and accumulated deficit were reflected
      at their combined historical cost (as the accounting acquirer) and (ii)
      the preexisting outstanding shares of the Company (the accounting
      acquiree) were reflected at their net asset value as if issued on June 16,
      1999.





·
            On June 6, 2007, the Company
      completed its acquisition of LiveDeal, Inc. (“LiveDeal”), a California
      corporation.  LiveDeal operated an online local classifieds
      marketplace, www.livedeal.com, which listed millions of goods and services
      for sale across the United States.  The technology acquired in
      the acquisition offered such classifieds functionality as fraud
      protection, identity protection, e-commerce, listing enhancements, photos,
      community-building, package pricing, premium stores, featured Yellow Page
      business listings and advanced local search capabilities.  This
      business has since been discontinued – see Note
  6.





·
            On July 10, 2007, the Company
      acquired substantially all of the assets and assumed certain liabilities
      of OnCall Subscriber Management Inc., a Manila, Philippines-based company
      that provided telemarketing services.  The acquisition took
      place through the Company’s wholly-owned subsidiary, 247 Marketing LLC, a
      Nevada limited liability
company.





·
            On August 10, 2007, the Company
      filed amended and restated articles of incorporation with the Office of
      the Secretary of State of the State of Nevada, pursuant to which the
      Company’s name was changed to LiveDeal, Inc., effective August 15,
      2007.  The name change was approved by the Company’s Board of
      Directors pursuant to discretion granted to it by the Company’s
      stockholders at a special meeting on August 2,
  2007.





The
accompanying consolidated financial statements represent the consolidated
financial position and results of operations of the Company and include the
accounts and results of operations of the Company, LiveDeal, 247 Marketing,
Telco and Telco of Canada, Inc, the Company’s wholly owned subsidiaries, for the
years ended September 30, 2009 and 2008 (as restated) (see Note
3).  All intercompany transactions and balances have been eliminated
in consolidation.





2.
            SUMMARY OF SIGNIFICANT ACCOUNTING
      POLICIES





Cash and Cash
Equivalents:  This includes all short-term highly liquid
investments that are readily convertible to known amounts of cash and have
original maturities of three months or less.  At times, cash deposits
may exceed government-insured limits.





Principles of
Consolidation: The consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries, LiveDeal, 247 Marketing, Telco
Billing, Inc. and Telco of Canada, Inc.  All significant intercompany
accounts and transactions have been eliminated.





Property and
Equipment:  Property and equipment is stated at cost less
accumulated depreciation. Depreciation is recorded on a straight-line basis over
the estimated useful lives of the assets ranging from three to five years.
Depreciation expense was $432,897 and $293,297 for the years ended September 30,
2009 and 2008, respectively.





Revenue
Recognition:





Direct
Sales – Customer Acquisition Services.





Our
direct sales contracts typically involve upfront billing for an initial payment
followed by monthly billings over the contractual period.  We
recognize revenue on a straight line basis over the contractual
period.  Billings in excess of recognized revenue are included as
deferred revenue in the accompanying consolidated balance sheets.





Previously,
we recognized the value of the noncancelable portion of the Direct Sales’
customer contract as a receivable and billed the customer for the amount of the
contract over the period of the contract. The Company only recognized a portion
of the contract value as revenue each month, approximately pro-rating the
contract to a monthly amount, with the remainder of the noncancelable portion of
the contract maintained as a deferred revenue liability.  In the
quarter ended June 30, 2009, the Company corrected its balance sheet
presentation related to its direct sales contracts to include in accounts
receivable only those amounts that are outstanding receivables after having been
billed in accordance with the terms of the contract  (See Note
3).





39
 Table of Contents




Directory
Services





Revenue
is billed and recognized monthly for services subscribed in that specific
month.  The Company has historically utilized outside billing
companies to perform billing services through two primary channels:





•
            direct
      ACH withdrawals; and


•
            inclusion
      on the customer’s local telephone bill provided by their Local Exchange
      Carriers, or LECs.





For
billings via ACH withdrawals, revenue is recognized when such billings are
accepted. For billings via LECs, the Company recognizes revenue based on net
billings accepted by the LECs.  Due to the periods of time for which
adjustments may be reported by the LECs and the billing companies, the Company
estimates and accrues for dilution and fees reported subsequent to year-end for
initial billings related to services provided for periods within the fiscal
year.  Such dilution and fees are reported in cost of services in the
accompanying consolidated statements of operations.  Customer refunds
are recorded as an offset to gross revenue.





During
the second quarter of fiscal 2009, the Company sold its customer list pertaining
to its direct customers billed through LECs.  The Company continues to
service some wholesale accounts through LEC billing channels.





Revenue
for billings to certain customers that are billed directly by the Company and
not through the outside billing companies is recognized based on estimated
future collections. The Company continuously reviews this estimate for
reasonableness based on its collection experience.





Deferred
Revenues





In some
instances, the Company receives payments in advance of rendering services,
whereupon such revenues are deferred until the related services are
rendered.  Deferred revenue was $148,916 and $362,848 at September 30,
2009 and 2008, respectively.





Allowance for Doubtful
Accounts:  The Company maintains an allowance for doubtful
accounts, which includes allowances for customer refunds, dilution and fees from
LEC billing aggregators and other uncollectible accounts.  The Company
has increased its allowances for doubtful accounts to 52.8% of gross accounts
receivable at September 30, 2009 as compared to 20.9% of gross accounts
receivable at September 30, 2008.  This increase is attributable to
many factors, including regulatory activity which has increased the amount of
refunds, increasing fees from LEC service providers and the Company’s change in
business strategy, as ongoing revenue submissions and settlements with respect
to the Company’s LEC customers have ceased and bad debts, allowances and fees
are deducted from existing holdback amounts.





Income Taxes: Income
taxes are accounted for using the asset and liability method. Under this method,
deferred income tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred income tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which these temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. A valuation
allowance would be provided for those deferred tax assets for which if it is
more likely than not that the related benefit will not be
realized.  The Company classifies tax-related penalties and interest
as a component of income tax expense for financial statement
presentation.





Net Income (Loss) Per
Share: Net income (loss) per share is calculated in accordance with FASB
Accounting Standards Codification (“ASC”) 260, “Earnings Per
Share”. Under ASC 260 basic net income per share is computed using
the weighted average number of common shares outstanding during the period
except that it does not include unvested restricted stock subject to
cancellation. Diluted net income per share is computed using the weighted
average number of common shares and, if dilutive, potential common shares
outstanding during the period. Potential common shares consist of the
incremental common shares issuable upon the exercise of warrants, restricted
shares and convertible preferred stock. The dilutive effect of outstanding
restricted shares and warrants is reflected in diluted earnings per share by
application of the treasury stock method. Convertible preferred stock is
reflected on an if-converted basis.





Foreign Currency
Translation:  The Company has determined that the United States
Dollar is the functional currency for its foreign
operations.  Accordingly, gains and losses resulting from the
translation of foreign currency amounts to functional currency are included in
the consolidated statements of operations in the period in which they
occur.  In fiscal 2009, the Company ceased activities with respect to
its foreign operations which has eliminated any significant foreign currency
exposure.





Financial
Instruments: Financial instruments consist primarily of cash, cash
equivalents, accounts receivable, advances to affiliates and obligations under
accounts payable, accrued expenses and notes payable.  The carrying
amounts of cash, cash equivalents, accounts receivable, accounts payable,
accrued expenses and notes payable approximate fair value because of the short
maturity of those instruments.


40
 Table of Contents





Use of Estimates: The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make 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.  Actual results could differ from those
estimates.





Significant
estimates made in connection with the accompanying consolidated financial
statements include the estimate of dilution and fees associated with LEC
billings, the estimated reserve for doubtful accounts receivable, estimated
customer retention period used for the amortization of customer acquisition
costs, estimated forfeiture rates for stock-based compensation, fair values in
connection with the analysis of goodwill and long-lived assets for impairment,
valuation allowances against net deferred tax assets and estimated useful lives
for intangible assets and property and equipment.  Due to the effects
of the Company’s change in business strategy, it made significant changes in
estimates as it pertains to allowances for accounts receivable, valuation
allowances against net deferred tax assets, intangible assets and goodwill as
described elsewhere in these notes.





Stock-Based
Compensation:  The Company from time to time grants restricted
stock awards and options to employees and executives.  Such awards are
valued based on the grant date fair-value of the instruments, net of estimated
forfeitures. The value of each award is amortized on a straight-line basis over
the vesting period.





The
Company accounts for stock awards issued to non-employees in accordance with the
provisions of FASB ASC 718, “Compensation – Stock Compensation” and FASB ASC
505, “Equity”, and accordingly, stock awards to non-employees are accounted for
at fair value at their respective measurement date.





Internally Developed
Software and Website Development Costs:  The Company incurs
internal and external costs to develop software and websites to support its core
business functions.  The Company capitalizes internally generated
software and website development costs in accordance with the provisions of the
FASB ASC 350, “Intangibles – Goodwill and Other”.





Impairment of Long-lived
Assets: The Company assesses long-lived assets for impairment in
accordance with the provisions of FASB ASC 360 “Property, Plant and Equipment”.
A long-lived asset (asset group) shall be tested for recoverability whenever
events or changes in circumstances indicate that its carrying amount may not be
recoverable.  The carrying amount of a long lived asset is not
recoverable if it exceeds the sum of the undiscounted net cash flows expected to
result from the use and eventual disposition of the asset. The amount of
impairment loss, if any, is measured as the difference between the net book
value of the asset and its estimated fair value. For purposes of these tests,
long-lived assets must be grouped with other assets and liabilities for which
identifiable cash flows are largely independent of the cash flows of other
assets and liabilities.   The Company most recently completed an
impairment evaluation in the second quarter of fiscal 2009.  Assets
were determined to be impaired during the year ended September 30, 2009 (See
Note 5).





Goodwill:  We
evaluate our goodwill for potential impairment on an annual basis or whenever
events or circumstances indicate that an impairment may have occurred in
accordance with the provisions of FASB ASC 350 “Goodwill and Other Intangible
Assets” which requires that goodwill be tested for impairment using a two-step
process. The first step of the goodwill impairment test, used to identify
potential impairment, compares the estimated fair value of the reporting unit
containing the goodwill with the related carrying amount. If the estimated fair
value of the reporting unit exceeds its carrying amount, the reporting unit’s
goodwill is not considered to be impaired and the second step is unnecessary. As
a result of this analysis, first described in our Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 2009 and described elsewhere in this
Form 10-K, it was determined that the entire goodwill balance attributable to
the acquisitions of OnCall Subscriber Management and LiveDeal, Inc. was
impaired.





Legal
Costs:  The Company expenses legal costs associated with loss
contingencies as they are incurred.





Effects of Reverse Stock
Split: Effective on August 15, 2007, the Company implemented a 1-for-10
reverse stock split with respect to issued and outstanding shares of its common
stock.  The reverse stock split was approved by the Company’s Board of
Directors pursuant to discretion granted to it by the Company’s stockholders at
a special meeting on August 2, 2007.  All per share amounts have been
retroactively restated for the effects of this reverse stock split.





Recently Issued Accounting
Pronouncements:





On
September 30, 2009, the Company adopted changes issued by the Financial
Accounting Standards Board (“FASB”) to the authoritative hierarchy of GAAP.
These changes establish the FASB Accounting Standards Codification
(“Codification”) as the source of authoritative accounting principles recognized
by the FASB to be applied in the preparation of financial statements in
conformity with GAAP. Rules and interpretive releases of the Securities and
Exchange Commission (“SEC”) under authority of federal securities laws are also
sources of authoritative GAAP for SEC registrants. The FASB will no longer issue
new standards in the form of Statements, FASB Staff Positions, or Emerging
Issues Task Force Abstracts; instead, the FASB will issue Accounting Standards
Updates. Accounting Standards Updates will not be authoritative in their own
right as they will only serve to update the Codification. These changes and the
Codification itself do not change GAAP. Other than the manner in which new
accounting guidance is referenced, the adoption of these changes had no impact
on the consolidated financial statements.


41
 Table of Contents





In
December 2007, the FASB amended ASC 805, Business Combinations and
FASB ASC 810 “Consolidations”. FASB ASC 805 and FASB ASC 810 are products of a
joint project between the FASB and the International Accounting Standards
Board.  The revised standards continue the movement toward the greater
use of fair values in financial reporting. FASB ASC 805 will significantly
change how business acquisitions are accounted for and will impact financial
statements both on the acquisition date and in subsequent periods. These changes
include the expensing of acquisition related costs and restructuring costs when
incurred, the recognition of all assets, liabilities and noncontrolling
interests at fair value during a step-acquisition, and the recognition of
contingent consideration as of the acquisition date if it is more likely than
not to be incurred.  FASB ASC 810 will change the accounting and
reporting for minority interests, which will be recharacterized as
noncontrolling interests and classified as a component of equity.  The
changes to FASB ASC 805 and 810 are effective for both public and private
companies for fiscal years beginning on or after December 15, 2008 (January 1,
2009 for companies with calendar year-ends). FASB ASC 805 will be applied
prospectively. FASB ASC 810 requires retroactive adoption of the presentation
and disclosure requirements for existing minority interests. All other
requirements of FASB ASC 810 shall be applied prospectively. Early adoption is
prohibited for both these amendments.  The Company is currently
evaluating the effects of these amendments on its financial position and results
of operations.





In March
2008, the FASB amended ASC 815, “ Derivatives and Hedging”.  FASB ASC 815
modifies existing requirements to include qualitative disclosures regarding the
objectives and strategies for using derivatives, fair value amounts of gains and
losses on derivative instruments and disclosures about credit-risk-related
contingent features in derivative agreements. The pronouncement also requires
the cross-referencing of derivative disclosures within the financial statements
and notes thereto. The requirements of FASB ASC 815 are effective for interim
and annual periods beginning after November 15, 2008. The Company is currently
evaluating the impact of this amendment on its consolidated financial
statements.





In April
2008, the FASB amended ASC 350 “Intangibles – Goodwill and Other” amends the
factors that should be considered in developing renewal or extension assumptions
used to determine the useful life of a recognized intangible asset under ASC
350. The intent of the amendment is to improve the consistency between the
useful life of a recognized intangible asset under ASC 350 and the period of
expected cash flows used to measure the fair value of the asset under ASC 805.
Amendments to ASC 350 are effective for fiscal years beginning after December
15, 2008 and was effective for the Company on October 1, 2009. The adoption of
this amendment did not impact the Company’s financial position or results of
operations.




In June
2008, the FASB amended ASC 815 to address the determination of whether an
instrument (or an embedded feature) is indexed to an entity’s own stock, if an
instrument (or an embedded feature) that has the characteristics of a derivative
instrument is indexed to an entity’s own stock, it is still necessary to
evaluate whether it is classified in stockholders’ equity (or would be
classified in stockholders’ equity if it were a freestanding instrument). In
addition, some instruments that are potentially subject to the guidance in ASC
815 but do not have all the characteristics of a derivative instrument under
paragraphs 6 through 9, it is still necessary to evaluate whether it is
classified in stockholders’ equity.  ASC 815 is effective for
financial statements issued for fiscal years beginning after December 15,
2008. The Company has not yet evaluated the impact of amendments to ASC 815 will
have on its consolidated financial statements.




In May
2009 the FASB amended ASC 855 which establishes new terminology and disclosure
requirements pertaining to subsequent events and was effective for interim or
annual periods ending after June 15, 2009.  The Company adopted this
amendment in the three months ended June 30, 2009 and has complied with the new
disclosure requirements.





3.
            RESTATEMENT





The
Company’s direct sales contracts typically involve upfront billing for an
initial payment followed by monthly billings over the contractual
period.  The Company recognizes revenue on a straight line basis over
the contractual period.  Billings in excess of recognized revenue are
included as deferred revenue in the accompanying consolidated balance
sheets.





Previously,
the Company recognized the value of the noncancelable portion of the Direct
Sales’ customer contract as a receivable and billed the customer for the amount
of the contract over the period of the contract. The Company only recognized a
portion of the contract value as revenue each month, approximately pro-rating
the contract to a monthly amount, with the remainder of the noncancelable
portion of the contract maintained as a deferred revenue
liability.  In the quarter ended June 30, 2009, the Company corrected
its balance sheet presentation related to its direct sales contracts to include
in accounts receivable only those amounts that are outstanding receivables after
having been billed in accordance with the terms of the
contract.  There was no material impact to the Company’s financial
condition, operating cash flows or results of operations as a result of this
correction.  Prior periods have been restated to conform to the
current period presentation.





The
following table sets forth the impact of this correction on our balance sheet as
of September 30, 2008:





September 30, 2008As
      Originally
                              Reported
                            
                            
                            As Restated
                            
                            
                            Net ChangeAccounts
      receivable, net (current)
                            
                            $
                            6,880,492
                            
                            
                            $
                            6,326,272
                            
                            
                            $
                            (554,220
                            )Accrued
      liabilities
                            
                            $
                            1,991,369
                            
                            
                            $
                            1,437,149
                            
                            
                            $
                            (554,220
                            )




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4.
            BALANCE SHEET
      INFORMATION





Balance
sheet information is as follows:




September
      30,
                              
                              
                              September
      30,2009
                              
                              
                              2008(as
      restated,see
      Note 3)Receivables,
      current, net:Accounts
      receivable, current
                              
                              $
                              3,776,966
                              
                              
                              $
                              8,369,095Less:
      Allowance for doubtful accounts
                              
                              
                              (2,298,783
                              )
                              
                              
                              (2,042,823
                              )$
                              1,478,183
                              
                              
                              $
                              6,326,272Receivables,
      long term, net:Accounts
      receivable, long term
                              
                              $
                              1,581,946
                              
                              
                              $
                              2,171,865Less:
      Allowance for doubtful accounts
                              
                              
                              (542,543
                              )
                              
                              
                              (160,722
                              )$
                              1,039,403
                              
                              
                              $
                              2,011,143Total
      receivables, net:Gross
      receivables
                              
                              $
                              5,358,912
                              
                              
                              $
                              10,540,960Allowance
      for doubtful accounts
                              
                              
                              (2,841,326
                              )
                              
                              
                              (2,203,545
                              )$
                              2,517,586
                              
                              
                              $
                              8,337,415
  Components of allowance for doubtful accounts are as follows:
  September
      30,
                      
                      
                      September
      30,2009
                      
                      
                      2008Allowance
      for dilution and fees on amountsdue
      from billing aggregators
                      
                      $
                      2,690,895
                      
                      
                      $
                      1,775,276Allowance
      for customer refunds
                      
                      
                      150,431
                      
                      
                      
                      428,269$
                      2,841,326
                      
                      
                      $
                      2,203,545
 
 September
      30,
                      
                      
                      September
      30,2009
                      
                      
                      2008Property
      and equipment, net:Leasehold
      improvements
                      
                      $
                      235,056
                      
                      
                      $
                      233,970Furnishings
      and fixtures
                      
                      
                      336,067
                      
                      
                      
                      311,319Office,
      computer equipment and other
                      
                      
                      692,317
                      
                      
                      
                      961,9311,263,440
                      
                      
                      
                      1,507,220Less:
      Accumulated depreciation
                      
                      
                      (647,534
                      )
                      
                      
                      (547,366
                      )$
                      615,906
                      
                      
                      $
                      959,854
 
 September
      30,
                      
                      
                      September
      30,2009
                      
                      
                      2008Intangible
      assets, net:Domain
      name and marketing related intangibles
                      
                      $
                      6,699,600
                      
                      
                      $
                      7,208,600Non-compete
      agreements
                      
                      
                      3,465,000
                      
                      
                      
                      3,465,000Website
      and technology related intangibles
                      
                      
                      4,678,970
                      
                      
                      
                      4,147,45914,843,570
                      
                      
                      
                      14,821,059Less:  Accumulated
      amortization
                      
                      
                      (12,506,856
                      )
                      
                      
                      (8,084,981
                      )$
                      2,336,714
                      
                      
                      $
                      6,736,078
 
 September
      30,
                            
                            
                            September
      30,2009
                            
                            
                            2008(as
      restated,see
      Note 3)Accrued
      liabilities:Deferred
      revenue
                            
                            $
                            148,916
                            
                            
                            $
                            362,848Accrued
      payroll and bonuses
                            
                            
                            289,944
                            
                            
                            
                            306,984Accruals
      under revenue sharing agreements
                            
                            
                            314,754
                            
                            
                            
                            326,306Accrued
      expenses - other
                            
                            
                            339,197
                            
                            
                            
                            441,011$
                            1,092,811
                            
                            
                            $
                            1,437,149
 
 September
      30,
                      
                      
                      September
      30,2009
                      
                      
                      2008Customer
      acquisition costs, net:Customer
      acquisition costs
                      
                      $
                      1,700,000
                      
                      
                      $
                      1,700,000Less:  Accumulated
      amortization
                      
                      
                      (1,700,000
                      )
                      
                      
                      (1,057,780
                      )$
                      -
                      
                      
                      $
                      642,220




5.
            INTANGIBLE
      ASSETS





The
Company’s intangible assets consist of licenses for the use of Internet domain
names or Universal Resource Locators, or URLs, capitalized website development
costs, other information technology licenses and marketing and technology
related intangibles acquired through the acquisition of LiveDeal,
Inc.  All such assets are capitalized at their original cost and
amortized over their estimated useful lives ranging from 3 to 20
years.




43
 Table of Contents




In
January 2009, in connection with the strategic changes described in Note 3, the
Company’s management, at the direction of the Company’s Audit Committee,
commenced an interim reporting period review of the Company’s goodwill and
intangible assets for impairment.  As described in Note 2, the Company
evaluates goodwill and other long-lived assets for impairment on an annual basis
or whenever facts and circumstances indicate that impairment may
exist.  Current economic and regulatory forces, both general and
specific to the Company’s industry, caused management to consider the Company’s
existing business model and strategy (See Note 1).




In light
of the changes in the Company’s business strategy and model as described in Note
3, the Company determined that a triggering event had occurred and
initiated an impairment analysis.




In
conducting this analysis, the Company used a discounted cash flow approach in
estimating fair value as market values could not be readily determined given the
unique nature of the respective assets.  For the assets identified as
being impaired, the cash flows associated with the underlying assets did not
support a value greater than zero given the shutdown of the classifieds business
and the Philippines call-center operation, the impacts of the sale of a portion
of the Company’s customer list and www.yp.com domain
name, and other operational changes as a result of the Company’s change in
business strategy.




Based
upon the analysis, management determined that the following items were
impaired:




1.
            The
      goodwill acquired by the Company in its acquisition of LiveDeal, Inc., the
      business focus of which was online classified advertising which was
      originally intended to be merged with the Company’s existing directory
      services business;




2.
            The
      goodwill acquired by the Company in its acquisition of a Philippines
      call-center, OnCall Subscriber Management, the business focus of
      which was providing telemarketing services to acquire customers for
      its directory services business;




3.
            Assets
      related to the Company’s call-center operations and non-compete agreements
      that were effectively made obsolete due to the sale of a portion of the
      Company’s customer list associated with its directory services business,
      as described in Note 15; and




4.
            Intangible
      assets related to the Company’s directory services business, including
      URLs, internally developed software, and other miscellaneous intangible
      assets.




The
following is a summary of these impaired assets and their net book values, which
were fully written off in the second quarter of fiscal 2009:




Continuing
                      Operations
                    
                    
                    Discontinued
                      Operations
                    
                    
                    Total
                      ImpairmentGoodwill
                    
                    $
                    4,350,041
                    
                    
                    $
                    7,356,365
                    
                    
                    $
                    11,706,406Domain
      name and marketing related intangibles
                    
                    
                    1,879,054
                    
                    
                    
                    
                    
                    
                    
                    1,879,054Assets
      related to customer list
                    
                    
                    1,259,680
                    
                    
                    
                    -
                    
                    
                    
                    1,259,680Website
      and technology related intangibles
                    
                    
                    377,334
                    
                    
                    
                    889,020
                    
                    
                    
                    1,266,354$
                    7,866,109
                    
                    
                    $
                    8,245,385
                    
                    
                    $
                    16,111,494




Included
in the assets that became obsolete through the sale of a portion of the
Company’s customer list were $722,103 related to non-compete agreements and
$537,577 of assets associated with the Philippines call-center.





The
following summarizes the estimated future amortization expense related to
intangible assets:





Years
      ended September 30,2010
                        
                        $
                        581,9962011
                        
                        
                        432,8952012
                        
                        
                        210,5572013
                        
                        
                        77,4222014
                        
                        
                        77,422Thereafter
                        
                        
                        956,422Total
                        
                        $
                        2,336,714


44
 Table of Contents




Total
amortization expense related to intangible assets was $1,222,509 and $1,840,161
for the years ended September 30, 2009 and 2008, respectively.





6.
              DISCONTINUED
      OPERATIONS





As part
of the Company’s strategy to evaluate each of its business segments as separate
entities, management noted that the classifieds business has incurred
significant operating losses and determined that it did not fit with the
Company’s change in strategic direction.  Accordingly, in and around
February 2009, the Company made the strategic decision to discontinue its
classifieds business and product offerings. The Company initiated shutdown
activities in March 2009 and concluded such activities in June 2009, including
the shutdown of the website previously used for classified
activities.  Accordingly, the Company does not expect any future
revenues from this business segment.





The
Company determined that the classified business met the definition of a
component as it has separately identifiable operations and cash flows through at
least revenues and cost of sales. Costs and expenses related to general and
administrative expenses have not been allocated since these expenses cannot be
separated due to the prior efforts to integrate this business with the other
business lines of the Company.  Accordingly, the results of the
classifieds business are reflected as discontinued operations in the
accompanying statements of operations to the extent that these operations are
separately identifiable.   Prior year financial statements have
been restated to present the classifieds operations as a discontinued
operation.





In
conjunction with the discontinued operations, the Company recorded charges of
$27,328 during the year ended September, 30, 2009 for certain exit costs
relating to the shutdown of these operations which is reflected as part of
income (loss) from discontinued operations in the accompanying consolidated
statement of operations for the year ended September 30, 2009.





The
classifieds business accounted for $227,575 and $1,862,503 of net revenues for
years ended September 30, 2009 and 2008, respectively, which are now included as
part of loss from discontinued operations in the accompanying consolidated
statements of operations.





7.
            CAPITAL
      LEASES





At
September 30, 2009, the Company was a party to two capital leases for
communications equipment acquired during the year ended September 30, 2008 with
a cost basis of $255,603.  These leases have terms ranging from 45 to
48 months and imputed interest rates ranging from 3.6% to 13.2%.  All
capital leases are secured by the underlying equipment.  Equipment
acquired under these capital leases is being depreciated over their estimated
lives of four years.





Future
minimum lease payments due under the capital lease agreements are as follows for
the years ended September 30:





2010
                      
                      $
                      76,8762011
                      
                      
                      76,8762012
                      
                      
                      44,8922013
                      
                      
                      -2014
                      
                      
                      -Thereafter
                      
                      
                      -Total
      minimum lease payments
                      
                      
                      198,644Less
      imputed interest
                      
                      
                      (11,959
                      )Present
      value of minimum lease payments
                      
                      
                      186,685Less:
      current maturities of capital lease obligations
                      
                      
                      69,612Noncurrent
      maturities of capital lease obligations
                      
                      $
                      117,073




8.
            STOCKHOLDERS’
      EQUITY





Common Stock Issued for
Services





The
Company historically has granted shares of its common stock to officers,
directors and consultants as payment for services rendered. The value of those
shares was determined based on the trading value of the stock at the date at
which the counterparties’ performance is complete.  No such share
issuances were made during the years ended September 30, 2009 or
2008.




45
 Table of Contents




Series E Convertible
Preferred Stock





During
the year ended September 30, 2002, pursuant to an existing tender offer, holders
of 13,184 shares of the Company’s common stock exchanged said shares for 131,840
shares of Series E Convertible Preferred Stock, at the then $0.85 market value
of the common stock.  The shares carry a $0.30 per share liquidation
preference and accrue dividends at the rate of 5% per annum on the liquidation
preference per share, payable quarterly from legally available funds. If such
funds are not available, dividends shall continue to accumulate until they can
be paid from legally available funds. Each
Series E Share is convertible into one-tenth (1/10th) of a share of Common
Stock. Holders of Series E Shares requesting to convert such shares will be
required to (i) tender their Series E Shares in lots of at least 10 shares at a
time and (ii) pay $.45 per Series E Share (i.e., a minimum of $4.50 per lot
tendered) that they desire to convert into shares of Common
Stock.




Treasury
Stock





The
Company’s treasury stock consists of shares repurchased on the open market or
shares received through various agreements with third parties.  The
value of such shares is determined based on cash paid or quoted market
prices.





On May
25, 2007, the Company’s Board of Directors terminated its pre-existing stock
repurchase plan and replaced it with a new plan authorizing repurchases of up to
$1,000,000 of common stock from time to time on the open market or in privately
negotiated transactions.  The repurchase plan was increased by another
$500,000 on October 23, 2008.  During the years ended September 30,
2009 and 2008, the Company acquired an aggregate of 346,110 and 148,820 shares
of common stock for an aggregate repurchase price of $532,521 and $525,844,
respectively.





Dividends





During
each of the years ended September 30, 2009 and 2008, the Company accrued
dividends of $1,918 and $1,918, respectively, to holders of Series E preferred
stock.  No dividends were paid in 2009.





9.
            NET LOSS PER
      SHARE





Net loss
per share is calculated using the weighted average number of shares of common
stock outstanding during the year.  Preferred stock dividends are
subtracted from net loss to determine the amount available to common
stockholders.





The
following table presents the computation of basic and diluted loss per
share:





Year EndedSeptember 30, 2009
                      
                      
                      Year EndedSeptember 30, 2008Net
      loss from continuing operations
                      
                      $
                      (14,321,857
                      )
                      
                      $
                      (1,472,811
                      )Less:
      preferred stock dividends
                      
                      
                      (1,918
                      )
                      
                      
                      (1,918
                      )Loss
      from continuing operationsapplicable
      to common stock
                      
                      
                      (14,323,775
                      )
                      
                      
                      (1,474,729
                      )Loss
      from discontinued operations
                      
                      
                      (8,269,443
                      )
                      
                      
                      (55,961
                      )Net
      loss applicable to common stock
                      
                      $
                      (22,593,218
                      )
                      
                      $
                      (1,530,690
                      )Basic
      weighted average common shares outstanding:
                      
                      
                      6,005,664
                      
                      
                      
                      6,231,610Add
      incremental shares for:Unvested
      restricted stock
                      
                      
                      -
                      
                      
                      
                      -Series
      E convertible preferred stock
                      
                      
                      -
                      
                      
                      
                      -Outstanding
      warrants
                      
                      
                      -
                      
                      
                      
                      -Diluted
      weighted average common shares outstanding:
                      
                      
                      6,005,664
                      
                      
                      
                      6,231,610Earnings
      per share - Basic:Loss
      from continuing operations
                      
                      $
                      (2.38
                      )
                      
                      $
                      (0.24
                      )Discontinued
      operations
                      
                      
                      (1.38
                      )
                      
                      
                      (0.01
                      )Net
      loss
                      
                      $
                      (3.76
                      )
                      
                      $
                      (0.25
                      )Earnings
      per share - Diluted:Loss
      from continuing operations
                      
                      $
                      (2.38
                      )
                      
                      $
                      (0.24
                      )Discontinued
      operations
                      
                      
                      (1.38
                      )
                      
                      
                      (0.01
                      )Net
      loss
                      
                      $
                      (3.76
                      )
                      
                      $
                      (0.25
                      )




46
 Table of Contents




The
following potentially dilutive securities were excluded from the calculation of
net loss per share because the effects are antidilutive:





September 30,2009
                      
                      
                      2008Options
      to purchase shares of common stock
                      
                      
                      403,032
                      
                      
                      
                      5,000Series
      E convertible preferred stock
                      
                      
                      127,840
                      
                      
                      
                      127,840Shares
      of non-vested restricted stock
                      
                      
                      152,169
                      
                      
                      
                      322,614683,041
                      
                      
                      
                      455,454




10.
            COMMITMENTS
      AND CONTINGENCIES




Operating Leases and Service
Contracts





The
Company leases its office space and certain equipment under long-term operating
leases expiring through fiscal year 2013.  Rent expense under these
leases was $733,626 and $819,752 for the years ended September 30, 2009 and
2008, respectively.  The Company has also entered into several
non-cancelable service contracts.





As of
September 30, 2009, future minimum annual lease payments under operating lease
agreements and non-cancelable service contracts for fiscal years ended September
30 are as follows:





Payments Due by Fiscal YearTotal
                          
                          
                          2010
                          
                          
                          2011
                          
                          
                          2012
                          
                          
                          2013
                          
                          
                          2014
                          
                          
                          ThereafterOperating
      lease commitments
                          
                          $
                          1,315,693
                          
                          
                          $
                          497,117
                          
                          
                          $
                          424,525
                          
                          
                          $
                          315,331
                          
                          
                          $
                          78,720
                          
                          
                          $
                          -
                          
                          
                          $
                          -Noncanceleable
      service contracts
                          
                          
                          1,029,362
                          
                          
                          
                          647,251
                          
                          
                          
                          361,111
                          
                          
                          
                          21,000
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -$
                          2,345,055
                          
                          
                          $
                          1,144,368
                          
                          
                          $
                          785,636
                          
                          
                          $
                          336,331
                          
                          
                          $
                          78,720
                          
                          
                          $
                          -
                          
                          
                          $
                          -





The
Company is also a party to certain capital leases – see Note 7.





Change in Officers and
Employment Agreements





Dan Coury
was terminated as our Chief Executive Officer on May 19, 2008 and, in connection
with this termination he resigned as a member of our Board of
Directors.  Pursuant to the terms of his employment agreement dated
September 19, 2006 (the "Employment Agreement"); the Company paid Mr. Coury (i)
his earned but unpaid salary and vacation through May 19, 2008 and (ii) a
one-time lump sum payment of $496,000 in connection with his termination. Of the
155,000 shares of restricted stock of the Company that Mr. Coury owned at the
date of his departure, 111,667 shares were immediately vested and the remaining
43,333 shares were forfeited and cancelled.  As required under the
Employment Agreement, Mr. Coury provided the Company with a general release of
any and all claims relating to his employment and/or the termination thereof in
consideration of the payments described above.





On May
22, 2008, the Company’s Board of Directors appointed Mr. Rajesh Navar as its
chairman, and Mr. Navar resigned his position as President of the Company.
 Mr. Navar resigned as Chairman effective October 15, 2009 in connection
with the  transition of his primary residence to India. See Note
17.





On June
1, 2008, Michael Edelhart was appointed as Chief Executive Officer and to serve
as a director of the Company.  In exchange for his role as Chief
Executive Officer, Mr. Edelhart received compensation of $250,000 annually
andwas eligible to
receive a bonus of up to $60,000 per year if the Company achieves certain
performance objectives established by the Company's Board of Directors and/or
its Compensation Committee.  During the year ended September 30, 2008,
Mr. Edelhart received an option to purchase 5,000 shares of the Company’s common
stock that was fully vested at September 30, 2008.  Subsequent to
September 30, 2008, Mr. Edelhart also received an option to purchase 150,000
shares of the Company's common stock under the Company's 2003 Stock
Plan.




On May
19, 2009, Richard F. Sommer was appointed as the Company’s new President and
Chief Executive Officer, effective immediately, to replace Michael Edelhart, the
outgoing CEO, whose employment terminated the same day.   The
Company entered into a separation agreement dated July 8, 2009 that provided for
a one-time payment of $62,500 to Mr. Edelhart together with a payment for
accrued vacation and certain other expenses.  The Company recognized
expenses totaling $93,195 associated with Mr. Edelhart’s departure during the
year ended September 30, 2009.  As of September 30, 2009, all amounts
pertaining to this separation have been paid.




47
 Table of Contents




In
connection with the appointment of Mr. Sommer, he and the Company entered into
an Employment Agreement effective May 19, 2009 (the “Employment
Agreement”).  The Employment Agreement provides for a three-year
employment term.  Pursuant to the Employment Agreement, Mr. Sommer
will be paid an annual salary of $300,000 and will be eligible to receive a
bonus of up to $100,000 per year if the Company achieves certain performance
targets established by the Company’s Board of Directors and/or its Compensation
Committee.  Mr. Sommer is also 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 the Company’s stockholders in the form of a dividend, in the event
of liquidation or upon a change of control.  If the Company terminates
Mr. Sommer’s employment prior to the end of his term of employment without cause
(as defined in the Employment Agreement) and certain other conditions are met
(including that Mr. Sommer provide a valid release of claims in favor of the
Company), Mr. Sommer will be entitled to receive severance payments equal to his
then current monthly salary for three months.  The Employment
Agreement also provides that the Company will reimburse Mr. Sommer for
reasonable business expenses and allows him to participate in its regular
benefit programs.




On
November 23, 2009, the Company and Mr. Sommer entered into an amendment to Mr.
Sommer’s Employment Agreement.  The amendment, which was effective as
of October 29, 2009, provides that Mr. Sommer is entitled to an option to
purchase 250,000 shares of the Company’s common stock at an exercise price of
$1.95 per share, which was equal to the closing price of the Company’s common
stock on the date of grant.  The option was granted pursuant to the
Company’s 2003 Stock Plan and will 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 the Company’s stockholders
in the form of a dividend, in the event of liquidation or upon a change of
control.


On
November 25, 2009, Rajeev Seshadri entered into a Separation Agreement and Full
Release of Claims with the Company in connection with his departure as Chief
Financial Officer of the Company, which was agreed upon on November 19, 2009 and
will take effect on January 2, 2010 (the “Resignation Date”).
 
 Under the
terms of the Separation Agreement and in accordance with his employment
agreement, the Company will continue to pay Mr. Seshadri his base salary for
three months following the Resignation Date (less applicable taxes and other
withholdings).  Mr. Seshadri may also elect to receive such payment
(the gross amount of which is $53,750) in a lump sum on the Resignation
Date.  The $15,000 bonus to which Mr. Seshadri is entitled under his
employment agreement for the Company’s fourth quarter of fiscal 2009 will be
paid in a lump sum on the Resignation Date.  The Company will pay Mr.
Seshadri’s COBRA payments for three months and reimburse his reasonable
attorneys’ fees related to the negotiation of the Separation
Agreement.  The Separation Agreement also provides for Mr. Seshadri to
serve as a consultant to the Company until January 31, 2010 for at least 16
hours per week at a rate of $230 per hour.  Finally, Mr. Seshadri will
continue to be entitled to exercise his vested stock options in accordance with
the terms of the applicable stock option agreements for a period of 180 days
from the date of his resignation; his unvested options will be forfeited and
cancelled.
 
 In
exchange for the payments described above, Mr. Seshadri provided a full release
of claims arising out of, or relating to, his employment with the Company, his
termination from the position of Chief Financial Officer of the Company, and/or
his resignation.  The Separation Agreement also contains customary
provisions with respect to confidentiality and non-solicitation, as well as
mutual covenants on the part of Mr. Seshadri and the Company regarding public
statements and non-disparagement.
 
 Also on
November 19, 2009, the Company appointed Lawrence W. Tomsic to replace Mr.
Seshadri as its Chief Financial Officer, effective on the Resignation
Date.  In connection with Mr. Tomsic’s appointment as Chief Financial
Officer, he and the Company entered into an Employment Agreement.  The
Employment Agreement provides for a one-year employment term that may be
extended upon the mutual agreement of the Company and Mr. Tomsic.
 
 Pursuant
to the Employment Agreement, Mr. Tomsic will be paid an annual salary of
$215,000 and will be eligible to receive a bonus of up to $60,000 per year if
the Company achieves certain performance targets established by the Company’s
Board of Directors and/or its Compensation Committee.  Mr. Tomsic will
be granted an option to purchase 100,000 shares of the Company’s common stock
under the Company’s Amended and Restated 2003 Stock Plan.  Twenty-five
percent of the option award will vest on the first anniversary of Mr. Tomsic’s
first formal date of employment, and the remainder will vest in equal increments
over the subsequent 36 months.  The award would immediately vest upon
Mr. Tomsic’s termination as an employee of the Company following a change of
control of the Company.  If the Company terminates Mr. Tomsic’s
employment prior to the end of his term of employment without cause (as defined
in the Employment Agreement), Mr. Tomsic will be entitled to receive a severance
payment equal to one month of his then-current salary for each full year of his
employment with the Company.  The Employment Agreement also provides
that the Company will reimburse Mr. Tomsic for reasonable business expenses and
allows him to participate in its regular benefit programs.




Litigation





The
Company is party to certain legal proceedings incidental to the conduct of its
business. Management believes that the outcome of pending legal proceedings will
not, either individually or in the aggregate, have a material adverse effect on
its business, financial position, and results of operations, cash flows or
liquidity.





Except as
described below, as of September 30, 2009, the Company was not a party to any
pending material legal proceedings other than claims that arise in the normal
conduct of its business. While management currently believes that the ultimate
outcome of these proceedings will not have a material adverse effect on its
consolidated financial condition or results of operations, litigation is subject
to inherent uncertainties. If an unfavorable ruling were to occur, there exists
the possibility of a material adverse impact on the Company’s net income in the
period in which a ruling occurs. The Company’s estimate of the potential impact
of the following legal proceedings on its financial position and its results of
operation could change in the future.





The
Company has not recorded any accruals pertaining to its legal proceedings as
they do not meet the criteria for accrual under FASB ASC 450.





Joe
Cunningham v. LiveDeal, Inc. et al.





On July
16, 2008, Joseph Cunningham, who was at the time a member of LiveDeal's Board of
Directors, filed a complaint with the U.S. Department of Labor's Occupational
Safety and Health Administration ("OSHA") alleging that the Company and certain
members of its Board of Directors had engaged in discriminatory employment
practices in violation of the Sarbanes-Oxley Act of 2002's statutory protections
for corporate whistleblowers when the Board of Directors removed him as Chairman
on May 22, 2008. In his complaint, Mr. Cunningham asked OSHA to order his
appointment as Chief Executive Officer of the Company or, in the alternative, to
order his reinstatement as Chairman of the Board. Mr. Cunningham also sought
back pay, special damages and litigation costs. The Company has not received any
correspondence from OSHA, and there have been no other developments in the
matter, since December 2008.





State
of Washington v. LiveDeal, Inc. et al.





On
December 16, 2006, the State of Washington Attorney General’s office entered
into a Consent Decree with LiveDeal, Inc. (known at the time as YP Corp.) and
its subsidiary, Telco Billing, Inc.  Pursuant to the Consent Decree,
the Company agreed to provide certain confidential, trade secret information to
the Attorney General’s office as part of the settlement of a regulatory dispute
between the State of Washington and the Company.





On July
14, 2009, the Attorney General’s office contacted the Company to request certain
confidential, trade secret information to which it was entitled under the
Consent Decree.  The Company acknowledged its obligation to provide
the requested information but asked the Attorney General’s office to verify that
it would not provide such information to third parties.  When the
Company was informed by opposing legal counsel in a private litigation matter
that the Attorney General’s office intended to provide its confidential, trade
secret information to such counsel’s client and other third parties immediately
upon receipt, the Company began taking certain steps to protect the sensitive
information while complying with its obligations under the Consent
Decree.




Following
unsuccessful settlement discussions in which the Attorney General’s office
refused to enter into any agreement not to share the confidential information
with third parties (including the Company’s opponents in pending private
litigation), the Company sought a protective order in the State of Washington’s
King County Superior Court (Case No. 06-2-39213-2 SEA) on September 8, 2009,
which was denied on November 16, 2009.  The Company is appealing that
decision with in State of Washington’s Court of Appeals (Division I, Case No.
64539-1) and has filed a motion to stay the effect of the November 16, 2009
ruling.  The appeal is pending.




48
 Table of Contents




Global
Education Services, Inc. v. LiveDeal, Inc.





On June
6, 2008, Global Education Services, Inc. ("GES") filed a consumer fraud class
action lawsuit against the Company in King County (Washington) Superior Court.
GES has alleged in its complaint that the Company's use of activator checks
violated the Washington Consumer Protection Act. GES is seeking injunctive
relief against the Company’s use of the checks, as well as a judgment in an
amount equal to three times the alleged damages sustained by GES and the members
of the class. LiveDeal has denied the allegations.





Complaint
filed by Illinois Attorney General against LiveDeal, Inc.





On
November 12, 2008, the Illinois Attorney General filed a complaint in the
Circuit Court of the Seventh Judicial Circuit of the State of Illinois (Sangamon
County) against the Company requesting money damages and injunctive relief for
claims that we employed deceptive and unfair acts and practices in
violation of the Illinois Consumer Fraud and Deceptive Business Act in a
telemarketing campaign that in part promoted premium Internet Yellow
Page listings to Illinois consumers.  LiveDeal has denied
the allegations.  Legal proceedings in the manner are ongoing and
discovery began in April, 2009.  The Company is currently unable to
estimate any possible losses associated with these matters and no amounts have
been accrued at September 30, 2009.





LiveDeal,
Inc. v. On-Call Superior Management (“OSM”)  and SMeVentures, Inc.
(“SMe”)





On April
6, 2009, LiveDeal filed a declaratory judgment to a termination of contract
claim and a complaint on May 29, 2009 against OSM and SMe Ventures, Philippines
call center managers with whom the Company had entered into contracts in
November of 2007 and earlier, to provide inbound and outbound telemarketing
services, respectively, alleging breach of contract.  OSM and SMe have
counterclaimed, alleging breach of contract.  Legal proceedings in the
matter are ongoing.  The Company is currently unable to estimate any
possible losses associated with these matters and no amounts have been accrued
at September 30, 2009.




Other Contractual
Agreements





On
November 30, 2008, each of the following agreements was terminated pursuant to
notices of termination delivered to the Company by its respective
counterparties:





·
            Fulfillment
      and Marketing Agreement dated October 10, 2007, by and between
      the Company and Sharednet.


·
            Fulfillment
      and Marketing Agreement dated October 16, 2007, by and between
      the Company and OneSource Web
Hosting.


·
            Fulfillment
      and Marketing Agreement dated October 10, 2007, by and between
      the Company and Blabb1e
Networks.





Under the
agreements, the Company provided certain fulfillment and directory services to
the customers of Sharednet, OneSource Web Hosting and Blabble Networks,
respectively (collectively, the "Wholesalers"). In exchange for such
services, the Wholesalers remitted all related fees collected (less their
10% commission) to the Company. Such fees accounted for approximately $5.3
million, or 18%, of the Company’s net revenues in fiscal 2008.  The
agreements accounted for about 12,000 of the Company’s approximately 65,000
customers as of that date.





11.
            PROVISION
      FOR INCOME TAXES





Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes.





Income
taxes for years ended September 30, is summarized as follows:





2009
                        
                        
                        2008Current
      provision (benefit)
                        
                        $
                        (1,071,763
                        )
                        
                        $
                        (470,728
                        )Deferred
      (benefit) provision
                        
                        
                        4,405,251
                        
                        
                        
                        282,637Net
      income tax (benefit) provision
                        
                        $
                        3,333,488
                        
                        
                        $
                        (188,091
                        )




49
 Table of Contents




A
reconciliation of the differences between the effective and statutory income tax
rates for years ended September 30, is as follows:


2009
                                      
                                      
                                      2008Amount
                                      
                                      
                                      Percent
                                      
                                      
                                      Amount
                                      
                                      
                                      PercentFederal
      statutory rates
                                      
                                      $
                                      (6,547,656
                                      )
                                      
                                      
                                      381
                                      %
                                      
                                      $
                                      (583,733
                                      )
                                      
                                      
                                      (16
                                      )%State
      income taxes
                                      
                                      
                                      (647,294
                                      )
                                      
                                      
                                      38
                                      %
                                      
                                      
                                      (57,707
                                      )
                                      
                                      
                                      (2
                                      )%Write
      off of deferred tax assetrelated
      to vested restricted stock
                                      
                                      
                                      48,570
                                      
                                      
                                      
                                      (3
                                      )%
                                      
                                      
                                      517,547
                                      
                                      
                                      
                                      14
                                      %Valuation
      allowance against netdeferred
      tax assets
                                      
                                      
                                      10,586,854Other
                                      
                                      
                                      (106,986
                                      )
                                      
                                      
                                      6
                                      %
                                      
                                      
                                      (64,198
                                      )
                                      
                                      
                                      (2
                                      )%Effective
      rate
                                      
                                      $
                                      3,333,488
                                      
                                      
                                      
                                      (194
                                      )%
                                      
                                      $
                                      (188,091
                                      )
                                      
                                      
                                      (5
                                      )%





At September 30, deferred income tax
assets and liabilities were comprised of:





2009
                        
                        
                        2008Deferred
      income tax asset, current:Book
      to tax differences in accounts receivable
                        
                        $
                        1,118,416
                        
                        
                        $
                        884,368Book
      to tax differences in prepaid assets andaccrued expenses
                        
                        
                        (34,829
                        )
                        
                        
                        64,753Total
      deferred income tax asset, current
                        
                        
                        1,083,587
                        
                        
                        
                        949,121Less:
      valuation allowance
                        
                        
                        (1,083,587
                        )
                        
                        
                        -Deferred
      income tax asset, current, net
                        
                        
                        -
                        
                        
                        
                        949,121Deferred
      incom tax asset, long-term:Net
      operating loss carryforwards
                        
                        
                        3,481,786
                        
                        
                        
                        3,481,786Book
      to tax differences for stock based compensation
                        
                        
                        218,565
                        
                        
                        
                        204,805Book
      to tax differences in intangible assets
                        
                        
                        7,377,360
                        
                        
                        
                        1,342,999Book
      to tax differences in other
                        
                        
                        326
                        
                        
                        
                        -Book
      to tax differences in depreciation
                        
                        
                        (1,574,770
                        )
                        
                        
                        (1,166,088
                        )Total
      deferred income tax asset, long-term
                        
                        
                        9,503,267
                        
                        
                        
                        3,863,502Less:
      valuation allowance
                        
                        
                        (9,503,267
                        )
                        
                        
                        -Deferred
      income tax asset, net
                        
                        
                        -
                        
                        
                        
                        3,863,502Total
      deferred income tax asset
                        
                        $
                        -
                        
                        
                        $
                        4,812,623




A full
valuation allowance has been established against all net deferred tax assets as
of September 30, 2009 based on estimates of recoverability.  While the
Company has optimistic plans for its new business strategy, it determined
that such a valuation allowance was necessary given the current and expected
near term losses and the uncertainty with respect to its ability to generate
sufficient profits from its new business model.





As part
of its deferred tax assets, the Company has net operating loss carryforwards
resulting from its acquisition of LiveDeal, Inc in fiscal 2007.  Such
amounts are subject to IRS code section 382 limitations and expire in
2027.





12.
            CONCENTRATION OF CREDIT
      RISK





The
Company maintains cash balances at banks in California, Arizona and
Nevada.  Accounts are insured by the Federal Deposit Insurance
Corporation up to $250,000 per institution as of September 30,
2009.





Financial
instruments that potentially subject the Company to concentrations of credit
risk are primarily trade accounts receivable.  The trade accounts
receivable are due primarily from business customers over widespread
geographical locations within the LEC billing areas across the United
States.  The Company historically has experienced significant dilution
and customer credits due to billing difficulties and uncollectible trade
accounts receivable.  The Company estimates and provides an allowance
for uncollectible accounts receivable.  The handling and processing of
cash receipts pertaining to trade accounts receivable is maintained primarily by
three third-party billing companies.  The Company is dependent upon
these billing companies for collection of its accounts
receivable.  The billing companies and LECs charge fees for their
services, which are netted against the gross accounts receivable
balance.  The billing companies also apply holdbacks to the
remittances for potentially uncollectible accounts.  These amounts
will vary due to numerous factors and the Company may not be certain as to the
actual amounts on any specific billing submittal until several months after that
submittal.  The Company estimates the amount of these charges and
holdbacks based on historical experience and subsequent information received
from the billing companies.  The Company also estimates uncollectible
account balances and provides an allowance for such estimates.  The
billing companies retain certain holdbacks that may not be collected by the
Company for a period extending beyond one year.   In the second
quarter of fiscal 2009, the Company sold a portion of its customer list and no
longer submits billings through LEC service providers.  Additionally,
certain other billings’ channels consisting of billings submitted to LEC
Processors through third parties were discontinued. As such, a significant
portion of the receivables at September 30, 2009 pertaining to LEC service
providers represent the holdbacks described above.




50
 Table of Contents




The
Company has concentrations of receivables with respect to certain wholesale
accounts and remaining holdbacks with LEC service providers.  Three
such entities accounted for 23%, 22% and 18% of gross receivables at September
30, 2009.




13.
            STOCK-BASED
      COMPENSATION




Restricted Stock
Awards





During
the year ended September 30, 2003, the Company’s board of directors and a
majority of it stockholders voted to terminate the Company’s 2002 Employees,
Officers & Directors Stock Option Plan and approved the Company’s 2003 Stock
Plan.  The 300,000 shares of Company common stock previously allocated
to the 2002 Plan were re-allocated to the 2003 Plan.  During the year
ended September 30, 2004, an additional 200,000 shares were authorized by the
board of directors and approved by the Company’s stockholders to be issued under
the 2003 Plan.  All Company personnel and contractors are eligible to
participate in the plan.





As of
September 30, 2009, there were 522,942 shares authorized under the 2003 Plan
that were granted and remain outstanding, of which 418,517 have vested and
106,425 are in the form of restricted stock.  These shares of
restricted stock were granted to the Company’s service providers, officers and
directors.  Of the 106,425 restricted shares, 87,850 shares vest on a
cliff basis three years from the date of grant and 16,575 shares vest on a cliff
basis 10 years from the date of grant.  Certain market performance
criteria may accelerate the vesting of a portion of these awards if the stock
price exceeds $50 per share.  As of September 30, 2009, total
unrecognized compensation cost related to unvested awards was
$261,570.  The weighted average period over which such compensation
cost is to be recognized is 1.80 years.  Additionally, the Company has
2,000 shares of unvested restricted stock awards related to the LiveDeal
acquisition that were issued outside of the 2003 Plan which vest in June
2010.





The
following table sets forth the activity with respect to compensation-related
restricted stock grants:





Outstanding
      (unvested) at September 30,
      2007
                          
                          
                          441,907Granted
                          
                          
                          53,000Forfeited
                          
                          
                          (84,169
                          )Vested
                          
                          
                          (183,313
                          )Outstanding
      (unvested) at September 30,
      2008
                          
                          
                          227,425Granted
                          
                          
                          20,000Forfeited
                          
                          
                          (83,250
                          )Vested
                          
                          
                          (57,750
                          )Outstanding
      (unvested) at September 30,
      2009
                          
                          
                          106,425




The
vesting of substantially all shares of restricted stock accelerates upon a
change of control, as defined in the 2003 Plan.  Compensation expense
is determined at the date of grant, is equal to the stock price at the date of
grant, and is deferred and recognized on a straight-line basis over the vesting
period. The weighted-average grant-date fair value of awards issued during the
years ended September 30, 2009 and 2008 was $1.56 and $3.30 per share,
respectively.  The weighted-average grant-date fair value of the
shares outstanding is $7.38 per share.





During
the years ended September 30, 2009 and 2008 the Company recognized compensation
expense of $(198,672) and $788,431, respectively, under the 2003 Plan and other
restricted stock issuances.  The net compensation expense reversal in
the year ended September 30, 2009 is attributable to a change in estimated
forfeiture rate of awards granted to officers, directors and key personnel from
40% to 70% and true-ups to reflect actual forfeiture rates of awards whose
vesting period had passed.





Stock Option
Awards:





From time
to time, the Company grants stock option awards to officers and
employees.  Such awards are valued based on the grant date fair value
of the instruments, net of estimated forfeitures, using a Black-Scholes option
pricing model with the following assumptions:




51
 Table of Contents




Year Ended September 30,2009
                        
                        
                        2008Volatility
                        
                        
                        97
                        %
                        
                        
                        96
                        %Risk-free
      interest rate
                        
                        
                        1.7%-2.8
                        %
                        
                        
                        2.2
                        %Expected
      term
                        
                        6.0
      years
                        
                        
                        5.0
      yearsForfeiture
      rate
                        
                        
                        40
                        %
                        
                        
                        40
                        %Dividend
      yield rate
                        
                        
                        0
                        %
                        
                        
                        0
                        %




The
volatility used was based on historical volatility of the Company’s common
stock, which management considers to be the best indicator of expected future
volatility.  The riskfree interest rate was determined based on
treasury securities with maturities equal to the expected term of the underlying
award.  The expected term was determined based on the simplified
method outlined in Staff Accounting Bulletin No. 110.





Stock
option awards are expensed on a straightline basis over the requisite service
period.  During the years ended September 30, 2009 and 2008, the
Company recognized expense of $82,036 and $10,155, respectively. At September
30, 2009, future stock compensation expense (net of estimated forfeitures) not
yet recognized was $291,855 and will be recognized over a weighted average
remaining vesting period of 3.0 years.  The following summarizes stock
option activity for the year ended September 30, 2009:





Weighted
                        
                        
                        Weighted
                        
                        
                        WeightedAverage
                        
                        
                        Average
                        
                        
                        Average
                        
                        
                        AggregateNumber of
                        
                        
                        Exercise
                        
                        
                        Fair
                        
                        
                        Remaining
                        
                        
                        IntrinsicShares
                        
                        
                        Price
                        
                        
                        Value
                        
                        
                        Contractual Life
                        
                        
                        ValueOutstanding
      at September 30, 2008
                        
                        
                        5,000Granted
      at market price
                        
                        
                        550,000
                        
                        
                        $
                        1.45
                        
                        
                        $
                        1.13Exercised
                        
                        
                        -
                        
                        
                        $
                        -Forfeited
                        
                        
                        (225,000
                        )
                        
                        $
                        1.45Outstanding
      at September 30, 2009
                        
                        
                        330,000
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        9.1
                        
                        
                        $
                        -Exercisable
                        
                        
                        30,000
                        
                        
                        $
                        1.67
                        
                        
                        
                        
                        
                        
                        
                        9.0
                        
                        
                        $
                        -





Upon the
exercise of stock options, the Company may issue new shares or, if circumstances
permit, issue shares held as treasury stock.





14.
            EMPLOYEE BENEFIT
      PLAN





The
Company maintains a 401(k) profit sharing plan for its employees and service
providers who are eligible to participate in the plan.  The Company
made contributions of $112,040 and $109,919 to the plan for the years ended
September 30, 2009 and 2008, respectively.





15.
            OTHER INCOME
      (EXPENSE)





On
November 5, 2008, the Company entered into an agreement to
sell its Internet domain name “www.yp.com” to
YellowPages.com for a cash payment of $3,850,000.  Although the Company’s
future focus is on the sale of customer acquisition services for small
businesses, the Company continues to receive revenues from the sale of Internet
Advertising Packages, which targeted users of its www.yp.com property.
 The Company has transitioned these customers to advertising on www.yellowpages.livedeal.com





On March
9, 2009, in connection with the Company’s shift in strategic focus away from its
classified and directory services business, the Company entered into an
agreement to sell a portion of its customer list associated with its directory
services business.  This customer list was sold for $3,093,202 of
which $2,783,097 was paid by the buyer and received during the second quarter of
fiscal 2009, with the remaining amount held back in escrow until December 2009
pending the resolution of potential claims, if any.  Such claims are
contractually limited to the amount held in escrow.  Approximately 50%
of the escrow amount was received during the fourth quarter of fiscal 2009 with
no deductions for offsetting claims. In December, 2009, the Company received the
remainder of the escrow amount with no deduction. Net of certain accruals for
transaction costs and transaction-related contingencies, the Company recorded a
gain of $3,040,952, which is reflected in other income in the accompanying
consolidated statement of operations.





The
Company analyzed this transaction and determined that it did not meet the
definition of a discontinued operation under FASB ASC 360 as the customer list
that was sold did not meet the definition of a component of an entity and as the
Company expects to have continuing involvement and operations in directory
services for the near future.




52
 Table of Contents




The
Company also amended another directory services contract in consideration of
accelerated payments on its outstanding accounts receivables and some
anticipated future billings, which resulted in an increase in other income of
$642,268 for the year ended September 30, 2009.  Together with the
partial customer list sale described above, these customers and contracts
accounted for $5,146,073 of revenue in the fiscal 2009.  As a result
of these transactions, the Company has no future service obligations to these
customers and no longer expects to generate future revenues from these
sources.




16.
            SEGMENT
      REPORTING





Prior to
fiscal 2009, the Company operated as an integrated business and had only one
reportable segment.  During the second quarter of fiscal 2009, the
Company implemented a corporate initiative that evaluates its different product
lines as separate business units.  As part of this strategy,
management has begun evaluating operating performance by reviewing the
profitability of these product lines on a standalone basis to the extent that
costs and expenses can be separated out between these business
lines.  Therefore, the Company now has two reportable operating
segments (excluding the discontinued classifieds business):  Directory
Services and Direct Sales - Customer Acquisition Services.  The
Company has yet to identify and allocate operating costs or impairment charges
to its reportable segments below the gross profit
level.  Additionally, the reportable segments share many common costs,
including, but not limited to, IT support, office and administrative
expenses.  Therefore, the following table of operating results does
not allocate costs to its reportable segments below the gross profit
level:





Year Ended September 30, 2009Directory Services
                                                        
                                                        
                                                        Direct Sales -CustomerAcquisitionServices
                                                        
                                                        
                                                        Unallocated
                                                        
                                                        
                                                        ConsolidatedNet
      revenues
                                                        
                                                        $
                                                        9,331,057
                                                        
                                                        
                                                        $
                                                        4,107,598
                                                        
                                                        
                                                        $
                                                        -
                                                        
                                                        
                                                        $
                                                        13,438,655Cost
      of services
                                                        
                                                        
                                                        3,624,177
                                                        
                                                        
                                                        
                                                        2,767,601
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        6,391,778Gross
      profit
                                                        
                                                        
                                                        5,706,880
                                                        
                                                        
                                                        
                                                        1,339,997
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        7,046,877Operating
      expenses
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        25,503,153
                                                        
                                                        
                                                        
                                                        25,503,153Operating
      income (loss)
                                                        
                                                        
                                                        5,706,880
                                                        
                                                        
                                                        
                                                        1,339,997
                                                        
                                                        
                                                        
                                                        (25,503,153
                                                        )
                                                        
                                                        
                                                        (18,456,276
                                                        )Other
      income (expense)
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        7,527,934
                                                        
                                                        
                                                        
                                                        7,527,934Income
      (loss) before income taxes anddiscontinued
      operations
                                                        
                                                        $
                                                        5,706,880
                                                        
                                                        
                                                        $
                                                        1,339,997
                                                        
                                                        
                                                        $
                                                        (17,975,219
                                                        )
                                                        
                                                        $
                                                        (10,928,342
                                                        )Year Ended September 30, 2008Directory Services
                                                        
                                                        
                                                        Direct Sales -CustomerAcquisitionServices
                                                        
                                                        
                                                        Unallocated
                                                        
                                                        
                                                        ConsolidatedNet
      revenues
                                                        
                                                        $
                                                        22,779,222
                                                        
                                                        
                                                        $
                                                        641,436
                                                        
                                                        
                                                        $
                                                        -
                                                        
                                                        
                                                        $
                                                        23,420,658Cost
      of services
                                                        
                                                        
                                                        3,793,578
                                                        
                                                        
                                                        
                                                        547,676
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        4,341,254Gross
      profit
                                                        
                                                        
                                                        18,985,644
                                                        
                                                        
                                                        
                                                        93,760
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        19,079,404Operating
      expenses
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        20,829,320
                                                        
                                                        
                                                        
                                                        20,829,320Operating
      income
                                                        
                                                        
                                                        18,985,644
                                                        
                                                        
                                                        
                                                        93,760
                                                        
                                                        
                                                        
                                                        (20,829,320
                                                        )
                                                        
                                                        
                                                        (1,749,916
                                                        )Other
      income (expense)
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        122,390
                                                        
                                                        
                                                        
                                                        122,390Income
      before income taxes anddiscontinued
      operations
                                                        
                                                        $
                                                        18,985,644
                                                        
                                                        
                                                        $
                                                        93,760
                                                        
                                                        
                                                        $
                                                        (20,706,930
                                                        )
                                                        
                                                        $
                                                        (1,627,526
                                                        )




The
Company has yet to allocate its assets to each respective
segment.  While some software costs are specific to each business,
most of the Company’s fixed assets and software architecture are shared among
its segments.  Therefore, the Company is currently unable to provide
asset information with respect to each of its reportable segments, except as it
pertains to accounts receivable as set forth below:




53
 Table of Contents




September 30, 2009Directory Services
                              
                              
                              Direct Sales -CustomerAcquisitionServices
                              
                              
                              TotalAccounts receivable,
      net - short term
                              
                              $
                              1,442,037
                              
                              
                              $
                              36,146
                              
                              
                              $
                              1,478,183Accounts
      receivable, net - long term
                              
                              
                              1,039,403
                              
                              
                              
                              -
                              
                              
                              
                              1,039,403Total
      accounts receivable, net
                              
                              $
                              2,481,440
                              
                              
                              $
                              36,146
                              
                              
                              $
                              2,517,586September 30, 2008 (as restated, see Note 3)Directory Services
                              
                              
                              Direct Sales -CustomerAcquisitionServices
                              
                              
                              TotalAccounts
      receivable, net - short term
                              
                              $
                              6,326,272
                              
                              
                              $
                              -
                              
                              
                              $
                              6,326,272Accounts
      receivable, net - long term
                              
                              
                              2,011,143
                              
                              
                              
                              -
                              
                              
                              
                              2,011,143Total
      accounts receivable, net
                              
                              $
                              8,337,415
                              
                              
                              $
                              -
                              
                              
                              $
                              8,337,415




The
Company has no intersegment revenues.  All of the Company’s revenues
are with external customers, are derived from operations in the United States,
and no single customer accounts for more than 10% of the Company’s
revenues.





17.
              SUBSEQUENT
      EVENTS





The
Company has evaluated subsequent events through December 23, 2009 which is the
date the financial statements were issued.





18.
              SELECTED
      QUARTERLY FINANCIAL DATA
(UNAUDITED)




Quarterly
financial information for 2009 and 2008 follows:





Quarter EndedDecember 31,
                    
                    
                    March 31,
                    
                    
                    June 30,
                    
                    
                    September 30,2008
                    
                    
                    2009
                    
                    
                    2009
                    
                    
                    2009Net
      revenues
                    
                    $
                    5,009,514
                    
                    
                    $
                    3,548,275
                    
                    
                    $
                    2,448,569
                    
                    
                    $
                    2,432,297Gross
      profit
                    
                    
                    3,408,864
                    
                    
                    
                    2,081,393
                    
                    
                    
                    1,636,248
                    
                    
                    
                    (79,628
                    )Income
      (loss) from continuing operations
                    
                    
                    944,440
                    
                    
                    
                    (10,797,953
                    )
                    
                    
                    (2,116,971
                    )
                    
                    
                    (2,351,373
                    )Income
      (loss) from discontinued operations
                    
                    
                    (57,077
                    )
                    
                    
                    (8,285,663
                    )
                    
                    
                    4,649
                    
                    
                    
                    68,648Net
      income (loss)
                    
                    $
                    887,362
                    
                    
                    $
                    (19,083,616
                    )
                    
                    $
                    (2,112,322
                    )
                    
                    $
                    (2,282,725
                    )Earnings
      per share information:Basic
      income per shareIncome
      (loss) from continuing operations
                    
                    $
                    0.16
                    
                    
                    $
                    (1.80
                    )
                    
                    $
                    (0.35
                    )
                    
                    $
                    (0.39
                    )Discontinued
      operations
                    
                    
                    (0.01
                    )
                    
                    
                    (1.38
                    )
                    
                    
                    -
                    
                    
                    
                    0.01Net
      income (loss)
                    
                    $
                    0.15
                    
                    
                    $
                    (3.19
                    )
                    
                    $
                    (0.35
                    )
                    
                    $
                    (0.38
                    )Diluted
      income per shareIncome
      (loss) from continuing operations
                    
                    $
                    0.15
                    
                    
                    $
                    (1.80
                    )
                    
                    $
                    (0.35
                    )
                    
                    $
                    (0.39
                    )Discontinued
      operations
                    
                    
                    (0.01
                    )
                    
                    
                    (1.38
                    )
                    
                    
                    -
                    
                    
                    
                    0.01Net
      income (loss)
                    
                    $
                    0.15
                    
                    
                    $
                    (3.19
                    )
                    
                    $
                    (0.35
                    )
                    
                    $
                    (0.38
                    )




54
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Quarter EndedDecember 31,
                  
                  
                  March 31,
                  
                  
                  June 30,
                  
                  
                  September 30,2007
                  
                  
                  2008
                  
                  
                  2008
                  
                  
                  2008Net
      revenues
                  
                  $
                  6,406,240
                  
                  
                  $
                  6,039,356
                  
                  
                  $
                  5,427,012
                  
                  
                  $
                  5,548,050Gross
      profit
                  
                  
                  5,412,669
                  
                  
                  
                  4,957,896
                  
                  
                  
                  4,311,719
                  
                  
                  
                  4,397,120Income
      (loss) from continuing operations
                  
                  
                  289,545
                  
                  
                  
                  15,195
                  
                  
                  
                  (1,519,460
                  )
                  
                  
                  (258,091
                  )Income
      (loss) from discontinued operations
                  
                  
                  36,547
                  
                  
                  
                  (11,857
                  )
                  
                  
                  (61,237
                  )
                  
                  
                  (19,414
                  )Net
      income (loss)
                  
                  $
                  326,092
                  
                  
                  $
                  3,338
                  
                  
                  $
                  (1,580,697
                  )
                  
                  $
                  (277,505
                  )Earnings
      per share information:Basic
      income per shareIncome
      (loss) from continuing operations
                  
                  $
                  0.05
                  
                  
                  $
                  -
                  
                  
                  $
                  (0.24
                  )
                  
                  $
                  (0.04
                  )Discontinued
      operations
                  
                  
                  0.01
                  
                  
                  
                  -
                  
                  
                  
                  (0.01
                  )
                  
                  
                  -Net
      income (loss)
                  
                  $
                  0.05
                  
                  
                  $
                  -
                  
                  
                  $
                  (0.25
                  )
                  
                  $
                  (0.04
                  )Diluted
      income per shareIncome
      (loss) from continuing operations
                  
                  $
                  0.05
                  
                  
                  $
                  -
                  
                  
                  $
                  (0.24
                  )
                  
                  $
                  (0.04
                  )Discontinued
      operations
                  
                  
                  0.01
                  
                  
                  
                  -
                  
                  
                  
                  (0.01
                  )
                  
                  
                  -Net
      income (loss)
                  
                  $
                  0.05
                  
                  
                  $
                  -
                  
                  
                  $
                  (0.25
                  )
                  
                  $
                  (0.04
                  )





55
 Table of Contents




ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures





None.





ITEM 9T. Controls and Procedures





Evaluation of Disclosure Controls
and Procedures





We
carried out an evaluation, under the supervision and with the participation of
our management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of our disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) at and as of September
30, 2009. Based upon that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that, as of the end of the period covered in this
report, our disclosure controls and procedures were effective to ensure that
information required to be disclosed in reports filed under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
required time periods and is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required
disclosure.




Changes in Internal Control Over
Financial Reporting





In our
efforts to continuously improve our internal controls, we have made some
improvements to our internal control structure effective for the preparation of
our financial statements for the year ended September 30, 2009, including the
adoption of a formal accounting policies and procedures manual, and increased
documentation surrounding certain authorization and review controls.




Management’s
Report on Internal Control Over Financial Reporting





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)). Because of its inherent limitations,
internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.




Our
management assessed the effectiveness of our internal control over financial
reporting as of September 30, 2009.  In making this assessment, we used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission ("COSO") in Internal Control — Integrated Framework. Based on our
assessment using those criteria, our management concluded that our internal
control over financial reporting was effective as of September 30,
2009.





This
annual report does not include an attestation report of the Company's registered
public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by the Company's registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the Company to provide only management's report
in this annual report. Accordingly, our management's assessment of the
effectiveness of our internal control over financial reporting as of September
30, 2009 has not been audited by our auditors, Mayer Hoffman McCann P.C. or any
other independent registered accounting firm.


ITEM
9B. Other Information
 
 On
November 25, 2009, Rajeev Seshadri entered into a Separation Agreement and Full
Release of Claims with the Company in connection with his departure as Chief
Financial Officer of the Company, which was agreed upon on November 19, 2009 and
will take effect on January 2, 2010 (the “Resignation Date”).
 
 Under the
terms of the Separation Agreement and in accordance with his employment
agreement, the Company will continue to pay Mr. Seshadri his base salary for
three months following the Resignation Date (less applicable taxes and other
withholdings).  Mr. Seshadri may also elect to receive such payment
(the gross amount of which is $53,750) in a lump sum on the Resignation
Date.  The $15,000 bonus to which Mr. Seshadri is entitled under his
employment agreement for the Company’s fourth quarter of fiscal 2009 will be
paid in a lump sum on the Resignation Date.  The Company will pay Mr.
Seshadri’s COBRA payments for three months and reimburse his reasonable
attorneys’ fees related to the negotiation of the Separation
Agreement.  The Separation Agreement also provides for Mr. Seshadri to
serve as a consultant to the Company until January 31, 2010 for at least 16
hours per week at a rate of $230 per hour.  Finally, Mr. Seshadri will
continue to be entitled to exercise his vested stock options in accordance with
the terms of the applicable stock option agreements for a period of 180 days
from the date of his resignation; his unvested options will be forfeited and
cancelled.
 
 In
exchange for the payments described above, Mr. Seshadri provided a full release
of claims arising out of, or relating to, his employment with the Company, his
termination from the position of Chief Financial Officer of the Company, and/or
his resignation.  The Separation Agreement also contains customary
provisions with respect to confidentiality and non-solicitation, as well as
mutual covenants on the part of Mr. Seshadri and the Company regarding public
statements and non-disparagement.




56
 Table of Contents




PART III





Certain
information required by Part III is omitted from this Annual Report on Form 10-K
because we will file our definitive Proxy Statement for our 2010 Annual Meeting
of Stockholders to be filed pursuant to Regulation 14A of the Exchange Act (the
“Proxy Statement”) not later than 120 days after the end of the fiscal year
covered by this Annual Report. Certain information included in the Proxy
Statement is incorporated herein by reference.





ITEM 10.Directors, Executive Officers and
Corporate Governance





The
information required by this Item will be disclosed in our Proxy Statement and
is incorporated herein by reference.





The
Company has adopted a Code of Ethics that applies to its officers, directors and
employees.





ITEM 11.Executive
Compensation





The
information required by this Item will be disclosed in our Proxy Statement and
is incorporated herein by reference.





ITEM 12.Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder
Matters





The
information required by this Item will be disclosed in our Proxy Statement and
is incorporated herein by reference.





ITEM 13.Certain Relationships and Related
Transactions, and Director Independence





The
information required by this Item will be disclosed in our Proxy Statement and
is incorporated herein by reference.





ITEM 14.Principal Accountant Fees and
Services





The
information required by this Item will be disclosed in our Proxy Statement and
is incorporated herein by reference.





PART IV





ITEM 15.Exhibits and Financial Statement
Schedules




(1)
            Financial Statements are listed
      on the Index to Consolidated Financial Statements on page 40of this
      Annual Report.


(2)
            The following represents
      financial statement schedules required to be filed with this Annual
      Report:




57
 Table of Contents





SCHEDULE
II – VALUATION AND QUALIFYING ACCOUNTS AND RESERVES





REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON SCHEDULE





To the
Stockholders and Board of Directors





LIVEDEAL,
INC. AND SUBSIDIARIES





We have
audited the consolidated financial statements of LiveDeal, Inc. and Subsidiariesas of September 30, 2009 and 2008 and for the years then ended and have
issued our report thereon dated December 23, 2009.  As discussed in
Note 3 to the consolidated financial statements, the consolidated balance sheet
as of September 30, 2008 has been restated.  Our audit was conducted
for the purpose of forming an opinion on the basic consolidated financial
statements taken as a whole.  The information included in the
accompanying Schedule II–Valuation and Qualifying Accounts is presented for
purposes of complying with the Securities and Exchange Commission’s rules and is
not a required part of the basic consolidated financial
statements.  Such information for the years ended September 30, 2009
and 2008 has been subjected to the auditing procedures applied in the audits of
the basic consolidated financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic consolidated financial
statements taken as a whole.




/s/ Mayer Hoffman McCann
    P.C.MAYER
      HOFFMAN MCCANN P.C.Phoenix,
      ArizonaDecember
      23, 2009




Balance at
                            
                            
                            Charged to
                            
                            
                            Charged to
                            
                            
                            
                            
                            
                            Balance atBeginning
                            
                            
                            Costs and
                            
                            
                            Other
                            
                            
                            Deductions/
                            
                            
                            End ofDescription
                            
                            of Period
                            
                            
                            Expenses
                            
                            
                            Accounts
                            
                            
                            Writeoffs
                            
                            
                            PeriodAllowance
      for dilution and fees on amounts due from billing
    aggregatorsYear
      ended September 30, 2008
                            
                            $
                            1,888,730
                            
                            
                            $
                            3,999,980
                            
                            
                            $
                            
                            
                            
                            $
                            (4,113,434
                            )
                            
                            $
                            1,775,276Year
      ended September 30, 2009
                            
                            $
                            1,775,276
                            
                            
                            $
                            5,196,360
                            
                            
                            $
                            
                            
                            
                            $
                            (4,280,741
                            )
                            
                            $
                            2,690,895Allowance
      for customer refundsYear
      ended September 30, 2008
                            
                            $
                            573,068
                            
                            
                            $
                            3,357,512
                            
                            
                            $
                            
                            
                            
                            $
                            (3,502,311
                            )
                            
                            $
                            428,269Year
      ended September 30, 2009
                            
                            $
                            428,269
                            
                            
                            $
                            2,511,706
                            
                            
                            $
                            
                            
                            
                            $
                            (2,789,544
                            )
                            
                            $
                            150,431





58
 Table of Contents




(3)           The
following exhibits are filed with or incorporated by reference into this Annual
Report.





Exhibit
                      Number
                    
                    Description
                    
                    Previously
      Filed as Exhibit
                    
                    FileNumber
                    
                    Date
                      Previously
                      Filed3.1
                    
                    Amended
      and Restated Articles of Incorporation
                    
                    Exhibit
      3.1 to the Registrant’s Current Report on Form 8-K filed on August 15,
      2007
                    
                    000-24217
                    
                    8/15/073.2
                    
                    Amended
      and Restated Bylaws
                    
                    Exhibit
      3.2 to the Registrant’s Annual Report on Form 10-K for the fiscal year
      ended September 30, 2007
                    
                    00-24217
                    
                    12/20/0710.1
                    
                    LiveDeal,
      Inc. Amended and Restated 2003 Stock Plan*
                    
                    Exhibit
      10.1 to the Registrant’s Annual Report on Form 10-K for the fiscal year
      ended September 30, 2007
                    
                    00-24217
                    
                    12/20/0710.1.1
                    
                    First
      Amendment to Amended and Restated 2003 Stock Plan*
                    
                    Appendix
      A to 2009 Proxy Statement
                    
                    00-24217
                    
                    1/29/0910.2
                    
                    Form
      of 2003 Stock Plan Restricted Stock Agreement*
                    
                    Exhibit
      10 to the Registrant’s Quarterly Report on Form 10-QSB for the fiscal
      quarter ending March 31, 2005
                    
                    000-24217
                    
                    5/16/0510.3
                    
                    Form
      of 2003 Stock Plan Stock Option Agreement*
                    
                    Exhibit
      10.3 to the Registrant’s Annual Report on Form 10-K for the fiscal year
      ending September 30, 2008
                    
                    000-24217
                    
                    12/29/0810.4
                    
                    Standard
      Industrial/Commercial Multi-Tenant Lease for Mesa facility, dated June 1,
      1998, between the Registrant and Art Grandlich, d/b/a McKellips Corporate
      Square
                    
                    Exhibit
      10.5 to the Registrant’s Annual Report on Form 10-KSB for the fiscal year
      ended September 30, 1999
                    
                    000-24217
                    
                    9/19/0010.4.1
                    
                    Amendment
      No. 1 to Standard Industrial/Commercial Multi-Tenant Lease for Mesa
      facility, dated August 17, 1998, between the Registrant and Arthur
      Grandlich, d/b/a McKellips Corporate Square
                    
                    Exhibit
      10.4 to the Registrant’s Annual Report on Form 10-K for the fiscal year
      ended September 30, 2006
                    
                    000-24217
                    
                    12/29/0610.4.2
                    
                    Amendment
      No. 2 to Standard Industrial/Commercial Multi-Tenant Lease for Mesa
      facility, dated January 7, 2003, between the Registrant and Arthur
      Grandlich, d/b/a McKellips Corporate Square
                    
                    Exhibit
      10.14 to Amendment No. 2 to the Registrant’s Annual Report on Form
      10-KSB/A for the fiscal year ended September 30,
2002
                    
                    000-24217
                    
                    7/8/0310.4.3
                    
                    Amendment
      No. 3 to Standard Industrial/Commercial Multi-Tenant Lease for Mesa
      facility, dated March 23, 2006, between the Registrant and J3 Harmon,
      LLC, successor in interest to The Estate of Arthur
      Grandlich
                    
                    Exhibit
      10.4.2 to the Registrant’s Annual Report on Form 10-K for the fiscal year
      ended September 30, 2006
                    
                    000-24217
                    
                    12/29/0610.4.4
                    
                    Amendment
      No. 4 to Standard Industrial/Commercial Multi-Tenant Lease for Mesa
      facility, dated April 12, 2006, between the Registrant and J3 Harmon,
      LLC, successor in interest to The Estate of Arthur
      Grandlich
                    
                    Exhibit
      10.4.3 to the Registrant’s Annual Report on Form 10-K for the fiscal year
      ended September 30, 2006
                    
                    000-24217
                    
                    12/29/06




59
 Table of Contents




10.5
            
            Standard
      Industrial Lease for Nevada facility, dated September 3, 2003, between the
      Registrant and Tomorrow 33 Convention, LP
            
            Exhibit
      10.4 to the Registrant’s Annual Report on Form 10-KSB for the fiscal year
      ended September 30, 2003
            
            000-24217
            
            12/31/0310.6
            
            Amendment
      No. 1 to Standard Industrial Lease for Nevada facility, dated October 4,
      2006, between the Registrant and Tomorrow 33 Convention,
      LP
            
            Exhibit
      10.6 to the Registrant’s Annual Report on Form 10-K for the fiscal year
      ended September 30, 2006
            
            000-24217
            
            12/29/06




60
 Table of Contents




10.7
            
            Master
      Services Agreement, dated August 1, 2002, between the Registrant and
      eBillit, Inc.
            
            Exhibit
      10.24 to Amendment No. 1 to the Registrant’s Quarterly Report on Form
      10-QSB/A for the fiscal quarter ended March 31, 2003
            
            000-24217
            
            7/8/0310.8
            
            Billings
      and Related Services Agreement, dated September 1, 2001, between the
      Registrant and ACI Communications, Inc.
            
            Exhibit
      10.33 to Amendment No. 2 to the Registrant’s Annual Report on Form
      10-KSB/A for the fiscal year ended September 30,
2002
            
            000-24217
            
            7/8/0310.9
            
            Asset
      Purchase Agreement dated as of July 10, 2007, relating to the Registrant’s
      acquisition of the assets of OnCall Subscriber Management
      Inc.
            
            Exhibit
      10.1 to the Registrant’s Current Report on Form 8-K filed on July 16,
      2007
            
            000-24217
            
            7/16/0710.10
            
            Escrow
      Agreement dated as of July 10, 2007, relating to the Registrant’s
      acquisition of the assets of OnCall Subscriber Management
      Inc.
            
            Exhibit
      10.2 to the Registrant’s Current Report on Form 8-K filed on July 16,
      2007
            
            000-24217
            
            7/16/0710.11
            
            Domain
      Name Purchase and Transfer Agreement, dated November 5, 2008, between the
      Registrant and YellowPages.com LLC
            
            Exhibit
      10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly
      period ended December 31, 2008
            
            000-24217
            
            2/17/0910.12
            
            Employment
      Agreement, dated as of November 17, 2008, by and between the Registrant
      and Rajeev Seshadri*
            
            Exhibit
      10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly
      period ended December 31, 2008
            
            000-24217
            
            2/17/0910.13
            
            Asset
      Purchase Agreement, dated as of March 9, 2009, by and among the
      Registrant, Telco Billing, Inc., and Local.com Corporation
            
            Exhibit
      10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly
      period ended March 31, 2009
            
            000-24217
            
            5/15/0910.14
            
            Employment
      Agreement, dated as of October 1, 2008, by and between the Registrant and
      Dean Heistad*
            
            Exhibit
      10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly
      period ended March 31, 2009
            
            000-24217
            
            5/15/0910.15
            
            Employment
      Agreement, dated as of October 1, 2008, by and between the Registrant and
      Gregg Thaler*
            
            Exhibit
      10.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly
      period ended March 31, 2009
            
            000-24217
            
            5/15/0910.16
            
            Employment
      Agreement, dated as of May 19, 2009, by and between the Registrant and
      Richard F. Sommer*
            
            Exhibit
      10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly
      period ended June 30, 2009
            
            000-24217
            
            8/14/0910.17
            
            Separation
      Agreement and Full Release of Claims, dated as of June 30, 2009, by and
      between the Registrant and Mike Edelhart*
            
            Exhibit
      10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly
      period ended June 30, 2009
            
            000-24217
            
            8/14/0910.18
            
            First
      Amendment to Employment Agreement, effective as of October 29, 2009, by
      and between the Registrant and Richard F. Sommer*
            
            Attached
      hereto10.19
            
            Separation
      Agreement and Full Release of Claims, dated as of November 25, 2009, by
      and between the Registrant and Rajeev Seshadri*
            
            Attached
      hereto14
            
            Code
      of Business Conduct and Ethics, Adopted December 31,
      2003
            
            Exhibit
      14 to the Registrant’s Quarterly Report on Form 10-QSB for the period
      ended March 31, 2004
            
            000-24217
            
            5/13/04




61
 Table of Contents




21
              
              Company
      Subsidiaries
              
              Attached
      hereto23
              
              Consent
      of Mayer Hoffman McCann P.C.
              
              Attached
      hereto31
              
              Certifications
      pursuant to SEC Release No. 33-8238, as adopted pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002
              
              Attached
      hereto32
              
              Certifications
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002
              
              Attached
      hereto




*
Management contract or compensatory plan or arrangement




62
 Table of Contents




SIGNATURES





In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.





Dated:  December
      23, 2009
              /s/Richard
      SommerRichard
      SommerChief
      Executive Officer




BOARD OF
DIRECTORS





Signature
              
              Title
              
              Date/s/
      Richard Sommer
              
              Chief
      Executive Officer (Principal Executive
      Officer)
              
              December
      23, 2009Richard
      Sommer/s/
      Rajeev Seshadri
              
              Chief
      Financial Officer (Principal Financial Officer
      and
              
              December
      23, 2009Rajeev
      Seshadri
              
              Principal
      Accounting Officer)/s/
      Richard D. Butler.
              
              Director
              
              December
      23, 2009Richard
      D. Butler/s/
      Sheryle Bolton
              
              Director
              
              December
      23, 2009Sheryle
      Bolton/s/
      Thomas Clarke, Jr.
              
              Director
              
              December
      23, 2009Thomas
      Clark, Jr/s/
      Greg LeClaire
              
              Director
              
              December
      23, 2009Greg
      LeClaire/s/
      Joseph Huber
              
              Director
              
              December
      23, 2009Joseph
      Huber





63