UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549


___________





FORM
10-K/A


Amendment
No. 1


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, 2007





o
              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 or Organization)
            
            (IRS
      Employer Identification No.)





2490
      E. Sunset Road, Suite 100
              Las
      Vegas, Nevada
            
            89120(Address
      of principal executive offices)
            
            (Zip
      Code)





Registrant’s
telephone number, including area code: (480) 654-9646





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







1





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, or a non-accelerated filer.  See definition of
“accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange
Act.


Large
      accelerated filer o
            Accelerated
      filer o
            Non-accelerated
      filer 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 common stock held by non-affiliates computed based
on the closing price of such stock on March 31, 2007 was approximately
$33,700,000.





The
number of shares outstanding of the registrant’s classes of common stock, as of
May 1, 2008, was 6,555,281 shares.





DOCUMENTS
INCORPORATED BY REFERENCE





Portions
of the Proxy Statement relating to the Registrant’s 2008 Annual Meeting of
Stockholders are incorporated by reference in Part III of this Form
10-K.





2





LIVEDEAL,
INC.


FORM
10-K/A FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2007




Explanatory
Note




This
Annual Report on Form 10-K/A is filed for the purpose of restating our
financial statements.  As originally disclosed in Note 19 in the Notes
to consolidated financial statements and in “Part II, Item 7, Management
Discussion and Analysis of Financial—Executive Overview—Restatements,” we
restated our financial statements to make changes to certain classifications
within our financial statements.  We originally reported these items
as changes in classification.  We are filing this Annual Report on
Form 10-K/A to clarify that these changes reflect the correction of errors and
to:




·           amend
the Selected Financial Date table in Part II, Item 6 to label the prior years as
restated and to explain the reasons for the restatements and the related effects
on each financial data line item presented for each of the years presented in
the Selected Financial Data table;





·           amend
the selected quarterly financial data included in Note 18 of the notes to
consolidated financial statements to provide additional information about the
restatements;





·           amend
Note 19 to expand the disclosure about the errors and resulting restatement and
to include reconciliations for all financial statement line items
affected;





·           expand
the disclosures about the errors and restatements in Notes 18 and 19 of the
consolidated financial statements to include an explanation of other
restatements we made to the Consolidated Statements of Cash Flows for prior
periods as well as corresponding changes explaining the errors and restatements
contained in Part II, Item 7 under the heading “Management’s Discussion and
Analysis of Financial Condition and Results of Operations—Executive
Overview—Restatements”;





·           clarify
in Notes 18 and 19 that the changes in earnings per share for the years ended
September 30, 2006 and 2005 were a result of the retroactive application of the
1-for-10 reverse stock split;





·           label
as restated the quarterly financial information contained in Part II, Item 7
under the headings “Management’s Discussion and Analysis of Financial Condition
and Results of Operations—Executive Overview—Recent Financial Results” and
—Results of Operations”;





·           clarify
certain disclosures about our revenue and expense recognition policies and
procedures to more accurately reflect our policies in light of the errors and
restatements referred to above in (i) Part II, Item 7 under the heading
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Critical Accounting Estimates and Assumptions—LEC Billing—Dilution”
and (ii) Note 2 to the consolidated financial statements under the heading
“Revenue Recognition” and (iii) Note 10 to the consolidated financial statements
under the heading “Litigation”; and





·           amend
our discussion of controls and procedures in “Part II, Item 9A—Controls and
Procedures—Changes in Controls and Procedures” to describe the nature and impact
of the restatements on our evaluation of the effectiveness of our controls and
procedures as well as the steps we have taken or plan to take to remediate such
weaknesses.





See Note
19 in the notes to consolidated financial statements for further information
relating to the restatements.




This Form
10-K/A has not been updated for events or information subsequent to the date of
filing of the original Form 10-K, except in connection with the
foregoing.





3





LIVEDEAL, INC.





FORM
10-K/A


For
the year ended September 30, 2007





TABLE
OF CONTENTS





PagePart
      IItem
      1.
            Business
            
            2Item
      1A.
            Risk
      Factors
            
            12Item
      1B.
            Unresolved
      Staff Comments
            
            22Item
      2.
            Properties
            
            22Item
      3.
            Legal
      Proceedings
            
            22Item
      4.
            Submission
      of Matters to a Vote of Security Holders
            
            23Part
      IIItem
      5.
            Market for
      Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
            
            23Item
      6.
            Selected
      Financial Data
            
            25Item
      7.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            
            27Item
      7A.
            Quantitative and Qualitative Disclosure About Market
      Risk
            
            40Item
      8.
            Financial
      Statements and Supplementary Data
            
            41Report of
      Independent Registered Public Accounting
    Firm
            
            42Consolidated
      Financial Statements:Consolidated
      Balance Sheets at September 30, 2007 and
    2006
            
            44Consolidated
      Statements of Operations for the Years Ended September 30, 2007, 2006, and
      2005
            
            45Consolidated
      Statements of Stockholders' Equity for the Years Ended September 30, 2007,
      2006, and 2005
            
            46Consolidated
      Statements of Cash Flows for the Years Ended September 30, 2007, 2006, and
      2005
            
            47Notes to
      Consolidated Financial Statements
            
            48Item
      9.
            Changes in and
      Disagreements With Accountants on Accounting and Financial
      Disclosures
            
            67Item
      9A.
            Controls and
      Procedures
            
            67Item
      9B.
            Other
      Information
            
            68Part
      IIIItem
      10.
            Directors,
      Executive Officers and Corporate Governance
            
            69Item
      11.
            Executive
      Compensation
            
            69Item
      12.
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
            
            69Item
      13.
            Certain
      Relationships and Related Transactions, and Director
      Independence
            
            69Item
      14.
            Principal
      Accountant Fees and Services
            
            69Part
      IVItem
      15.
            Exhibits and
      Financial Statement Schedule
            
            69Signatures
            
            74





4
 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)
the expectation of increasing our future telemarketing efforts to generate new
business given our discontinuance of activation checks; (iii) expectation of
increasing revenues through our national accounts programs, fulfillment
contracts, web hosting and other arrangements; (iv) expectation that our
technologies will increase recurrent use of our system by users of our directory
services; (v) belief in the growth of Internet usage and the Internet Yellow
Page market as described in recent press releases by The Kelsey
Group;  (vi) belief that existing cash on hand will be sufficient to
meet our needs for the next 12 months; (vii) belief that recent acquisitions to
bring telemarketing services in-house will yield future cost savings and (viii)
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 combined local online classifieds and Yellow Pages
marketplace, headquartered in Mesa, Arizona. Through our wholly-owned
subsidiary, Telco Billing, Inc. (“Telco”), located in Las Vegas, Nevada, we
publish our Yellow Pages online at or through the following URL’s:
www.Yellow-Page.Net, www.YP.Net,www.YP.Com and www.livedeal.com.  Any
information contained on the foregoing websites or any other websites referenced
in this Annual Report are not a part of this Annual Report.





On June
6, 2007, we completed our acquisition of LiveDeal, Inc, a California corporation
(“LiveDeal”).  LiveDeal has developed and operates an online local
classifieds marketplace, www.livedeal.com which has millions of goods and
services listed for sale in almost every city and zip code across the U.S.
LiveDeal offers 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. Additionally, the LiveDeal technology lets
consumers search or browse for items in a particular city, state or zip
code.





On July
10, 2007, we acquired substantially all of the assets and assumed certain
liabilities of OnCall Subscriber Management Inc. a Manila, Philippines-based
company that provides telemarketing services.  This acquisition
allowed us to bring certain marketing efforts in-house, which we expect to yield
future cost savings.





Summary
Business Description





We
maintain a combined local online classifieds and Yellow Pages marketplace with
millions of goods and services listed for sale, in every city and zip code
across the U.S. By combining the benefits of classifieds, business listings,
mobile services, advertising/distribution networks and e-commerce into a single
online solution, we offer businesses and consumers an affordable and effective
solution for creating a web presence and marketing their products and services
locally. Through our online properties YP.com and LiveDeal.com, we enable buyers
and sellers to find and list business services, merchandise, real estate,
automobiles, pets and more in their local communities. Using LiveDeal’s
marketplace, consumers can search or browse for items in a particular city,
state or zip code, or reach out on a national or global scope if they so
choose.





5
 Table of Contents





Online
Classifieds





We
operate an online classified marketplace at our website
LiveDeal.com.  We offer our standard non-commercial classified
advertisements to users at no charge.  However, we offer additional
upgrades on a fee-for-service basis to promote these
listings.  Additionally, commercial businesses utilize our online
marketplace to promote their businesses.  We offer various online
storefronts to commercial businesses which permit these businesses to establish
a separate section within our site with their logos, enhanced listings and other
features.





Advertisers
can also display graphical advertisements on the pages that are viewed by our
users across our website. For these advertising services, we earn revenue as
“impressions” are delivered. An “impression” is delivered when an advertisement
appears in pages viewed by users.





Yellow
Page Marketplace





We use a
business model similar to print Yellow Pages publishers for our Yellow Page
marketplace.  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.  RH Donnelley indicated in its 2004 report that
the Internet is the future of the Yellow Pages.  For advertisers, we
believe that online Yellow Pages provide significant competitive advantages over
existing print directories. For example, the ability of online advertisers to
access and modify their displays and advertisements often results in more
current information.  Additionally, online advertisers can more
readily advertise temporary or targeted specials or discounts.  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, 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 long-term, 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.   The circulated listing competes
for appearance in search results across the Internet through a paid advertising
agreement with Interchange Corp., which in turn circulates listings to
destinations such as epilot.com and local.com.  Interchange Corp.
has agreements with approximately 300 search partners with over 3
billion searches per month to display advertising.  We also have an
agreement with Yahoo! Search Services to improve our IAP advertisers’ appearance
in search results at several high-profile sites including www.msn.com,
www.altavista.com, www.cnn.com and www.infospace.com.  In addition to our
paid advertising programs, our preferred listings are syndicated
to community portals at www.mycity.com.   MyCity.com has a
national network of online city guides, focused on delivering local search
results.





6
 Table of Contents





Benefits to Users of our
Website.  We are a national online Yellow Pages. 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.  We also believe that our
website meets or exceeds the local Yellow Page search capabilities of our major
competitors.





Products
and Services





Internet Advertising Package.Our primary product is our Internet Advertising Package, or IAP. Under
this package, the advertiser pays for additional exposure by purchasing 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.


·
            An audio
      advertisement.


·
            Map
      directions.


·
            A Click2CallTM feature, whereby a
      user of our website can place a telephone call to one of our advertising
      customers by clicking the icon that is displayed on the
      Mini-WebPage.  This initiates a telephone call by the advertiser
      to the user, in a conference call type format. Once both are connected, it
      functions as a regular telephone call.  Because we cover all
      charges for this telephone call, it is free of charge to both the user and
      the IAP advertiser.  We have an agreement with WebDialogs, Inc.
      to provide this service.


·
            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.





Our IAP
advertisers generally pay between $27.50 and $39.95 per month. Our IAP and the
Internet Dial-Up Package described below account for over 90% of our net
revenues.





Classified
Advertisements.For our classified business, we offer our
standard non-commercial classified advertisement at no
charge.  However, we offer additional upgrades on a fee-for-service
basis to promote these listings.  Additionally, commercial businesses
utilize our online marketplace to promote their businesses.  We offer
various online storefronts to commercial businesses which permit these
businesses to establish a separate section within our site with their logos,
enhanced listings and other features.





Revenues
from the classified marketplace are only included in our fiscal 2007 operating
results from June 6, 2007, the date of our acquisition of
LiveDeal.  Since the date of the LiveDeal acquisition, these products
have accounted for approximately 2 percent of our net revenues.





Banner
Advertisements.We offer banner advertisements and other
graphical advertisements to businesses. We work with our advertisers to
maximize the effectiveness of their campaigns by optimizing advertisement
formats and placement on our sites.  We generate revenues from these
advertisements on a “click-through” basis from the advertisements placed on the
YP.com and LiveDeal.com sites.  Since the date of the LiveDeal
acquisition, these products have accounted for approximately 2 percent of our
net revenues.





7
 Table of Contents





Other Online
Services.  We also offer our customers other products and
services to enhance their use of the Internet, including a simple, effective,
website development tool and a cost-effective Internet dial-up
package.  These products accounted for less than 1% of our net
revenues in fiscal 2007.





Fulfillment
Services.Beginning in fiscal 2006, we began entering into
contracts with several third parties whereby we provide hosting, customer
service and certain administrative functions under a revenue sharing
agreement.  We believe these agreements allow us to increase
operational efficiencies and expand our customer base.





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 LEC, (ii) 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 local exchange carrier, or 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.  LEC billing accounted for approximately 63% of net billings
in fiscal 2007.





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 expense, 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 an Automated Clearing House, or 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 and our ACH
service providers, these third parties are entitled to withhold certain amounts
from our net proceeds to serve as a security deposit or “holdbacks” or
“reserves.”  In the case of LEC billing aggregators, such amounts are
generally remitted to us over a 12-18 month period, depending on the terms of
the respective agreements.  ACH processors maintain a rolling reserve
based on average monthly volume.





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 Click2Call feature, 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 Click2Call feature,
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 limited by the
publishers’ infrequent re-publication schedule if they desire to change their
advertisement.





Basic
classified advertisements for non-commercial users are free, though we offer a
variety of promotional options to improve selling success on a fee for service
basis, with such pricing ranging from $0.50 to $29.95 per
listing.    Pricing for storefronts and other commercial
services are priced beginning at $9.95 per month for merchandise accounts and
$76.00 per month for automobile accounts, with additional promotional options
offered on a fee-for-service basis.  Our pricing also is competitive
with print classified advertisements.





8
 Table of Contents





Marketing





As with
leading online businesses such as Yahoo! and Google, we seek to develop a strong
brand and content offerings which will attract and engage users and
advertisers.  In June 2007, we combined existing businesses in the
online classified advertising market (LiveDeal, Inc.) with the online Yellow
Page market (the former core YP Corp. business) to provide users with an
effective online venue for marketing their products and services
locally.  We believe that the natural synergies associated with these
two businesses will allow us to create a content-rich and efficient marketplace
that will drive growth in users and advertisers.





We
utilize various online marketing methods to drive users and advertisers to our
site.  However, our primary marketing method is
telemarketing.  In fiscal 2007, we acquired an existing telemarketing
vendor in the Philippines which added 170 employees and enables us to conduct
full-scale telemarketing efforts at a reduced cost.  We expect that
this acquisition will provide us cost savings in the future.





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 high volume website.





To focus
on a quality and timely product, we have divided our technology staff and
technology base into a business operations unit and an advanced technologies
group dedicated to our directory services product.  Our business
operations support a sophisticated call center, automated billing of our
customers, customer relationship management, and automated mailing
campaign.  Our advanced technologies group supports all research,
design, development and systems enhancements to the LiveDeal.com and YP.com
websites and internal systems.  These operations are described in the
following paragraphs.





LiveDeal.com
and YP.com combines the local online classifieds and Yellow Pages marketplace
with millions of goods and services listed for sale, in every city and zip code
across the U.S. By combining the benefits of classifieds, business listings and
premium stores, feedback reviews, community chat boards, maps and directions,
telephone numbers, advertising/distribution networks and e-commerce into a
single online solution, LiveDeal offers businesses and consumers the most
affordable and effective solution for creating a web presence and marketing
their products and services locally. YP.com is LiveDeal's Yellow Pages website
and URL. Through its online properties YP.com and LiveDeal.com, LiveDeal enables
buyers and sellers to find and list business services, merchandise, real estate,
automobiles, pets and more in their local communities. Using LiveDeal’s
marketplace, consumers can search or browse for items in a particular city,
state or zip code, or reach out on a national or global scope if they so
choose.


LiveDeal
also partners with online and offline media to quickly and cost effectively
power their online classifieds and yellow pages via its dynamic
platform.





Salient
features of LiveDeal technology:





·
            Own source code that includes
      cutting edge technology (J2EE, Struts, XML, Spring, Hybernate, JBoss,
      Apache, etc):





9
 Table of Contents





·
            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, 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 at our Santa
Clara, California and Mesa, Arizona 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.





The
Internet Yellow Pages and Classified 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 March 2007 press release from The Kelsey Group, advertising revenues from
Internet Yellow Pages and Local Search are expected to grow from $4.1 billion in
2006 to $11.1 billion globally in 2011, a 22.3% compound annual growth
rate.  Recent studies have shown that while small and mid-size
businesses continue to utilize traditional media, they are increasingly turning
to targeted, vertical electronic media.





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, 69.3% of the United States
population uses the Internet, a growth of 117.3% from 2000 to
2006.  Search engines are a common method by which these users
navigate the Internet.  Our expanding distribution network seeks to
allow our advertisers to benefit from this growth by receiving prominent
placement in search engine results.





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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 a license agreement with
      Palm, Inc. whereby we pay a fee to be a provider of Yellow Pages content
      on hand-held devices using the Palm operating system.  We
      provide this content to Palm through a hypertext link from the Palm
      operating system to our
website.





·
            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 utilize WebDialogs in a
      co-promotional effort to provide automatic dialing services to our website
      users. These services allow these users to place a call to one of our IAP
      advertisers by simply clicking a button. This function powers our
      Click2Call feature.





·
            We will begin featuring Yelp’s
      1.8 million customer reviews on its online classifieds and 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.





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 have advantages
in terms of brand name recognition.





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We
believe that we are in a position to successfully compete in these markets due
to the speed of our local search engine, the comprehensiveness of our database,
and the effectiveness of our marketing programs and our distribution
network.  We also believe that the combination of local classifieds
and 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. 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 our listings and our Mini-WebPages provide users of our website with
readily available information that is easy to understand and from which they can
make their buying decisions.  We believe that our calling center is a
competitive advantage.  Through our calling centers we continually
receive and process requests to update customer information on our website and,
accordingly, we believe our site contains more useful and timely information
than that of our competitors.  We further believe that this, in turn,
will translate into more page views and advertisers.





Employees





As of
September 30, 2007, we had 85 full-time and 1 part-time employees in the United
States and 159 full-time employees in the Philippines.  None of our
employees are covered by any collective bargaining agreements.





ITEM1A. 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.  Accordingly, you should only consider investing in
our common stock if you can afford to lose your entire investment.





Risks
Related to Our Business





We
face intense competition, including from companies with greater resources, which
could adversely affect our growth and could lead to decreased
revenues.





Several
companies, including Google, Microsoft, Verizon, and Yahoo!, currently market
Internet Yellow Pages or local search services that directly compete with our
services and products.  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. This could limit our sales and strengthen our
      competitors’ existing relationships with their customers, including our
      current and potential IAP
advertisers;




·
            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 Internet-based Yellow Pages advertising 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.





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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
quarterly 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
            varying IAP advertiser response
      rates to our direct marketing
efforts,




o
            our ability to complete direct
      mailing solicitations on a timely basis each
  month,




o
            changes in our direct marketing
      efforts,




o
            IAP advertiser refunds or
      cancellations, and




o
            our ability to continue to bill
      through LEC billing, ACH billing or credit card channels rather than
      through direct invoicing;




·
            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;





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·
            a decline in Internet traffic at
      our website;




·
            the cost of acquiring, and the
      availability of, information for our database of potential advertisers;
      and




·
            the fixed nature of a significant
      amount of our operating
expenses.







The
loss of our ability to bill IAP advertisers through our Local Exchange Carriers
on the IAP advertisers’ telephone bills would adversely impact our results of
operations.





We rely
heavily on our ability to bill advertisers on their telephone bills through
their respective Local Exchange Carriers, or “LECs.”  LEC billing has
steadily increased in recent quarters and accounted for 63% of net billings in
2007.





The
existence of the LECs is the result of federal legislation.  In the
same manner, Congress could pass future legislation that obviates the existence
of or the need for the LECs.  Additionally, regulatory agencies could
limit or prevent our ability to use the LECs to bill our
advertisers.  The introduction of and advancement of new technologies,
such as WiFi technology or other wireless-related technologies, could render
unnecessary the existence of fixed telecommunication lines, which also could
obviate the need for and access to the LECs. Finally, we have historically been
affected by the LECs’ internal policies.  With respect to certain
LECs, such policies are becoming more stringent. Our inability to use the LECs
to bill our advertisers through their monthly telephone bills would result in
increased dilution and decreased revenues and would have a material adverse
impact on our financial condition and results of operations.





Our
revenue may decline over time due to the involvement of the CLECs in the local
telephone markets.





Due to
competition in the telephony industry, many business customers are finding
alternative telephone suppliers, such as Competitive Local Exchange Carriers, or
CLECs, that offer less expensive alternatives to the LECs.  When the
LECs effectuate a price increase, many business customers look for an
alternative telephone company, which may be a CLEC.  When our
advertising customers switch service providers from the LECs to a CLEC, we are
precluded from billing these customers on their monthly telephone bill and must
instead convert them to alternative billing methods such as ACH billing or
direct invoicing.  This conversion process can be disruptive to our
operations and result in lost revenue.  We cannot provide any
assurances that our efforts will be successful. We may experience future
increases in dilution of our customer base that we are able to bill on their
monthly telephone bills, which, in turn, may result in decreases in our
revenue.





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 IAP 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 Automated Clearing House (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.  Although we maintain key person
life insurance on the lives of our executive officers, such coverage may not be
adequate to protect us in the event of loss of such personnel.





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.





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Our
ability to efficiently process new advertiser sign-ups and to bill our
advertisers monthly depends upon our third party service providers and billing
aggregators and processors, respectively.





We
currently use third party service providers to provide us with advertiser
information at the point of sign-up for our Internet Advertising
Package.  Our ability to gather information to bill our advertisers at
the point of sign-up could be adversely affected if one or more of these
providers experiences a disruption in its operations or ceases to do business
with us.





We also
depend upon our billing aggregators and service providers to efficiently bill
and collect monies through our LEC billing and ACH billing
channels.   We currently have agreements with three billing
aggregators and two ACH service providers.  Any disruption in these
third parties’ ability to perform these functions could adversely affect our
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.





The
market for our services is uncertain.





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 Internet-base Yellow Pages services and other online services that we may
offer in the future.  Advertisers may find Internet Yellow Pages
advertising to be less effective for meeting their business needs than
traditional methods of Yellow Pages or other advertising and
marketing.  Our business, prospects, financial condition or results of
operations will be materially and adversely affected if potential advertisers do
not adopt Internet Yellow Pages as an important component of their advertising
expenditures.





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, 2007, 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:





·
            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.





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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.  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 over our promotional
activities, specifically the use of our check mailer for customer
acquisition.  The main terms of this agreement were as
follows:





·
            We paid a settlement fee of
      $2,000,000 to the state consortium, which was distributed among
      themselves;


·
            We discontinued the use of
      activation checks as a promotional
  incentive;


·
            We temporarily suspended billing
      of any active customer that was acquired in connection with the use of an
      activation check while notifying the customer of their legal rights to
      cancel the service and providing them a 60-day opportunity to receive a
      refund equivalent to the customer’s last two payments;
      and


·
            We agreed not to employ any
      collection efforts with respect to past-due accounts of customers that
      were secured through the use of an activation
  check.




There can
be no absolute assurance that the other states, 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 be unable to promote and maintain our brands.





We
believe that establishing and maintaining the brand identities of our Internet
Yellow Pages services is a critical aspect of attracting and expanding a base of
advertisers and users.  Promotion and enhancement of our brands will
depend largely on our success in continuing to provide high quality
service.  If advertisers and users do not perceive our existing
services to be of high quality, or if we introduce new services or enter into
new business ventures that are not favorably received by advertisers and users,
we will risk diluting our brand identities and decreasing their attractiveness
to existing and potential IAP advertisers.





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.





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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




·
            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 IAP advertiser
support capabilities.





Our
ability to provide high-quality Internet Yellow Pages 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 IAP advertiser support capabilities in order to accommodate
any significant increases in the numbers of advertisers and users of our
websites.  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.  If we do not expand and upgrade our infrastructure in a
timely manner, we could experience temporary capacity constraints that may cause
unanticipated system disruptions, slower response times, and lower levels of IAP
advertiser service.  Our inability to upgrade and expand our
infrastructure and IAP advertiser support capabilities as required could impair
the reputation of our brand and our services, reduce the volume of users able to
access our website, 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 IAP advertiser 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.




We
may not be able to effectively integrate our newly acquired
businesses.





During
2007, we acquired LiveDeal, an online local classifieds marketplace and Oncall
Subscriber Management, a call center in the Philippines that provides various
business process outsourcing, telemarketing, subscriber and other customer
services.  These businesses do not generate existing cash
flows.  To the extent that we do not successfully integrate these
businesses, we may experience a material adverse effect to our business,
financial condition and results of operations.





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Our
operation of a subsidiary in the Philippines poses risks and could impact our
financial condition.




In fiscal
2007, we acquired Oncall Subscriber Management Inc., which operated a call
center in the Philippines, and created a Philippine subsidiary to carry on that
business.  We entered into those transactions to generate cost savings
in connection with our ongoing marketing efforts and do not presently anticipate
relying on our foreign operations for a significant portion of our
revenues.  Still, our operation of a foreign subsidiary poses certain
risks to our business, including:




·
            changes that might result from
      regulatory requirements, exchange rates, tariffs and/or other economic
      barriers;




·
            difficulties in staffing and
      managing the operations of our Philippine
    subsidiary;




·
            differing technology and systems
      standards;




·
            conflicting laws and/or political
      conditions; and




·
            risks relating to accounting
      practices and/or tax laws enforced in foreign
      jurisdictions.




Failure
to achieve and maintain effective internal controls in accordance with Section
404 of the Sarbanes-Oxley Act could have a material adverse effect on our
business and stock price.




Pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002, beginning with our Annual
Report on Form 10-K for the fiscal year ending September 30, 2008, we will be
required to furnish a report by our management on our internal control over
financial reporting. The internal control report must contain (i) a statement of
management's responsibility for establishing and maintaining adequate internal
control over financial reporting, (ii) a statement identifying the framework
used by management to conduct the required evaluation of the effectiveness of
our internal control over financial reporting, (iii) management's assessment of
the effectiveness of our internal control over financial reporting as of the end
of our most recent fiscal year, including a statement as to whether or not
internal control over financial reporting is effective, and (iv) a statement
that the Company's independent auditors have issued an attestation report on
management's assessment of internal control over financial
reporting.




In order
to achieve compliance with Section 404 of the Act within the prescribed period,
we will need to engage in a process to document and evaluate our internal
control over financial reporting, which will be both costly and challenging. In
this regard, management will need to dedicate internal resources, engage outside
consultants and adopt a detailed work plan to (i) assess and document the
adequacy of internal control over financial reporting, (ii) take steps to
improve control processes where appropriate, (iii) validate through testing that
controls are functioning as documented, and (iv) implement a continuous
reporting and improvement process for internal control over financial
reporting.  We can provide no assurance as to our, or our independent
auditors’, conclusions at September 30, 2008 with respect to the effectiveness
of our internal control over financial reporting under Section 404 of the Act.
There is a risk that neither we nor our independent auditors will be able to
conclude at September 30, 2008 that our internal controls over financial
reporting are effective as required by Section 404 of the Act.




During
the course of our testing we may identify deficiencies that we may not be able
to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act for
compliance with the requirements of Section 404. In addition, if we fail to
achieve and maintain the adequacy of our internal controls, as such standards
are modified, supplemented or amended from time to time, we may not be able to
ensure that we can conclude on an ongoing basis that we have effective internal
controls over financial reporting in accordance with Section 404 of the
Sarbanes-Oxley Act. Moreover, effective internal controls, particularly those
related to revenue recognition, are necessary for us to produce reliable
financial reports and are important to helping prevent financial fraud. If we
cannot provide reliable financial reports or prevent fraud, our business and
operating results could be harmed, investors could lose confidence in our
reported financial information, and the trading price of our stock could drop
significantly.





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.





18
 Table of Contents





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.




Our
future success may depend on continued growth in the use of the
Internet.





Because
Internet Yellow Pages is a relatively new and rapidly evolving industry, the
ultimate demand and market acceptance for our services will be subject to a high
level of uncertainty.  Significant issues concerning the commercial
use of the Internet and online service technologies, including security,
reliability, cost, ease of use, and quality of service, remain unresolved and
may inhibit the growth of Internet business solutions that use these
technologies.  In addition, the Internet or other online services
could lose their viability due to delays in the development or adoption of new
standards and protocols required to handle increased levels of Internet
activity, or due to increased governmental regulation.  Our business,
prospects, financial condition, and results of operations would be materially
and adversely affected if the use of Internet Yellow Pages and other online
services does not continue to grow or grows more slowly than we
expect.





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.





19
 Table of Contents





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.





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.





20
 Table of Contents





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;




·
            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 ofNevadalaw 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.





21
 Table of Contents





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.




The
reverse stock split that we effected in fiscal 2007 could have an adverse impact
on our common stock.





Our
1-for-10 reverse stock split could cause a reduction in the total market value
of our common stock, increase the volatility of our stock price and has
increased the number of shares of common stock we may issue.  Reduced
liquidity may reduce the value of our common stock and our ability to use our
equity as consideration for an acquisition or other corporate
opportunity.  In addition, the reverse split has decreased the number
of shares outstanding, giving individual orders the potential to create
increased volatility in our stock price.  As a result of the reverse
stock split, we are able to issue significantly more shares of our common stock
which could have a material adverse affect on the market price of our common
stock.  We are currently authorized to issue 100,000,000 shares of
common stock and, as a result of the reverse stock split, have approximately
6,640,541 shares outstanding as of December 3, 2007.





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.





ITEM 1B. Unresolved Staff Comments





Not
applicable.





ITEM 2. Properties





We have a
long-term operating lease with Arthur Grandlich d/b/a McKellips Corporate Square
for the 16,772 square foot corporate office that is located in Mesa,
Arizona.  We pay rent of approximately $120,000 annually under this
lease, which expires in June 2011.  This facility contains certain
administrative resources.





We lease
a 3,500 square foot facility in Las Vegas, Nevada that functions as the primary
operating facility of Telco on a month-to-month basis.  We pay rent of
approximately $8,000 per month.





We lease
a 7,300 square foot facility in Santa Clara, California that functions as the
primary operating facility of our Live Deal, Inc. subsidiary. We pay rent of
approximately $8,200 per month under an operating lease that expires in June
2008.





We lease
space in the Philippines for our telemarketing activities under an operating
lease that expires in February 2010.  Monthly rent payments fluctuate
between $10,300 and $11,500 per month.





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





ITEM 3. Legal Proceedings





We are
party to certain legal proceedings and other various claims and lawsuits in the
normal course of our business, which, in the opinion of management, are not
material to our business or financial condition.





22
 Table of Contents





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





The
following matters were approved by the Company’s stockholders at a Special
Meeting of Stockholders held on August 2, 2007:




·
            A proposal to give the Company’s
      Board of Directors discretion to effect a reverse stock split with respect
      to issued and outstanding shares of our common stock;
      and




·
            A proposal to amend and restate
      the Company’s Restated Articles of Incorporation to change the Company’s
      name from “YP Corp.” to “LiveDeal,
Inc.”




Reverse
Stock Split





The
allocation of votes to give the Company’s Board of Directors discretion to
effect a reverse stock split with respect to issued and outstanding shares of
our common stock was as follows:





Votes
      For
            Votes
      Against
            Abstentions
      and Broker Non-VotesProposal
      to Give the Company’s Board of Directors Discretion to Effect a Reverse
      Stock Split with Respect to Issued and Outstanding Shares of our Common
      Stock
            52,886,335
            3,962,852
            371,700





Name
Change





The
allocation of votes to amend and restate the Company’s Restated Articles of
Incorporation to change the Company’s name from “YP Corp.” to “LiveDeal, Inc.”
was as follows:





Votes
      For
            Votes
      Against
            Abstentions
      and Broker Non-VotesProposal
      to Amend and Restate the Company’s Restated Articles of Incorporation to
      Change the Company’s Name from “YP Corp.” to “LiveDeal,
      Inc.”
            56,443,009
            162,052
            625,826





PART
II





ITEM5. Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities





Our
Common Stock





Our
common stock trades publicly on the Over-The-Counter Bulletin Board (“OTCBB”)
under the symbol “LVDL”. The OTCBB is a regulated quotation service that
displays real-time quotes, last-sale prices and volume information in
over-the-counter equity securities. The OTCBB securities are traded by a
community of market makers that enter quotes and trade reports. This market is
extremely limited and any prices quoted are not a reliable indication of the
value of our common stock.





The
following table sets forth the quarterly high and low bid prices per share of
our common stock by the OTCBB during the last two fiscal years. The quotes
represent inter-dealer quotations, without adjustment for retail mark-up,
markdown or commission and may not represent actual transactions.





23
 Table of Contents







Fiscal Year
            
            Quarter Ended
            
            High
            
            
            Low2006
            
            December
      31, 2005
            
            $
            9.40
            
            
            $
            4.00March
      31, 2006
            
            $
            10.30
            
            
            $
            5.10June
      30, 2006
            
            $
            13.00
            
            
            $
            9.50September
      30, 2006
            
            $
            10.80
            
            
            $
            7.902007
            
            December
      31, 2006
            
            $
            10.70
            
            
            $
            7.20March
      31, 2007
            
            $
            12.10
            
            
            $
            7.60June
      30, 2007
            
            $
            8.70
            
            
            $
            6.60September
      30, 2007
            
            $
            8.00
            
            
            $
            6.00




Holders
of Record





On
December 3, 2007, there were approximately 136 holders of record of our common
stock according to our transfer agent. The Company has no record of the number
of shareholders who hold their stock in “street” name with various
brokers.





Dividend
Policy





We have
one class of outstanding 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, payable in quarterly installments of $0.00375.  At September 30,
2007, we had accrued but unpaid dividends totaling approximately
$4,300.




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.





Issuer
Purchases of Equity Securities




Period
            
            (a)
      Total Number of Shares (or Units) Purchased
            
            
            (b)
      Average Price Paid per Share (or Unit)
            
            
            (c)
      Total Number of Shares (or Units)
              Purchased
      as Part of Publicly Announced Plans or Programs2
            
            
            (d)
      Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May
      Yet Be Purchased Under the Plans or ProgramsJuly
      2007
            
            
            -
            
            
            N/A
            
            
            
            -
            
            
            $
            1,000,000August
      2007
            
            
            44,224
            1
            
            $
            6.95
            
            
            
            -
            
            
            $
            1,000,000September
      2007
            
            
            -
            
            
            N/A
            
            
            
            -
            
            
            $
            1,000,000Total
            
            
            44,224
            
            
            $
            6.95
            
            
            
            -
            
            
            $
            1,000,000




1           In
August 2007, we acquired 44,224 shares of common stock at an aggregate price of
$307,540 as part of arrangements with LiveDeal shareholders stemming from the
acquisition of LiveDeal, Inc. in June 2007.




2           On
May 18, 2005, we announced the adoption of a $3,000,000 stock repurchase plan,
under which 85,385 shares were repurchased at an aggregate price of $686,793. On
May 25, 2007, the Company’s Board of Directors terminated the May 18, 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





24
 Table of Contents





Performance
Graph










ITEM 6. Selected Financial Data





The
selected financial data presented below are derived from our historical
consolidated financial statements for the year ended September 30, 2007, which
have been audited by Mayer Hoffman McCann, P.C., our independent registered
public accounting firm and the years ended September 30, 2003 through 2006 which
were audited by Epstein, Weber & Conover, P.L.C., our former independent
registered public accounting firm.  These amounts have subsequently
been restated as described below.  The selected financial data should
be read in conjunction with Management’s Discussion and Analysis of Financial
Condition and Results of Operations and our consolidated financial statements
and the related notes thereto included elsewhere in this Annual
Report.





25
 Table of Contents




Year
      Ended September 30,2007
            
            
            2006
            
            
            2005
      (1)
            
            
            2004
            
            
            2003Statement
      of Operations Data
            
            
            
            
            (as
      restated)
            
            
            (as
      restated)
            
            
            (as
      restated)
            
            
            (as
      restated)Net
      revenues
            
            $
            26,340,361
            
            
            $
            31,957,947
            
            
            $
            24,361,995
            
            
            
            38,954,823
            
            
            $
            26,396,093Cost
      of services
            
            
            4,204,276
            
            
            
            4,030,280
            
            
            
            3,137,756
            
            
            
            6,544,598
            
            
            
            4,102,395Gross
      profit
            
            
            22,136,085
            
            
            
            27,927,667
            
            
            
            21,224,239
            
            
            
            32,410,225
            
            
            
            22,293,698Operating
      income (loss)
            
            
            3,326,679
            
            
            
            (1,562,357
            )
            
            
            985,256
            
            
            
            11,465,946
            
            
            
            7,281,886Net
      income (loss)
            
            
            1,753,918
            
            
            
            (1,050,920
            )
            
            
            725,146
            
            
            
            8,184,930
            
            
            
            6,472,705Net
      income (loss) per common share:Basic
            
            $
            0.34
            
            
            $
            (0.23
            )
            
            $
            0.16
            
            
            $
            1.73
            
            
            $
            1.43Diluted
            
            $
            0.33
            
            
            $
            (0.23
            )
            
            $
            0.16
            
            
            $
            1.70
            
            
            $
            1.42Weighted
      average common shares outstanding:Basic
            
            
            5,108,551
            
            
            
            4,495,868
            
            
            
            4,639,036
            
            
            
            4,737,593
            
            
            
            4,532,672Diluted
            
            
            5,336,439
            
            
            
            4,495,868
            
            
            
            4,665,992
            
            
            
            4,807,570
            
            
            
            4,559,159Cash
      dividends declared per common share
            
            $
            -
            
            
            $
            -
            
            
            $
            0.30
            
            
            $
            0.30
            
            
            $
            -Statement
      of Cash Flows DataNet
      cash provided by operating activities
            
            $
            1,765,496
            
            
            $
            2,422,001
            
            
            $
            6,990,161
            
            
            $
            4,818,203
            
            
            $
            4,762,238Net
      cash used in investing activities
            
            
            (2,175,802
            )
            
            
            (1,904,201
            )
            
            
            (2,440,792
            )
            
            
            (2,192,500
            )
            
            
            (2,798,500
            )Net
      cash used in financing activities
            
            
            (309,936
            )
            
            
            (237,336
            )
            
            
            (2,011,587
            )
            
            
            (1,428,022
            )
            
            
            (351,998
            )Balance
      Sheet DataCash
      and cash equivalents
            
            $
            5,674,533
            
            
            $
            6,394,775
            
            
            $
            6,114,311
            
            
            $
            3,576,529
            
            
            $
            2,378,848Working
      capital
            
            
            11,315,872
            
            
            
            13,908,560
            
            
            
            13,374,171
            
            
            
            12,484,833
            
            
            
            6,615,537Property
      and equipment, net
            
            
            423,563
            
            
            
            178,883
            
            
            
            396,862
            
            
            
            725,936
            
            
            
            731,142Intangible
      assets, net
            
            
            7,372,147
            
            
            
            5,722,604
            
            
            
            6,108,823
            
            
            
            3,326,274
            
            
            
            3,512,952Total
      assets
            
            
            40,042,466
            
            
            
            27,977,227
            
            
            
            23,632,916
            
            
            
            26,289,604
            
            
            
            20,356,163Total
      long term liabilities
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            848,498
            
            
            
            -Total
      stockholders' equity
            
            
            37,707,871
            
            
            
            22,376,373
            
            
            
            22,065,266
            
            
            
            23,572,393
            
            
            
            15,709,315







(1)
            Includes an increase to income of
      approximately $100,000 (net of income taxes of approximately $54,000)
      resulting from the cumulative effect of an accounting change for
      forfeitures of restricted stock granted to employees, executives and
      consultants





All per
share amounts have been retroactively restated for the effects of the 1-for-10
reverse stock split that occurred in fiscal 2007.





During
2007, the Company reevaluated its consolidated financial statement presentation
policies and procedures. During this process, the Company identified certain
errors in the presentation of its consolidated financial statements for the
years ending September 30, 2006, 2005, 2004 and 2003.  The errors and
their corrections are more fully described in Note 19 of the consolidated
financial statements included in this Form 10-K/A.  The following
table indicates the increase or (decrease) to the specific financial statement
data set forth in the above table:




Year
      Ended September 30,2007
            
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003Statement
      of Operations DataNet
      revenues(1)
            
            $
            -
            
            
            $
            (4,923,217
            )
            
            $
            (842,863
            )
            
            
            (18,213,282
            )
            
            $
            (4,371,351
            )Cost
      of services(2)
            
            
            -
            
            
            
            (4,038,959
            )
            
            
            (842,863
            )
            
            
            (18,213,282
            )
            
            
            (4,371,351
            )Gross
      profit(1)
      (2)
            
            
            -
            
            
            
            (884,258
            )
            
            
            -
            
            
            
            -
            
            
            
            -Operating
      income (loss)(3)
            
            
            -
            
            
            
            (3,686,807
            )
            
            
            (328,133
            )
            
            
            -
            
            
            
            -Other
      income (expense)(3)
            
            
            -
            
            
            
            3,686,807
            
            
            
            328,133
            
            
            
            -
            
            
            
            -Net
      income (loss)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Statement
      of Cash Flows DataNet
      cash provided by operating activities(4)
            
            $
            -
            
            
            $
            1,918
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -Net
      cash used in investing activities(5)
            
            
            -
            
            
            
            (815,785
            )
            
            
            -
            
            
            
            -
            
            
            
            -Net
      cash used in financing activities(4)
            
            
            -
            
            
            
            (1,918
            )
            
            
            -
            
            
            
            -
            
            
            
            -Balance
      Sheet DataCash
      and cash equivalents(5)
            
            $
            -
            
            
            $
            (815,785
            )
            
            $
            -
            
            
            $
            -
            
            
            $
            -Total
      assets(6)
            
            
            -
            
            
            
            1,250,000
            
            
            
            -
            
            
            
            -
            
            
            
            -




26
 Table of Contents





(1)Reflects
the impacts of reclassifications of unbillable accounts and chargebacks from
cost of services to net revenues.


(2)Reflects
the impacts of reclassifications of unbillable accounts and chargebacks from
cost of services to net revenues and the reclassification of monitoring fees
related to our LEC billing channel from general and administrative expenses to
cost of services.


(3)Reflects
the impacts of reclassifications of litigation and related expenses from other
income and expense to operating expenses.


(4)Reflects
the impacts of corrections for preferred stock dividends that were previously
reflected as part of operating activities


(5)Reflects
the impacts of reclassifications of certain investment accounts from cash and
cash equivalents to certificates of deposit and other investments.


(6)Reflects
the impacts of accrued refunds and fees relating to the Attorneys’ General
settlement from accounts receivable, net to accrued liabilities.





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, 2007, 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 twelve
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.




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.





27
 Table of Contents





Executive
Overview





This
section presents a discussion of recent developments and summary information
regarding our industry and operating trends only. For further information
regarding the events summarized herein, you should read this Management’s
Discussion and Analysis of Financial Condition and Results of Operations in its
entirety.




We
maintain a combined local online classifieds and Yellow Pages marketplace with
millions of goods and services listed for sale, in nearly every city and zip
code across the U.S. By combining the benefits of classifieds, business
listings, mobile services, advertising/distribution networks and e-commerce into
a single online solution, we offer businesses and consumers an affordable and
effective solution for creating a web presence and marketing their products and
services locally. Through our online properties YP.com and LiveDeal.com, we
enable buyers and sellers to find and list business services, merchandise, real
estate, automobiles, pets and more in their local communities. Using LiveDeal’s
marketplace, consumers can search or browse for items in a particular city,
state or zip code, or reach out on a national or global scope if they so
choose.





Acquisition
of LiveDeal, Inc.




On June
6, 2007, we completed the acquisition of LiveDeal, Inc.
(“LiveDeal”).  LiveDeal developed and operates an online local
classifieds marketplace, www.livedeal.com, which lists millions of goods and
services for sale in almost every city and zip code across the
U.S.   The technology acquired in the acquisition offers 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.





The
acquisition represents a major strategic event in our history and is expected to
result in significant efficiencies as well as future growth
opportunities.  With the acquisition of LiveDeal, we are now able to
supplement our telemarketing campaigns with online marketing
efforts.  Our online traffic acquisition strategy includes activities
in e-mail marketing, search engine marketing (SEM) search engine optimization
(SEO) partnerships with major online marketing companies, and the generation of
word of mouth advertising.  We anticipate continued investment in
online advertising to bring increased traffic to our websites that should result
in increased value to the local business advertising community thereby driving
increased revenues.





The
aggregate purchase price of LiveDeal was $12,700,695, consisting of
approximately $12,328,045 of stock-based consideration and $372,650 of
acquisition-related expenses.  The value of the combined 1,675,016
shares of Common Stock granted in the transaction was determined based on the
average closing market price of the Common Stock over the two day period before
and after the effective date of the acquisition.





The
following table presents the allocation of the acquisition cost, including
acquisition-related expenses, to the assets acquired and liabilities assumed,
based on their fair values:





Current
      assets
            
            $
            962,877Property,
      plant and equipment
            
            
            70,000Goodwill
            
            
            7,349,366Intangible
      assets
            
            
            2,130,000Deferred
      tax assets
            
            
            3,545,618Other
      non-current assets
            
            
            10,846Total
      assets acquired
            
            
            14,068,707Current
      liabilities
            
            
            1,368,012Total
      liabilities assumed
            
            
            1,368,012Net
      assets acquired
            
            $
            12,700,695




Further
information with respect to this acquisition is set forth in Note 4 to our
audited consolidated financial statements.





28
 Table of Contents





Acquisition
of OnCall Subscriber Management Inc.




On July
10, 2007, we acquired substantially all of the assets and assumed certain
liabilities of OnCall Subscriber Management Inc. (a Manila, Philippines-based
company), which OnCall purchased recently under option from 24 by 7 Contact
Solutions, Inc. The purchase price of the acquisition was approximately
$4,552,600 (including acquisition expenses of $52,600) payable in cash. The
acquisition added approximately 170 Philippines-based employees to our
workforce.  We currently operate the acquired business through a
wholly owned subsidiary in the Philippines.




Name
Change and Reverse Stock Split




The
following matters were approved by our stockholders at a Special Meeting of
Stockholders held on August 2, 2007:




·
            A proposal to give our Board of
      Directors discretion to effect a reverse stock split with respect to
      issued and outstanding shares of our common stock;
    and




·
            A proposal to amend and restate
      our Restated Articles of Incorporation to change our name from “YP Corp.”
      to “LiveDeal, Inc.”




Our Board
of Directors effected a 1 for 10 reverse stock split effective on August 15,
2007.  All shares amounts have been retroactively restated in this
Annual Report to reflect the effects of this reverse stock split.




Changes
in Officers and Directors




On June
6, 2007, the Company’s Board of Directors (the “Board”) increased the size of
the Board to seven and appointed Rajesh Navar and John Clay Evans to fill the
newly created vacancies.




Rajesh
Navar also serves as president of LiveDeal, Inc.  Mr. Navar brings
more than 16 years experience in building high technology and Internet
companies. As an original member of the engineering and management team at eBay,
Navar is one of the pioneers in e-commerce. Prior to founding LiveDeal, Navar
joined eBay in 1998, a start-up at that time, as a senior member of the
engineering team. Navar founded and built eBay's search technology, helping
build eBay into one of the worlds most successful and profitable e-commerce
companies. In September, 2005, Navar was honored among Silicon Valley Business
Journal's chronicle of "40 under 40" people to watch.




Mr.
Evans, a non-employee director, has been a business strategy consultant and
investment analyst in the information services and media industry since 2002. He
remains an adviser to various private funds analyzing investments in this
industry. Previous to this he has been a fixed income and equity analyst and
portfolio manager for various funds and family offices.  During this period
he has performed many strategic consulting for many companies such as Bankrate,
Inc. and many other companies.  He studied American and Ancient History at
Columbia University in the City of New York.




Effective
August 3, 2007, Elisabeth DeMarse resigned from the board of LiveDeal, Inc.
due to her other business commitments.  Ms. DeMarse did not have
any disagreement with the Company regarding its operations, policies or
practices.




On
November 20, 2007 the Board of Directors, of LiveDeal, Inc., elected Mr. Thomas
J. Clarke, Jr. as a director of the company effective
immediately.  Mr. Clarke is currently the Chairman and Chief Executive
Officer of TheStreet.com (NASQ-TSCM). Prior to joining that company in 1999, Mr.
Clarke was Chief Executive Officer of Thomson Financial Investor Relations. At
that company, Mr. Clarke oversaw the sale of what was then Technimetrics Inc.
from Knight-Ridder to Thomson Corporation in 1998. Mr. Clarke has also held
management positions at companies such as McAuto Systems Corp. and Media
Records.  Additionally, Mr. Clarke serves as a business information
advisor for Plum Holdings L.P., an institutional venture capital firm
specializing in early stage investments in media companies. He serves on the
University of Albany's executive advisory board of the Center for Comparative
Functional Genomics, and on the board of Standing Stone, Inc., developers of
disease state management solutions.





We
believe that the addition of these directors, two of whom are independent, will
strengthen our corporate governance and the effectiveness of our
organization.





29
 Table of Contents





Restatements





During fiscal
2007, we reevaluated our consolidated financial statement presentation policies
and procedures. During this process, we identified certain errors in the
presentation of our 2006 and 2005 consolidated financial
statements.  The errors and related corrections are summarized
below:





Balance
Sheet





●
            Certain investment accounts
      totaling $815,785 have been reclassified from cash and
      cash equivalents to certificates of deposit and other
      investments based on the maturity dates of the underlying
      investments


●
            Accrued refunds and fees of
      $1,250,000 relating to the Attorneys’ General settlement described in Note
      10 have been reclassified from accounts receivable, net to accrued
      liabilities in the accompanying consolidated balance sheet as of September
      30, 2006.


●
            Certain miscellaneous receivables
      totaling $23,819 at September 30, 2006 were reclassified from prepaid
      expenses and other current assets to accounts receivable, net in the
      accompanying consolidated balance
sheet.




Statement
of Operations




●
            Unbillable accounts and charge
      backs have been reclassified from cost of services to a reduction in net
      revenues in the consolidated statement of
    operations.


●
            Monitoring fees related to our
      LEC billing channel have been reclassified from general and administrative
      expenses to cost of
services.


●
            Depreciation and amortization
      expenses that were previously separately stated are now included in
      general and administrative expenses in the consolidated statement of
      operations.


●
            Litigation and related expenses
      that were previously included in other income and expense are now
      separately stated as a component of operating expenses in the consolidated
      statement of operations.





Statement
of Cash Flows




·
            Preferred
      stock dividends for the year ended September 30, 2006 totaling $1,918 were
      reclassified from net cash provided by operating activities to net cash
      used in financing activities.


·
            Net
      cash used in investing activities was affected by the reclassification of
      certain investment accounts from cash and cash equivalents to
      certificates of deposit and other investments as previously
      described.





All prior
periods have been restated to conform to the current period
presentation.  See Note 19 to our audited consolidated financial
statements.




Attorneys’
General Settlement




On
December 14, 2006, we voluntarily entered into a settlement with thirty-four
states’ attorneys general to address their concerns over our promotional
activities, specifically the use of our check mailer for customer
acquisition.  The main terms of this agreement were as
follows:





·
            We paid a settlement fee of
      $2,000,000 to the state consortium, which was distributed among
      themselves;


·
            We discontinued the use of
      activation checks as a promotional
  incentive;


·
            We temporarily suspended billing
      of any active customer that was acquired in connection with the use of an
      activation check while notifying the customer of their legal rights to
      cancel the service and providing them a 60-day opportunity to receive a
      refund equivalent to the customer’s last two payments;
      and


·
            We agreed not to employ any
      collection efforts with respect to past-due accounts of customers that
      were secured through the use of an activation
  check.





This
settlement limited our exposure to significant legal fees and costs that may
have been otherwise incurred had we decided to dispute these
inquiries.  Further, we had been transitioning a significant amount of
our marketing efforts away from the use of activation checks toward the use of
telemarketing and other marketing channels during 2005 and 2006.  With
this settlement, we were able to accelerate this transition away from the use of
activation checks and focus our marketing efforts toward improving the
effectiveness and efficiency of our telemarketing campaigns and other marketing
efforts.




Recent
Financial Results




The
following represents a summary of recent financial results (all quarterly
amounts have been restated – see Restatementsabove for a
description of these restatements):





30
 Table of Contents







Q4
      2007
            
            
            Q3
      2007
            
            
            Q2
      2007
            
            
            Q1
      2007
            
            
            Q4
      2006
            
            
            Q3
      2006
            
            
            Q2
      2006
            
            
            Q1
      2006Net
      Revenues
            
            $
            7,120,697
            
            
            $
            5,989,437
            
            
            $
            6,106,544
            
            
            $
            7,123,683
            
            
            $
            8,335,284
            
            
            $
            8,577,639
            
            
            $
            7,997,623
            
            
            $
            7,047,401Gross
      margin
            
            $
            5,860,893
            
            
            $
            5,113,544
            
            
            $
            5,148,835
            
            
            $
            6,012,813
            
            
            $
            6,697,106
            
            
            $
            7,506,947
            
            
            $
            7,213,184
            
            
            $
            6,510,430Operating
      expenses
            
            $
            4,956,356
            
            
            $
            4,537,182
            
            
            $
            4,043,109
            
            
            $
            5,272,759
            
            
            $
            9,053,783
            
            
            $
            6,276,713
            
            
            $
            7,081,323
            
            
            $
            7,078,205Operating
      income (loss)
            
            $
            904,537
            
            
            $
            576,362
            
            
            $
            1,105,726
            
            
            $
            740,054
            
            
            $
            (2,356,677
            )
            
            $
            1,230,234
            
            
            $
            131,861
            
            
            $
            (567,775
            )Net
      income (loss)
            
            $
            376,053
            
            
            $
            266,405
            
            
            $
            626,262
            
            
            $
            485,198
            
            
            $
            (1,680,673
            )
            
            $
            826,847
            
            
            $
            129,998
            
            
            $
            (327,092
            )





Net
revenues in fiscal 2007 decreased by approximately $5,618,000 when compared to
fiscal 2006.  This decrease was primarily attributable to the
Attorneys’ General Settlement, which caused approximately 15,000 customer
cancellations in our ACH billing channel and prevented us from signing new
customers from our direct mail campaign in the first quarter of fiscal
2007.  Revenues declined during the first three quarters of fiscal
2007, but have since increased in the fourth quarter of 2007.  We do
not anticipate any further impacts to our results of operations as a result of
this settlement.




Despite
lower revenues of $26.3 million in 2007 compared to $32 million in 2006, we
generated net income of approximately $1,754,000, or $0.33 per share on a
diluted basis, during fiscal 2007.  Net income was negatively impacted
by approximately $1 million of direct response advertising costs incurred in
October 2006 for which we derived no benefit, $500,000 of additional tax expense
associated with the write-off of deferred tax assets related to our restricted
stock awards, and $377,000 of increased bad debt reserves resulting from the
bankruptcy filing of one of our billing aggregators, each of which is further
described below.




During
fiscal 2006, we generated net loss of approximately $1,051,000, or ($0.23) per
share on a diluted basis. The net loss for 2006 includes non-recurring expenses
totaling approximately $4,144,000 or $0.92 per share consisting of approximately
$3,687,000 of settlement related matters with attorneys general and with a
former vendor and approximately $457,000 of severance costs, further described
below.




The
following non-recurring items are relevant to our fiscal 2007 and 2006 quarterly
operating results:




§
            Fourth quarter of fiscal 2007 –
      includes an increased bad debt reserve of approximately $377,000 resulting
      from the Chapter 11 Bankruptcy filing of one of our LEC aggregators,
      representing our entire pre-petition outstanding receivable
      balance.  The aggregator continues to operate as
      debtor-in-possession.  We have since transitioned this portion
      of our business to another
aggregator.




§
            Second quarter of fiscal 2007 –
      includes the reversal of approximately $200,000 of accrued expenses
      related to the Attorneys’ General
  settlement.




§
            First quarter of fiscal 2007 –
      includes approximately $1,000,000 of direct response advertising costs
      incurred in October 2006 for which we derived no benefit based on the
      Attorneys’ General settlement that was agreed to in December
      2006.




§
            Fourth quarter of fiscal 2006 –
      includes the following charges associated with the Attorneys’ General
      settlement:





o
            $2,000,000 payment to cover
      regulatory and related
expenses


o
            $1,250,000 of accrued refunds and
      processing fees for existing customers that wish to cancel their service
      in response to the correspondence to be sent per the terms of the
      agreement


o
            $275,000 of legal and
      professional fees





§
            Second quarter of fiscal 2006 –
      includes an increase of general and administrative expenses of
      approximately $80,000 related to separation costs with our former Chief
      Financial Officer and $39,000 related to separation costs with other
      employees.





31
 Table of Contents





§
            First quarter of fiscal 2006 –
      includes an increase of general and administrative expenses totaling
      approximately $338,000 related to separation costs with our former Chief
      Executive Officer and an increase in other expenses associated with an
      additional expense of $162,000 relating to an outstanding legal
      matter.





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.We
generate revenue from customer subscriptions for directory and advertising
services.  Our billing and collection procedures include significant
involvement of outside parties, referred to as aggregators for LEC billing and
service providers for ACH billing.  Such processes are described
below.




ACH Billing– For ACH
billing, we submit electronic billing information to our service providers, who
in turn use this information as a basis for processing direct bank withdrawals
through an Automated Clearing House.  We receive information regarding
records that are rejected or cannot otherwise be processed on a timely basis,
and we recognize revenue only for those items that are processed.




LEC Billing– When a
customer subscribes to our service we create an electronic customer file, which
is the basis for the billing.  We submit gross billings electronically
to third party billing aggregators. These billing aggregators compile and format
our electronic customer files and forward the billing records to the appropriate
LECs.  The billing for our service flows through to monthly bills of
the individual LEC customers.  The LECs collect our billing and remit
amounts to the billing aggregators, which in turn remit funds to
us.  The following are significant accounting estimates and
assumptions used in the revenue recognition process with respect to these
billings.




·
            Customer
      refunds.  We have a customer
      refund policy that allows the customer to request a refund if they are not
      satisfied with the service within the first 120 days of the
      subscription.  We accrue for refunds based on historical
      experience of refunds as a percentage of new billings in that 120-day
      period.  Customer refunds are reserved and charged against gross
      revenue.




·
            Non-paying
      customers.  There are customers
      who may not pay the fee for our services even though we believe they are
      valid subscribers.  Included in cost of services is an accrual
      for estimated non-paying customers that are recorded at the time of
      billing.




·
            Dilution.  We
      recognize revenue during the month for which the service is provided based
      on net billings accepted by the billing aggregators.  We
      recognize revenue only for accepted records.  However,
      subsequent to this acceptance, there are instances in the LEC billing
      process where a customer cannot be billed due to changes in telephone
      numbers, telephone carriers, data synchronization issues,
      etc.  These amounts that ultimately cannot be billed, as well as
      certain minor billing adjustments by the LECs are commonly referred to as
      “dilution.”  Such unbillable accounts and chargebacks are
      estimated at the time of billing and charged against net
      revenues.





·
            Fees.  Both the aggregator
      and the LEC charge processing fees.  Additionally, the LEC
      charges fees for responding to billing inquiries by its customers,
      processing refunds, and other customer-related services.  Such
      fees are estimated at the time of billing and charged to cost of
      services.





32
 Table of Contents





Direct bill
customers– If we are unable to bill via any other means, we bill
subscribers directly via paper invoices.  Our collection rate on these
billings is significantly lower than those processed through the
LECs.  We track collections on direct-billed customers and recognize
revenue from those customers based on the historical collection
rates.




Fulfillment
contracts–Beginning in fiscal
2006, we began entering into contracts with several third parties whereby we
provide hosting, customer service and certain administrative functions under
revenue sharing agreements.  We recognize revenues only for those
revenues for which we are entitled to when the related services are
performed.




Allowance for Doubtful Accounts.We
receive cash through the processes discussed above.  Under our
contractual arrangements with our third party aggregators and service providers,
the LECs and aggregators/service providers deduct from our gross billings
amounts for returns, nonpaying customers, dilution and fees to arrive at net
proceeds remitted to us.  We estimate an allowance for doubtful
accounts on the basis of information provided by the billing aggregators and
service providers.  This information is an indicator of timely
payments made by our subscribers.  At September 30, 2007 and 2006, the
allowance for doubtful accounts was approximately 22% and 26% of gross accounts
receivable, respectively.  The allowance at September 30, 2007
includes a reserve of approximately $377,000 resulting from the Chapter 11
Bankruptcy filing of one of our LEC aggregators, representing our entire
pre-petition outstanding receivable balance.  Notwithstanding this
additional reserve, our allowance decreased from September 30, 2006 to September
30, 2007 as we have increased our quality control procedures over the submission
of our billings to reduce the risk of dilution and
noncollectibility.




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
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.  We most recently completed an impairment test in the fourth
quarter of fiscal 2007.  No long-lived assets were impaired during the
years ended September 30, 2007, 2006, and 2005.




Change in Accounting Principle -
Capitalization of Customer Acquisition Costs and Amortization of those
Costs.We purchase mailing lists and send advertising
materials to prospective subscribers from those mailing lists as well as
outbound call campaigns.  Customers subscribe to the services by
affirmatively responding to those advertising materials and calling campaigns,
which serve as the contract for the subscription.  Previously, we
capitalized these customer acquisition costs and amortized them on a
straight-line basis over the average expected life of our customers based on
historical IAP advertiser attrition rates and other factors.




Prior to
fiscal 2006, the majority of our capitalized customer acquisition costs related
to our mailing campaigns for which we amortized the costs based on historical
IAP advertiser attrition rates attributable to our entire customer
base.  During fiscal 2006, we began increasing our expenditures for
telemarketing campaigns.  The capitalization of such costs required
that we amortize the costs over the average expected life of acquired customers,
as determined on a cost-pool-by-cost-pool basis.  Our systems do not
allow us to efficiently and accurately monitor customer lives by method of
acquisition.  Therefore, we are unable to determine the average
expected life of those customers acquired via telemarketing versus those
acquired via mailing campaigns.  As we cannot effectively evaluate
such costs on a cost-pool-by-cost-pool basis, we determined in fiscal 2006 that
the more preferable method of accounting for these costs is to expense them when
incurred.  We enacted this change in accounting principle during the
fourth quarter of fiscal 2006 and we have restated all periods presented to
reflect this new method of accounting for such costs.




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.





33
 Table of Contents





We have
estimated net deferred income tax assets of $5,097,789 and $3,116,523 at
September 30, 2007 and 2006, respectively, which relate to various timing
differences between book and tax expense recognition.




In
anticipation of the adoption of FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (FIN 48) – an interpretation of FASB Statement No. 109, Accounting for
Income Taxes (SFAS No. 109)in fiscal 2008, we engaged an
independent accounting firm to perform a preliminary analysis of our tax
positions.  Such investigation did not reveal any significant
uncertainties that would affect the carrying value of our deferred tax assets
and liabilities at September 30, 2007.




Stock-Based
Compensation.From time-to-time, we grant restricted stock
awards 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. Prior to October 1, 2004, we recognized
forfeitures as they occurred.  Upon occurrence, we reversed the
previously recognized expense associated with such grant.  Effective
October 1, 2004, we changed to an expense recognition method that is based on an
estimate of the number of shares that are ultimately expected to vest (see
discussion below in “Results
of Operations – Cumulative Effect of Accounting Change”).  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 Year2007
            
            $
            26,340,361
            
            
            $
            (5,617,586
            )
            
            
            (17.6
            )%2006
      (as restated)
            
            $
            31,957,947
            
            
            $
            7,595,952
            
            
            
            31.2
            %2005
      (as restated)
            
            $
            24,361,995




Net
revenues decreased in fiscal 2007 as compared to 2006 primarily attributable to
the Attorneys’ General Settlement, which caused approximately 15,000 customer
cancellations in our ACH billing channel and prevented us from signing new
customers from our direct mail campaign in the first quarter of fiscal 2007. As
a result of this settlement, we experienced an increase in customer
cancellations and a temporary disruption in our marketing
efforts.  Revenues declined during the first three quarters of fiscal
2007, but have since increased in the fourth quarter of fiscal
2007.  We do not anticipate any further impacts to our results of
operations as a result of this settlement.




The
increase in revenues for fiscal 2006, as compared to 2005, was largely due to an
increased customer count attributable to expanded marketing efforts, the
reintroduction of certain LEC billing channels for new customers, and new
fulfillment contracts.




Although
we have concentrations of risk with our billing aggregators (as described in the
Notes to Consolidated Financial Statements included elsewhere in this Annual
Report) these aggregators bill via many underlying LECs, thereby reducing our
risk associated with credit concentrations.  However, there are a few
LECs that service a significant number of our customers.  To the
extent that future changes in their billing practices cause a disruption in our
ability to bill through these channels, our revenues could be adversely
affected.




The
majority of our IAP customers pay between $27.50 and $39.95 per
month.




Included
in net revenues for fiscal 2007 were $673,643 of revenues stemming from our
classified and online marketplace as a result of the acquisition of
LiveDeal





34
 Table of Contents





Cost
of Services




Year Ended
              September 30,
            
            Cost of
              Services
            
            
            Change from
              Prior Year
            
            
            Percent Change
              from Prior Year2007
            
            $
            4,204,276
            
            
            $
            173,996
            
            
            
            4.3
            %2006
      (as restated)
            
            $
            4,030,280
            
            
            $
            892,524
            
            
            
            28.4
            %2005
      (as restated)
            
            $
            3,137,756




Cost of
services increased in fiscal 2007 as compared to fiscal 2006 due to an increase
in LEC billings, which have higher costs than other billing
channels.  Also included in fiscal 2007 is a bad debt reserve of
approximately $377,000 resulting from the Chapter 11 Bankruptcy filing of one of
our LEC aggregators, representing our entire pre-petition outstanding receivable
balance from this LEC. The increase in cost of services for the year ended
September 30, 2006, as compared to September 30, 2005, is also attributable to
an increase in LEC billings.  The following table sets forth billings
by channel for each of the following fiscal years:




2007
            
            
            2006
            
            
            2005LEC
      billing
            
            
            63
            %
            
            
            48
            %
            
            
            30
            %ACH
      billing
            
            
            30
            %
            
            
            46
            %
            
            
            56
            %Direct
      billing
            
            
            4
            %
            
            
            6
            %
            
            
            14
            %Classified
            
            
            3
            %
            
            
            0
            %
            
            
            0
            %




We expect
cost of services to continue to be directly correlated to our usage of LEC
billing channels.




Gross
Profit





Year Ended
              September 30,
            
            Gross
              Profit
            
            
            Change from
              Prior Year
            
            
            Percent Change
              from Prior Year2007
            
            $
            22,136,085
            
            
            $
            (5,791,582
            )
            
            
            (20.7
            )%2006
      (as restated)
            
            $
            27,927,667
            
            
            $
            6,703,428
            
            
            
            31.6
            %2005
            
            $
            21,224,239




The
changes in our gross profits were due primarily to changes in revenues and
increased cost of sales associated with higher utilization of LEC billing
channels. Gross margins were 84%, 87% and 87% of net revenues in fiscal 2007,
2006, and 2005, respectively.




General
and Administrative Expenses




Year Ended
              September 30,
            
            General &
              Administrative
              Expenses
            
            
            Change from
              Prior Year
            
            
            Percent Change
              from Prior Year2007
            
            $
            12,518,620
            
            
            $
            (1,832,133
            )
            
            
            (12.8
            )%2006
      (as restated)
            
            $
            14,350,753
            
            
            $
            (249,861
            )
            
            
            (1.7
            )%2005
      (as restated)
            
            $
            14,600,614




General
and administrative expenses decreased in fiscal 2007 as compared to fiscal 2006
due to the following:





35
 Table of Contents





·
            A decrease in compensation
      expense of approximately $1,887,000 resulting from (i) a fiscal 2007
      reduction in workforce stemming from the discontinuance of our check
      mailer program and other business changes which reduced our need for
      administrative support and (ii) a decrease of severance costs of $352,000
      that were incurred in fiscal
2006;




·
            A reduction in customer related
      expenses of approximately $1,093,000 resulting from charges of
      approximately $924,000 in fiscal 2006 associated with reconfirming
      customers acquired through our check activator program and $169,000 of
      other decreased customer related and collection expenses as we reduced our
      usage of direct billing methods in fiscal
  2007;




·
            An increase in our software and
      data license expenses of approximately $360,000 primarily attributable to
      license fees associated with a new customer relationship management system
      acquired during fiscal 2007;




·
            An increase in travel costs of
      approximately $313,000 related to increased investor relations activities,
      acquisitions in California and the Philippines, and increased travel
      between our offices in Nevada and
  Arizona;




·
            An increase in amortization
      expense of approximately $124,000 resulting from increased capitalized
      intangible assets, the most significant of which were marketing and
      technology-related intangible assets that were acquired through our
      acquisition of LiveDeal,
Inc.;




·
            An increase in investor relations
      expenses of $124,000 as we seek to expand and attract new investors;
      and




·
            Other cost increases of
      approximately $227,000.




General
and administrative expenses decreased from fiscal 2006 to 2005 based on the
following:




·
            A decrease in mailing and other
      customer costs of approximately $662,000 associated with the reduction of
      paper invoices and other methods of correspondence with customers for
      which payment is unlikely to be
received;




·
            A decrease in depreciation and
      amortization expense of approximately $135,000 as a significant amount of
      our fixed assets and intangible assets recently became fully depreciated;
      and




·
            An increase in consulting and
      professional fees of approximately $233,000, primarily driven by $162,000
      of executive search and placement services and other miscellaneous
      activities;




·
            An increase in compensation
      expense of approximately $476,000 associated with the general increase in
      revenues and business activity in fiscal 2006.  This increase
      was comprised of increases of approximately (i) $352,000 of severance
      costs associated with the termination of former officers and other
      personnel, (ii) non-cash compensation costs of $179,000 associated with
      restricted stock awards, (iii) $307,000 for Directors’ compensation and
      Executive bonuses, and (iv) increases in leased and contract employees and
      other miscellaneous compensation expenses of $131,000.  These
      costs were partially offset by a decrease in executive consulting fees of
      approximately $493,000;




·
            General cost reductions of
      approximately $162,000.




Our
general and administrative expenses consist largely of fixed and semi-fixed
expenses such as compensation, rent, and utilities.  Therefore, we do
not consider short-term trends of general and administrative expenses as a
percentage of revenues to be meaningful indicators for evaluating operational
performance.





36
 Table of Contents





The
following table sets forth our recent operating performance for general and
administrative expenses (all quarterly amounts have been restated – see Restatementsincluded herein
for a description of these restatements) :




Q4
      2007
            
            
            
            Q3
      2007
            
            
            
            Q2
      2007
            
            
            
            Q1
      2007
            
            
            
            Q4
      2006
            
            
            
            Q3
      2006
            
            
            
            Q2
      2006
            
            
            
            Q1
      2006Compensation
      for employees, leased employees, officers and
    directors
            
            $
            1,535,115
            
            
            $
            1,760,439
            
            
            $
            1,877,103
            
            
            $
            1,873,582
            
            
            $
            2,073,646
            
            
            $
            1,908,099
            
            
            $
            2,475,244
            
            
            $
            2,476,713Professional
      fees
            
            
            184,507
            
            
            
            529,139
            
            
            
            319,948
            
            
            
            394,028
            
            
            
            347,247
            
            
            
            313,533
            
            
            
            282,148
            
            
            
            416,088Reconfirmation,
      mailing, billing and other customer-related costs
            
            
            33,662
            
            
            
            24,269
            
            
            
            34,042
            
            
            
            23,715
            
            
            
            39,180
            
            
            
            245,597
            
            
            
            396,883
            
            
            
            491,947Depreciation
      and amortization
            
            
            460,554
            
            
            
            396,759
            
            
            
            364,724
            
            
            
            336,887
            
            
            
            316,688
            
            
            
            351,342
            
            
            
            369,519
            
            
            
            397,005Other
      general and administrative costs
            
            
            757,136
            
            
            
            522,583
            
            
            
            531,915
            
            
            
            558,513
            
            
            
            390,093
            
            
            
            325,405
            
            
            
            360,276
            
            
            
            374,100




Sales
and Marketing Expenses





Year Ended
              September 30,
            
            Sales &
              Marketing
              Expenses
            
            
            Change from
              Prior Year
            
            
            Percent Change
              from Prior Year2007
            
            $
            6,491,504
            
            
            $
            (4,960,961
            )
            
            
            (43.3
            )%2006
            
            $
            11,452,465
            
            
            $
            6,142,229
            
            
            
            115.7
            %2005
            
            $
            5,310,236




Sales and
marketing expenses decreased in fiscal 2007 as compared to fiscal 2006 primarily
due to the discontinuance of our direct mail campaigns and increased
efficiencies on our telemarketing campaigns, partially offset by an expansion of
our telemarketing activities.  We incurred approximately $5.3 million
of direct mail expenses in fiscal 2006.  Such costs were reduced to
approximately $1 million in fiscal 2007 as we transitioned from direct mail
campaigns to telemarketing.  While our telemarketing efforts have
increased significantly, we renegotiated contracts with our service providers
and, during the fourth quarter of fiscal 2007, brought a portion of these
activities in-house through the acquisition of OnCall Subscriber Management
Inc.




Sales and
marketing expense increased in fiscal 2006 as compared to fiscal 2005 primarily
due to an increase in telemarketing expenditures from $153,000 in fiscal 2005 to
$5,245,000 in fiscal 2006.  The remaining increase is due to increased
mailing campaigns partially offset by a decrease in branding
activities.




Litigation
and Related Expenses




Year Ended
              September 30,
            
            Litigation and
              Related Expenses
            
            
            Change from
              Prior Year
            
            
            Percent Change
              from Prior Year2007
            
            $
            (200,718
            )
            
            $
            (3,887,524
            )
            
            
            (105.4
            )%2006
      (as restated)
            
            $
            3,686,806
            
            
            $
            3,358,673
            
            
            
            1023.6
            %2005
      (as restated)
            
            $
            328,133




In fiscal
2007, we had no significant outstanding, pending or threatened
litigation.  We also concluded the Attorneys’ General settlement
(described in “Executive
Overview – Recent Developments and Outlook” above) and reversed our
remaining accruals of approximately $201,000.





The
impact of the Attorneys’ General settlement in fiscal 2006 consisted of a
settlement fee of $2,000,000, $1,250,000 of accrued refunds and related expenses
and $275,000 of legal fees.  Also included in litigation and related
expenses for fiscal 2006 was a $162,000 expense related to the settlement of an
outstanding matter with a vendor.





The
litigation and related expenses in fiscal 2005 consisted of an accrual of
$328,133 related to this vendor dispute.





37
 Table of Contents





Operating
Income (Loss)





Year Ended
              September 30,
            
            Operating
              Income (Loss)
            
            
            Change from
              Prior Year
            
            
            Percent Change
              from Prior Year2007
            
            $
            3,326,679
            
            
            $
            4,889,036
            
            
            
            312.9
            %2006
      (as restated)
            
            $
            (1,562,357
            )
            
            $
            (2,547,613
            )
            
            
            (258.6
            )%2005
      (as restated)
            
            $
            985,256




The
increase in operating income for fiscal 2007 as compared to fiscal 2006 is
primarily due to decreased operating and litigation related expenses, partially
offset by lower net revenues, each of which is described above.  The
decrease in operating income for fiscal 2006 as compared to fiscal 2005 is
primarily due to the effects of the attorneys general settlement and changes in
revenues and sales and marketing expenses as described above.




Other
Income (Expense)




Year Ended
              September 30,
            
            Other Income
              (Expense)
            
            
            Change from
              Prior Year
            
            
            Percent Change
              from Prior Year2007
            
            $
            10,945
            
            
            $
            35,463
            
            
            
            144.6
            %2006
      (as restated)
            
            $
            (24,518
            )
            
            $
            197,758
            
            
            
            (89.0
            )%2005
      (as restated)
            
            $
            (222,276
            )





Other
income (expense) in fiscal 2007 consists primarily of interest income on cash
and short term investment balances.  In fiscal 2006, this account
included expenses associated with the settlement of minor outstanding claims,
partially offset by interest income.  Other income (expense) for
fiscal 2005 included losses $282,000 associated with our agreement to settle
outstanding amounts due from two of our largest stockholders, partially offset
by interest income.




Income
Tax Provision (Benefit)





Year Ended
              September 30,
            
            Income Tax
              Provision (Benefit)
            
            
            Change from
              Prior Year
            
            
            Percent Change
              from Prior Year2007
            
            $
            1,855,675
            
            
            $
            2,167,454
            
            
            
            695.2
            %2006
      (as restated)
            
            $
            (311,779
            )
            
            $
            (683,816
            )
            
            
            (183.8
            )%2005
      (as restated)
            
            $
            372,037




The
change in our income tax provision (benefit) in each of the above years is due
primarily to changes in our pre-tax income.  However, in fiscal 2007
and 2006, we incurred additional income tax expense of $499,885 and $217,131 due
to book-tax differences in the recognition of restricted stock
awards.  During these periods, a portion of our restricted stock
awards had vested and, due to declines in our stock price from grant date to
vest date, the tax effects of the vesting of these awards were less than the
carrying value of the related deferred tax assets.





Cumulative
Effect of Accounting Change





During
the first fiscal quarter of 2005, we changed our method of accounting for
forfeitures of restricted stock awards to employees, officers, and
directors.  Prior to October 1, 2004, we recognized forfeitures as
they occurred.  Upon occurrence, we reversed the previously recognized
expense associated with such grant.  Effective October 1, 2004, we
changed to an expense recognition method that is based on an estimate of the
number of shares that are ultimately expected to vest.  We believe
that this is a preferable method as it provides less volatility in expense
recognition.  Additionally, while both methods of accounting for
forfeitures are acceptable under current guidance, the implementation of SFAS
No. 123R (effective during the first quarter of fiscal 2006) no longer permits
us to recognize forfeitures as they occur.  This change resulted in an
increase to net income of $99,848, net of income taxes of $53,764, during the
first quarter of fiscal 2005.  Note that this change in accounting
principle was enacted prior to the adoption of SFAS No. 154, which requires the
retroactive application of changes in accounting principles to all periods
presented.





38
 Table of Contents





Net
Income (Loss)




Year Ended
              September 30,
            
            Net Income
              (Loss)
            
            
            Change from
              Prior Year
            
            
            Percent Change
              from Prior Year2007
            
            $
            1,753,918
            
            
            $
            2,804,838
            
            
            
            266.9
            %2006
            
            $
            (1,050,920
            )
            
            $
            (1,776,066
            )
            
            
            (244.9
            )%2005
            
            $
            725,146





Changes
in net income (loss) are primarily attributable to changes in operating income
and changes in income tax expense.  As the three years yielded
different operating results stemming from the impacts of the Attorneys’ General
settlement, changes in the use of billing channels, changes in marketing
strategies and other operating changes, see the respective financial statement
line item narratives included herein for a detailed analysis of changes in our
results of operations.




Liquidity
and Capital Resources




Net cash
provided by operating activities decreased approximately $657,000, or 27.1%, to
$1,765,000 for fiscal 2007 as compared to $2,422,000 for fiscal
2006.  The decrease in cash generated from operations is primarily due
to the payment of over $3 million related to the attorney’s general settlement,
partially offset by increases in net income and other changes in working
capital.   Net cash provided by operating activities decreased
approximately $4,568,000, or 65.4%, to $2,422,000 for the year ended September
30, 2006, compared to $6,990,000 for the year ended September 30,
2005.  The decrease in cash generated from operations in fiscal 2006
is primarily due to an increase in accounts receivable and the related
provisions resulting from an increased reliance on the LEC billing
channel.




Our
primary source of cash inflows is net remittances from our billing channels,
including ACH billings and LEC billings.  For ACH billings, we
generally receive the net proceeds through our billing service processors within
15 days of submission.  For LEC billings, we receive collections on
accounts receivable through the billing service aggregators under contracts to
administer this billing and collection process.  The billing service
aggregators generally do not remit funds until they are
collected.  Generally, cash is collected and remitted to us (net of
dilution and other fees and expenses) over a 60- to 120-day period subsequent to
the billing dates.  Additionally, for each monthly billing cycle, the
billing aggregators and LECs withhold certain amounts, or “holdback reserves,”
to cover potential future dilution and bad debt expense.  These
holdback reserves lengthen our cash conversion cycle as they are remitted to us
over a 12- to 18-month period of time.  We classify these holdback
reserves as current or long-term receivables on our consolidated balance sheet,
depending on when they are scheduled to be remitted to us.  As of
September 30, 2007, approximately 70% of our gross accounts receivable are due
from three aggregators.




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
used in investing activities totaled $2,176,000 during fiscal 2007 and consisted
of $4,114,000 of net cash outflows for the acquisitions of LiveDeal, Inc. and
OnCall Subscriber Management Inc., $939,000 of expenditures for software and
intangible assets and $205,000 of purchases of equipment, partially offset by
the liquidation of $3,082,000 of certificates of deposit and other
investments.  During fiscal 2006, net cash used in investing
activities was $1,904,000 and consisted of investments of excess cash in
certificates of deposit and other investments, expenditures for intangible
assets and minor purchases of equipment.  During fiscal 2005, cash
used for investing activities was $2,441,000, and also consisted of investments
of excess cash in certificates of deposit and other investments, expenditures
for intangible assets and minor purchases of equipment.




Net cash
used for financing activities was $310,000 during fiscal 2007 and consisted
primarily of repurchases of stock owned by dissenting shareholders in connection
with the acquisition of LiveDeal, Inc.  Net cash used for financing
activities was $237,000 during fiscal 2006 and consisted primarily of the
repurchase of our treasury stock.  Cash used for financing activities
during fiscal 2005 was $2,012,000 and consisted predominantly of payments of
common stock dividends of $1,445,000 and purchases of treasury stock totaling
$566,000.





39
 Table of Contents





We had
working capital of $11,316,000 as of September 30, 2007, compared to $13,909,000
as of September 30, 2006.  Our cash position decreased to $5,675,000
at September 30, 2007 compared to $6,395,000 at September 30, 2006, as investing
and financing outflows exceeded cash flows from operations, each of which is
described above.




During
2005, our Board of Directors authorized the repurchase of up to $3,000,000 of
our common stock from time to time on the open market or in privately negotiated
transactions.  We purchased a total of 85,385 shares at an aggregate
cost of $686,793 under the plan. On May 25, 2007, the Company’s Board of
Directors terminated the 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





During
fiscal 2006, we entered into a contractual arrangement with an attorney to
settle previous claims and to engage the future services of this attorney. Under
the terms of the arrangement, we made cash payments during the year totaling
$145,000 and granted 10,000 shares of restricted stock. We are obligated to make
future payments over the next year totaling $63,000 in exchange for future
services. Such amounts have not been accrued in the accompanying financial
statements as such payments are for future services.





During
fiscal 2006, we entered into a contractual arrangement with a consulting firm to
provide strategic and operational related consulting services.  Under
the terms of the agreement, we are obligated to make future payments through
July 2009 that vary based on the Company’s billed customer count subject to a
minimum of $20,000 per month.  Current payments are approximately
$100,000 per month.  The future payments have not been accrued in the
accompanying financial statements as such payments are for future
services.





The
following table summarizes our contractual obligations at September 30, 2007 and
the effect such obligations are expected to have on our future liquidity and
cash flows:





Payments
      Due by Fiscal YearTotal
            
            
            2008
            
            
            2009
            
            
            2010
            
            
            2011
            
            
            2012
            
            
            ThereafterOperating
      lease commitments
            
            $
            2,942,292
            
            
            $
            830,833
            
            
            $
            800,639
            
            
            $
            509,923
            
            
            $
            407,523
            
            
            $
            314,789
            
            
            $
            78,585Noncanceleable
      service contracts
            
            
            1,551,000
            
            
            
            777,000
            
            
            
            674,000
            
            
            
            100,000
            
            
            
            -
            
            
            
            -
            
            
            
            -$
            4,493,292
            
            
            $
            1,607,833
            
            
            $
            1,474,639
            
            
            $
            609,923
            
            
            $
            407,523
            
            
            $
            314,789
            
            
            $
            78,585








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.





At
September 30, 2007, we had no other off-balance sheet arrangements, commitments
or guarantees that require additional disclosure or measurement.





ITEM7A. Quantitative and Qualitative Disclosure about
Market Risk





As of
September 30, 2006, we did not participate in any market risk-sensitive
commodity instruments for which fair value disclosure would be required under
Statement of Financial Accounting Standards No. 107. 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 2007 or 2006) or commodity price risk.





40
 Table of Contents





ITEM 8. Financial Statements and Supplementary Data





LIVEDEAL,
INC.





INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS




PageReport
      of Independent Registered Public Accounting Firm
            42Consolidated
      Financial Statements:Consolidated
      Balance Sheets at September 30, 2007 and 2006
            44Consolidated
      Statements of Operations for the years ended September 30, 2007, 2006, and
      2005
            45Consolidated
      Statements of Stockholders’ Equity for the years ended September 30, 2007,
      2006, and 2005
            46Consolidated
      Statements of Cash Flows for the years ended September 30, 2007, 2006, and
      2005
            47Notes
      to Consolidated Financial Statements
            48







41
 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 sheet of LiveDeal, Inc. and
Subsidiaries as of September 30, 2007 and the related statements of operations,
stockholders’ equity and cash flows for the year 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 audit.





We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  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 audit provides 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, 2007, and the results of their operations and
their cash flows for the year then ended, in conformity with accounting
principles generally accepted in the United States of America.





Subsequent
to the issuance of our original report dated December 18, 2007, the Company
identified certain errors in the footnote disclosures related to notes 18 and
19.  The footnote disclosures have been restated to reflect the
corrections required.








/s/
      Mayer Hoffman McCann P.C.MAYER
      HOFFMAN MCCANN P.C.Phoenix,
      ArizonaDecember
      18, 2007 (except for Note 19, as to which the date is May 12,
      2008)





42
 Table of Contents





REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  To
the Stockholders and Board
 of
Directors of LiveDeal, Inc.:
  We
have audited the accompanying consolidated balance sheet of LiveDeal, Inc.
(formerly YP Corp.) and Subsidiaries as of September 30, 2006, and the related
statements of operations, stockholders’ equity and cash flows for each of the
two years in the period ended September 30, 2006.  These financial
statements are the responsibility of the Company’s management.  Our
responsibility is to express an opinion on these 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.  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 financial statements referred to above present fairly, in all
material respects, the consolidated financial position of LiveDeal, Inc.
(formerly YP Corp.) and Subsidiaries as of September 30, 2006, and the
consolidated results of its operations and cash flows for each of the two years
in the period ended September 30, 2006, in conformity with accounting principles
generally accepted in the United States of America.
  As
discussed in Note 19, to the consolidated financial statements, LiveDeal, Inc.
has restated its financial statements as of September 30, 2006 and for each of
the two years in the period ended September 30, 2006.
 
 /s/
      Epstein, Weber & Conover, PLCScottsdale,
      ArizonaDecember
      18, 2006, except as to Note 19 which
      is as of May 12, 2008




43
 Table of Contents





LIVEDEAL, INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS





September
      30,Assets
            
            2007
            
            
            2006(as
      restated)Cash
      and equivalents
            
            $
            5,674,533
            
            
            $
            6,394,775Certificates
      of deposit and other investments
            
            
            -
            
            
            
            3,082,053Accounts
      receivable, net
            
            
            6,919,180
            
            
            
            8,015,600Prepaid
      expenses and other current assets
            
            
            510,609
            
            
            
            235,250Deferred
      tax asset
            
            
            546,145
            
            
            
            1,781,736Total
      current assets
            
            
            13,650,467
            
            
            
            19,509,414Accounts
      receivable, long term portion, net
            
            
            1,941,996
            
            
            
            1,140,179Property
      and equipment, net
            
            
            423,563
            
            
            
            178,883Deposits
      and other assets
            
            
            103,057
            
            
            
            91,360Intangible
      assets, net
            
            
            7,372,147
            
            
            
            5,722,604Goodwill
            
            
            11,683,163
            
            
            
            -Deferred
      tax asset, long term
            
            
            4,551,644
            
            
            
            1,334,787Income
      taxes receivable
            
            
            316,429
            
            
            
            -Total
      assets
            
            $
            40,042,466
            
            
            $
            27,977,227Liabilities
      and Stockholders' EquityLiabilities:Accounts
      payable
            
            $
            1,138,265
            
            
            $
            773,653Accrued
      liabilities
            
            
            1,196,330
            
            
            
            4,565,439Income
      taxes payable
            
            
            -
            
            
            
            261,762Total
      current liabilities
            
            
            2,334,595
            
            
            
            5,600,854Total
      liabilities
            
            
            2,334,595
            
            
            
            5,600,854Commitments
      and contingenciesStockholders'
      Equity:Series
      E convertible preferred stock, $.001 par value, 200,000 shares authorized,
      127,840 issued and outstanding, liquidation preference
    $38,202
            
            
            10,866
            
            
            
            10,866Common
      stock, $.001 par value, 100,000,000 shares authorized, 6,693,676 and
      5,002,159 issued and outstanding
            
            
            6,694
            
            
            
            5,002Treasury
      stock (328,566 and 284,342 shares carried at cost)
            
            
            (2,714,698
            )
            
            
            (2,407,158
            )Paid
      in capital
            
            
            23,325,888
            
            
            
            12,294,186Deferred
      stock compensation
            
            
            -
            
            
            
            (2,854,122
            )Retained
      earnings
            
            
            17,079,121
            
            
            
            15,327,599Total
      stockholders' equity
            
            
            37,707,871
            
            
            
            22,376,373Total
      liabilities and stockholders' equity
            
            $
            40,042,466
            
            
            $
            27,977,227





See
accompanying notes to consolidated financial statements.





44
 Table of Contents





LIVEDEAL, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF OPERATIONS








Year
      ended September 30,2007
            
            
            2006
            
            
            2005(as
      restated)
            
            
            (as
      restated)Net
      revenues
            
            $
            26,340,361
            
            
            $
            31,957,947
            
            
            $
            24,361,995Cost
      of services
            
            
            4,204,276
            
            
            
            4,030,280
            
            
            
            3,137,756Gross
      profit
            
            
            22,136,085
            
            
            
            27,927,667
            
            
            
            21,224,239Operating
      expenses:General
      and administrative expenses
            
            
            12,518,620
            
            
            
            14,350,753
            
            
            
            14,600,614Sales
      and marketing expenses
            
            
            6,491,504
            
            
            
            11,452,465
            
            
            
            5,310,236Litigation
      and related expenses
            
            
            (200,718
            )
            
            
            3,686,806
            
            
            
            328,133Total
      operating expenses
            
            
            18,809,406
            
            
            
            29,490,024
            
            
            
            20,238,983Operating
      income (loss)
            
            
            3,326,679
            
            
            
            (1,562,357
            )
            
            
            985,256Other
      income (expense):Interest
      expense and other financing costs
            
            
            -
            
            
            
            -
            
            
            
            (8,610
            )Interest
      income
            
            
            271,969
            
            
            
            224,176
            
            
            
            242,965Other
      income (expense)
            
            
            10,945
            
            
            
            (24,518
            )
            
            
            (222,276
            )Total
      other income (expense)
            
            
            282,914
            
            
            
            199,658
            
            
            
            12,079Income
      (loss) before income taxes and cumulative effect of accounting
      change
            
            
            3,609,593
            
            
            
            (1,362,699
            )
            
            
            997,335Income
      tax provision (benefit)
            
            
            1,855,675
            
            
            
            (311,779
            )
            
            
            372,037Cumulative
      effect of accounting change (net of income taxes of $53,764 in
      2005)
            
            
            -
            
            
            
            -
            
            
            
            (99,848
            )Net
      income (loss)
            
            $
            1,753,918
            
            
            $
            (1,050,920
            )
            
            $
            725,146Net
      income (loss) per common share:Basic:Income
      (loss) applicable to common stock before cumulative effect of accounting
      change
            
            $
            0.34
            
            
            $
            (0.23
            )
            
            $
            0.14Cumulative
      effect of accounting change
            
            $
            -
            
            
            $
            -
            
            
            $
            0.02Net
      income applicable to common stock
            
            $
            0.34
            
            
            $
            (0.23
            )
            
            $
            0.16Diluted:Income
      (loss) applicable to common stock before cumulative effect of accounting
      change
            
            $
            0.33
            
            
            $
            (0.23
            )
            
            $
            0.14Cumulative
      effect of accounting change
            
            $
            -
            
            
            $
            -
            
            
            $
            0.02Net
      income (loss) applicable to common stock
            
            $
            0.33
            
            
            $
            (0.23
            )
            
            $
            0.16Weighted
      average common shares outstanding:Basic
            
            
            5,108,551
            
            
            
            4,495,868
            
            
            
            4,639,036Diluted
            
            
            5,336,439
            
            
            
            4,495,868
            
            
            
            4,665,992




See
accompanying notes to consolidated financial statements.





45
 Table of Contents








LIVEDEAL, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY




Common
      Stock
              
              
              Preferred
      Stock
              
              
              Treasury
              
              
              Paid-In
              
              
              Deferred
              
              
              RetainedShares
              
              
              Amount
              
              
              Shares
              
              Amount
              
              
              Stock
              
              
              Capital
              
              
              Compensation
              
              
              Earnings
              
              
              TotalBalance,
      October 1, 2004
              
              
              5,085,879
              
              
              $
              5,086
              
              
              
              128,340
              
              
              $
              10,909
              
              
              $
              -
              
              
              $
              12,197,719
              
              
              $
              (5,742,814
              )
              
              $
              17,101,493
              
              
              $
              23,572,393Common
      stock issued for services
              
              
              10,000
              
              
              
              10
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              119,490
              
              
              
              -
              
              
              
              -
              
              
              
              119,500Treasury
      stock received as partial settlement of amounts due from
      affiliates
              
              
              (188,957
              )
              
              
              (189
              )
              
              
              -
              
              
              
              -
              
              
              
              (1,606,131
              )
              
              
              189
              
              
              
              -
              
              
              
              -
              
              
              
              (1,606,131
              )Treasury
      stock acquired as part of stock repurchase program
              
              
              (60,125
              )
              
              
              (60
              )
              
              
              -
              
              
              
              -
              
              
              
              (565,609
              )
              
              
              60
              
              
              
              -
              
              
              
              -
              
              
              
              (565,609
              )Series
      E preferred stock dividends
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (1,439
              )
              
              
              (1,439
              )Conversion
      of Series E preferred stock
              
              
              50
              
              
              
              -
              
              
              
              (500
              )
              
              
              (43
              )
              
              
              -
              
              
              
              267
              
              
              
              -
              
              
              
              -
              
              
              
              224Common
      stock issued in restricted stock plan
              
              
              88,572
              
              
              
              89
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              530,287
              
              
              
              (530,376
              )
              
              
              -
              
              
              
              -Amortization
      of deferred stock compensation
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,419,557
              
              
              
              -
              
              
              
              1,419,557Net
      income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              725,146
              
              
              
              725,146Common
      stock dividends
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (1,444,763
              )
              
              
              (1,444,763
              )Cumulative
      effect of accounting change
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (1,166,426
              )
              
              
              1,012,814
              
              
              
              -
              
              
              
              (153,612
              )Effect
      of change in estimated forfeiture ratefor restricted stock
      plan
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (593,284
              )
              
              
              593,284
              
              
              
              -
              
              
              
              -Canceled
      stock
              
              
              (51,650
              )
              
              
              (52
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              52
              
              
              
              -
              
              
              
              -
              
              
              
              -Balance,
      September 30, 2005
              
              
              4,883,769
              
              
              
              4,884
              
              
              
              127,840
              
              
              
              10,866
              
              
              
              (2,171,740
              )
              
              
              11,088,354
              
              
              
              (3,247,535
              )
              
              
              16,380,437
              
              
              
              22,065,266Treasury
      stock acquired as part of stock repurchase program
              
              
              (25,260
              )
              
              
              (26
              )
              
              
              -
              
              
              
              -
              
              
              
              (134,418
              )
              
              
              26
              
              
              
              -
              
              
              
              -
              
              
              
              (134,418
              )Treasury
      stock acquired in connection   with URL
      purchase
              
              
              (10,000
              )
              
              
              (10
              )
              
              
              -
              
              
              
              -
              
              
              
              (101,000
              )
              
              
              10
              
              
              
              -
              
              
              
              -
              
              
              
              (101,000
              )Series
      E preferred stock dividends
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (1,918
              )
              
              
              (1,918
              )Common
      stock issued in restricted stock plan
              
              
              239,650
              
              
              
              240
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,290,178
              
              
              
              (1,290,418
              )
              
              
              -
              
              
              
              -Amortization
      of deferred stock compensation
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,599,363
              
              
              
              -
              
              
              
              1,599,363Net
      income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (1,050,920
              )
              
              
              (1,050,920
              )Effect
      of change in estimated forfeiture ratefor restricted stock
      plan
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (84,468
              )
              
              
              84,468
              
              
              
              -
              
              
              
              -Canceled
      stock
              
              
              (86,000
              )
              
              
              (86
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              86
              
              
              
              -
              
              
              
              -
              
              
              
              -Balance,
      September 30, 2006
              
              
              5,002,159
              
              
              
              5,002
              
              
              
              127,840
              
              
              
              10,866
              
              
              
              (2,407,158
              )
              
              
              12,294,186
              
              
              
              (2,854,122
              )
              
              
              15,327,599
              
              
              
              22,376,373Reclass
      of deferred compensation
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (2,854,122
              )
              
              
              2,854,122
              
              
              
              -
              
              
              
              -Series
      E preferred stock dividends
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (2,396
              )
              
              
              (2,396
              )Common
      stock issued in restricted stock plan
              
              
              78,500
              
              
              
              79
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (79
              )
              
              
              
              
              
              
              -
              
              
              
              -Common
      stock issued in acquisition
              
              
              1,675,016
              
              
              
              1,675
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              12,326,370
              
              
              
              -
              
              
              
              -
              
              
              
              12,328,045Shares
      acquired from LiveDeal shareholders
              
              
              (44,224
              )
              
              
              (44
              )
              
              
              
              
              
              
              
              
              
              
              (307,540
              )
              
              
              44
              
              
              
              
              
              
              
              
              
              
              
              (307,540
              )Issuance
      of restricted stock in exchange for services
              
              
              10,800
              
              
              
              11
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              78,828
              
              
              
              -
              
              
              
              -
              
              
              
              78,839Restricted
      stock cancellations
              
              
              (28,575
              )
              
              
              (29
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              29
              
              
              
              -
              
              
              
              -
              
              
              
              -Amortization
      of deferred stock compensation
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,480,632
              
              
              
              -
              
              
              
              -
              
              
              
              1,480,632Net
      income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,753,918
              
              
              
              1,753,918Balance,
      September 30, 2007
              
              
              6,693,676
              
              
              $
              6,694
              
              
              
              127,840
              
              
              $
              10,866
              
              
              $
              (2,714,698
              )
              
              $
              23,325,888
              
              
              $
              -
              
              
              $
              17,079,121
              
              
              $
              37,707,871


See
accompanying notes to consolidated financial statements.





46
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LIVEDEAL, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS





Year
      ended September 30,2007
            
            
            2006
            
            
            2005(as
      restated)
            
            
            (as
      restated)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income (loss)
            
            $
            1,753,918
            
            
            $
            (1,050,920
            )
            
            $
            725,146Adjustments
      to reconcile net income (loss) to net cash provided by operating
      activities:Depreciation
      and amortization
            
            
            1,575,488
            
            
            
            1,434,554
            
            
            
            1,569,999Amortization
      of deferred stock compensation
            
            
            1,480,632
            
            
            
            1,599,363
            
            
            
            1,419,557Issuance
      of common stock as compensation for services
            
            
            78,839
            
            
            
            -
            
            
            
            119,500Non-cash
      interest income on advances to affiliates
            
            
            -
            
            
            
            -
            
            
            
            (110,019
            )Non-cash
      loss on transaction with affiliates
            
            
            -
            
            
            
            -
            
            
            
            281,884Cumulative
      effect of accounting change
            
            
            -
            
            
            
            -
            
            
            
            (99,848
            )Non-cash
      compensation expense to Chief Executive Officer
            
            
            88,680
            
            
            
            -
            
            
            
            -Deferred
      income taxes
            
            
            1,564,352
            
            
            
            (1,484,554
            )
            
            
            (507,259
            )(Gain)
      loss on disposal of equipment
            
            
            4,128
            
            
            
            (3,221
            )
            
            
            -Provision
      for uncollectible accounts
            
            
            660,963
            
            
            
            429,614
            
            
            
            631,277Changes
      in assets and liabilities:Restricted
      cash
            
            
            -
            
            
            
            500,000
            
            
            
            (500,000
            )Accounts
      receivable
            
            
            (237,771
            )
            
            
            (3,300,144
            )
            
            
            3,594,508Prepaid
      and other current assets
            
            
            (252,182
            )
            
            
            293,437
            
            
            
            (1,365,853
            )Deposits
      and other assets
            
            
            (851
            )
            
            
            (29,331
            )
            
            
            177,031Accounts
      payable
            
            
            (718,151
            )
            
            
            118,127
            
            
            
            (554,838
            )Accrued
      liabilities
            
            
            (3,654,358
            )
            
            
            3,762,169
            
            
            
            260,786Income
      taxes payable
            
            
            (578,191
            )
            
            
            152,907
            
            
            
            1,348,290Net
      cash  provided by operating activities
            
            
            1,765,496
            
            
            
            2,422,001
            
            
            
            6,990,161CASH
      FLOWS FROM INVESTING ACTIVITIES:Acquisition
      of businesses, net of cash acquired
            
            
            (4,114,139
            )
            
            
            -
            
            
            
            -Expenditures
      for intangible assets
            
            
            (939,102
            )
            
            
            (801,416
            )
            
            
            (391,077
            )Net
      purchases/redemptions of certificates ofdeposits and other
      investments
            
            
            3,082,053
            
            
            
            (1,077,066
            )
            
            
            (2,004,987
            )Purchases
      of  equipment
            
            
            (204,614
            )
            
            
            (25,719
            )
            
            
            (44,728
            )Net
      cash used in investing activities
            
            
            (2,175,802
            )
            
            
            (1,904,201
            )
            
            
            (2,440,792
            )CASH
      FLOWS FROM FINANCING ACTIVITIES:Series
      E preferred stock dividends
            
            
            (2,396
            )
            
            
            (1,918
            )
            
            
            (1,439
            )Common
      stock dividends
            
            
            -
            
            
            
            -
            
            
            
            (1,444,763
            )Proceeds
      from conversion of preferred stock
            
            
            -
            
            
            
            -
            
            
            
            224Purchase
      of treasury stock
            
            
            (307,540
            )
            
            
            (235,418
            )
            
            
            (565,609
            )Net
      cash used in financing activities
            
            
            (309,936
            )
            
            
            (237,336
            )
            
            
            (2,011,587
            )(DECREASE)
      INCREASE IN CASH AND CASH EQUIVALENTS
            
            
            (720,242
            )
            
            
            280,464
            
            
            
            2,537,782CASH
      AND CASH EQUIVALENTS, beginning of year
            
            
            6,394,775
            
            
            
            6,114,311
            
            
            
            3,576,529CASH
      AND CASH EQUIVALENTS, end of year
            
            $
            5,674,533
            
            
            $
            6,394,775
            
            
            $
            6,114,311





See
accompanying notes to consolidated financial statements.





47
 Table of Contents








1.
              ORGANIZATION
      AND BASIS OF
PRESENTATION





LiveDeal,
Inc. (the “Company”), formerly YP Corp., YP.Net, Inc. and RIGL Corporation, had
previously attempted to develop software solutions for medical practice billing
and administration.  The Company was not successful in implementing
its medical practice billing and administration software products and looked to
other business opportunities.  The Company acquired Telco Billing,
Inc. (“Telco”) in June 1999, through the issuance of 1,700,000 shares of the
Company’s common stock (on a post-split adjusted basis).  Prior to its
acquisition of Telco, the Company had not generated significant or sufficient
revenue from planned operations.





Telco 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.





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 developed and operates an online
local classifieds marketplace, www.livedeal.com, which listed millions of goods
and services for sale in almost every city and zip code across the United
States.   The technology acquired in the acquisition offers 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.





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 provides telemarketing services.  The
acquisition took place through the Company’s wholly-owned subsidiary, “247
Marketing”, a Nevada corporation.





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, 2007, 2006, and 2005.  The results of
LiveDeal and 247 Marketing are included from their respective acquisition dates
of June 6, 2007 and July 10, 2007, respectively.





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.  The results of LiveDeal and
247 Marketing are included from their respective acquisition dates of June 6,
2007 and July 10, 2007, respectively.  All significant intercompany
accounts and transactions have been eliminated.





48
 Table of Contents





Customer Acquisition
Costs:  In the fourth quarter of fiscal 2006, the Company
enacted a change in accounting principle to expense customer acquisition costs
when incurred.  A preferability letter was obtained by the Company’s
predecessor auditors and filed with the SEC in connection with the Company’s
Form 10-K for the year ended September 30, 2006.  Prior periods have
been restated to reflect the retroactive application of this
change.  See Note 3.





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 $155,929, $246,919, and $373,803 for the years ended
September 30, 2007, 2006, and 2005, respectively.





Revenue Recognition:
The Company’s revenue is generated by customer subscriptions of directory and
advertising services.  Revenue is billed and recognized monthly for
services subscribed in that specific month.  The Company utilizes
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.  Unbillable accounts, chargebacks and customer refunds are
estimated at the time of billing and are recorded as a reduction in net
revenue.  LEC fees, aggregator fees and bad debt expenses are
estimated at the time of billing and charged to cost of services.





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.





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.





Net Income (Loss) Per
Share: Net income (loss) per share is calculated in accordance with
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per
Share. Under the provisions of SFAS No. 128, 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.





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. The carrying amount of the advances to affiliates
approximates fair value because the Company charges what it believes are market
rate interest rates for comparable credit risk instruments. The Company has
applied certain assumptions in estimating these fair values. The use of
different assumptions or methodologies may have a material effect on the
estimates of fair values.





49
 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, and estimated
useful lives for intangible assets and property and equipment.





Stock-Based
Compensation:  The Company from time-to-time grants restricted
stock awards 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 SFAS No. 123R and Emerging Issues Task Force (“EITF”) Issue No.
96-18, Accounting for Equity
Instruments that are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling Goods or Services.  Under SFAS No.
123R and EITF No. 96-18, stock awards to non-employees are accounted for at fair
value at their respective measurement date.





Impairment of Long-lived
Assets: The Company assesses long-lived assets for impairment in
accordance with the provisions of SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets.SFAS No. 144 requires that the Company
assess the issue of impairment of a long-lived asset annually or whenever there
is an indication 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 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 fourth quarter of fiscal
2007.  No long-lived assets were determined to be impaired during the
years ended September 30, 2007, 2006, and 2005.





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.





Restatements: See
Note 19.





Recently Issued Accounting
Pronouncements:





In
July 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (FIN 48) – an interpretation of FASB Statement No. 109, Accounting for
Income Taxes (SFAS No. 109) (FIN 48). FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in accordance with SFAS No. 109 and
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a return. Guidance is also provided on de-recognition, classification,
interest and penalties, accounting in interim periods, disclosure and
transition. FIN 48 is effective for fiscal years beginning after December 15,
2006.  The Company does not expect the impact of FIN 48 to have a
material effect on its financial position and results of
operations.





50
 Table of Contents





In
September 2006, the SEC issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements(SAB 108).  SAB 108 provides guidance on how prior
year misstatements should be considered when quantifying misstatements in the
current year financial statements.  The SAB requires registrants to
quantify misstatements using both a balance sheet and an income statement
approach and evaluate whether either approach results in quantifying a
misstatement that, when all relevant quantitative and qualitative factors are
considered, is material.  SAB 108 does not change the guidance in SAB
99, “Materiality”, when evaluating the materiality of
misstatements.  SAB 108 is effective for fiscal years ending after
November 15, 2006.  The adoption of this pronouncement did not have a
material effect of the Company’s consolidated financial statements.





In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS
No. 157). SFAS No. 157 establishes a framework for measuring fair
value under generally accepted accounting procedures and expands disclosures on
fair value measurements. This statement applies under previously established
valuation pronouncements and does not require the changing of any fair value
measurements, though it may cause some valuation procedures to change. Under
SFAS No. 157, fair value is established by the price that would be received
to sell the item or the amount to be paid to transfer the liability of the asset
as opposed to the price to be paid for the asset or received to transfer the
liability. Further, it defines fair value as a market specific valuation as
opposed to an entity specific valuation, though the statement does recognize
that there may be instances when the low amount of market activity for a
particular item or liability may challenge an entity’s ability to establish a
market amount. In the instances that the item is restricted, this pronouncement
states that the owner of the asset or liability should take into consideration
what affects the restriction would have if viewed from the perspective of the
buyer or assumer of the liability. This statement is effective for all assets
valued in financial statements for fiscal years beginning after
November 15, 2007. The Company is currently evaluating the impact of SFAS
No. 157 on its financial position and result of operations.





In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities, which provides companies with an option
to report selected financial assets and liabilities at fair
value.  SFAS No. 159 also establishes presentation and disclosure
requirements designed to facilitate comparisons between companies that choose
different measurement attributes for similar types of assets and
liabilities.  SFAS No. 159 is effective as of the beginning of an
entity’s first fiscal year beginning after November 15, 2007 with early adoption
allowed.  The Company has not yet determined the impact, if any, that
adopting this standard might have on its financial statements.





In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS
No. 141(R)) and No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51 (SFAS No.
160). SFAS No. 141(R) and SFAS No. 160 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. SFAS No. 141(R) 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.  SFAS No. 160 will change the accounting and reporting for
minority interests, which will be recharacterized as noncontrolling interests
and classified as a component of equity.  SFAS No. 141(R) and SFAS No.
160 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). SFAS No. 141(R) will be applied prospectively. SFAS No. 160
requires retroactive adoption of the presentation and disclosure requirements
for existing minority interests. All other requirements of SFAS No. 160 shall be
applied prospectively. Early adoption is prohibited for both
standards.  The Company is currently evaluating the effects of these
pronouncements on its financial position and results of operations.





51
 Table of Contents





3.
            ACCOUNTING
      CHANGES




Change in Accounting
Principle Subsequent to Adoption of SFAS No. 154 – Accounting for Customer
Acquisition Costs





Historically,
the Company had capitalized customer acquisition costs, consisting of mailing
lists and check mailers, and amortized them on a straight-line basis over the
average expected life of the related customers based on historical IAP
advertiser attrition rates and other factors.




Prior to
fiscal 2006, the majority of the capitalized customer acquisition costs related
to the Company’s mailing campaigns, for which the Company amortized the costs
based on historical IAP advertiser attrition rates attributable to its entire
customer base.  During fiscal 2006, the Company began increasing its
expenditures for telemarketing campaigns.  The capitalization of such
costs requires that the Company amortize them over the average expected life of
acquired customers, as determined on a cost-pool by cost-pool
basis.  The Company’s systems do not allow us to efficiently and
accurately monitor customer lives by method of
acquisition.  Therefore, the Company is unable to determine the
average expected life of those customers acquired via telemarketing versus those
acquired via mailing campaigns and cannot assess the value of the future
benefits.  As it cannot effectively evaluate such costs on a cost-pool
by cost-pool basis, the Company determined in fiscal 2006 that the more
preferable method of accounting for these costs is to expense them when
incurred.  The Company enacted this change in accounting principle
during the fourth quarter of fiscal 2006 and, in accordance with SFAS No. 154,
has restated all periods presented to reflect this new method of accounting for
such costs.





4.
            ACQUISITIONS





LiveDeal,
Inc.





On June
6, 2007, the Company acquired all of the outstanding common and preferred
stock of LiveDeal, Inc. ("LiveDeal") in exchange for 1,505,490 shares of Common
Stock. In addition, the Company issued an aggregate of 23,155 shares of
restricted Common Stock in exchange for the cancellation of all outstanding
LiveDeal options and warrants. Finally, the Company agreed to issue an
additional 146,371 shares of Company Stock in exchange for the cancellation of
$1,021,666 of LiveDeal debt. Immediately following the transaction, LiveDeal
became be a wholly-owned subsidiary of the Company.





LiveDeal
has developed and operates an online local classifieds marketplace,
www.livedeal.com which has millions of goods and services listed for sale, in
almost every city and zip code across the U.S. LiveDeal offers 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.
Additionally, the LiveDeal technology lets consumers search or browse for items
in a particular city, state or zip code.





At the
site, users can search classifieds in any region and can look up businesses in a
yellow pages database. As with most such classified ad sites, users are offered
a search window and a listing of subcategories.  Sales are made
directly between the user (buyer) and seller, and an "email the seller" link is
provided to assist in this process.





Among the
interesting features of LiveDeal’s site is "Local AdWiz", which is a classifieds
and yellow pages distribution network, turning any web site or blog into a
unique and localized classifieds and Yellow Pages site in seconds. AdWiz gives
website publishers fresh local content and an instant revenue stream. Local
AdWiz pulls from millions of classified and yellow page listings across multiple
categories from people in cities and towns all over the U.S. AdWiz enables the
listings to be republished dynamically on any website within
seconds.





The
aggregate purchase price of LiveDeal was $12,700,695, consisting of
approximately $12,328,045 of stock-based consideration and $372,650 of
acquisition-related expenses.  The value of the combined 1,675,016
shares of common stock granted in the transaction was determined based on the
average closing market price of the common stock over the two day period before
and after the effective date of the acquisition.  The purchase price
was determined based on an average of valuation estimates utilizing comparable
companies, precedent transactions and discounted cash flow
techniques.  There are no contingent payments or commitments specified
in the agreement, except with respect to the employment agreement described in
Note 10.





52
 Table of Contents





The
following table sets forth the allocation of the acquisition cost, including
acquisition-related expenses, to the assets acquired and liabilities assumed,
based on their estimated fair values:





Current
      assets
            
            $
            962,877Property,
      plant and equipment
            
            
            70,000Goodwill
            
            
            7,349,366Intangible
      assets
            
            
            2,130,000Deferred
      tax assets
            
            
            3,545,618Other
      non-current assets
            
            
            10,846Total
      assets acquired
            
            
            14,068,707Current
      liabilities
            
            
            1,368,012Total
      liabilities assumed
            
            
            1,368,012Net
      assets acquired
            
            $
            12,700,695





The
Company does not expect the goodwill to be tax-deductible.  As the
Company only operates in one reportable segment, the entire goodwill balance has
been allocated to that segment.





The
Company has estimated the fair value of LiveDeal’s identifiable intangible
assets at $2,130,000, allocated as follows:





Estimated
              Fair
      Value
            
            Average
              Remaining
              Useful
      LifeAsset
      class:Marketing-based
      intangible assets
            
            $
            1,500,000
            
            20
      yearsTechnology-based
      intangible assets
            
            
            630,000
            
            5
      years$
            2,130,000





Marketing-based
intangible assets include trademarks, tradenames and internet domain names,
whereas technology-based intangible assets include computer software,
technology, databases, and trade secrets.





In
connection with its acquisition of LiveDeal, the Company repurchased an
aggregate of 44,224 shares of common stock from dissenting shareholders of
LiveDeal.  The aggregate purchase price was $307,540.





OnCall Subscriber
Management, Inc.





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), which OnCall purchased recently under option from 24
by 7 Contact Solutions, Inc.  The Company completed the acquisition
through 247 Marketing, LLC, a wholly owned subsidiary, which established a
subsidiary in the Philippines (247 Marketing, Inc.) to operate the
business.  The acquisition added 170 Philippines-based employees to
the Company’s workforce.





The
aggregate purchase price of the acquisition was approximately $4,552,600
(including acquisition-related expenses of $52,600), which was paid in cash
during fiscal 2007.  The Company allocated $218,803 of the purchase
price to the estimated fair value of the equipment that was acquired and
$4,333,797 to goodwill.  The Company does not expect the goodwill to
be tax-deductible.  As the Company only operates in one reportable
segment, the entire goodwill balance has been allocated to that
segment.





53
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Pro Forma Financial
Information





The
following table provides pro forma results of operations for the three and nine
months ended June 30, 2007 and 2006 as if LiveDeal had been acquired as of the
beginning of each period presented.  The pro forma results include
certain purchase accounting adjustments such as the estimated changes in
amortization expense on acquired intangible assets, increased compensation
expense resulting from the contractual obligation for Mr. Navar’s salary
(described in Note 10) and the elimination of interest expense on borrowings
that were satisfied through the acquisition.  However, pro forma
results do not include any anticipated cost savings or other effects of the
planned integration of LiveDeal.  Accordingly, such amounts are not
necessarily indicative of the results that would have occurred if the
acquisition had occurred on the dates indicated or that may result in the
future.





Year
      ended September 30,2007
            
            
            2006(unaudited)
            
            
            (unaudited)Net
      revenues
            
            $
            28,057,074
            
            
            $
            34,159,380Net
      loss
            
            $
            (1,834,830
            )
            
            $
            (4,089,392
            )Diluted
      net loss per share
            
            $
            (0.28
            )
            
            $
            (0.66
            )





The
Company did not provide pro forma information for the acquisition of OnCall
Subscriber Management Inc. as this entity was a carve-out of a larger
entity.  As such, historical financial information of the acquired
entity on a standalone basis is unattainable.





5.
            BALANCE SHEET
      INFORMATION





Balance
sheet information is as follows:





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September
      30,2007
            
            
            2006Receivables,
      current, netAccounts
      receivable, current
            
            $
            9,221,903
            
            
            $
            11,050,104Less:
      Allowance for doubtful accounts
            
            
            (2,302,723
            )
            
            
            (3,034,504
            )$
            6,919,180
            
            
            $
            8,015,600Receivables,
      long term, netAccounts
      receivable, long term
            
            $
            2,101,071
            
            
            $
            1,374,624Less:
      Allowance for doubtful accounts
            
            
            (159,075
            )
            
            
            (234,445
            )$
            1,941,996
            
            
            $
            1,140,179Total
      receivables, netGross
      receivables
            
            $
            11,322,974
            
            
            $
            12,424,728Gross
      allowance for doubtful accounts
            
            
            (2,461,798
            )
            
            
            (3,268,949
            )$
            8,861,176
            
            
            $
            9,155,779Components
      of allowance for doubtful accounts are as follows:Allowance
      for dilution and fees on amounts due from billing
      aggregators
            
            $
            1,888,730
            
            
            $
            2,465,423Allowance
      for customer refunds
            
            
            573,068
            
            
            
            803,526$
            2,461,798
            
            
            $
            3,268,949Property
      and equipment, netLeasehold
      improvements
            
            $
            455,286
            
            
            $
            447,681Furnishings
      and fixtures
            
            
            310,499
            
            
            
            296,074Office,
      computer equipment and other
            
            
            1,423,989
            
            
            
            1,055,5452,189,774
            
            
            
            1,799,300Less:
      Accumulated depreciation
            
            
            (1,766,211
            )
            
            
            (1,620,417
            )$
            423,563
            
            
            $
            178,883Intangible
      assets, netDomain
      name and marketing related intangibles
            
            $
            7,208,600
            
            
            $
            5,708,600Non-compete
      agreement
            
            
            3,465,000
            
            
            
            3,465,000Website
      and technology related intangibles
            
            
            3,006,093
            
            
            
            1,436,99113,679,693
            
            
            
            10,610,591Less:  Accumulated
      amortization of intangible
            
            
            (6,307,546
            )
            
            
            (4,887,987
            )$
            7,372,147
            
            
            $
            5,722,604Accrued
      liabilitiesLitigation
      accrual
            
            $
            -
            
            
            $
            3,525,000Deferred
      revenue
            
            
            323,596
            
            
            
            188,399Accrued
      payroll and bonuses
            
            
            339,305
            
            
            
            187,973Accrued
      expenses - other
            
            
            533,428
            
            
            
            664,067$
            1,196,330
            
            
            $
            4,565,439





6.
            ACCOUNTS
      RECEIVABLE





The
Company provides billing information to third party billing companies for the
majority of its monthly billings.  Two billing channels account for
the majority of the Company’s accounts receivable. Billings submitted are
“filtered” by these billing companies and the LECs.  Net accepted
billings are recognized as revenue and accounts receivable.  The
billing companies remit payments to the Company on the basis of cash ultimately
received from the LECs by those billing companies.  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.  These balances have been classified as
long-term assets in the accompanying consolidated balance sheet.





55
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The
Company experiences significant dilution of its gross billings by the billing
companies.  The Company negotiates collections with the billing
companies on the basis of the contracted terms and historical
experience.  The Company’s cash flow may be affected by holdbacks,
fees, and other matters, which are determined by the LECs and the billing
companies.





The
handling and processing of cash receipts pertaining to trade accounts receivable
is maintained primarily by three third-party billing companies.  The
net receivable due from such billing services providers represented 31%, 23%,
and 16%, respectively, of the Company’s total net accounts receivable at
September 30, 2007.





Subscription
receivables that are directly billed by the Company are valued and reported at
the estimated future collection amount. Determining the expected collections
requires an estimation of both uncollectible accounts and
refunds.  The net direct-billed subscriptions receivable at September
30, 2007 and 2006, respectively, were $150,323 and $261,880.





Certain
receivables have been classified as long-term because issues arise whereby the
billing companies withhold certain amounts that are repaid over a 12 to 18 month
period of time. .  The breakdown of current and long-term receivables
and their respective allowances is in Note 5 above.





7.
            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.





In
connection with the Company’s acquisition of Telco, the Company was required to
provide an accelerated payment of license fees for the use of the URL
Yellow-page.net.  The URL is recorded at its cost of $5,000,000, net
of accumulated amortization.  The URL is amortized over the
twenty-year term of the licensing agreement.





In July
2003, the Company entered into a licensing agreement with a vendor to license
the use of the URL www.yp.com in exchange for cash and restricted shares of the
Company’s common stock. Under the terms of this agreement, the licensor had the
option of transferring the rights to the URL and the restricted shares to the
Company in exchange for $300,000. In July 2006, the licensor exercised this
option, and transferred ownership of the URL and the restricted shares to the
Company. As this option was deemed to be a purchase commitment, no liability was
reflected in the Company’s financial statements prior to the exercise of the
option. The Company capitalized the URL at its net acquisition price, computed
as the $300,000 cash payment less the fair market value of the shares acquired
(determined based on the stock price on the date of reacquisition) and will
amortize this asset on a straight-line basis over its estimated useful
life.





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Years ended September 30,2008
            
            $
            1,698,7212009
            
            
            1,587,5652010
            
            
            1,012,9022011
            
            
            391,2892012
            
            
            345,387Thereafter
            
            
            2,336,283Total
            
            $
            7,372,147





Total
amortization expense related to intangible assets was $1,419,559, $1,187,635 and
$1,196,198 for the years ended September 30, 2007, 2006 and 2005.





The
Company most recently completed an impairment test in the fourth quarter of
fiscal 2007.  No long-lived assets were impaired during the years
ended September 30, 2007, 2006, and 2005.





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.  During the year
ended September 30, 2007, the Company issued 10,800 shares to a consulting firm
valued at $78,840 as payment for amounts previously accrued. During the year
ended September 30, 2006, there were no shares granted to officers, directors
and consultants other than grants of restricted stock as described in Note
14.  During the year ended September 30, 2005, the Company issued
10,000 shares to a consulting firm valued at $119,500 for services
rendered.





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.  Holders of the preferred shares
are entitled, after two years from issuance, to convert them into common shares
on a ten-to-one basis together with payment of $0.45 per converted
share.





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.  During fiscal 2004, all then-outstanding treasury shares,
valued at $216,000 were retired.  On April 1, 2005, the Company
acquired 188,957 shares valued at $1,606,000 as partial settlement of amounts
due from affiliates.  On May 18, 2005, the Company’s Board of
Directors authorized a plan to repurchase up to $3,000,000 of common stock from
time to time on the open market or in privately negotiated
transactions.  In fiscal 2006, the Company acquired 25,260 shares for
$134,000 and in fiscal 2005, the Company acquired 60,125 shares for $566,000
under this plan.  In July 2006, the Company acquired 10,000 shares
valued at $101,000 in connection with the exercise of its option to acquire the
URL www.yp.com as described in Note 7.





On May
25, 2007, the Company’s Board of Directors terminated the May 18, 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.





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Dividends





During
the years ended September 30, 2007, 2006 and 2005, the Company accrued dividends
of $2,396, $1,918, and $1,439, respectively, to holders of Series E preferred
stock.





9.
            NET (LOSS)/INCOME PER
      SHARE





Net
(loss)/income 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 income to determine the amount available to
common stockholders.





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





Year Ended
              September 30, 2007
            
            
            Year Ended
              September 30, 2006
            
            
            Year Ended
              September 30, 2005Income
      (loss) before cumulative effect of accounting change
            
            $
            1,753,918
            
            
            $
            (1,050,920
            )
            
            $
            625,298Less:
      preferred stock dividends
            
            
            (2,396
            )
            
            
            (1,918
            )
            
            
            (1,439
            )Income
      (loss) applicable to common stock before cumulative effect of accounting
      change
            
            
            1,751,522
            
            
            
            (1,052,838
            )
            
            
            623,859Cumulative
      effect of accounting change
            
            
            -
            
            
            
            -
            
            
            
            99,848Net
      income (loss) applicable to common stock
            
            $
            1,751,522
            
            
            $
            (1,052,838
            )
            
            $
            723,707Basic
      weighted average common shares outstanding:
            
            
            5,108,551
            
            
            
            4,495,868
            
            
            
            4,639,036Add
      incremental shares for:Unvested
      restricted stock
            
            
            222,359
            
            
            
            -
            
            
            
            18,647Series
      E convertible preferred stock
            
            
            5,529
            
            
            
            -
            
            
            
            7,358Outstanding
      warrants
            
            
            -
            
            
            
            -
            
            
            
            952Diluted
      weighted average common shares outstanding:
            
            
            5,336,439
            
            
            
            4,495,868
            
            
            
            4,665,992Net
      income (loss) per share:Basic:Income
      (loss) applicable to common stock before cumulative effect of accounting
      change
            
            $
            0.34
            
            
            $
            (0.23
            )
            
            $
            0.14Cumulative
      effect of accounting change
            
            $
            -
            
            
            $
            -
            
            
            $
            0.02Net
      income (loss) applicable to common stock
            
            $
            0.34
            
            
            $
            (0.23
            )
            
            $
            0.16Diluted:Income
      (loss) applicable to common stock before cumulative effect of accounting
      change
            
            $
            0.33
            
            
            $
            (0.23
            )
            
            $
            0.14Cumulative
      effect of accounting change
            
            $
            -
            
            
            $
            -
            
            
            $
            0.02Net
      income (loss) applicable to common stock
            
            $
            0.33
            
            
            $
            (0.23
            )
            
            $
            0.16





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





September
      30,2007
            
            
            2006
            
            
            2005Warrants
      to purchase shares of common stock
            
            
            -
            
            
            
            -
            
            
            
            43,750Series
      E convertible preferred stock
            
            
            -
            
            
            
            12,784
            
            
            
            -Shares
      of non-vested restricted stock
            
            
            63,406
            
            
            
            371,858
            
            
            
            161,40463,406
            
            
            
            384,642
            
            
            
            205,154





58
 Table of Contents





10.
            COMMITMENTS AND
      CONTINGENCIES




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 $526,617, $340,827, and $365,121 for the years ended September 30,
2007, 2006 and 2005, respectively.





At
September 30, 2007, future minimum annual lease payments under operating lease
agreements for fiscal years ended September 30 are as follows:





2008
            
            $
            830,8332009
            
            
            800,6392010
            
            
            509,9232011
            
            
            407,5232012
            
            
            314,789Thereafter
            
            
            78,585$
            2,942,292




Change in Officers and
Employment Agreement





Effective
June 6, 2007, the Company appointed Rajesh Navar, 39, President of the Company.
In connection with this appointment and the LiveDeal acquisition described in
Note 4 above, the Company entered into a three-year employment agreement with
Mr. Navar. The agreement provides for a base salary of $300,000 per year plus
participation in the Company's health, disability and dental benefits, insurance
programs, pension and retirement plans, and all other employee benefit and
compensation arrangements available to other senior officers of the Company.
Commencing in the second year, Mr. Navar's annual salary will be increased on an
annual basis at a rate of at least 10% of the preceding year's annual salary.
The Company will also reimburse Mr. Navar for all business expenses incurred by
him in connection with his employment with the Company.





The
agreement also provides that, if Mr. Navar's employment is terminated as a
result of his death, disability, for Cause (as defined in the agreement), the
agreement otherwise expires, or for any reason other than Good Reason (as
defined in the agreement), Mr. Navar or his estate, conservator or designated
beneficiary, as the case may be, will be entitled to payment of any earned but
unpaid annual salary for the year in which Mr. Navar's employment is terminated
through the date of termination, as well as any accrued but unused vacation,
reimbursement of expenses, and vested benefits to which Mr. Navar is entitled in
accordance with the terms of each applicable benefit plan. In the event Mr.
Navar's employment is terminated for any other reason or if Mr. Navar terminates
his own employment for Good Reason on or before the expiration of the Agreement,
and provided that Mr. Navar executes a valid release of any and all claims that
Mr. Navar may have relating to his employment against the Company, Mr. Navar
will be entitled to receive any earned but unpaid annual salary for the year,
any accrued but unused vacation, reimbursement of expenses and vested benefits
to which Mr. Navar is entitled in accordance with the terms of each applicable
benefit plan, plus a lump sum amount equal to three months of annual salary that
Mr. Navar would receive under the agreement if his employment with the Company
had not been terminated.





In
addition, in the event Mr. Navar's employment is terminated as a result of his
death, Mr. Navar's estate, conservator or designated beneficiary, as the case
may be, will be entitled to receive, in addition to Mr. Navar's accrued salary
and benefits through the date of death, a lump sum payment equivalent to three
months of Mr. Navar's annual salary in effect at the time of death.





On June
6, 2007, the Company also entered into a Noncompetition, Nondisclosure, and
Nonsolicitation Agreement with Mr. Navar, which provides that Mr. Navar will
not: (i) disclose the Company's confidential information; (ii) compete with the
Company until the third anniversary of the agreement or for one year after his
employment or service to the Company is terminated (unless he is terminated for
Cause or Good Reason), whichever is longer; (iii) solicit employees of the
Company until the second anniversary of the agreement or for one year after his
employment or service to the Company is terminated, whichever is longer; and
(iv) solicit clients of the Company until the third anniversary of the agreement
or for one year after his employment or service to the Company is terminated
(unless he is terminated for Cause or Good Reason), whichever is
longer.





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 Table of Contents





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.





During
the second quarter of fiscal 2006, the Company settled outstanding litigation
with a former vendor, resulting in a cash payment of $490,000. As $328,000 of
the settlement was previously accrued, there was $162,000 of expense incurred in
the year ended September 30, 2006 associated with this settlement. In connection
with this payment, the Company is no longer required to maintain our bond that
was previously reflected as restricted cash in the accompanying consolidated
balance sheet. Accordingly, the bond has been released and this amount has been
reclassified from restricted cash to cash in the consolidated balance sheet as
of September 30, 2006.





On
December 14, 2006, the Company voluntarily entered into a settlement with
thirty-four states’ Attorneys General to address their concerns over our
promotional activities, specifically the use of its check mailer for customer
acquisition.  The main terms of this agreement were as
follows:





·
            The Company paid a settlement fee
      of $2,000,000 to the state consortium, which they distributed among
      themselves;


·
            The Company discontinued the use
      of activation checks as a promotional
  incentive;


·
            The Company temporarily suspended
      billing of any active customer that was acquired in connection with the
      use of an activation check while notifying the customer of their legal
      rights to cancel the service and providing them a 60-day opportunity to
      receive a refund equivalent to the customer’s last two payments;
      and


·
            The Company agreed not to employ
      any collection efforts with respect to past-due accounts of customers that
      were secured through the use of an activation
  check.





The
Company has recorded a charge of $3,525,000 in litigation and related expenses
in the accompanying consolidated statement of operations for fiscal 2006,
consisting of a settlement accrual of $2,000,000, a reserve for refunds to
existing customers covered by the 60 day opportunity mentioned above and other
related costs of $1,250,000 and legal fees of $275,000.  Management
analyzed the number of customers eligible and applied probabilities to estimate
the additional $1,250,000 in refunds and costs.  Customers had through
February 2007 to apply for these refunds.  In fiscal 2007, the Company
reversed excess accruals for legal fees and refunds totaling
$200,718.





Other Contractual
Commitments





During
the second quarter of fiscal 2006, the Company entered into a contractual
arrangement with an attorney to settle previous claims and to engage the future
services of this attorney.  Under the terms of the arrangement, the
Company made cash payments during the year totaling $145,000 and granted 10,000
shares of restricted stock.  Under the terms of the agreement, the
Company is obligated to make future payments over the next year totaling $63,000
in exchange for future services.  Future amounts payable under this
agreement have not been accrued in the accompanying financial statements as such
payments are for future services.





During
the third quarter of fiscal 2006, we entered into a contractual arrangement with
a consulting firm to provide strategic and operational related consulting
services.  Under the terms of the agreement, we are obligated to make
future payments through July 2009 that vary based on the Company’s billed
customer count subject to a minimum of $20,000 per month.  Current
payments are approximately $100,000 per month.  Future amounts payable
under this agreement have not been accrued in the accompanying financial
statements as such payments are for future services.




60
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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:








2007
            
            
            2006
            
            
            2005Current
      provision
            
            $
            291,273
            
            
            $
            1,172,823
            
            
            $
            879,805Deferred
      (benefit) provision
            
            
            1,564,402
            
            
            
            (1,484,602
            )
            
            
            (507,768
            )Net
      income tax (benefit) provision
            
            $
            1,855,675
            
            
            $
            (311,779
            )
            
            $
            372,037




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








2007
            
            
            2006
            
            
            2005Amount
            
            
            Percent
            
            
            Amount
            
            
            Percent
            
            
            Amount
            
            
            PercentFederal
      statutory rates
            
            $
            1,227,262
            
            
            
            34
            %
            
            $
            (463,318
            )
            
            
            34
            %
            
            $
            339,094
            
            
            
            34
            %State
      income taxes
            
            
            121,282
            
            
            
            3
            %
            
            
            (45,787
            )
            
            
            3
            %
            
            
            33,510
            
            
            
            3
            %Write
      off of deferred tax asset related to vested restricted
      stock
            
            
            499,885
            
            
            
            14
            %
            
            
            217,131
            
            
            
            (16
            )%
            
            
            -
            
            
            
            0
            %Other
            
            
            7,246
            
            
            
            0
            %
            
            
            (19,805
            )
            
            
            1
            %
            
            
            (567
            )
            
            
            (0
            )%Effective
      rate
            
            $
            1,855,675
            
            
            
            51
            %
            
            $
            (311,779
            )
            
            
            22
            %
            
            $
            372,037
            
            
            
            37
            %




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








2007
            
            
            2006Deferred
      income tax assets:Book
      to tax differences in accounts receivable
            
            $
            546,145
            
            
            $
            1,314,721Net
      operating loss carryforwards
            
            
            3,545,618Book
      to tax differences in accrued expenses
            
            
            -
            
            
            
            467,065Book
      to tax differences for stock based compensation
            
            
            951,246
            
            
            
            1,280,007Book
      to tax differences in intangible assets
            
            
            121,613
            
            
            
            121,613Total
      deferred income tax asset
            
            
            5,164,622
            
            
            
            3,183,406Deferred
      income tax liabilities:Book
      to tax differences in depreciation
            
            
            66,833
            
            
            
            66,883Total
      deferred income tax liability
            
            
            66,833
            
            
            
            66,883Net
      deferred income tax asset (liability)
            
            $
            5,097,789
            
            
            $
            3,116,523




12.
            RELATED PARTY
      TRANSACTIONS





Changes in Officers and
Directors





On
November 3, 2005, the Company entered into a Separation Agreement with its
former Chief Executive Officer.  Under the terms of the agreement, the
Company made a cash payment of $337,500 in the second quarter of fiscal 2006.
The agreement also provided for the continued vesting of 70,000 shares of the
Chief Executive Officer’s restricted stock awards that were granted in fiscal
2004 and 2005.





On
January 19, 2006, the Company entered into a Separation Agreement & General
Release with its former Chief Financial Officer.  Under the terms of
the agreement, the Company made a cash payment of approximately $95,000 in the
second quarter of fiscal 2006.  The agreement also provided for the
continued vesting of the Chief Financial Officers’ restricted stock awards
(totaling 15,000 shares) that were granted in fiscal 2004 and 2005.





61
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On
September 19, 2006, the Company entered into an employment agreement with Daniel
L. Coury, Sr., which calls for Mr. Coury to serve as the Chief Executive Officer
and President of the Company. Mr. Coury had acted as interim Chief Executive
Officer since January 25, 2006. As permanent Chief Executive Officer and
President, Mr. Coury receives a salary of $420,000, plus 10% annual salary
increases, beginning with the Company’s fiscal year ending September 30, 2008;
an annual bonus of $150,000, provided the Company obtains certain performance
measures as established by the Company’s Board of Directors; a one-time bonus of
$150,000 if and when the common stock of the Company is listed on a national
exchange; and a grant of 100,000 shares of restricted stock of the Company
(“Restricted Shares”), which vest upon the earlier to occur of three years or a
“change of control” (as defined in the Company’s 2003 Stock Plan); provided,
however, that Mr. Coury is obligated to return one-third of the Restricted
Shares at the end of each fiscal year unless certain performance targets are
reached for that fiscal year.





Additionally,
in the event that Mr. Coury terminates his employment for “good reason” or the
Company terminates his employment other than for “Cause” or on account of his
death or “disability,” as each of those terms is defined in the employment
agreement, Mr. Coury will receive 12 months of continuing salary, and all
restricted stock granted to the employee prior to the employment agreement and
the portion of the Restricted Shares that remain unvested and for which the
annual risk of forfeiture has lapsed due to annual performance targets being
achieved will be immediately accelerated.





On
September 19, 2006, the Company also amended the employment agreements of Gary
Perschbacher, the Company’s Chief Financial Officer, and John Raven, the
Company’s Chief Operating Officer. Mr. Perschbacher’s amended employment
agreement provides for an extension of the term until September 20, 2009; 10%
annual salary increases, beginning with the Company’s fiscal year ending
September 30, 2008; and a grant of 10,000 shares of restricted stock of the
Company pursuant to the Company’s 2003 Stock Plan. Mr. Raven’s amended
employment agreement provides for an extension of the term until September 20,
2009; an annual salary of $220,000, plus 10% annual salary increases, beginning
with the Company’s fiscal year ending September 30, 2008; a $25,000 cash bonus
upon execution of the employment agreement; and a grant of 2,500 shares of
restricted stock of the Company pursuant to the Company’s 2003 Stock
Plan.





On
September 19, 2006, the Company also granted to Joseph Cunningham, a member of
the Company’s Board of Directors, 10,000 shares of restricted stock of the
Company in connection with his appointment to serve as Chairman of the Board of
Directors and Chairman of the Company’s Audit Committee. Mr. Cunningham will
receive an aggregate of $6,000 per month in lieu of all other director
compensation for his service as Chairman of the Board and Chairman of the Audit
Committee.





13.
            CONCENTRATION OF CREDIT
      RISK





The
Company maintains cash balances at banks in Arizona and
Nevada.  Accounts are insured by the Federal Deposit Insurance
Corporation up to $100,000





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 net receivable due from such billing services
providers represented 31%, 23% and 16%, respectively, of the Company’s total net
accounts receivable at September 30, 2007.





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14.
            STOCK-BASED
      COMPENSATION




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, 2007, 586,757 shares authorized under the 2003 Plan were granted
and remain outstanding, of which 144,850 have vested and 441,907 are in the form
of restricted stock.  These shares of restricted stock were granted to
the Company’s service providers, executives and directors.  Of the
441,907, 35,541 shares vest on a cliff basis 1 year from the date of grant,
344,791 shares vest on a cliff basis 3 years from the date of grant, 33,750 vest
on a cliff basis 5 years from the date of grant, and 27,825 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, 2007, total
unrecognized compensation cost related to nonvested awards was
$1,708,057.  The weighted average period over which such compensation
cost is to be recognized is 2.16 years.





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





Outstanding
      (unvested) at September 30, 2004
            
            
            446,260Granted
            
            
            88,572Forfeited
            
            
            (51,650
            )Vested
            
            
            -Outstanding
      (unvested) at September 30, 2005
            
            
            483,182Granted
            
            
            239,650Forfeited
            
            
            (86,000
            )Vested
            
            
            (101,225
            )Outstanding
      (unvested) at September 30, 2006
            
            
            535,607Granted
            
            
            78,500Forfeited
            
            
            (28,575
            )Vested
            
            
            (143,625
            )Outstanding
      (unvested) at September 30, 2007
            
            
            441,907





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 the shares outstanding is
$1.34 per share.





During
the years ended September 30, 2007, 2006, and 2005, the Company recognized
compensation expense of $1,480,632, $1,599,363, and $2,012,841, respectively,
under the 2003 Plan and other restricted stock issuances.





At
September 30, 2007, there were no options exercisable or
outstanding.  No options were granted in the years ended September 30,
2007, 2006 and 2005.





The
Company has issued warrants in connection with certain debt and equity
transactions.  Warrants outstanding are summarized as
follows:





63
 Table of Contents





2007
            
            
            2006
            
            
            2005Number of
            
            
            Weighted Average
            
            
            Number of
            
            
            Weighted Average
            
            
            Number of
            
            
            Weighted AverageWarrants
            
            
            Exercise Price
            
            
            Warrants
            
            
            Exercise Price
            
            
            Warrants
            
            
            Exercise PriceWarrants
      outstanding at beginning of year
            
            
            -
            
            
            $
            -
            
            
            
            500,000
            
            
            $
            2.12
            
            
            
            500,000
            
            
            $
            2.12Granted
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Expired
            
            
            -
            
            
            
            -
            
            
            
            (500,000
            )
            
            
            2.12
            
            
            
            -
            
            
            
            -Exercised
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Warrants
      outstanding at September 30,
            
            
            -
            
            
            $
            -
            
            
            
            -
            
            
            $
            -
            
            
            
            500,000
            
            
            $
            2.12




The
warrants were granted in the year ended September 30, 2001 in connection with
the settlement with the former URL holder (See Note 7).  The exercise
prices of the warrants range from $1.00 to $3.00.  The fair value of
these options at the date of grant was negligible, estimated using the
Black-Scholes option-pricing model. All warrants had expired by September
2006.





15.
            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 upon reaching age 21 and
completion of three months of service.   The Company made
contributions of $34,159, $8,105 and $7,000 to the plan for the years ended
September 30, 2007, 2006, and 2005, respectively.





16.
            OTHER INCOME
      (EXPENSE)





There
were no significant items in other income (expense) in the year ended September
30, 2007. In addition to interest income and interest expense, other income
(expense) includes the following items:




Year ended September 30,
2006




a.
            A loss of $3,525,000 consisting
      of a settlement accrual of $2,000,000, a reserve for refunds of $1,250,000
      and legal fees of $275,000 related to the attorneys general settlement
      described in Note 10; and




b.
            A loss of $162,000 consisting of
      an additional accrual for the settlement of a matter with a former public
      relations vendor;




Year ended September 30,
2005




·
            A loss of $282,000 from a
      Transfer and Repayment Agreement with two of the Company’s shareholders,
      equal to the difference between the carrying value of Advances to
      Affiliates and the value of the consideration
    received;




17.
            SEGMENT
      REPORTING





The
Company operates one reportable segment – online marketplace and Yellow Page
services.





At
September 30, 2007, the Company’s long-lived assets included property and
equipment with a net book value of $205,743 that reside in the
Philippines.  All other long-lived assets reside in the United
States.





18.
            SELECTED QUARTERLY FINANCIAL DATA
      (UNAUDITED)




Quarterly
financial information for 2007 and 2006 follows:





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Quarter
      EndedDecember
      31,
            
            
            March
      31,
            
            
            June
      30,
            
            
            September
      30,2006
            
            
            2007
            
            
            2007
            
            
            2007(as
      restated)
            
            
            (as
      restated)
            
            
            (as
      restated)Net
      revenues
            
            $
            7,123,683
            
            
            $
            6,106,544
            
            
            $
            5,989,437
            
            
            $
            7,120,697Gross
      profit
            
            
            6,012,813
            
            
            
            5,148,835
            
            
            
            5,113,544
            
            
            
            5,860,893Net
      income
            
            
            485,198
            
            
            
            626,262
            
            
            
            266,405
            
            
            
            376,053Earnings
      per share information:Basic
      income per share
            
            $
            0.11
            
            
            $
            0.14
            
            
            $
            0.05
            
            
            $
            0.06Diluted
      income per share
            
            $
            0.11
            
            
            $
            0.13
            
            
            $
            0.05
            
            
            $
            0.06





Quarter EndedDecember 31,
            
            
            March 31,
            
            
            June 30,
            
            
            September 30,2005
            
            
            2006
            
            
            2006
            
            
            2006(as
      restated)
            
            
            (as
      restated)
            
            
            (as
      restated)Net
      revenues
            
            $
            7,047,401
            
            
            $
            7,997,623
            
            
            $
            8,577,639
            
            
            $
            8,335,284Gross
      profit
            
            
            6,510,430
            
            
            
            7,213,184
            
            
            
            7,506,947
            
            
            
            6,697,106Net
      income (loss)
            
            
            (327,092
            )
            
            
            129,998
            
            
            
            826,847
            
            
            
            (1,680,673
            )Earnings
      (loss) per share information:Basic
      income (loss) per share
            
            $
            (0.07
            )
            
            $
            0.03
            
            
            $
            0.19
            
            
            $
            (0.37
            )Diluted
      income (loss) per share
            
            $
            (0.07
            )
            
            $
            0.03
            
            
            $
            0.18
            
            
            $
            (0.37
            )





During
2007, the Company reevaluated its consolidated financial statement presentation
policies and procedures. During this process, the Company identified certain
errors in the presentation of its 2006 and 2005 consolidated financial
statements.  The errors and related corrections are more fully
described in Note 19.  These changes also impacted the previously
filed quarterly information for the quarters ended December 31, 2006, March 31,
2007, June 30, 2007 and each of the quarters in the fiscal year ended September
30, 2006.  None of the changes impacted balance sheet items except as
disclosed in Note 19.  The following table indicates the increase or
decrease to the specific financial statement line items for each of the periods
identified as compared to those amounts set forth in the Company’s most recently
filed Form 10-Qs for fiscal 2007 (which include comparative financial
information for fiscal 2006 periods).





Three
      Months EndedJune
      30, 2007
            
            
            March
      31, 2007
            
            
            December
      31, 2006
            
            
            June
      30, 2006
            
            
            March
      31, 2006
            
            
            December
      31, 2005Net
      revenues
            
            $
            -
            
            
            $
            -
            
            
            $
            (671,722
            )
            
            $
            -
            
            
            $
            -
            
            
            $
            (579,376
            )Cost
      of services
            
            
            164,636
            
            
            
            175,511
            
            
            
            (387,661
            )
            
            
            336,173
            
            
            
            197,549
            
            
            
            (579,376
            )Gross
      profit
            
            
            (164,636
            )
            
            
            (175,511
            )
            
            
            (284,061
            )
            
            
            (336,173
            )
            
            
            (197,549
            )
            
            
            -General
      and administrative expenses
            
            
            (164,636
            )
            
            
            (175,511
            )
            
            
            52,826
            
            
            
            (336,173
            )
            
            
            (197,549
            )
            
            
            397,004Depreciation
      and amortization
            
            
            -
            
            
            
            -
            
            
            
            (336,887
            )
            
            
            -
            
            
            
            -
            
            
            
            -Litigation
      and related expenses
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (225,137
            )Total
      operating expenses
            
            
            (164,636
            )
            
            
            (175,511
            )
            
            
            (284,061
            )
            
            
            (336,173
            )
            
            
            (197,549
            )
            
            
            171,867Operating
      income (loss)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (171,867
            )Total
      other income (expense)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            171,867Net
      income (loss)
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -





The
errors identified above have no impact on the Company’s earnings per share
calculations.  The Company’s earnings per share calculations have been
retroactively restated to reflect the effects of a 1-for-10 reverse stock split
and certain differences may arise between the amounts presented above and the
expected amounts after application of the reverse stock split due to rounding of
previously reported numbers.





65
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19.
            RESTATEMENTS





During
2007, the Company reevaluated its consolidated financial statement presentation
policies and procedures. During this process, the Company identified certain
errors in the presentation of its 2006 and 2005 consolidated financial
statements.  These errors and related corrections are summarized as
follows:




Balance
Sheet





·
            Certain investment accounts
      totaling $815,785 have been reclassified from cash and
      cash equivalents to certificates of deposit and other
      investments based on the maturity dates of the underlying investments in
      the accompanying consolidated balance sheet as of September 30,
      2006.


·
            Accrued refunds and fees of
      $1,250,000 relating to the Attorneys’ General settlement described in Note
      10 have been reclassified from accounts receivable, net to accrued
      liabilities in the accompanying consolidated balance sheet as of September
      30, 2006.


·
            Certain miscellaneous receivables
      totaling $23,819 at September 30, 2006 were reclassified from prepaid
      expenses and other current assets to accounts receivable, net in the
      accompanying consolidated balance
sheet.




Statement
of Operations




·
            Unbillable accounts and
      chargebacks have been reclassified from cost of services to a reduction in
      net revenues in the consolidated statement of
      operations.


·
            Monitoring fees related to our
      LEC billing channel have been reclassified from general and administrative
      expenses to cost of
services.


·
            Depreciation and amortization
      expenses that were previously separately stated are now included in
      general and administrative expenses in the consolidated statement of
      operations.


·
            Litigation and related expenses
      that were previously included in other income and expense are now
      separately stated as a component of operating expenses in the consolidated
      statement of operations.





Statement of Cash
Flows




·
            Preferred
      stock dividends for the year ended September 30, 2006 totaling $1,918 were
      reclassified from net cash provided by operating activities to net cash
      used in financing activities.


·
            Net
      cash used in investing activities was affected by the reclassification of
      certain investment accounts from cash and cash equivalents to
      certificates of deposit and other investments as previously
      described.








The
following tables set forth the impact of these restatements on the Company’s
statements of operations and balance sheet:





Balance
      Sheet
            
            September
      30, 2006As
      Originally
              Reported
            
            
            As
      Adjusted
            
            
            Effect
      of changeCash
      and cash equivalents
            
            $
            7,210,560
            
            
            $
            6,394,775
            
            
            $
            (815,785
            )Certificates
      of deposit and other investments
            
            $
            2,266,268
            
            
            $
            3,082,053
            
            
            $
            815,785Accounts
      receivable, net (current)
            
            $
            6,741,781
            
            
            $
            8,015,600
            
            
            $
            1,273,819Prepaid
      expenses and other current assets
            
            $
            259,069
            
            
            $
            235,250
            
            
            $
            (23,819
            )Accrued
      expenses
            
            $
            3,315,439
            
            
            $
            4,565,439
            
            
            $
            1,250,000





66
 Table of Contents








Income
      Statement
            
            Year
      ended September 30, 2006
            
            
            Year
      ended September 30, 2005As
      Originally Reported
            
            
            As
      Adjusted
            
            
            Effect
      of Change
            
            
            As
      Originally Reported
            
            
            As
      Adjusted
            
            
            Effect
      of ChangeNet
      revenues
            
            $
            36,881,164
            
            
            $
            31,957,947
            
            
            $
            (4,923,217
            )
            
            $
            25,204,858
            
            
            $
            24,361,995
            
            
            $
            (842,863
            )Cost
      of services
            
            
            8,069,239
            
            
            
            4,030,280
            
            
            
            (4,038,959
            )
            
            
            3,980,619
            
            
            
            3,137,756
            
            
            
            (842,863
            )Gross
      profit
            
            
            28,811,925
            
            
            
            27,927,667
            
            
            
            (884,258
            )
            
            
            21,224,239
            
            
            
            21,224,239
            
            
            
            -Operating
      expenses:General
      and administrative expenses
            
            
            13,800,456
            
            
            
            14,350,753
            
            
            
            550,297
            
            
            
            13,030,614
            
            
            
            14,600,614
            
            
            
            1,570,000Sales
      and marketing expenses
            
            
            11,452,465
            
            
            
            11,452,465
            
            
            
            -
            
            
            
            5,310,236
            
            
            
            5,310,236
            
            
            
            -Depreciation
      and amortization
            
            
            1,434,554
            
            
            
            -
            
            
            
            (1,434,554
            )
            
            
            1,570,000
            
            
            
            -
            
            
            
            (1,570,000
            )Litigation
      and related expenses
            
            
            -
            
            
            
            3,686,806
            
            
            
            3,686,806
            
            
            
            -
            
            
            
            328,133
            
            
            
            328,133Total
      operating expenses
            
            
            26,687,475
            
            
            
            29,490,024
            
            
            
            2,802,549
            
            
            
            19,910,850
            
            
            
            20,238,983
            
            
            
            328,133Operating
      income (loss)
            
            
            2,124,450
            
            
            
            (1,562,357
            )
            
            
            (3,686,807
            )
            
            
            1,313,389
            
            
            
            985,256
            
            
            
            (328,133
            )Other
      income (expense):Interest
      expense and other financing costs
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (8,610
            )
            
            
            (8,610
            )
            
            
            -Interest
      income
            
            
            224,176
            
            
            
            224,176
            
            
            
            -
            
            
            
            242,965
            
            
            
            242,965
            
            
            
            -Loss
      on attorneys' general settlement
            
            
            (3,525,000
            )
            
            
            -
            
            
            
            3,525,000
            
            
            
            -
            
            
            
            -
            
            
            
            -Other
      income (expense)
            
            
            (186,325
            )
            
            
            (24,518
            )
            
            
            161,807
            
            
            
            (550,409
            )
            
            
            (222,276
            )
            
            
            328,133Total
      other income (expense)
            
            
            (3,487,149
            )
            
            
            199,658
            
            
            
            3,686,807
            
            
            
            (316,054
            )
            
            
            12,079
            
            
            
            328,133Income
      (loss) before income taxes and cumulative effect of accounting
      change
            
            
            (1,362,699
            )
            
            
            (1,362,699
            )
            
            
            -
            
            
            
            997,335
            
            
            
            997,335
            
            
            
            -Income
      tax provision (benefit)
            
            
            (311,779
            )
            
            
            (311,779
            )
            
            
            -
            
            
            
            372,037
            
            
            
            372,037
            
            
            
            -Cumulative
      effect of accounting change (net of income taxes of $53,764 in
      2005)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (99,848
            )
            
            
            (99,848
            )
            
            
            -Net
      income (loss)
            
            $
            (1,050,920
            )
            
            $
            (1,050,920
            )
            
            $
            -
            
            
            $
            725,146
            
            
            $
            725,146
            
            
            $
            -





Statement
      of Cash Flows
            
            Year
      Ended September 30, 2006As
      Originally
              Reported
            
            
            As
      Adjusted
            
            
            Effect
      of changeNet
      cash provided by operating activities
            
            $
            2,420,083
            
            
            $
            2,422,001
            
            
            $
            1,918Net
      cash used in investing activities
            
            $
            (1,088,416
            )
            
            $
            (1,904,201
            )
            
            $
            (815,785
            )Net
      cash used in financing activities
            
            $
            (235,418
            )
            
            $
            (237,336
            )
            
            $
            (1,918
            )





The
errors identified above have no impact on the Company’s earnings per share
calculations.  The Company’s earnings per share calculations have been
retroactively restated to reflect the effects of a 1-for-10 reverse stock split
and certain differences may arise between the amounts presented above and the
expected amounts after application of the reverse stock split due to rounding of
previously reported numbers.  For example, for the year ended
September 30, 2006, earnings per share on a pre-split basis was $0.023 which was
rounded to $0.02 in the Company’s Form 10-K for the year then
ended.  On a post-split basis, earnings per share for the year ended
September 30, 2006 was $0.23 as presented herein in this Form
10-K/A.





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





None.





ITEM 9A. Controls and Procedures





Evaluation
of Disclosure Controls and Procedures





Disclosure
controls and procedures are designed with an objective of ensuring that
information required to be disclosed in our periodic reports filed with the
Securities and Exchange Commission, such as this Annual Report on Form 10-K, is
recorded, processed, summarized, and reported within the time periods specified
by the Securities and Exchange Commission.  Disclosure controls also
are designed with an objective of ensuring that such information is accumulated
and communicated to our management, including our chief executive officer and
chief financial officer, in order to allow timely consideration regarding
required disclosures.





The
evaluation of our disclosure controls by our chief executive officer and chief
financial officer included a review of the controls’ objectives and design, the
operation of the controls, and the effect of the controls on the information
presented in this Annual Report.  Our management, including our chief
executive officer and chief financial officer, does not expect that disclosure
controls can or will prevent or detect all errors and all fraud, if any. A
control system, no matter how well designed and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met.  Also, projections of any evaluation of the disclosure
controls and procedures to future periods are subject to the risk that the
disclosure controls and procedures may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may
deteriorate.





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 Table of Contents





Based on
their initial review and evaluation as of September 30, 2007 (the “Evaluation
Date”), and subject to the inherent limitations described above, our principal
executive officer and principal financial officer concluded that our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934) were effective as of the Evaluation
Date.  Subsequent to the Evaluation Date, however, Mayer Hoffman
McCann P.C. advised our principal executive officer and principal financial
officer that it had identified a material weakness in our internal control over
financial reporting as of the Evaluation Date, related to our computation of the
weighted average number of shares of our common stock that were outstanding for
the period covered by this Form 10-K.  Because of the existence of
this weakness, our principal executive officer and principal financial officer
have concluded that our disclosure controls and procedures were not effective as
of the Evaluation Date.





Changes
in Internal Controls





During
2007, the Company reevaluated its consolidated financial statement presentation
policies and procedures. During this process, the Company identified certain
errors in the presentation of its consolidated financial statements. These
errors were identified as part of an enhancement of the Company’s internal
control structure during 2007 that included an evaluation of the Company’s
financial statement classification and presentation policies and
procedures.These
errors are indicative of a material weakness, which impacted our evaluation of
the effectiveness of our disclosure controls and procedures.  As
indicated above, we concluded that our disclosure controls and procedures were
not effective as of the Evaluation Date.  As a result of this
reevaluation and the related changes, the Company has implemented an annual
review, or more frequently when facts and circumstances so indicate, of our
financial statement classification policies and procedures.  This
review takes into account current generally accepted accounting principles as
well as best practices.





As of
December 19, 2007, we believe we have addressed the material weakness in our
internal controls over financial reporting described above.  Because
the material weakness was a result of a formula linkage and other errors in the
spreadsheet that we used to calculate the weighted average number of common
shares outstanding, an additional financial professional has been assigned to
review the spreadsheet to ensure all formulae in the spreadsheets are properly
linked and that the shares listed in the spreadsheet tie to our stock
databases.  Additionally, the finance department will provide a table
to the principal financial officer providing  weighted average number
of shares sequentially by quarter as a reasonableness test.  The
Company plans to further enhance these controls by acquiring automated equity
management and administrative software to manage the complexities of equity
management and reporting.




Other
than the changes described in the foregoing paragraphs, our principal executive
officer and principal financial officer are not aware of any significant changes
in our disclosure controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.  During the period covered by this Form 10-K/A, there have
not been any other changes in our internal controls over financial reporting
that have materially affected, or that are reasonably likely to materially
affect, our internal control over financial reporting.





ITEM 9B. Other Information





None.





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 2008 Annual Meeting
of Stockholders to be filed pursuant to Regulation 14A of the Exchange Act (the
“2008 Proxy Statement”) not later than 120 days after the end of the fiscal year
covered by this Annual Report. Certain information included in the 2008 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 2008 Proxy Statement
and is incorporated herein by reference.





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





68
 Table of Contents





ITEM
      11.
            Executive
      Compensation





Information
regarding director and executive compensation will be set forth in our 2008
Proxy Statement and is incorporated herein by reference.





ITEM12.
            Security Ownership of Certain
      Beneficial Owners and Management and Related Stockholder
      Matters





Information
regarding security ownership of certain beneficial owners and management will be
set forth in our 2008 Proxy Statement and is incorporated herein by
reference.





ITEM
      13.
            Certain Relationships and Related
      Transactions, and DirectorIndependence





The
information required by this Item will be disclosed in our 2008 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 2008 Proxy Statement
and is incorporated herein by reference.





PART
IV





ITEM
      15.
            Exhibits and Financial Statement
      Schedule





69
 Table of Contents





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


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






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, 2007 and for the year then ended and have
issued our report thereon dated December 18, 2007(except for Note 19, as to
which the date is May 12, 2008).  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 year ended September 30, 2007 has been subjected to the
auditing procedures applied in the audit 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.Phoenix,
      ArizonaMay
      12, 2008





Description
            
            Balance at
              Beginning
              of
      Period
            
            
            Charged to
              Costs
      and
              Expenses
            
            
            Charged to
              Other
              Accounts
            
            
            Deductions/
              Writeoffs
            
            
            Balance at
              End
      of
              PeriodAllowance
      for dilution and fees on amounts due from billing
    aggregatorsYear
      ended September 30, 2005
            
            $
            3,400,575
            
            
            $
            4,405,481
            
            
            $
            
            
            
            $
            (6,883,056
            )
            
            $
            923,000Year
      ended September 30, 2006
            
            $
            923,000
            
            
            $
            5,274,762
            
            
            $
            
            
            
            $
            (3,732,339
            )
            
            $
            2,465,423Year
      ended September 30, 2007
            
            $
            2,465,423
            
            
            $
            5,183,515
            
            
            $
            
            
            
            $
            (5,760,208
            )
            
            $
            1,888,730Allowance
      for customer refundsYear
      ended September 30, 2005
            
            $
            269,662
            
            
            $
            4,177,741
            
            
            $
            
            
            
            $
            (4,149,403
            )
            
            $
            298,000Year
      ended September 30, 2006
            
            $
            298,000
            
            
            $
            2,307,141
            
            
            $
            
            
            
            $
            (1,801,615
            )
            
            $
            803,526Year
      ended September 30, 2007
            
            $
            803,526
            
            
            $
            2,281,995
            
            
            $
            
            
            
            $
            (2,512,453
            )
            
            $
            573,068





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 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
            
            File
      Number
            
            Date
      Previously Filed2.1
            Agreement
      and Plan of Merger dated June 6, 2007, relating to the Registrant’s merger
      with LiveDeal, Inc.
            
            Exhibit
      2.1 to the Registrant’s Current Report on Form 8-K filed on June 6,
      2007
            
            000-24217
            
            6/6/073.1
            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
            
            Previously
      filed10.1
            LiveDeal,
      Inc. Amended and Restated 2003 Stock Plan*
            
            Previously
      filed10.2
            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
            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
            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
            
            12/29/0610.4.1
            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
            
            7/8/0310.4.2
            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
            
            12/29/0610.4.3
            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





71
 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
            
            12/29/0610.7
            Loan
      and Security Agreement, dated April 13, 2004, between the Registrant and
      Merrill Lynch Business Financial Services, Inc.
            
            Exhibit
      10.1 to Amendment No. 1 to the Registrant’s Quarterly Report on Form
      10-QSB for the fiscal quarter ended June 30, 2004
            
            000-24217
            
            12/29/0410.9
            Employment
      Agreement, dated September 19, 2006, between the Registrant and Daniel L.
      Coury, Sr.*
            
            Exhibit
      10.9 to the Registrant’s Annual Report on Form 10-K for the fiscal year
      ended September 30, 2006
            
            000-24217
            
            12/29/0610.10
            Employment
      Agreement, dated September 19, 2006, between the Registrant and Gary L.
      Perschbacher*
            
            Exhibit
      10.10 to the Registrant’s Annual Report on Form 10-K for the fiscal year
      ended September 30, 2006
            
            000-24217
            
            12/29/0610.11
            Wholesale
      Fulfillment Agreement, dated March 1, 2005, between Registrant and
      Fulfillment House and Company
            
            Exhibit
      10.1 to the Registrant’s Current Report on Form 8-K filed on May 4,
      2006
            
            000-2417
            
            5/4/0610.12
            Separation
      Agreement, dated November 3, 2005, between the Registrant and Peter J.
      Bergmann*
            
            Exhibit
      10.1 to the Registrant’s Quarterly Report on Form 10-Q for the fiscal
      quarter ending December 31, 2005
            
            000-24217
            
            2/14/0610.13
            Employment
      Agreement, dated February 6, 2006, between the Registrant and John
      Raven*
            
            Exhibit
      10.1 to the Registrant’s Current Report on Form 8-K
            
            000-24217
            
            2/21/0610.13.1
            First
      Amendment to Employment Agreement, dated September 19, 2006, between the
      Registrant and John Raven*
            
            Exhibit
      10.13.1 to the Registrant’s Annual Report on Form 10-K for the fiscal year
      ended September 30, 2006
            
            000-24217
            
            12/29/0610.14
            Exclusive
      Domain Name Licensing Agreement, dated July 8, 2003, between the
      Registrant and Onramp Access, Inc.
            
            Exhibit
      10.1 to the Registrant’s Current Report on Form 8-K filed on July 22,
      2003
            
            000-24217
            
            7/22/0310.15
            Stock
      Repurchase and Domain Name Transfer Agreement, dated July 21, 2006,
      between Registrant and Onramp Access, Inc.
            
            Exhibit
      10.15 to the Registrant’s Annual Report on Form 10-K for the fiscal year
      ended September 30, 2006
            
            000-24217
            
            12/29/0610.16
            Processing
      Agreement, dated August 26, 2003, between the Registrant and Integrated
      Payment Systems Inc., d/b/a First Data
            
            Exhibit
      10.2 to the Registrant’s Current Report on Form 8-K filed on October 24,
      2003
            
            000-24217
            
            10/24/03





72
 Table of Contents





10.17
            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
            
            7/8/0310.18
            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
            
            7/8/0310.19
            Escrow
      Agreement dated June 6, 2007, relating to the Registrant’s merger with
      LiveDeal, Inc.
            
            Exhibit
      10.1 to the Registrant’s Current Report on Form 8-K filed on June 6,
      2007
            
            000-24217
            
            6/6/0710.20
            Employment
      Agreement dated June 6, 2007, by and between the Registrant and Rajesh
      Navar*
            
            Exhibit
      10.2 to the Registrant’s Current Report on Form 8-K filed on June 6,
      2007
            
            000-24217
            
            6/6/0710.21
            Noncompetition,
      Nondisclosure and Nonsolicitation Agreement dated June 6, 2007, by and
      between the Registrant and Rajesh Navar*
            
            Exhibit
      10.3 to the Registrant’s Current Report on Form 8-K filed on June 6,
      2007
            
            000-24217
            
            6/6/0710.22
            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
            
            7/16/0710.23
            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
            
            7/16/0714
            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
            
            5/13/0421
            Company
      Subsidiaries
            
            Previously
      filed23.1
            Consent
      of Mayer Hoffman McCann P.C.
            
            Attached
      hereto23.2
            Consent
      of Epstein Weber and Conover
            
            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





73
 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:  May
      12, 2008
            /s/Daniel
      L. Coury, Sr.Daniel
      L. Coury, Sr.Chief
      Executive Officer





BOARD OF
DIRECTORS





Signature
            
            Title
            
            Date/s/
      Daniel L. Coury, Sr.
            
            Chief
      Executive Officer (Principal
      Executive
            
            May
      12, 2008Daniel
      L. Coury, Sr.
            
            Officer)/s/
      Gary L. Perschbacher
            
            Chief
      Financial Officer (Principal
      Financial
            
            May
      12, 2008Gary
      L. Perschbacher
            
            Officer
      and Principal Accounting Officer)/s/
      Richard D. Butler.
            
            Director
            
            May
      12, 2008Richard
      D. Butler/s/
      Thomas Clarke, Jr.
            
            Director
            
            May
      12, 2008Thomas
      Clark, Jr/s/
      Joseph F. Cunningham, Jr.
            
            Chairman
      of the Board
            
            May
      12, 2008Joseph
      F. Cunningham, Jr./s/
      John Evans.
            
            Director
            
            May
      12, 2008John
      Evans/s/
      Benjamin Milk.
            
            Director
            
            May
      12, 2008Benjamin
      Milk/s/
      Rajesh Navar
            
            President
      and Director
            
            May
      12, 2008Rajesh
      Navar






74