UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549


___________





FORM
10-K




(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, 2010





 ̈
              TRANSITION REPORT UNDER SECTION
      13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
  1934





For the
Transition period from ________ to  ____________





Commission
File Number: 001-33937





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





Registrant’s
telephone number, including area code: (702) 939-0230





Securities
registered under Section 12(b) of the Exchange Act: None





Securities
registered under Section 12(g) of the Exchange Act:





Common Stock, $.001 Par
Value


(Title of
Class)





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o No x





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o No x





Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No o





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web Site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).  Yes  ̈  No  ̈





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K o





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company.  See the definitions of “large accelerated filer”, “
accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.





Large
      accelerated filer o
            
            Accelerated
      filer oNon-accelerated
      filer o(Do
      not check if a smaller reporting company)
            
            Smaller
      reporting company x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No x





The
aggregate market value of the registrant’s common stock held by non-affiliates
computed based on the closing price of such stock on March 31, 2010 was
$3,611,352.





The
number of shares outstanding of the registrant’s common stock, as of December
17, 2010, was 613,391 shares.





DOCUMENTS
INCORPORATED BY REFERENCE





Portions
of the Proxy Statement relating to the Registrant’s 2011 Annual Meeting of
Stockholders are incorporated by reference in Part III of this Form
10-K.







LIVEDEAL,
INC.





FORM
10-K


For
the year ended September 30, 2010





TABLE
OF CONTENTS





PagePart
      IItem
      1.
                Business
                
                3Item
      1A.
                Risk
      Factors
                
                7Item
      1B.
                Unresolved
      Staff Comments
                
                15Item
      2.
                Properties
                
                15Item
      3.
                Legal
      Proceedings
                
                15Item
      4.
                (Removed
      and Reserved)
                
                16Part
      IIItem
      5.
                Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                
                17Item
      6.
                Selected
      Financial Data
                
                18Item
      7.
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                
                18Item
      7A.
                Quantitative
      and Qualitative Disclosures About Market Risk
                
                27Item
      8.
                Financial
      Statements and Supplementary Data
                
                28Report
      of Independent Registered Public Accounting Firm
                
                29Consolidated
      Financial Statements:Consolidated
      Balance Sheets at September 30, 2010 and 2009
                
                30Consolidated
      Statements of Operations for the Years Ended September 30, 2010 and
      2009
                
                31Consolidated
      Statements of Stockholders' Equity for the Years Ended September 30, 2010
      and 2009
                
                32Consolidated
      Statements of Cash Flows for the Years Ended September 30, 2010 and
      2009
                
                33Notes
      to Consolidated Financial Statements
                
                34Item
      9.
                Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure
                
                53Item
      9A.
                Controls
      and Procedures
                
                53Item
      9B.
                Other
      InformationPart
      IIIItem
      10.
                Directors,
      Executive Officers and Corporate Governance
                
                54Item
      11.
                Executive
      Compensation
                
                54Item
      12.
                Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                
                54Item
      13.
                Certain
      Relationships and Related Transactions, and Director
      Independence
                
                54Item
      14.
                Principal
      Accounting Fees and Services
                
                54Part
      IVItem
      15.
                Exhibits,
      Financial Statement Schedules
                
                54Signatures
                
                58




2


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 (i) belief that local exchange carrier, or LEC, billing will
continue to be a significant billing channel in the future; (ii) expectation of
increasing revenues through our national accounts programs, fulfillment
contracts, web hosting and other arrangements; (iii) belief in the continued
growth of Internet usage and demand for online marketing;  (iv) belief
in the growth of the local search and information market; (v) belief that
existing cash on hand and additional cash generated from operations together
with additional cash obtained from other sources will provide us with sufficient
liquidity to meet our needs for the next 12 months, such other sources of cash
possibly including stock issuances and loans; (vi) belief that we would be able
to obtain advances from our existing LEC clearing houses through their current
advance programs; (vii) belief that we could obtain other forms of financing
secured by or leveraged off our increasing accounts receivable based on existing
programs in place that are being offered to companies similar to ours; 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.  Any information contained on our website www.livedeal.com or any other
websites referenced in this Annual Report are not a part of this Annual
Report.





ITEM
1. Business





Our
Company




LiveDeal,
Inc., a Nevada corporation (the “Company”, “LiveDeal”, “we”, “us” or “our”)
provides local customer acquisition services for small businesses. LiveDeal,
through our two primary wholly-owned subsidiaries (Velocity Marketing Concepts,
Inc. and Local Marketing Experts, Inc.), offers an affordable way for businesses
to extend their marketing reach to local, relevant customers via the
Internet.




Summary
Business Description




LiveDeal
first started in the online marketing industry as YP.com. At the time, YP.com
was the first company to bring the print yellow pages to the Internet in 1994.
From there we moved into the online classifieds business when we merged with
LiveDeal in 2007.




We
believe that small businesses that can take advantage of emerging Internet
capabilities will be able to acquire customers with efficiency
never-before-possible and that those that cannot will suffer in comparison. So,
it is becoming widely recognized among small business owners that mastering the
Internet arts is essential.





But there
is a gap. These new Internet services are inherently technological. They require
a deep dedication of time, technological skills, language and presentation
expertise and other masteries that few small business operators have, or have
the intention of acquiring. We recognize that, to succeed, a small business
person needs to remain intensely focused on the fundamentals of his/her
business. Small businesses therefore need a partner with the necessary expertise
and understanding to manage emerging Internet audience acquisition services on
their behalf. They need this partner to operate quickly, proactively and at the
lowest possible cost.





To that
end, we have strategically created and delivered a suite of products and
services designed to deliver agency quality products at an affordable cost. This
new suite of products delivers high end agency products and services without the
costs typically associated with a high end, online, agency firm. The suite of
services has a variety of online products and various price points. These
products allow LiveDeal to become the small business audience acquisition
partner.




3


LiveDeal
customers are small business owners who work 24/7 to deliver real value to their
customers in their own communities with little time left over to craft the
powerful, multi-faceted, online marketing and advertising programs that today’s
world demands. LiveDeal has stepped up to this challenge, drawing from a decade
of experience as a directory provider.




Today, we
have adapted and adjusted our company goals to reflect the latest online trends
with the aim of reaching as many small and medium-sized businesses as possible.
 In March 2010 we adopted the strategy of developing successor products to
our directory business and rebuilding our customer base through mass market
sales using LEC billing channels and moving away from the higher-end direct
sales products offered through Local Marketing Experts, Inc (which focused on
search engine marketing and website creation services together with additional
add-on advertising products.).  Since July 2010, the
line of business historically known as our yellow page directory service was
rebranded and upgraded to the InstantProfile ® product and marketed under our
subsidiary Velocity Marketing Concepts, Inc.  This new product, which
is part of the InstantAgency suite of products,  provides online
subscription tools and services to broadcast information about a business to the
top (based on popularity) Internet directories, search engines results, social
media networks, and Points-of-Interest (POI) databases embedded on the leading
navigational devices. This ensures that our customers are distributed to sites
such as Google, Yahoo, Bing, Facebook, Twitter and others through our
distribution network. Additionally, customers receive a communication suite that
allows both conference call hosting and electronic fax services.  This
strategy has culminated in the cessation of all new sales under the Local
Marketing Experts, Inc. subsidiary on December 1, 2010.  Based on the
fact that sales of the InstantProfile product have exceeded our expectations, we
are focusing our efforts on increasing our sales under Velocity Marketing
Concepts, Inc. and expanding the range of products offered to the market through
this sales outlet.




Products
and Services





InstantProfile.As described
above, our Internet Advertising Product (“IAP”) package was
discontinued this year with the launch of the InstantProfile product. All IAP
customers were moved to InstantProfile to take advantage of the new product and
features.  Under this package, the advertiser pays for exposure
utilizing our InstantProfile product. The advertiser enjoys the benefit of
having its business distributed to top Internet destinations (based on
popularity), including the search engines, top directories, and social media
networks. This gives the advertiser the ability to manage its business
information in one location and maximize its reach to many locations, as a
consumer may search broadly for local business services. InstantProfile
customers also enjoy additional benefits with tools to communicate directly with
their customers and employees. The InstantProfile platform
includes:





§
            One
      location to manage business contact information through the syndication
      network to the top search engines, directories, and social media
      networks.


§
            Broadcasting
      messages to the top social media
networks.


§
            Conference
      call solution.


§
            Electronic
      faxing solution.





InstantProfile Pricing.We
generally price our InstantProfile product between $27.50 and $49.00 per month,
which includes all of the service benefits previously described. We believe that
these prices are comparable to the prices of our competitors, and we believe
that our product provides superior value to our advertisers when considering the
many benefits that they receive, including the ease of use, broad internet
distribution and communication tools.





Billing.Our billing process
allows us to deliver high levels of service to our customers through convenient
and timely billing and payment options.  We currently bill our
advertisers through (i) their local exchange carrier (“LEC”), (ii) Automated
Clearing House (“ACH”) billing, (iii) their credit card or (iv) direct bill
invoices.





Similar
to the local Regional Bell Operating Companies, we are approved to bill our
products and services directly on some of our advertisers’ local telephone bill
through their LEC, commonly referred to as their local telephone
company.  We believe that this is an efficient and cost-effective
billing method as compared to direct billing methods.





In order
to bill our advertisers through their LECs, we are required to use one or more
billing service aggregators. These aggregators have been approved by various
LECs to provide billing, collection, and related services through the LECs.
Under these agreements, our service aggregators bill and collect our charges to
our advertisers through LEC billing and remit to us the proceeds, net of fees,
bad debt reserves, customer returns, and unbillable accounts, typically within
90 days of submission.





We also
use billing service providers to process billings via recurring direct bank
account withdrawal options through ACH billings.  These service
providers process direct bank withdrawals through an Automated Clearing House
and remit the proceeds, net of fees and refunds to advertisers that cancel their
service, typically within 15 days of settlement.





Under our
contractual agreements with our LEC billing service aggregators, these third
parties are entitled to withhold certain amounts from our net proceeds to serve
as a security deposit or “holdbacks” or “reserves.”  Such amounts are
generally remitted to us over a 12-18 month period, depending on the terms of
the respective agreements.  An ACH processor maintains a fixed
security deposit as a reserve.





4


Direct Sales,nowknown asLocal Marketing Experts,
Inc.In
February 2008, we added a new line of business that utilizes, but is not
entirely dependent on, our directory websites and billing services. This line of
business is based on using telesales and sophisticated Internet audience
acquisition technologies to deliver a suite of audience acquisition services to
small businesses. This line of business became known as Local Marketing Experts,
Inc. in April 2010.  As described above, on December 1, 2010 we ceased
all new sales under this line of business to focus more of the company’s
resources and capital on expansion and further development of the InstantProfile
product and its companion products.  We will continue to support,
fulfill and maintain all customers acquired under this line of business as long
as it is economically beneficial to do so.





Local
Marketing Experts, Inc. customers signed up for a one year contract paid equally
over twelve months. Products and services ranged in price from $4,500 per year
to $10,000 a year paid via credit card in 12 monthly installments.





The
Internet Yellow Pages Advertising Market




According
to The Kelsey Group (a leading consultant in the local advertising market) it is
expected that by 2014, the U.S. local media advertising will reach $145.2
billion. Overall, the interactive advertising market is showing a strong rebound
from economic challenges.




The
Kelsey Group is forecasting that the percentage of local searches will surge
from 12.7% in 2009 to 17% in 2010. In fact, Google executives have openly
commented that they are observing 20% of searches to be local. Given the overall
search engine mix, The Kelsey Group is estimating the percentage across all U.S.
search engines to be 17%. Additionally the number of searches per person per
month will grow substantially from 90 in 2009 to 110 in 2010. ComScore tracking
shows similar per searcher results at midyear 2010, increasing overall
confidence.





§
            Total
      Local advertising spend is forecast at $133.33 billion in 2010,
      rising to $137.3 billion in 2012 and to $145.2 billion in
      2014.


§
            The
      local advertising market is currently dominated by traditional media,
      however, there is a steady increase in online spending from $19.6 billion
      in 2010 to $35.2 billion projected in
2014.


§
            By
      comparison, classifieds and verticals ended 2009 at $3.9 billion, down $1
      billion from 2008.  Classified performance last year declined
      substantially, down 30% in the second quarter, year over year, and down
      21% for the full year. Classifieds as a format continues to
      struggle.





We
believe the following factors will cause our Online Marketing Spend to
continue to grow:





§
            Online
      advertising reaches more users as search queries continue to increase as
      local newspapers, printed directories and other local printed mediums
      continue to reduce circulation (and, in turn, their impact and reach) due
      to high cost and in turn their
reach.


§
            Online
      users are becoming trained to use the Internet as a whole and not only
      their computer largely due to the broad accessibility via computers and
      hand-held devices, such as mobile phones and personal digital
      assistant.


§
            Features
      such as mapping, direct calling to the advertiser, and e-mail at the click
      of a button have become more
prevalent.





Additionally,
online advertising generally delivers trackable returns on investment.  For
every marketing dollar spent, there is the ability to access and modify displays
and advertisements, which allows for opportunistic or targeted specials or
discounts; something the consumer has been trained to expect.





Search
engines are a common method by which users navigate the Internet.  We
expect to expand our distribution network to allow our advertisers to benefit
from this growth by seeking prominent placement for them in search engine
results.





Marketing





Today, we
utilize various online marketing methods to drive users and advertisers to our
website properties. In fact, we utilize the very products and services we
offer to the small businesses to market ourselves.  These services include
our corporate and product websites, Search Engine Marketing, website videos, and
Display Advertising. In addition to online marketing, we generate leads for our
telemarketing group through industry specific trade show event participation,
referral partnerships with vertical specific trade associations, referral
bounties from existing customers and traditional list purchases.





Each
subsidiary (Local Marketing Experts, Inc and Velocity Marketing Concepts, Inc.)
has its own website, brand and overall product target message while the
LiveDeal.com corporate website defines our company story and also promotes the
overall line of products and services.





We do not
currently sell our products via e-commerce. We believe that our products and
services are best suited for the telesales process. We offer a consultative
sales process that interviews the customer regarding their needs and their
goals. We recommend products and services that are customized to achieve the
small business’ goals. We have a strategic line up of products and services that
cover an array of online needs.




5


Technology
and Infrastructure





We
believe best of breed technology partnerships enable the company to continually
evaluate and align ourselves with the best technology solutions available. In
today’s high technology world, applications and tools can be outdated in weeks
let alone months. Costs associated with technology development at the risk of
being outdated have encouraged us to research and attain the best product
available in each of our product categories.





§
            Eliminated
      homegrown systems in favor of open, best-of-breed
  solutions


-
            Lower
      cost approach


-
            No
      future development costs


-
            Better
      back-up and reliability





§
            Able
      to partner with any vendor or
platform


-
            Plug
      and play approach


-
            Greatly
      improved speed to market


-
            Increased
      flexibility





§
            We
      have gone to cloud computing options to replace and maintain outdated
      hardware





The cloud
technology we have chosen to embrace combines the power and flexibility of
infrastructure-as-a-service with the security and availability that
organizations with mission-critical computing needs demand of their
infrastructure.  Because it is based on resources, not large and
inflexible server units, cloud technology allows for precise and dynamic
allocation of computing resources when and where they are needed.





The
environment leverages technology from world-class infrastructure partners such
as VMware, Cisco, HP and IBM to achieve unmatched flexibility and control. The
clustered grid architecture provides complete physical redundancy to eliminate
downtime due to hardware failure. In fact, the system can even move applications
across physical devices live and with no service interruption. And automated
resource balancing provides continuous monitoring and optimization to ensure
peak performance.  Storage is delivered on a redundant,
high-performance Fibre-attached SAN architecture.  This allows for the
addition of disks to virtual servers in increments of 1GB to 512GB when needed
from the storage pool.





Security
in the cloud is also an issue that is addressed through the provision of a
highly secure foundation for our business applications, with an architecture
designed to help meet today’s critical compliance and certification
requirements, including SAS 70 Type II, PCIDSS and Safe Harbor.





End user
software is web-based.  The deployment of this software allows us the
maximum level of flexibility to implement strategic product and marketing
partners.  Using premier SaaS (software as a service) vendors, we are
able to deploy products and initiatives in a fast and efficient
manner.





We have
deployed sales force automation and customer relationship management software
including SalesForce.com to organize, collaborate and synchronize business
processes related to customer acquisition and support.  We use this
technology to manage all aspects of the sales and customer lifecycle including
prospect management, the sale, product provisioning and post-sale
support.





Billing
is completed through specialized subscription management software.  We
are able to automate and manage subscription billing via credit card,
checking/ACH or LEC (local exchange carrier) billing.  We are able to
bill any type of recurring subscription as well as rate usage charges giving us
full pricing and package flexibility.





Our
technology provides a strong but flexible framework for our operation that
allows us to grow and adapt with the Market.





Competition





We
operate in the highly competitive and rapidly expanding and evolving
business-to-business Internet services market. Our largest competitors are LECs,
which are generally known as local telephone companies, and national search
engines such as Yahoo! and Google that have recently expanded their presence in
the local search market. We compete with other online Yellow Pages services,
website operators, advertising networks, and traditional offline media, such as
traditional Yellow Pages directory publishers, television, radio, and print
share advertising.  Our services also compete with many directory
website production businesses and Internet information service
providers.  Our audience acquisition services compete with advertising
agencies and other businesses providing somewhat similar services.





The
principal competitive factors in 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.





6


Many of
our competitors have greater capital resources than we have.  These
capital resources could allow our competitors to engage in advertising and other
promotional activities that will enhance their brand name recognition at levels
we cannot match.  The LECs and national search engines also have
advantages in terms of brand name recognition.





We
believe that we are in a position to successfully compete in these markets due
to our experience at sourcing, selling and servicing large numbers of small
business accounts, the comprehensiveness of our database, and the effectiveness
of our marketing programs and our distribution network.  We also
believe that our products provide 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 that enable us to become a one-stop shop for all online
marketing needs of the small business regardless of the price
point.





Employees





As of
December 6, 2010, we had 23 full-time and no part-time employees in the United
States.  None of our employees are covered by any collective
bargaining agreements.





ITEM
1A. Risk Factors





An
investment in our common stock involves a substantial degree of
risk.  Before making an investment decision, you should give careful
consideration to the following risk factors in addition to the other information
contained in this report.  The following risk factors, however, may
not reflect all of the risks associated with our business or an investment in
our common stock. The trading price of our common stock could decline
significantly due to any of these risks and investors may lose all or part of
their investments. In assessing these risks, investors should also refer to the
other information contained or incorporated by reference in this Annual Report
on Form 10-K, including our consolidated financial statements for the
fiscal year that ended on September 30, 2010 and related notes.





Risks
Related to Our Business





Uncertainty
in the market for our products and services.





The
demand and market acceptance for our services may be subject to a high level of
uncertainty.   Advertisers and users may not adopt or continue to
use our Internet-base marketing services and other online services that we may
offer in the future.  Advertisers may find our Internet-based
marketing services to be less effective for meeting their business needs than
other methods of advertising and marketing.  Our business, prospects,
financial condition or results of operations will be materially and adversely
affected if we do not execute our strategy or our services are not adopted by a
sufficient number of advertisers.





We
will incur operating losses and significant volatility in operations while we
develop our new business segment.




During
the fiscal year ended September 30, 2010, we incurred substantial operating
losses as we transitioned our business toward our new strategic
focus.  We will continue to incur operating losses as we develop our
new business segment, which will be financed through existing cash on
hand.  While we believe our existing cash on hand, together with
additional cash generated from operations or obtained from other sources, such
other sources of cash possibly including stock issuances, loans
and advances from our existing LEC clearing houses through their current
advance programs or other forms of financing secured by or leveraged off our
increasing accounts receivable based on existing programs in place that are
being offered to companies similar to ours; is sufficient to finance our
operations for the next twelve months, there can be no assurance that we will
achieve profitability or positive operating cash flows.  To the extent
that we cannot achieve profitability or positive operating cash flows, our
business will be materially and adversely affected. Further, this new business
segment is likely to experience significant volatility in its revenues,
operating losses, personnel involved, products or services for sale, and other
business parameters, as management implements its strategies and responds to
operating results from this new business segment.





We
have sold a significant portion of our assets and customer list associated with
our directory services business.





During
fiscal 2009, as part of our changing business strategy, we sold our primary URL,
www.yp.com, as
well as a portion of our customer list.  Further, certain fulfillment
contracts were terminated during the fiscal year 2009. These transactions will
continue to result in a significant loss of future revenue which could adversely
impact our financial condition and results of operations.





As a
result of the cessation of billing of the accounts subject to these sales or
terminations of billing contracts during the fiscal year 2009, the reserves held
by the LEC processors, and carried by us as accounts receivable, are no longer
increasing as a result of continued billing for services provided to directory
business customers. Further, the LEC processors continue to deduct their
expenses from these reserves. We have made reasonable estimates of these
potential expenses over the expected period of collection of these reserve
amounts held-back by the LEC processors. However, it is possible that the actual
expenses billed by the LEC processors in the future could vary significantly
from the estimates made by the Company, thereby affecting the amounts
collectible from the booked accounts receivable.





7


The
discontinuance of our classifieds and Direct Sales businesses could adversely
impact our financial condition.





In fiscal
year 2009 we made the strategic decision to discontinue our classifieds business
and product offerings which have historically generated a majority of our
revenues and in December 2010 we made the strategic decision to discontinue our
Direct Sales business.  These discontinuances will continue to reduce
our revenues that were generated from these product lines, particularly with
respect to those customers who sought an integrated Yellow Pages and classifieds
product.





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





Search
engine optimization and online marketing services are emerging fields with
a considerable amount of competitors in each field.  Additionally,
major Internet companies, including Google, Microsoft, Verizon, and Yahoo!,
currently market Internet Yellow Pages, local search services and other
products that directly compete with our legacy business as well as our new
product offerings.  We may not compete effectively with existing and
potential competitors for several reasons, including the following:





§
            some competitors have longer
      operating histories and greater financial and other resources than we have
      and are in better financial condition than we
  are;





§
            some competitors have better name
      recognition, as well as larger, more established, and more extensive
      marketing, customer service, and customer support capabilities than we
      have;





§
            some competitors may supply a
      broader range of services, enabling them to serve more or all of their
      customers’ needs;





§
            some competitors may be able to
      better adapt to changing market conditions and customer demand;
      and





§
            barriers to entry are not
      significant.  As a result, other companies that are not
      currently involved in the online marketing business may enter the market
      or develop technology that reduces the need for our
      services.





Increased
competitive pressure could lead to reduced market share, as well as lower prices
and reduced margins, for our services.  If we experience reductions in
our revenue for any reason, our margins may continue to decline, which would
adversely affect our results of operations.  We cannot assure you that
we will be able to compete successfully in the future.





Our
success depends upon our ability to establish and maintain relationships with
our advertisers.





Our
ability to generate revenue depends upon our ability to maintain relationships
with our existing advertisers, to attract new advertisers to sign up for
revenue-generating services, and to generate traffic to our advertisers’
websites.  We primarily use telemarketing efforts to attract new
advertisers.  These telemarketing efforts may not produce
satisfactory results in the future.  We attempt to maintain
relationships with our advertisers through customer service and delivery of
traffic to their businesses.  An inability to either attract
additional advertisers to use our service or to maintain relationships with our
advertisers could have a material adverse effect on our business, prospects,
financial condition, and results of operations.





If
we do not introduce new or enhanced offerings to our advertisers and users, we
may be unable to attract and retain those advertisers and users, which would
significantly impede our ability to generate revenue.





We will
need to introduce new or enhanced products and services in order to attract and
retain advertisers and users and to remain competitive.  Our industry
has been characterized by rapid technological change, changes in advertiser and
user requirements and preferences, and frequent new product and service
introductions embodying new technologies.  These changes could render
our technology, systems, and website obsolete.  We may experience
difficulties that could delay or prevent us from introducing new products and
services.  If we do not periodically enhance our existing products and
services, develop new technologies that address our advertisers’ and users’
needs and preferences, or respond to emerging technological advances and
industry standards and practices on a timely and cost-effective basis, our
products and services may not be attractive to advertisers and users, which
would significantly impede our revenue growth. In addition, our reputation and
our brand could be damaged if any new product or service introduction is not
favorably received.





Our
results of operations could fluctuate due to factors outside of our
control.





Our
operating results have historically fluctuated significantly, and we have
experienced recent declines in net revenues and operating profits.  We
could continue to experience fluctuations or continued declining operating
results due to factors that may or may not be within our
control.  Such factors include the following:




8




§
            fluctuating demand for our
      services, which may depend on a number of factors including:




-
            changes in economic conditions
      and our advertisers’
profitability,





-
            advertiser refunds or
      cancellations, and





-
            our ability to continue to bill
      through existing means;




§
            market acceptance of new or
      enhanced versions of our services or
  products;





§
            price competition or pricing
      changes by us or our
competitors;





§
            new product offerings or other
      actions by our competitors;





§
            the ability of our check
      processing service providers to continue to process and provide billing
      information regarding our solicitation
  checks;





§
            the amount and timing of
      expenditures for expansion of our operations, including the hiring of new
      employees, capital expenditures, and related
  costs;





§
            technical difficulties or
      failures affecting our systems or the Internet in
      general;





§
            a decline in Internet traffic at
      our website; and





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




The
loss of our ability to bill advertisers through our ACH billing channel would
adversely impact our results of operations.





We bill a
significant number of our Directory Services advertisers through our ACH billing
channel.  ACH transactions are closely regulated by NACHA – The
Electronic Payments Association, which develops operating rules and business
practices for the ACH network and for electronic payments in the areas of
Internet commerce and other electronic payment means.  Changes in
these rules and business practices could compromise our ability to bill a
significant number of our advertisers through ACH billing, and we would have to
transition these advertisers to other billing channels.  Such changes
would be disruptive and result in lost revenue.





We depend upon our executive officers
and key personnel.





Our
performance depends substantially on the performance of our executive officers
and other key personnel.  The success of our business in the future
will depend on our ability to attract, train, retain, and motivate high quality
personnel, especially highly qualified technical and managerial
personnel.  The loss of services of any executive officers or key
personnel could have a material adverse effect on our business, results of
operations or financial condition.





Competition
for talented personnel is intense, and there is no assurance that we will be
able to continue to attract, train, retain or motivate other highly qualified
technical and managerial personnel in the future.  In addition, market
conditions may require us to pay higher compensation to qualified management and
technical personnel than we currently anticipate.  Any inability to
attract and retain qualified management and technical personnel in the future
could have a material adverse effect on our business, prospects, financial
condition, and results of operations.





We
depend upon third parties to provide certain services and software, and our
business may suffer if the relationships upon which we depend fail to produce
the expected benefits or are terminated.





We depend
upon third-party software to operate certain of our services.  The
failure of this software to perform as expected would have a material adverse
effect on our business.  Additionally, although we believe that
several alternative sources for this software are available, any failure to
obtain and maintain the rights to use such software would have a material
adverse effect on our business, prospects, financial condition, and results of
operations.  We also depend upon third parties to provide services
that allow us to connect to the Internet with sufficient capacity and bandwidth
so that our business can function properly and our websites can handle current
and anticipated traffic.  Any restrictions or interruption in our
connection to the Internet would have a material adverse effect on our business,
prospects, financial condition, and results of operations.





9


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, 2010, together
with cash flows from operations or obtained from other sources, such other
sources of cash possibly including stock issuances, loans and advances from
our existing LEC clearing houses through their current advance programs or other
forms of financing secured by or leveraged off our increasing accounts
receivable based on existing programs in place that are being offered to
companies similar to ours 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.





Our business is subject to a strict
regulatory environment.





Existing
laws and regulations and any future regulation may have a material adverse
effect on our business.  For example, we believe that our direct
marketing programs meet existing requirements of the United States Federal Trade
Commission (“FTC”).  Any changes to FTC requirements or changes in our
direct or other marketing practices, however, could result in our marketing
practices failing to comply with FTC regulations.





On
December 14, 2006, we voluntarily entered into a settlement with thirty-four
states’ attorneys general to address their concerns regarding our promotional
activities, including the use of our check mailer for customer
acquisition.




There can
be no absolute assurance that the other states or other parties, which were not
part of the above-mentioned state consortium, would not attempt to file similar
claims against us in the future.  However, we believe this risk is
somewhat mitigated by the fact that those states did not join the states in
filing complaints against us and the fact that we are discontinuing the use of
our check activators.  Finally, our utilization of ACH billing has
exposed us to greater scrutiny by the National Automated Clearing House
Association, or NACHA.  Future actions from these and other regulatory
agencies could expose us to substantial liability in the future, including fines
and criminal penalties, preclusion from offering certain products or services,
and the prevention or limitation of certain marketing practices.





We
may not be able to adequately protect our intellectual property
rights.





Our
success depends both on our internally developed technology and our third party
technology. We rely on a variety of trademarks, service marks, and designs to
promote our brand names and identity.  We also rely on a combination
of contractual provisions, confidentiality procedures, and trademark, copyright,
trade secrecy, unfair competition, and other intellectual property laws to
protect the proprietary aspects of our products and services.  Legal
standards relating to the validity, enforceability, and scope of the protection
of certain intellectual property rights in Internet-related industries are
uncertain and still evolving. The steps we take to protect our intellectual
property rights may not be adequate to protect our intellectual property and may
not prevent our competitors from gaining access to our intellectual property and
proprietary information.  In addition, we cannot provide assurance
that courts will always uphold our intellectual property rights or enforce the
contractual arrangements that we have entered into to protect our proprietary
technology.





Third
parties may infringe or misappropriate our copyrights, trademarks, service
marks, trade dress, and other proprietary rights.  Any such
infringement or misappropriation could have a material adverse effect on our
business, prospects, financial condition, and results of
operations.  In addition, the relationship between regulations
governing domain names and laws protecting trademarks and similar proprietary
rights is unclear.  We may be unable to prevent third parties from
acquiring domain names that are similar to, infringe upon or otherwise decrease
the value of our trademarks and other proprietary rights, which may result in
the dilution of the brand identity of our services.





10


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 advertiser support
capabilities.





Our
ability to provide high-quality services largely depends upon the efficient and
uninterrupted operation of our computer and communications
systems.  We may be required to expand our technology, infrastructure,
and customer support capabilities in order to accommodate any significant
growth in customers.  We may not be able to project accurately
the rate or timing of increases, if any, in the use of our services or expand
and upgrade our systems and infrastructure to accommodate these increases in a
timely manner.  Our inability to upgrade and expand our infrastructure
and customer support capabilities as required could impair the reputation of our
brand and our services and diminish the attractiveness of our service offerings
to our advertisers.





Any
expansion of our infrastructure may require us to make significant upfront
expenditures for servers, routers, computer equipment, and additional Internet
and intranet equipment, as well as to increase bandwidth for Internet
connectivity.  Any such expansion or enhancement will need to be
completed and integrated without system disruptions.  An inability to
expand our infrastructure or customer service capabilities either internally or
through third parties, if and when necessary, would materially and adversely
affect our business, prospects, financial condition, and results of
operations.




Current
economic conditions may adversely affect our industry, business and results of
operations.





The U.S.
and global economy is currently undergoing a gradual and extended recovery from
a prolonged recession and a period of unprecedented volatility.  It is
unclear how prolonged this recovery will be and how it will affect our industry
in particular. Many believe that the general future economic environment may
continue to be less favorable than that of recent years.  If the
challenging economic conditions in the U.S. and other key countries persist or
worsen, our customers may delay or reduce spending.  This could result
in reductions in sales of our products and services, longer sales cycles and
increased price competition.  Any of these events would likely harm
our business, results of operations and financial condition.




We
may have an adverse resolution of litigation that may harm our operating results
or financial condition.





At times,
we are a party to lawsuits in the normal course of our business. 
Litigation can be expensive, lengthy, and disruptive to normal business
operations.  Moreover, the results of complex legal proceedings are
difficult to predict. An unfavorable resolution of a particular lawsuit could
have a material adverse effect on our business, operating results, or financial
condition.




We
have made strategic acquisitions and divestitures in the past few years and may
complete similar transactions in the future and cannot assure you that any
future transactions will be successful.





We
regularly look for opportunities to support our new business strategy through
appropriate acquisitions, divestitures and/or strategic
alliances.  There can be no assurance that we will be successful in
identifying appropriate transaction partners or integrating the results of any
such transactions in a way that ultimately supports our business
strategy.  Any such transactions could also involve the dilutive
issuance of equity securities and/or the incurrence of debt.  In
addition, future strategic transactions may involve numerous other risks,
including but not limited to:





§
            exposure
      to unanticipated liabilities of an acquired company (or acquired
      assets);





§
            the
      potential loss of key customers or key personnel in connection with, or as
      the result of, a transaction;




11




§
            the
      recording of goodwill and intangible assets that will be subject to
      impairment testing on a regular basis and potential periodic impairment
      charges;





§
            the
      diversion of the attention of our management team from other business
      concerns, including the day-to-day management of our Company and/or the
      internal growth strategies that they are currently implementing;
      and





§
            the
      risk of entering into markets or producing products where we have limited
      or no experience, including the integration of the purchased technologies
      and products with our technologies and
products.





Risks
Related to the Internet





We
may not be able to adapt as the Internet and advertiser demands continue to
evolve.





Our
failure to respond in a timely manner to changing market conditions or client
requirements could have a material adverse effect on our business, prospects,
financial condition, and results of operations. The Internet, e-commerce, and
the online marketing 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
      advertisers;





§
            license, develop or acquire
      technologies useful in our business on a timely basis;
      and





§
            respond to technological advances
      and emerging industry standards and practices on a cost-effective and
      timely basis.




We
may be required to keep pace with rapid technological change in the Internet
industry.





In order
to remain competitive, we will be required continually to enhance and improve
the functionality and features of our existing services, which could require us
to invest significant capital.  If our competitors introduce new
products and services embodying new technologies, or if new industry standards
and practices emerge, our existing services, technologies, and systems may
become obsolete.  We may not have the funds or technical know-how to
upgrade our services, technology, and systems.  If we face material
delays in introducing new services, products, and enhancements, our advertisers
and users may forego the use of our services and select those of our
competitors, in which event our business, prospects, financial condition, and
results of operations could be materially and adversely affected.





Regulation
of the Internet may adversely affect our business.





Due to
the increasing popularity and use of the Internet and online services such as
online Yellow Pages, federal, state, local, and foreign governments may
adopt laws and regulations, or amend existing laws and regulations, with respect
to the Internet and other online services.  These laws and regulations
may affect issues such as user privacy, pricing, content, taxation, copyrights,
distribution, and quality of products and services.  The laws
governing the Internet remain largely unsettled, even in areas where legislation
has been enacted.  It may take years to determine whether and how
existing laws, such as those governing intellectual property, privacy, libel,
and taxation apply to the Internet and Internet advertising and directory
services. In addition, the growth and development of the market for electronic
commerce may prompt calls for more stringent consumer protection laws, both in
the United States and abroad, that may impose additional burdens on companies
conducting business over the Internet.  Any new legislation could
hinder the growth in use of the Internet generally or in our industry and could
impose additional burdens on companies conducting business online, which could,
in turn, decrease the demand for our services, increase our cost of doing
business, or otherwise have a material adverse effect on our business,
prospects, financial condition, and results of operations.





12


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 advertisers for an indeterminate
length of time.  The occurrence of any or all of these events could
materially and adversely affect our business, prospects, financial condition,
and results of operations.





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





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





Risks
Related to Our Securities





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




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




§
            decreased demand in the Internet
      services sector;




§
            variations in our operating
      results;




13




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





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





§
            the authority of our board to
      issue up to5,000,000shares of preferred stock
      and to determine the price, rights, preferences, and privileges of these
      shares, without stockholder
approval;




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




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





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




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




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





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





14


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





NASDAQ
Listing Rules require us to maintain a closing bid price of $1.00 per share for
our common stock.  In the event that our common stock closing bid
price falls below $1.00 per share for 30 consecutive business days, we would
likely receive notice from NASDAQ that we are not in compliance with Listing
Rules, which could ultimately lead to the delisting of our common stock from
NASDAQ if we were unable to maintain the requisite minimum stock price during
the subsequent probationary period.  In the event that we were
delisted from NASDAQ, our common stock would become significantly less liquid,
which would adversely affect its value.  Although our common stock
would likely be traded over-the-counter or on pink sheets, these types of
listings involve more risk and trade less frequently and in smaller volumes than
securities traded on NASDAQ.  On April 8, 2010, LiveDeal received a
letter from NASDAQ’s Listing Qualifications Department informing the Company of
its failure to comply with NASDAQ’s minimum bid price requirement.  At
the time, the Company was given a 180-day grace period (until October 5, 2010)
to regain compliance, during which time the Company’s common stock continued to
be traded on the NASDAQ Capital Market.  Effective on September 7,
2010, LiveDeal implemented a 1-for-10 reverse stock split as a strategy to
increase its minimum bid price and regain compliance with NASDAQ
rules.  On September 21, 2010, the Company received a letter from
NASDAQ confirming that it had regained compliance with the applicable rules, and
that the matter was closed.  There can be no assurance, however, that
we will maintain compliance with applicable NASDAQ listing rules in the future,
or that our common stock will continue to be traded on the NASDAQ Capital Market
(or any other securities exchange or market).





ITEM
1B. Unresolved Staff Comments





Not
applicable.





ITEM
2. Properties





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





We also
have a long-term lease for a 16,772 square foot facility in Mesa, Arizona that
was formerly used to house our corporate headquarters.  We pay rent of
approximately $120,000 annually under this lease, which expires in June
2011.  Although we are no longer utilizing this space for our operations,
we are responsible for the remaining lease payments and our accounting treatment
with respect to the lease has not changed.





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





ITEM
3. Legal Proceedings





Except as
described below, as of September 30, 2010, we were not a party to any
pending material legal proceedings other than claims that arise in the
normal conduct of our business. While we currently believe that the
ultimate outcome of these proceedings will not have a material adverse
effect on our consolidated financial condition or results of operations,
litigation is subject to inherent uncertainties. If an unfavorable ruling
were to occur, there exists the possibility of a material adverse impact on
our net income in the period in which a ruling occurs. Our estimate of the
potential impact of the following legal proceedings on our financial
position and our results of operation could change in the
future.





Joe
Cunningham v. LiveDeal, Inc. et al.





On July
16, 2008, Joseph Cunningham, who was at the time a member of LiveDeal’s Board of
Directors, filed a complaint with the U.S. Department of Labor's Occupational
Safety and Health Administration (“OSHA”) alleging that the Company and certain
members of its Board of Directors had engaged in discriminatory employment
practices in violation of the Sarbanes-Oxley Act of 2002’s statutory protections
for corporate whistleblowers when the Board of Directors removed him as Chairman
on May 22, 2008.  In his complaint, Mr. Cunningham asked OSHA to order
his appointment as Chief Executive Officer of the Company or, in the
alternative, to order his reinstatement as Chairman of the Board.  Mr.
Cunningham also sought back pay, special damages and litigation
costs.




On July
16, 2010, Mr. Cunningham attempted to amend his OSHA complaint to include an
additional adverse action allegation.  On September 20, 2010, OSHA issued a
letter informing Mr. Cunningham that as a former board member and alleged
prospective interim CEO, he is not considered an “employee” under the
relevant statute, which is a required element for his claims.  Accordingly,
OSHA dismissed Mr. Cunningham’s complaint.




On
October 20, 2010, Mr. Cunningham filed objections to OSHA’s findings.  Mr.
Cunningham's appeal of OSHA’s ruling is currently pending.




15


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





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





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





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





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





On June
6, 2008, Global Education Services, Inc. ("GES") filed a consumer fraud class
action lawsuit against the Company in King County (Washington) Superior Court.
GES has alleged in its complaint that the Company's use of activator checks
violated the Washington Consumer Protection Act.  GES seeks
injunctive relief against the Company'suse of the checks, as
well as judgment in an amount equal to three times the alleged damages sustained
by GES and the members of the class. LiveDeal has denied the
allegations.  Early in 2010, the Court denied both parties’
dispositive motions after oral argument.   Active litigation is
temporarily suspended and the parties are engaged in settlement
discussions.





Complaint
filed by Illinois Attorney General against LiveDeal, Inc.





As the
Company has previously disclosed, on November 12, 2008, the Illinois Attorney
General filed a complaint in the Court against the Company requesting money
damages and injunctive relief for claims that the Company
employed deceptive and unfair acts and practices in violation of the
Illinois Consumer Fraud and Deceptive Business Act in a telemarketing
campaign that in part promoted premium Internet yellow page listings to
Illinois consumers.  The Company denied the allegations, and the Court
subsequently denied both parties’ dispositive motions.





On
September 2, 2010, a Final Judgment and Consent Decree (the “Consent Decree”)
providing for the settlement of the Company’s ongoing litigation with the
Illinois Attorney General was filed by the Circuit Court of the Seventh Judicial
Circuit of the State of Illinois (Sangamon County).  The Consent
Decree was previously executed by the Company and the Illinois Attorney
General.





As set
forth in the Consent Decree, the terms of the settlement required the Company to
make a $10,000 contribution to the Illinois Attorney General Court Ordered and
Voluntary Compliance Payment Projects Fund for Consumer Enforcement and
Education.  Illinois consumers who entered into an Internet yellow
pages contract on or after January 1, 2007, and who have not already cancelled
such listing and received a full refund, were are also entitled to a full refund
from the Company (provided that they did not actually and knowingly agree to
purchase the Company’s Internet yellow page listings).  Consumers
needed to provide written notice of their demand for a refund within 60 days
after the entry of the Consent Decree, and the Company had up to 120 days after
the date of the Consent Decree to challenge any consumer’s right to a
refund.  No consumers submitted a claim during the claim
period.





Among
other things, the Consent Decree restricts the Company from soliciting, billing,
or knowingly causing Illinois consumers to be billed for Internet yellow page
listings for a period of five years.





ITEM
4. (Removed and Reserved)





16


PART
II





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





Our
Common Stock





Our
common stock is traded on the NASDAQ Capital Market under the symbol
“LIVE”.





The
following table sets forth the quarterly high and low sale prices per share of
our common stock during the last two fiscal years.   All prices
have been adjusted to reflect the reverse stock split that was completed on
September 7, 2010.




Quarter Ended
                    
                    High
                    
                    
                    Low2009
                    December
      31, 2008
                    
                    $
                    20.00
                    
                    
                    $
                    10.20March
      31, 2009
                    
                    $
                    22.00
                    
                    
                    $
                    12.40June
      30, 2009
                    
                    $
                    21.00
                    
                    
                    $
                    10.00September
      30, 2009
                    
                    $
                    17.00
                    
                    
                    $
                    10.102010
                    December
      31, 2009
                    
                    $
                    23.80
                    
                    
                    $
                    11.70March
      31, 2010
                    
                    $
                    17.00
                    
                    
                    $
                    5.50June
      30, 2010
                    
                    $
                    8.40
                    
                    
                    $
                    5.00September
      30, 2010
                    
                    $
                    7.41
                    
                    
                    $
                    3.30





Holders
of Record





On
December 1, 2010, there were approximately 181 holders of record of our common
stock according to our transfer agent. The Company has no record of the number
of stockholders who hold their stock in “street name” with various
brokers.





Dividend
Policy





We have
one class of authorized preferred stock (Series E Preferred Stock), of which
there are currently 127,840 shares issued and outstanding.  Each share
of Series E Preferred Stock is entitled to and receives a dividend of $0.015 per
year.  At September 30, 2010, we had accrued but unpaid dividends
totaling approximately $10,100.




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




During
the year ended September 30, 2009, the Company’s existing repurchase plan which
authorized repurchases of up to $1,000,000 of common stock from time to time on
the open market was increased by another $500,000, and the Company acquired an
aggregate of 34,611 shares of its common stock at market prices at an aggregate
cost of $532,521.





During
the year ended September 30, 2010, the Company acquired an aggregate of 1,341
shares of its common stock at market prices at an aggregate cost of
$25,882.  At September 30, 2010 the Company had retired all but 4,252
shares of treasury stock.





Securities
Authorized for Issuance Under Equity Compensation Plans





Reference
is made to Note 12 of the notes to our consolidated financial statements for
certain disclosures about the Company’s equity compensation
plans.


17




Performance
Graph





Compare
5-Year Cumulative Total Return


Among
LiveDeal, Inc., Wilshire 5000 Index


And
Dow Jones Internet Index










Assumes
$100 Invested on September 30, 2005


Assumes
Dividends, if any, Reinvested


Fiscal
Year Ended September 30, 2010




9/30/2005
                    
                    
                    9/30/2006
                    
                    
                    9/30/2007
                    
                    
                    9/30/2008
                    
                    
                    9/30/2009
                    
                    
                    9/30/2010LiveDeal,
      Inc.
                    
                    $
                    100.00
                    
                    
                    $
                    103.53
                    
                    
                    $
                    75.20
                    
                    
                    $
                    17.06
                    
                    
                    $
                    18.20
                    
                    
                    $
                    5.62Wilshire
      5000 Index
                    
                    $
                    100.00
                    
                    
                    $
                    108.60
                    
                    
                    $
                    125.00
                    
                    
                    $
                    96.63
                    
                    
                    $
                    88.79
                    
                    
                    $
                    97.82Dow
      Jones Internet  Services Index
                    
                    $
                    100.00
                    
                    
                    $
                    123.32
                    
                    
                    $
                    144.75
                    
                    
                    $
                    119.86
                    
                    
                    $
                    137.08
                    
                    
                    $
                    188.55




ITEM
6. Selected Financial Data





Not
required for smaller reporting companies.





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





For a
description of our significant accounting policies and an understanding of the
significant factors that influenced our performance during the fiscal year ended
September 30, 2010, 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, together with
additional cash generated from operations or obtained from other sources, such
other sources of cash possibly including stock issuances, loans and advances
from our existing LEC clearing houses through their current advance programs or
other forms of financing secured by or leveraged off our increasing accounts
receivable based on existing programs in place that are being offered to
companies similar to ours; will provide us with sufficient liquidity to meet our
operating needs for the next 12 months.





18


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.





Executive
Overview





Our
Company




LiveDeal,
Inc. provides local customer acquisition services for small businesses.
LiveDeal, through our two primary wholly-owned subsidiaries (Velocity Marketing
Concepts, Inc. and Local Marketing Experts, Inc.), offers an affordable way for
businesses to extend their marketing reach to local, relevant customers via the
Internet.




LiveDeal
first started in the online marketing industry as YP.com. At the time, we were
the first company to bring the print yellow pages to the Internet in 1994. From
there we moved into the online classifieds business when we merged with LiveDeal
in 2007.




Today, we
have adapted and adjusted our company goals to reflect the latest online trends
through the launch of our InstantProfile product through Velocity Marketing
Concepts, Inc. and its companion products.




LiveDeal
uses the latest technologies to deliver best-in-breed online marketing solutions
to our small business customers.  We have online advertising solutions
to help small businesses grow their company and realize online
success.




Summary
Business Description





LiveDeal
delivers affordable acquisition services to the small business segment through
the InstantAgency Suite of products and services. These products are currently
sold through two wholly owned subsidiaries that target complimentary aspects of
the small business market.





The
InstantAgency® products include:





InstantProfile
distributes a small business’ key contact and service information to the top
Internet destinations (based on popularity), including the search engines,
internet directories, and social media networks. This gives the advertiser the
ability to manage their business information in one location and maximize their
reach to the many destinations a consumer may search for local business
services.





InstantProfile’s
social media platform, InstantBUZZ, not only creates a presence for the
advertiser in select social media networks, it also allows them to use one
location to broadcast their messages across their entire social media network.
By leveraging this automation the advertiser eliminates the need to manage
multiple logins for individual websites and duplicate submissions and decreases
the time required to broadcast their messages from hours to one click of a
button.





Additionally,
advertisers with InstantProfile also enjoy a suite of communication tools that
assist them in communicating directly with their customers and employees. These
communication tools include a conferencing solution to host conference calls
with up to 10 participants and an online electronic fax solution with unlimited
faxes included.




The key
attribute the InstantAgency® products and services all have in common is high
value, low cost marketing options that service the many needs of the small
business customer. The suite of products and services were strategically chosen
the service entry level products and services that can grow with the small
business as it continues to grow. For those starting with the more customized
products and services, InstantAgency® can continue to drive more online
visitors, callers and in turn customers based on the customer
budget.  Our strategic advantage is the ability to service the small
business customer regardless of their budget or online knowledge.





Recent
Events & Transactions





Financial
Performance





We have
embarked on a significant change in business strategy to re-emphasize our legacy
business (directory services offering) and update it to meet current market
requirements and move ahead of our competitors in this market
segment.  As a result, we have continued to experience a decline
in revenues and gross profit over the last several quarters, but have also
reduced our ongoing costs and expenses and reduced ongoing losses. While we have
yet to achieve sufficient sales in our new InstantProfile business to allow us
to achieve operating profitability, we began to achieve growth in revenues in
this business segment during fiscal 2010 with sales officially launching in July
2010.





19


Change in Business
Strategy




In and
around March 2010, we evaluated our business and adopted a new business strategy
that addressed each of our business segments as separate entities and
re-launched and restructured our legacy line of business. This evaluation was
necessitated by the challenges facing our Direct Sales - Customer Acquisition
Services business lines that provide Internet-based customer acquisition
strategies for small business, as well as declining revenues from our
traditional business line (i.e. directory services).  Additionally,
current economic and regulatory forces, both general and specific to our
industry, impacted our consideration of our existing business model and
strategy.  Some of these factors include the following:




§
            The
      current effects of the recovery from the recent recession and general
      economic downturn;


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


§
            The
      reconstitution of our management
team;


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


§
            Continuing
      losses in our Direct Sales
business.




As a
result, we made significant changes to our business strategy during the second
quarter of fiscal 2010.  We decided to move our strategic focus
towards our directory services business and bring it up to current market
standards and regulatory requirements and away from our Direct Sales business
line.   This strategy culminated in the termination of all new
sales under the Direct Sales business line on December 1, 2010.




Our new
strategic focus is on delivering a suite of Internet-based, local search driven,
customer acquisition services for small businesses, sold via telemarketing using
LEC billing channels and targeting all segments of the SMB market through our
Velocity Marketing Concepts, Inc. subsidiary.





Management
Changes





On
November 23, 2009, we and Richard F. Sommer, our then-current Chief Executive
Officer, entered into an amendment to Mr. Sommer's Employment Agreement dated as
of May 19, 2009.  This amendment, provided that Mr. Sommer is entitled
to an option to purchase 250,000 shares of our common stock at an exercise price
of $1.95 per share, which was equal to the closing price of our common stock on
the date of grant.  The option was granted pursuant to our 2003 Stock
Plan and was scheduled to vest according to the following schedule: 25% on
October 29, 2010 (the first anniversary of the date of grant) and 1/36 of the
remainder each month beginning on November 29, 2010.





Previously,
the Employment Agreement provided that Mr. Sommer was entitled to a success fee
payable in cash equal to 2% of the excess above $9,000,000 of any cash
distributed to or received by our stockholders in the form of a dividend, in the
event of liquidation or upon a change of control.  Pursuant to this
amendment, that provision was deleted and replaced with the option grant
described above.  Other than as described above, the original terms of
Mr. Sommer’s Employment Agreement remained in full force and
effect.





Effective
January 2, 2010, Rajeev Seshadri resigned as our Chief Financial Officer and was
replaced by Lawrence W. Tomsic.  Mr. Tomsic recently served as
Controller for Alliance Residential Company, an apartment complex with 3,221
units and $90 million in annual sales.  Previously, he was a
Controller and Chief Financial Officer for various clients of JKL Consulting
(including a planned unit development and a concrete contractor) from 2006-2008
and Chief Financial Officer of John R. Wood, Inc. (a real estate brokerage
focusing on luxury residential housing and commercial properties) from
1997-2006.  Mr. Tomsic worked as a financial officer and in other
management positions for various companies (including U.S. Home Corporation and
Collier Enterprises) from 1983-1997.  He was also a senior auditor for
Deloitte & Touche for three years.  Mr. Tomsic holds a B.S. in
Accounting from the University of Delaware and an M.B.A. from the University of
Denver.




On January 4,
2010,  RichardSommer resigned as our Chief Executive Officer.  As a result of his
departure, Mr. Sommer also resigned as a member of our Board of
Directors.  Following Mr. Sommer’s departure, Kevin A. Hall was
appointed asourinterim Chief
Operating Officer
(COO).  Mr. Hall hadbeen serving as our General Counsel
and Vice President of Human Resources and Business Developmentsince April 2009.Prior to that time, Mr. Hall was a
partner in the San Francisco, California and New York, New York offices of Reed
Smith LLP, an international law firm with more than 1,500 attorneys worldwide,
from 2006 until 2008. Previously, he was a senior associate and later a partner
in the New York, New York office of Linklaters, a London-based global law firm,
from 1998 until 2006. Mr. Hall, who is admitted to practice law in California
and New York, specializes in general corporate law, finance, structured finance,
and other complex commercial and financial transactions (including mergers and
acquisitions). He holds a B.A. in History and French Literature from Columbia
College, a Master's Degree in International Affairs from Columbia University,
and a law degree from Cornell School of Law.




20


On May
20, 2010, the Board of Directors of LiveDeal appointed Kevin A. Hall as
President and Chief Operating Officer of the Company.





Restructuring
Activities




On
January 4, 2010, our Board of Directors approved a reduction in force that
resulted in the termination of approximately 33% of the Company's workforce,
effective January 7, 2010.  On February 23, 2010, our Board of
Directors approved an additional reduction in force that resulted in the
termination of approximately 20% of our workforce, effective March 4,
2010.  These reductions in force were related to our ongoing
restructuring and cost reduction efforts as the Board of Directors explores a
variety of strategic alternatives, including the potential sale of the Company
or certain of its assets and/or the acquisition of other entities or
businesses.




We
incurred charges of $143,000 in connection with the reductions in force,
consisting of one-time employee termination benefits.  All amounts
were paid as of June 30, 2010.





On
November 30, 2010, our Board of Directors approved a reduction in force that
resulted in the termination of 36 employees of the Company, or approximately 60%
of the Company’s workforce, effective December 1, 2010.   The
reduction in force was related to the Company’s ongoing restructuring and cost
reduction efforts and strategy of focusing its resources on the development and
expansion of its core InstantProfile product, the successor to the Company’s
LEC-billed directory product.  All terminated employees were involved
in the marketing and sale of the Company’s InstantPromote product by its
subsidiary, Local Marketing Experts, Inc.  There was also a reduction
of 14 additional people due to natural attrition.





We
incurred expenses of $99,319 in connection with the reduction in force, of which
$37,500 was incurred for one-time employee termination benefits payable in
cash.  The remaining expenses relate to salaries and wages payable in
cash to the affected employees.  Substantially all of these charges
will be expensed in the first quarter of fiscal 2011.





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





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





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





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




Allowance
for Doubtful Accounts





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





21


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





The
allowance at September 30, 2010 included a reserve allowance of $703,732
resulting from the Chapter 11 Bankruptcy filing of one of our LEC aggregators,
representing a reduction in the estimated collectability of our entire
pre-petition outstanding receivable balance of $777,755. The aggregate of
accounts receivable balances from the LEC operations that do not have billing
activity as of September 30, 2010 was $2,370,029, and the aggregate of
corresponding allowances was $1,848,526. These aggregate amounts include the
accounts receivable balances and allowances for the accounts held by the Chapter
11 trustee.




Carrying
Value of Intangible Assets





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





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





Goodwill





We
evaluate our goodwill for potential impairment on an annual basis or whenever
events or circumstances indicate that an impairment may have occurred in
accordance with the provisions of ASC 350, which requires that goodwill be
tested for impairment using a two-step process. The first step of the goodwill
impairment test, used to identify potential impairment, compares the estimated
fair value of the reporting unit containing our goodwill with the related
carrying amount. If the estimated fair value of the reporting unit exceeds its
carrying amount, the reporting unit’s goodwill is not considered to be impaired
and the second step is unnecessary. As a result of this analysis, it was
determined that the entire goodwill balance attributable to the Company’s
acquisitions of OnCall Subscriber Management and LiveDeal, Inc. were impaired
and were written off during the fiscal year ended September 30,
2009.





Customer
Acquisition Costs





We
acquire customers primarily through outbound call campaigns whereby we incur
costs which include the acquisition of calling lists, personnel costs,
etc.  Customers subscribe to the services by affirmatively responding
to those campaigns, which serve as the contract for the
subscription.  Calling campaign costs are expensed as
incurred.  We historically have also incurred costs to acquire
customers in connection with certain fulfillment contracts.  Such
costs were capitalized and amortized over the expected life of the related
revenue stream.  All such amounts have been fully amortized as of
September 30, 2010.





Income
Taxes





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





We have
estimated net deferred income tax assets (net of valuation allowances) of $0 at
September 30, 2010 and 2009.  A full valuation allowance has been
established against all net deferred tax assets as of September 30, 2010 and
2009 based on estimates of recoverability.  While we have optimistic
plans for our new business strategy, we determined that such a valuation
allowance was necessary given the current and expected near term losses and the
uncertainty with respect to our ability to generate sufficient profits from our
new business model.  Therefore, we established a valuation allowance
for all deferred tax assets in excess of those expected to be realizable through
the application of operating loss carrybacks.





22


We
performed an analysis of uncertain tax positions and we did not identify any
significant uncertainties that would affect the carrying value of our deferred
tax assets and liabilities at September 30, 2010.




Stock-Based
Compensation





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




Results
of Operations




Net
Revenues




Year Ended
                      September 30,
                    
                    Net
                      Revenues
                    
                    
                    Change from
                      Prior Year
                    
                    
                    Percent Change
                      from Prior Year2010
                    
                    $
                    8,077,434
                    
                    
                    $
                    (5,361,221
                    )
                    
                    
                    (39.9
                    )%2009
                    
                    $
                    13,438,655




Net
revenues in fiscal 2010 decreased by approximately $5,361,000, due primarily to
changes in our business strategy and the sales of our www.yp.com URL and a
portion of our customer list in fiscal 2009.  Net revenues in our
directory services business decreased by approximately $5,092,000 to $4,239,000
in fiscal 2010 as compared to $9,331,000 in fiscal 2009.  Net revenues
in our customer acquisition services business segment decreased by approximately
$269,000 to $3,839,000 in fiscal 2010 as compared to $4,108,000 in fiscal
2009.  We anticipate that revenues from our customer acquisition
services business will continue to decline in the future as we refocus our
efforts toward our subscription based business using LEC billing channels
marketed under our Velocity Marketing Concepts, Inc. subsidiary.






Cost
of Services




Year Ended
                    September 30,
                  
                  Cost of
                    Services
                  
                  
                  Change from
                    Prior Year
                  
                  
                  Percent Change
                    from Prior Year2010
                  
                  $
                  3,857,684
                  
                  
                  $
                  (2,534,094
                  )
                  
                  
                  (39.6
                  )%2009
                  
                  $
                  6,391,778




Cost of
services decreased in fiscal 2010 as compared to fiscal 2009, as a result of
decreased costs in our directory services and increased costs in our customer
acquisition services.





Cost of
services in our customer acquisition services business were approximately
$3,097,000 in fiscal 2010 as compared to $2,768,000 in fiscal
2009.  See discussion of gross margins elsewhere in this
section.





Cost of
services in our directory services business were approximately $761,000 in
fiscal 2010 as compared to $3,624,000 in fiscal 2009 primarily due to a 55%
reduction in revenues.  During 2010, we experienced cost decreases in
our directory services business on a per customer basis due to decreases in
per-customer charges billed to us from our third party service providers and
decreases in bad debt expense.





Gross
Profit




Year Ended
                    September 30,
                  
                  Gross
                    Profit
                  
                  
                  Change from
                    Prior Year
                  
                  
                  Percent Change
                    from Prior Year2010
                  
                  $
                  4,219,750
                  
                  
                  $
                  (2,827,127
                  )
                  
                  
                  (40.1
                  )%2009
                  
                  $
                  7,046,877




Gross
profit decreased approximately $2,827,000 in fiscal 2010 as compared to fiscal
2009 reflecting a decrease in net revenues and a decline in gross margins in our
customer acquisition services business as we continue to refine and develop our
business strategy.  The following table sets forth changes in our
gross margin by business segment.




23




Year ended September 30,2010
                    
                    
                    2009Customer
      acquisition services -Gross
      profit
                    
                    $
                    741,949
                    
                    
                    $
                    1,339,997Gross
      margin
                    
                    
                    19.3
                    %
                    
                    
                    32.6
                    %Directory
      services -Gross
      profit
                    
                    $
                    3,477,801
                    
                    
                    $
                    5,706,880Gross
      margin
                    
                    
                    82.1
                    %
                    
                    
                    61.2
                    %




General
and Administrative Expenses




Year Ended
                    September 30,
                  
                  General &
                    Administrative
                    Expenses
                  
                  
                  Change from
                    Prior Year
                  
                  
                  Percent Change
                    from Prior Year2010
                  
                  $
                  11,734,122
                  
                  
                  $
                  (3,445,859
                  )
                  
                  
                  (22.7
                  )%2009
                  
                  $
                  15,179,981




General
and administrative expenses decreased in fiscal 2010 as compared to fiscal 2009
due to the following:





·
            A
      decrease in compensation and compensation-related expenses of $3,658,000
      reflecting the impacts of our restructuring actions and reduction in force
      during 2009 and 2010 from 111 employees at September 30, 2009 to 73 at
      September 30, 2010, which employee count, from September 30, 2010 to
      November 30, 2010, has further decreased from 73 to 60 due to attrition
      during the course of normal business operations, decreased further on
      December 1, 2010 by 36 employees due to the reduction in force described
      herein and the resignation of 1 additional employee on December 3, 2010,
      resulting in an employee count of 23 as of December 20,
    2010;





·
            A
      decrease in depreciation and amortization expense of approximately
      $644,000 due primarily to the effects of the impairment of amortizable
      intangible assets that occurred in the second quarter of fiscal
      2009;





·
            A
      decrease in rent, utilities and office expenses of approximately $485,000
      as a result of the closure of our Santa Clara and New York facilities and
      other cost-containment initiatives;
and





·
            Other
      miscellaneous cost decreases of approximately
      $85,000;  partially offset
by





·
            An
      increase in legal settlement costs of $310,000 reflecting a settlement of
      $300,000 in the first quarter of fiscal 2010 with On-Call Superior
      Management (“OSM”) and SMeVentures, Inc. (“SMe”) and a $10,000 payment in
      the fourth quarter of fiscal 2010 associated with our settlement with the
      Illinois Attorney General.   See Part I, Item
      3.  Legal Proceedings in this report for further information;
      and





·
            An
      increase in professional fees of $1,116,000 reflecting an increase in IT
      infrastructure and product development costs of $828,000 as we develop our
      next-generation of products, increased legal fees of $262,000 as we defend
      several litigation matters related to our legacy businesses and $26,000 in
      other miscellaneous increases in professional
  fees.




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




Q4 2010
                  
                  
                  Q3 2010
                  
                  
                  Q2 2010
                  
                  
                  Q1 2010
                  
                  
                  Q4 2009
                  
                  
                  Q3 2009
                  
                  
                  Q2 2009
                  
                  
                  Q1 2009Compensation
      for employees,  leased employees, officers and
      directors
                  
                  $
                  1,048,094
                  
                  
                  $
                  967,323
                  
                  
                  $
                  1,352,108
                  
                  
                  $
                  2,241,198
                  
                  
                  $
                  2,054,709
                  
                  
                  $
                  2,392,081
                  
                  
                  $
                  2,311,056
                  
                  
                  $
                  2,508,836Professional
      fees
                  
                  
                  551,394
                  
                  
                  
                  677,507
                  
                  
                  
                  1,023,582
                  
                  
                  
                  488,993
                  
                  
                  
                  336,273
                  
                  
                  
                  421,700
                  
                  
                  
                  411,564
                  
                  
                  
                  455,832Depreciation
      and amortization
                  
                  
                  214,617
                  
                  
                  
                  215,102
                  
                  
                  
                  218,200
                  
                  
                  
                  225,653
                  
                  
                  
                  211,336
                  
                  
                  
                  186,077
                  
                  
                  
                  560,383
                  
                  
                  
                  559,289Other
      general and administrative costs
                  
                  
                  462,278
                  
                  
                  
                  497,865
                  
                  
                  
                  544,162
                  
                  
                  
                  1,006,046
                  
                  
                  
                  451,300
                  
                  
                  
                  813,124
                  
                  
                  
                  771,352
                  
                  
                  
                  735,070




24


Sales
and Marketing Expenses




Year Ended
                    September 30,
                  
                  Sales &
                    Marketing
                    Expenses
                  
                  
                  Change from
                    Prior Year
                  
                  
                  Percent Change
                    from Prior Year2010
                  
                  $
                  226,442
                  
                  
                  $
                  (2,230,621
                  )
                  
                  
                  (90.8
                  )%2009
                  
                  $
                  2,457,063




Sales and
marketing expenses decreased in fiscal 2010 as compared to fiscal 2009 due to
the following:





·
            $1,908,000
      of decreased telemarketing and other customer acquisition costs as we
      significantly decreased these activities in light of our changing business
      strategy and cost containment initiatives;
and


·
            $323,000
      of decreased branding, online advertising and click traffic as part of our
      cost containment initiatives.





We are
currently developing our marketing strategies in light of our new business focus
and anticipate that such expenditures will decline in the future.





Impairment
of Goodwill and Intangible Assets


Year Ended
                    September 30,
                  
                  Impairment of Goodwill
                    and Intangible Assets
                  
                  
                  Change from
                    Prior Year
                  
                  
                  Percent Change
                    from Prior Year2010
                  
                  $
                  -
                  
                  
                  $
                  (7,866,109
                  )
                  
                  
                  (100
                  )%2009
                  
                  $
                  7,866,109




We
incurred an impairment charge in the second quarter of fiscal 2009 to write-down
goodwill and other intangible assets.  No such charges were incurred
in fiscal 2010.





Operating
Loss





Year Ended
                    September 30,
                  
                  Operating
                    Loss
                  
                  
                  Change from
                    Prior Year
                  
                  
                  Percent Change
                    from Prior Year2010
                  
                  $
                  (7,740,814
                  )
                  
                  $
                  10,715,462
                  
                  
                  
                  (58.1
                  )%2009
                  
                  $
                  (18,456,276
                  )




The
decrease in our operating loss for fiscal 2010 as compared to fiscal 2009 is
primarily due to the impairment charge, decreased gross profit and changes in
operating expenses, each of which is described above.





Total
Other Income (Expense)





Year Ended
                    September 30,
                  
                  Total Other Income
                    (Expense)
                  
                  
                  Change from
                    Prior Year
                  
                  
                  Percent Change
                    from Prior Year2010
                  
                  $
                  41,189
                  
                  
                  $
                  (7,486,745
                  )
                  
                  
                  (99.5
                  )%2009
                  
                  $
                  7,527,934




Other
income (expense) in fiscal 2010 consisted of:





·
            $50,000
      adjustment to the gain on sale of our customer list from fiscal 2009
      reflecting adjustments to certain
accruals;


·
            $18,000
      of interest income on cash balances; partially offset
  by


·
            ($27,000)
      loss on disposal of fixed assets.





Other
income (expense) in fiscal 2009 consisted of the following:





·
            $3,041,000
      from the sale of a portion of our customer list associated with our
      directory services
business;


·
            $642,000 from an amendment to
      another directory services contract in consideration of accelerated
      payments on our outstanding accounts
  receivables;


·
            $3,806,000
      from an agreement to sell our Internet domain name “www.yp.com” to
      YellowPages.com; and


·
            $39,000
      of interest income on cash balances and short term
    investments




25


Income
Tax Provision (Benefit)





Year Ended
                    September 30,
                  
                  Income Tax
                    Provision (Benefit)
                  
                  
                  Change from
                    Prior Year
                  
                  
                  Percent Change
                    from Prior Year2010
                  
                  $
                  (230,382
                  )
                  
                  $
                  (3,623,897
                  )
                  
                  
                  (106.8
                  )%2009
                  
                  $
                  3,393,515




Income
tax benefit of $230,000 in fiscal 2010 was the result of an adjustment to income
tax receivable for net operating loss carrybacks as a result of true-ups to our
final 2009 tax return that was filed during fiscal 2010.  There was no
income tax benefit recognized related to our fiscal 2010 net loss as we have
established a full valuation allowance against all deferred tax
assets.





During
fiscal 2009, we recognized an income tax provision of approximately $3,394,000
related to the establishment of a full valuation allowance against all deferred
tax assets in light of the uncertainty surrounding our abilities to utilize such
tax benefits in the future.





Income
(Loss) from Discontinued
Operations





Year Ended
                    September 30,
                  
                  Income (Loss) from
                    Discontinued Operations
                  
                  
                  Change from
                    Prior Year
                  
                  
                  Percent Change
                    from Prior Year2010
                  
                  $
                  12,525
                  
                  
                  $
                  8,281,968
                  
                  
                  
                  100.2
                  %2009
                  
                  $
                  (8,269,443
                  )




During
fiscal 2010, we recognized income of $13,000 from discontinued operations,
reflecting the adjustment of certain accruals associated with the wind-down of
our classifieds operations.





During
fiscal 2009, we discontinued our classifieds business.  Included in
the loss for fiscal 2009 is the impairment of goodwill and other intangibles
related to this business.





Net
Loss





Year Ended
                    September 30,
                  
                  Net Loss
                  
                  
                  Change from
                    Prior Year
                  
                  
                  Percent Change
                    from Prior Year2010
                  
                  $
                  (7,456,718
                  )
                  
                  $
                  15,134,582
                  
                  
                  
                  (67.0
                  )%2009
                  
                  $
                  (22,591,300
                  )




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





Liquidity
and Capital Resources




Net cash
used in operating activities increased by $977,000, or 33%, to ($3,940,000) for
the year ended September 30, 2010, compared to ($2,963,000) for the year ended
September 30, 2009.  This change in cash flows is attributable to the
following: although our net loss decreased by approximately $15,135,000 in
fiscal 2010 as compared to fiscal 2009, this was offset by a decrease in
non-cash charges and other adjustments of $16,377,000  in fiscal 2010
as compared to fiscal 2009.  Cash flows from operations were also
impacted by an increase of $265,000 in changes in working capital and other
assets in fiscal 2010 as compared to fiscal 2009, primarily the result of
collections of income tax refunds in fiscal 2010 partially offset by lower
accounts receivable collections in fiscal 2009.




Our
primary source of cash inflows has historically been net remittances from
directory services customers processed in the form of ACH billings and LEC
billings.  During fiscal 2009, we were transitioning away from
directory services toward our customer acquisition services, whose billings
experience shorter collection times.  Accordingly we were able to
reduce our collection times and our outstanding accounts receivable
balances.  As of September 30, 2010, no single customer accounted
for greater than 10% of accounts receivable.





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




26


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




Net cash
used in investing activities during fiscal 2010 was approximately $286,000,
consisting primarily of expenditures for intangible assets primarily made up of
software development and purchases of equipment in support of our new product
offerings.  Cash flows provided by investing activities in fiscal 2009
totaled approximately $6,494,000, primarily attributable to the sale of our
Internet domain name www.yp.com, the sale
of a portion of our customer list related to our directory services business,
and an amendment to an existing directory services contract, which provided
aggregate cash inflows of $7,430,000.  Additionally, in fiscal 2009,
we had expenditures for purchases of equipment and intangible assets totaling
approximately $836,000.  During the year ended September 30, 2009, we
also invested $100,000 in certificates of deposit.




Net cash
used for financing activities was approximately $114,000 during fiscal 2010 and
consisted of $26,000 of treasury stock repurchases and $88,000 of principal
repayments on capital lease obligations.  Net cash used for financing
activities was approximately $603,000 during fiscal 2009 and was attributable to
$533,000 of treasury stock repurchases and $70,000 of principal repayments on
capital lease obligations.





We had
net working capital of $3,201,000 as of September 30, 2010 compared to
$9,251,000 as of September 30, 2009.  Our cash position decreased to
$3,227,000 at September 30, 2010 compared to $7,568,000 at September 30, 2009,
as we had a significant decline in cash flows provided by investing
activities.




On May
25, 2007, the Company’s Board of Directors terminated its pre-existing stock
repurchase plan and replaced it with a new plan authorizing repurchases of up to
$1,000,000 of common stock from time to time on the open market or in privately
negotiated transactions.  The repurchase plan was increased by another
$500,000 on October 23, 2008.  During the years ended September 30,
2010 and 2009, the Company acquired an aggregate of 1,341 and 34,611 shares of
common stock for an aggregate repurchase price of $25,882 and $532,521,
respectively.





We
believe that our existing cash on hand and additional cash generated from
operations together with additional cash obtained  through stock
issuances, loans, advances or other forms of financings secured by or leveraged
off our increasing accounts receivable will provide us with sufficient liquidity
to meet our operating needs for the next 12 months.





The
following table summarizes our contractual obligations at September 30, 2010 and
the effect such obligations are expected to have on our future liquidity and
cash flows:




Payments Due by Fiscal YearTotal
                            
                            
                            2011
                            
                            
                            2012
                            
                            
                            2013
                            
                            
                            2014
                            
                            
                            2015
                            
                            
                            ThereafterOperating
      lease commitments
                            
                            $
                            813,516
                            
                            
                            $
                            419,465
                            
                            
                            $
                            315,331
                            
                            
                            $
                            78,720
                            
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            -Capital
      lease commitments
                            
                            
                            101,560
                            
                            
                            
                            64,143
                            
                            
                            
                            37,417
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Noncanceleable
      service contracts
                            
                            
                            773,583
                            
                            
                            
                            635,583
                            
                            
                            
                            138,000
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -$
                            1,688,659
                            
                            
                            $
                            1,119,191
                            
                            
                            $
                            490,748
                            
                            
                            $
                            78,720
                            
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            -




At
September 30, 2010, we had no other off-balance sheet arrangements, commitments
or guarantees that require additional disclosure or measurement.





ITEM
7A. Quantitative and Qualitative Disclosures about Market Risk





As of
September 30, 2010, we did not participate in any market risk-sensitive
commodity instruments for which fair value disclosure would be required. We
believe that we are not subject in any material way to other forms of market
risk, such as foreign currency exchange risk or foreign customer purchases (of
which there were none in fiscal 2010 or 2009) or commodity price
risk.





27


ITEM
8. Financial Statements and Supplementary Data





LIVEDEAL,
INC.





INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS




PageReport
      of Independent Registered Public Accounting Firm
              29Consolidated
      Financial Statements:Consolidated
      Balance Sheets at September 30, 2010 and 2009
              30Consolidated
      Statements of Operations for the years ended September 30, 2010 and
      2009
              31Consolidated
      Statements of Stockholders’ Equity for the years ended September 30, 2010
      and 2009
              32Consolidated
      Statements of Cash Flows for the years ended September 30, 2010 and
      2009
              33Notes
      to Consolidated Financial Statements
              34




28





REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the
Stockholders and Board of Directors of





LiveDeal,
Inc. and Subsidiaries





We have
audited the accompanying consolidated balance sheets of LiveDeal, Inc. and
Subsidiaries (the “Company”) as of September 30, 2010 and 2009, and the related
consolidated statements of operations, stockholders’ equity and cash flows for
each of the years in the two year period ended September 30,
2010.  These consolidated financial statements are the responsibility
of the Company’s management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.





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





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of September
30, 2010 and 2009, and the results of their operations and their cash flows for
each of the years in the two year period ended September 30, 2010, in conformity
with accounting principles generally accepted in the United States of
America.





/s/ Mayer
Hoffman McCann P.C.





Phoenix,
Arizona


January
5, 2011




29


LIVEDEAL, INC. AND
SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS





September 30,2010
                                
                                
                                2009AssetsCash
      and cash equivalents
                                
                                $
                                3,227,374
                                
                                
                                $
                                7,568,030Certificates
      of deposit
                                
                                
                                101,293
                                
                                
                                
                                100,000Accounts
      receivable, net
                                
                                
                                948,439
                                
                                
                                
                                1,478,183Prepaid
      expenses and other current assets
                                
                                
                                219,121
                                
                                
                                
                                326,442Income
      taxes receivable
                                
                                
                                -
                                
                                
                                
                                1,490,835Total
      current assets
                                
                                
                                4,496,227
                                
                                
                                
                                10,963,490Accounts
      receivable, long term portion, net
                                
                                
                                330,234
                                
                                
                                
                                1,039,403Property
      and equipment, net
                                
                                
                                397,382
                                
                                
                                
                                615,906Deposits
      and other assets
                                
                                
                                49,294
                                
                                
                                
                                81,212Intangible
      assets, net
                                
                                
                                1,938,952
                                
                                
                                
                                2,336,714Total
      assets
                                
                                $
                                7,212,089
                                
                                
                                $
                                15,036,725Liabilities
      and Stockholders' EquityLiabilities:Accounts
      payable
                                
                                $
                                354,440
                                
                                
                                $
                                549,681Accrued
      liabilities
                                
                                
                                880,188
                                
                                
                                
                                1,092,811Current
      portion of capital lease obligation
                                
                                
                                60,327
                                
                                
                                
                                69,612Total
      current liabilities
                                
                                
                                1,294,955
                                
                                
                                
                                1,712,104Long
      term portion of capital lease obligation
                                
                                
                                38,283
                                
                                
                                
                                117,073Total
      liabilities
                                
                                
                                1,333,238
                                
                                
                                
                                1,829,177Commitments
      and contingenciesStockholders'
      equity:Series
      E convertible preferred stock, $0.001 par value, 200,000 shares
      authorized,127,840
      issued and outstanding, liquidation preference $38,202
                                
                                
                                10,866
                                
                                
                                
                                10,866Common
      stock, $0.01 par value, 10,000,000 shares authorized, 609,643 issued
      and605,391
      outstanding at September 30, 2010 and 613,343 issued and610,433
      outstanding at September 30, 2009
                                
                                
                                6,096
                                
                                
                                
                                6,133Treasury
      stock (4,252 and 2,910 shares carried at cost) at September 30, 2010 and
      2009, respectively
                                
                                
                                (70,923
                                )
                                
                                
                                (45,041
                                )Paid
      in capital
                                
                                
                                20,436,235
                                
                                
                                
                                20,280,377Accumulated
      deficit
                                
                                
                                (14,503,423
                                )
                                
                                
                                (7,044,787
                                )Total
      stockholders' equity
                                
                                
                                5,878,851
                                
                                
                                
                                13,207,548Total
      liabilities and stockholders' equity
                                
                                $
                                7,212,089
                                
                                
                                $
                                15,036,725





See
accompanying notes to consolidated financial statements.




30


LIVEDEAL,
INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF OPERATIONS





Year ended September 30,2010
                            
                            
                            2009Net
      revenues
                            
                            $
                            8,077,434
                            
                            
                            $
                            13,438,655Cost
      of services
                            
                            
                            3,857,684
                            
                            
                            
                            6,391,778Gross
      profit
                            
                            
                            4,219,750
                            
                            
                            
                            7,046,877Operating
      expenses:General
      and administrative expenses
                            
                            
                            11,734,122
                            
                            
                            
                            15,179,981Impairment
      of goodwill
                            
                            
                            -
                            
                            
                            
                            4,350,041Impairment
      of intangible assets
                            
                            
                            -
                            
                            
                            
                            3,516,068Sales
      and marketing expenses
                            
                            
                            226,442
                            
                            
                            
                            2,457,063Total
      operating expenses
                            
                            
                            11,960,564
                            
                            
                            
                            25,503,153Operating
      loss
                            
                            
                            (7,740,814
                            )
                            
                            
                            (18,456,276
                            )Other
      income (expense):Interest
      income, net
                            
                            
                            18,186
                            
                            
                            
                            37,686Other
      income (expense)
                            
                            
                            23,003
                            
                            
                            
                            7,490,248Total
      other income (expense)
                            
                            
                            41,189
                            
                            
                            
                            7,527,934Loss
      before income taxes
                            
                            
                            (7,699,625
                            )
                            
                            
                            (10,928,342
                            )Income
      tax provision (benefit)
                            
                            
                            (230,382
                            )
                            
                            
                            3,393,515Loss
      from continuing operations
                            
                            
                            (7,469,243
                            )
                            
                            
                            (14,321,857
                            )Discontinued
      operationsIncome
      (loss) from discontinued component, including disposal
    costs
                            
                            
                            12,525
                            
                            
                            
                            (8,329,470
                            )Income
      tax benefit
                            
                            
                            -
                            
                            
                            
                            (60,027
                            )Income
      (loss) from discontinued operations
                            
                            
                            12,525
                            
                            
                            
                            (8,269,443
                            )Net
      loss
                            
                            $
                            (7,456,718
                            )
                            
                            $
                            (22,591,300
                            )Earnings
      per share – Basic:Loss
      from continuing operations
                            
                            $
                            (12.45
                            )
                            
                            $
                            (23.85
                            )Discontinued
      operations
                            
                            
                            0.02
                            
                            
                            
                            (13.77
                            )Net
      loss
                            
                            $
                            (12.43
                            )
                            
                            $
                            (37.62
                            )Earnings
      per share - Diluted:Loss
      from continuing operations
                            
                            $
                            (12.45
                            )
                            
                            $
                            (23.85
                            )Discontinued
      operations
                            
                            
                            0.02
                            
                            
                            
                            (13.77
                            )Net
      loss
                            
                            $
                            (12.43
                            )
                            
                            $
                            (37.62
                            )Weighted
      average common shares outstanding:Basic
                            
                            
                            599,928
                            
                            
                            
                            600,566Diluted
                            
                            
                            599,928
                            
                            
                            
                            600,566





See
accompanying notes to consolidated financial statements.





31


LIVEDEAL,
INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY





Common Stock
                      
                      
                      Preferred Stock
                      
                      
                      Treasury
                      
                      
                      Paid-In
                      
                      
                      AccumulatedShares
                      
                      
                      Amount
                      
                      
                      Shares
                      
                      
                      Amount
                      
                      
                      Stock
                      
                      
                      Capital
                      
                      
                      Deficit
                      
                      
                      TotalBalance,
      September 30, 2008
                      
                      
                      651,368
                      
                      
                      $
                      6,514
                      
                      
                      
                      127,840
                      
                      
                      $
                      10,866
                      
                      
                      $
                      -
                      
                      
                      $
                      20,884,112
                      
                      
                      $
                      15,548,431
                      
                      
                      $
                      36,449,923Series
      E preferred stock dividends
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (1,918
                      )
                      
                      
                      (1,918
                      )Common
      stock issued in restricted stock plan
                      
                      
                      2,000
                      
                      
                      
                      20
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (20
                      )
                      
                      
                      -
                      
                      
                      
                      -Stock
      based compensation - stock options
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      82,036
                      
                      
                      
                      -
                      
                      
                      
                      82,036Restricted
      stock cancellations
                      
                      
                      (8,325
                      )
                      
                      
                      (84
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      84
                      
                      
                      
                      -
                      
                      
                      
                      -Amortization
      of deferred stock compensation
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (198,672
                      )
                      
                      
                      -
                      
                      
                      
                      (198,672
                      )Treasury
      stock purchases
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (532,521
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (532,521
                      )Treasury
      stock retired
                      
                      
                      (31,700
                      )
                      
                      
                      (317
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      487,480
                      
                      
                      
                      (487,163
                      )
                      
                      
                      -
                      
                      
                      
                      -Net
      loss
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (22,591,300
                      )
                      
                      
                      (22,591,300
                      )Balance,
      September 30, 2009
                      
                      
                      613,343
                      
                      
                      
                      6,133
                      
                      
                      
                      127,840
                      
                      
                      
                      10,866
                      
                      
                      
                      (45,041
                      )
                      
                      
                      20,280,377
                      
                      
                      
                      (7,044,787
                      )
                      
                      
                      13,207,548Series
      E preferred stock dividends
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (1,918
                      )
                      
                      
                      (1,918
                      )Stock
      based compensation - stock options
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      38,448
                      
                      
                      
                      -
                      
                      
                      
                      38,448Restricted
      stock cancellations
                      
                      
                      (3,700
                      )
                      
                      
                      (37
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      37
                      
                      
                      
                      -
                      
                      
                      
                      -Amortization
      of deferred stock compensation
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      117,373
                      
                      
                      
                      -
                      
                      
                      
                      117,373Treasury
      stock purchases
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (25,882
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (25,882
                      )Net
      loss
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (7,456,718
                      )
                      
                      
                      (7,456,718
                      )Balance,
      September 30, 2010
                      
                      
                      609,643
                      
                      
                      $
                      6,096
                      
                      
                      
                      127,840
                      
                      
                      $
                      10,866
                      
                      
                      $
                      (70,923
                      )
                      
                      $
                      20,436,235
                      
                      
                      $
                      (14,503,423
                      )
                      
                      $
                      5,878,851




See
accompanying notes to consolidated financial statements.




32


LIVEDEAL, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS




Year ended September 30,2010
                  
                  
                  2009CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                  
                  $
                  (7,456,718
                  )
                  
                  $
                  (22,591,300
                  )Adjustments
      to reconcile net loss to net cashprovided
      by (used in) operating activities:Depreciation
      and amortization
                  
                  
                  873,572
                  
                  
                  
                  2,297,626Non-cash
      stock compensation expense
                  
                  
                  38,448
                  
                  
                  
                  82,036Amortization
      of stock-based compensation
                  
                  
                  117,373
                  
                  
                  
                  (198,672
                  )Deferred
      income taxes
                  
                  
                  -
                  
                  
                  
                  4,812,623Provision
      for uncollectible accounts
                  
                  
                  921,804
                  
                  
                  
                  2,703,067Noncash
      impairment of goodwill and other intangibles
                  
                  
                  -
                  
                  
                  
                  16,111,494Gain
      on sale of customer list
                  
                  
                  -
                  
                  
                  
                  (3,040,952
                  )Gain
      on sale of internet domain name
                  
                  
                  -
                  
                  
                  
                  (3,805,778
                  )Gain
      on amendment of directory services contract
                  
                  
                  -
                  
                  
                  
                  (642,268
                  )(Gain)
      loss on disposal of equipment
                  
                  
                  27,647
                  
                  
                  
                  36,693Changes
      in assets and liabilities:Accounts
      receivable
                  
                  
                  317,109
                  
                  
                  
                  3,116,762Prepaid
      and other current assets
                  
                  
                  107,321
                  
                  
                  
                  10,352Deposits
      and other assets
                  
                  
                  31,918
                  
                  
                  
                  2,335Accounts
      payable
                  
                  
                  (195,241
                  )
                  
                  
                  (529,031
                  )Accrued
      liabilities
                  
                  
                  (214,541
                  )
                  
                  
                  (324,867
                  )Income
      taxes receivable
                  
                  
                  1,490,835
                  
                  
                  
                  (1,003,303
                  )Net
      cash  used in operating activities
                  
                  
                  (3,940,473
                  )
                  
                  
                  (2,963,183
                  )CASH
      FLOWS FROM INVESTING ACTIVITIES:Proceeds
      from sale of internet domain name
                  
                  
                  -
                  
                  
                  
                  3,850,000Proceeds
      from sale of customer list
                  
                  
                  -
                  
                  
                  
                  2,937,501Proceeds
      from amendment of directory services contract
                  
                  
                  -
                  
                  
                  
                  642,268Proceeds
      from sale of property and equipment
                  
                  
                  5,000
                  
                  
                  
                  -Expenditures
      for intangible assets
                  
                  
                  (235,012
                  )
                  
                  
                  (734,878
                  )Investment
      in certificates of deposits
                  
                  
                  (1,293
                  )
                  
                  
                  (100,000
                  )Purchases
      of equipment
                  
                  
                  (54,921
                  )
                  
                  
                  (100,821
                  )Net
      cash provided by (used in) investing activities
                  
                  
                  (286,226
                  )
                  
                  
                  6,494,070CASH
      FLOWS FROM FINANCING ACTIVITIES:Principal
      repayments on capital lease obligations
                  
                  
                  (88,075
                  )
                  
                  
                  (70,123
                  )Purchase
      of treasury stock
                  
                  
                  (25,882
                  )
                  
                  
                  (532,521
                  )Net
      cash used in financing activities
                  
                  
                  (113,957
                  )
                  
                  
                  (602,644
                  )INCREASE
      (DECREASE) IN CASH AND CASH EQUIVALENTS
                  
                  
                  (4,340,656
                  )
                  
                  
                  2,928,243CASH
      AND CASH EQUIVALENTS, beginning of year
                  
                  
                  7,568,030
                  
                  
                  
                  4,639,787CASH
      AND CASH EQUIVALENTS, end of year
                  
                  $
                  3,227,374
                  
                  
                  $
                  7,568,030Supplemental
      cash flow disclosures:Cash
      paid for interest
                  
                  $
                  5,842
                  
                  
                  $
                  -Cash
      paid for income taxes
                  
                  $
                  1,600
                  
                  
                  $
                  1,860Noncash
      financing and investing activities:Acquistion
      of equipment under capital leases
                  
                  $
                  -
                  
                  
                  $
                  24,821Accrued
      and unpaid dividends
                  
                  $
                  1,918
                  
                  
                  $
                  1,918




See
accompanying notes to consolidated financial statements.




33




1.
              ORGANIZATION AND BASIS OF
      PRESENTATION





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




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





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





·
            Telco Billing, Inc. was formed in
      April 1998 to provide advertising and directory listings for businesses on
      its Internet website in a “Yellow Pages” format.  Telco provides
      those services to its subscribers for a monthly fee.  These
      services are provided primarily to businesses throughout the United
      States.  Telco became a wholly owned subsidiary ofthe Companyafter 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 operated an
      online local classifieds marketplace, www.livedeal.com, which listed
      millions of goods and services for sale across the United
      States.  The technology acquired in the acquisition offered such
      classifieds functionality as fraud protection, identity protection,
      e-commerce, listing enhancements, photos, community-building, package
      pricing, premium stores, featured Yellow Page business listings and
      advanced local search capabilities.  This business has since
      been discontinued – see Note 5.





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





·
            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.





·
            During
      2009, the Company made strategic changes that impacted the Company’s
      consolidated financial statements in the following
  manner:





o
            Impairment charges of $16,111,494
      were recorded related to the write-down of the Company’s goodwill and
      other intangible assets as discussed in Note
  4;


o
            The Company commenced a plan to
      discontinue its classifieds business and initiated shutdown activities, as
      discussed in Note 5, and has reflected the operating results of this line
      of business as discontinued operations in the accompanying consolidated
      statements of operations;


o
            The Company sold a portion of its
      customer list associated with its directory services business and recorded
      a gain of $3,040,952, as discussed in Note 14;
  and


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





·
            During 2010, the Company formed
      the wholly-owned subsidiaries Local Marketing Experts, Inc. and Velocity
      Marketing Concepts, Inc.





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, Local Marketing
Experts, Inc., Velocity Marketing Concepts, Inc., 247 Marketing, Telco and Telco
of Canada, Inc, the Company’s wholly owned subsidiaries, for the years ended
September 30, 2010 and 2009, as applicable.  All intercompany
transactions and balances have been eliminated in
consolidation.




34




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,, Local Marketing
Experts, Inc., Velocity Marketing Concepts, Inc., 247 Marketing, Telco Billing,
Inc. and Telco of Canada, Inc.  All significant intercompany accounts
and transactions have been eliminated.





Property and
Equipment:  Property and equipment is stated at cost less
accumulated depreciation. Depreciation is recorded on a straight-line basis over
the estimated useful lives of the assets ranging from three to five years.
Depreciation expense was $240,798 and $432,897 for the years ended September 30,
2010 and 2009, respectively.





Revenue
Recognition:





Direct
Sales – Customer Acquisition Services.





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





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





Directory
Services





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





•      direct
ACH withdrawals; and


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





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





During
the second quarter of fiscal 2009, the Company sold its then existing customer
list pertaining to its direct customers billed through LECs.  The
Company continues to service some wholesale accounts through LEC billing
channels and is rebuilding its customer base billed through LECs through its
Velocity Marketing Concepts, Inc. subsidiary.





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





Deferred
Revenues





In some
instances, the Company receives payments in advance of rendering services,
whereupon such revenues are deferred until the related services are
rendered.  Deferred revenue was $87,574 and $148,916 at September 30,
2010 and 2009, respectively.





35


Allowance for Doubtful
Accounts:  The Company maintains an allowance for doubtful
accounts, which includes allowances for customer refunds, dilution and fees from
LEC billing aggregators and other uncollectible accounts.  The Company
has increased its allowances for doubtful accounts to 63.5% of gross accounts
receivable at September 30, 2010 as compared to 52.8% of gross accounts
receivable at September 30, 2009.  This increase is attributable to
many factors, including regulatory activity which has increased the amount of
refunds, increasing fees from LEC service providers and the Company’s change in
business strategy, as ongoing revenue submissions and settlements with respect
to the Company’s LEC customers have ceased and bad debts, allowances and fees
are deducted from existing holdback amounts.





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





Net Income (Loss) Per
Share: Net income (loss) per share is calculated in accordance with FASB
Accounting Standards Codification (“ASC”) 260, “Earnings Per
Share”. Under ASC 260 basic net income (loss) 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 (loss) per share is computed using the weighted
average number of common shares and, if dilutive, potential common shares
outstanding during the period. Potential common shares consist of the
incremental common shares issuable upon the exercise of warrants, restricted
shares and convertible preferred stock. The dilutive effect of outstanding
restricted shares and warrants is reflected in diluted earnings per share by
application of the treasury stock method. Convertible preferred stock is
reflected on an if-converted basis.





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





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





Use of Estimates: The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting
period.  Actual results could differ from those
estimates.





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





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





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





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





36


Impairment of Long-lived
Assets: The Company assesses long-lived assets for impairment in
accordance with the provisions of FASB ASC 360 “Property, Plant and Equipment”.
A long-lived asset (asset group) shall be tested for recoverability whenever
events or changes in circumstances indicate that its carrying amount may not be
recoverable.  The carrying amount of a long lived asset is not
recoverable if it exceeds the sum of the undiscounted net cash flows expected to
result from the use and eventual disposition of the asset. The amount of
impairment loss, if any, is measured as the difference between the net book
value of the asset and its estimated fair value. For purposes of these tests,
long-lived assets must be grouped with other assets and liabilities for which
identifiable cash flows are largely independent of the cash flows of other
assets and liabilities.  Assets were determined to be impaired during
the year ended September 30, 2009 (See Note 4).





Goodwill:  The
Company evaluates goodwill for potential impairment on an annual basis or
whenever events or circumstances indicate that an impairment may have occurred
in accordance with the provisions of FASB ASC 350 “Goodwill and Other Intangible
Assets” which requires that goodwill be tested for impairment using a two-step
process. The first step of the goodwill impairment test, used to identify
potential impairment, compares the estimated fair value of the reporting unit
containing the goodwill with the related carrying amount. If the estimated fair
value of the reporting unit exceeds its carrying amount, the reporting unit’s
goodwill is not considered to be impaired and the second step is unnecessary. As
a result of this analysis, first described in our Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 2009 and described elsewhere in this
Form 10-K, it was determined that the entire goodwill balance attributable to
the acquisitions of OnCall Subscriber Management and LiveDeal, Inc. was
impaired. There was a goodwill write off during the quarter ended March 31,
2009.  There was no goodwill written off during the year ended
September 30, 2010.





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





Effects of Reverse Stock
Split: Effective on September 7, 2010, the Company implemented a 1-for-10
reverse stock split with respect to issued and outstanding shares of its common
stock.  Additionally, the Company’s authorized shares of common stock
were reduced to 10,000,000 shares.   All share and per share
amounts have been retroactively restated for the effects of this reverse stock
split.





Recently Issued Accounting
Pronouncements:





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





In March
2008, the FASB amended ASC 815, “Derivatives and Hedging”.  FASB ASC 815
modifies existing requirements to include qualitative disclosures regarding the
objectives and strategies for using derivatives, fair value amounts of gains and
losses on derivative instruments and disclosures about credit-risk-related
contingent features in derivative agreements. The pronouncement also requires
the cross-referencing of derivative disclosures within the financial statements
and notes thereto. The requirements of FASB ASC 815 are effective for interim
and annual periods beginning after November 15, 2008 and was effective for the
Company on October 1, 2009. The adoption of this amendment did not impact the
Company’s financial position or results of operations.





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




In June
2008, the FASB amended ASC 815 to address the determination of whether an
instrument (or an embedded feature) is indexed to an entity’s own stock, if an
instrument (or an embedded feature) that has the characteristics of a derivative
instrument is indexed to an entity’s own stock, it is still necessary to
evaluate whether it is classified in stockholders’ equity (or would be
classified in stockholders’ equity if it were a freestanding instrument). In
addition, some instruments that are potentially subject to the guidance in ASC
815 but do not have all the characteristics of a derivative instrument under
paragraphs 6 through 9, it is still necessary to evaluate whether it is
classified in stockholders’ equity.  ASC 815 is effective for
financial statements issued for fiscal years beginning after December 15,
2008 and was effective for the Company on October 1, 2009.  The
adoption of this amendment did not impact the Company’s financial position or
results of operations.




37




In
October 2009, the FASB issued Accounting Standards Update (“ASU”)
No. 2009-13, “Revenue Recognition (Topic 605): Multiple-Deliverable Revenue
Arrangements—a consensus of the FASB Emerging Issues Task Force” (“ASU
2009-13”), which provides guidance on whether multiple deliverables exist, how
the arrangement should be separated, and the consideration allocated. ASU
2009-13 requires an entity to allocate revenue in an arrangement using estimated
selling prices of deliverables if a vendor does not have vendor-specific
objective evidence or third-party evidence of selling price. ASU 2009-13 is
effective for the first annual reporting period beginning on or after
June 15, 2010 and may be applied retrospectively for all periods presented
or prospectively to arrangements entered into or materially modified after the
adoption date. Early adoption is permitted provided that the revised guidance is
retroactively applied to the beginning of the year of adoption. ASU 2009-13 is
effective for the Company on October 1, 2010. We are currently evaluating
the impact that the adoption of ASU 2009-13 will have on our financial
condition, results of operations, and disclosures.




38




3.
            BALANCE SHEET
      INFORMATION





Balance
sheet information is as follows:




September 30,
                                                    
                                                    
                                                    September 30,2010
                                                    
                                                    
                                                    2009Receivables,
      current, net:Accounts
      receivable, current
                                                    
                                                    $
                                                    2,750,393
                                                    
                                                    
                                                    $
                                                    3,776,966Less:
      Allowance for doubtful accounts
                                                    
                                                    
                                                    (1,801,954
                                                    )
                                                    
                                                    
                                                    (2,298,783
                                                    )$
                                                    948,439
                                                    
                                                    
                                                    $
                                                    1,478,183Receivables,
      long term, net:Accounts
      receivable, long term
                                                    
                                                    $
                                                    680,108
                                                    
                                                    
                                                    $
                                                    1,581,946Less:
      Allowance for doubtful accounts
                                                    
                                                    
                                                    (349,874
                                                    )
                                                    
                                                    
                                                    (542,543
                                                    )$
                                                    330,234
                                                    
                                                    
                                                    $
                                                    1,039,403Total
      receivables, net:Gross
      receivables
                                                    
                                                    $
                                                    3,430,501
                                                    
                                                    
                                                    $
                                                    5,358,912Allowance
      for doubtful accounts
                                                    
                                                    
                                                    (2,151,828
                                                    )
                                                    
                                                    
                                                    (2,841,326
                                                    )$
                                                    1,278,673
                                                    
                                                    
                                                    $
                                                    2,517,586Components
      of allowance for doubtful accounts are as follows:September
      30,
                                                    
                                                    
                                                    September
      30,2010
                                                    
                                                    
                                                    2009Allowance
      for dilution and fees on amountsdue
      from billing aggregators
                                                    
                                                    $
                                                    2,104,826
                                                    
                                                    
                                                    $
                                                    2,690,895Allowance
      for customer refunds
                                                    
                                                    
                                                    47,002
                                                    
                                                    
                                                    
                                                    150,431$
                                                    2,151,828
                                                    
                                                    
                                                    $
                                                    2,841,326September
      30,
                                                    
                                                    
                                                    September
      30,2010
                                                    
                                                    
                                                    2009Property
      and equipment, net:Leasehold
      improvements
                                                    
                                                    $
                                                    239,271
                                                    
                                                    
                                                    $
                                                    235,056Furnishings
      and fixtures
                                                    
                                                    
                                                    319,004
                                                    
                                                    
                                                    
                                                    336,067Office,
      computer equipment and other
                                                    
                                                    
                                                    704,388
                                                    
                                                    
                                                    
                                                    692,3171,262,663
                                                    
                                                    
                                                    
                                                    1,263,440Less:
      Accumulated depreciation
                                                    
                                                    
                                                    (865,281
                                                    )
                                                    
                                                    
                                                    (647,534
                                                    )$
                                                    397,382
                                                    
                                                    
                                                    $
                                                    615,906September
      30,
                                                    
                                                    
                                                    September
      30,2010
                                                    
                                                    
                                                    2009Intangible
      assets, net:Domain
      name and marketing related intangibles
                                                    
                                                    $
                                                    1,509,600
                                                    
                                                    
                                                    $
                                                    6,699,600Non-compete
      agreements
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    3,465,000Website
      and technology related intangibles
                                                    
                                                    
                                                    1,914,991
                                                    
                                                    
                                                    
                                                    4,678,9703,424,591
                                                    
                                                    
                                                    
                                                    14,843,570Less:  Accumulated
      amortization
                                                    
                                                    
                                                    (1,485,639
                                                    )
                                                    
                                                    
                                                    (12,506,856
                                                    )$
                                                    1,938,952
                                                    
                                                    
                                                    $
                                                    2,336,714September
      30,
                                                    
                                                    
                                                    September
      30,2010
                                                    
                                                    
                                                    2009Accrued
      liabilities:Deferred
      revenue
                                                    
                                                    $
                                                    87,574
                                                    
                                                    
                                                    $
                                                    148,916Accrued
      payroll and bonuses
                                                    
                                                    
                                                    124,544
                                                    
                                                    
                                                    
                                                    289,944Accruals
      under revenue sharing agreements
                                                    
                                                    
                                                    133,119
                                                    
                                                    
                                                    
                                                    314,754Accrued
      expenses - other
                                                    
                                                    
                                                    534,951
                                                    
                                                    
                                                    
                                                    339,197$
                                                    880,188
                                                    
                                                    
                                                    $
                                                    1,092,811September
      30,
                                                    
                                                    
                                                    September
      30,2010
                                                    
                                                    
                                                    2009Customer
      acquisition costs, net:Customer
      acquisition costs
                                                    
                                                    $
                                                    1,700,000
                                                    
                                                    
                                                    $
                                                    1,700,000Less:  Accumulated
      amortization
                                                    
                                                    
                                                    (1,700,000
                                                    )
                                                    
                                                    
                                                    (1,700,000
                                                    )$
                                                    -
                                                    
                                                    
                                                    $
                                                    -




4.
            INTANGIBLE
      ASSETS





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




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




39




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




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




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




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




3.
            Assets
      related to the Company’s call-center operations and non-compete agreements
      that were effectively made obsolete due to the sale of a portion of the
      Company’s customer list associated with its directory services business,
      as described in Note 14; and




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




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




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




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




No
impairment charges were incurred in fiscal 2010.





The
following summarizes the estimated future amortization expense related to
intangible assets that have net balances as of September 30, 2010:





Years
      ended September 30,2011
                  
                  $
                  509,9332012
                  
                  
                  290,6482013
                  
                  
                  104,5272014
                  
                  
                  77,4222015
                  
                  
                  77,422Thereafter
                  
                  
                  879,000Total
                  
                  $
                  1,938,952





Total
amortization expense related to intangible assets was $632,744 and $1,222,509
for the years ended September 30, 2010 and 2009, respectively.





5.
            DISCONTINUED
      OPERATIONS





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


40


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





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





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





A net
profit of $12,525 from discontinued operations was recognized for the year ended
September 30, 2010, reflecting the adjustment of certain accruals associated
with the wind-down of the Company’s classifieds operations.





6.
            CAPITAL
      LEASES





At
September 30, 2010, the Company was a party to one capital lease for
communications equipment acquired during the year ended September 30, 2008 with
a cost basis of $255,603.  This lease has a term of 48 months and an
imputed interest rate of 3.6%. This capital lease is secured by the underlying
equipment.  Equipment acquired under this capital lease is being
depreciated over their estimated lives of four years.





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





2011
                  
                  $
                  64,1432012
                  
                  
                  37,4172013
                  
                  
                  -2014
                  
                  
                  -Thereafter
                  
                  
                  -Total
      minimum lease payments
                  
                  
                  101,560Less
      imputed interest
                  
                  
                  (2,950
                  )Present
      value of minimum lease payments
                  
                  
                  98,610Less:
      current maturities of capital lease obligations
                  
                  
                  60,327Noncurrent
      maturities of capital lease obligations
                  
                  $
                  38,283





7.
            STOCKHOLDERS’
      EQUITY





Common Stock Issued for
Services





The
Company historically has granted shares of its common stock to officers,
directors and consultants as payment for services rendered. The value of those
shares was determined based on the trading value of the stock at the date at
which the counterparties’ performance is complete.  No such share
issuances were made during the years ended September 30, 2010 or
2009.





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 hundred-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.


41


On May
25, 2007, the Company’s Board of Directors terminated its pre-existing stock
repurchase plan and replaced it with a new plan authorizing repurchases of up to
$1,000,000 of common stock from time to time on the open market or in privately
negotiated transactions.  The repurchase plan was increased by another
$500,000 on October 23, 2008.  During the years ended September 30,
2010 and 2009, the Company acquired an aggregate of 1,341 and 34,611 shares of
common stock for an aggregate repurchase price of $25,882 and $532,521,
respectively.





Dividends





During
each of the years ended September 30, 2010 and 2009, the Company accrued
dividends of $1,918 and $1,918, respectively, payable to holders of Series E
preferred stock.  No dividends were paid in 2010.





8.
            NET LOSS PER
      SHARE





Net loss
per share is calculated using the weighted average number of shares of common
stock outstanding during the year.  Basic weighted average common
shares outstanding do not include shares of restricted stock that have not yet
vested, although such shares are included as outstanding shares in the Company’s
consolidated balance sheet.  Diluted loss per share is computed using
the weighted average number of common shares outstanding and if dilutive,
potential common shares outstanding during the period. Potential common shares
consist of the incremental common shares issuable from restricted shares, stock
options and convertible preferred stock. Preferred stock dividends are
subtracted from net loss to determine the amount available to common
stockholders.





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





Year Ended September
                          30, 2010
                        
                        
                        Year Ended
                          September 30,2009Net
      loss from continuing operations
                        
                        $
                        (7,469,243
                        )
                        
                        $
                        (14,321,857
                        )Less:
      preferred stock dividends
                        
                        
                        (1,918
                        )
                        
                        
                        (1,918
                        )Loss
      from continuing operations applicable to common stock
                        
                        
                        (7,471,161
                        )
                        
                        
                        (14,323,775
                        )Gain
      (loss) from discontinued operations
                        
                        
                        12,525
                        
                        
                        
                        (8,269,443
                        )Net
      loss applicable to common stock
                        
                        $
                        (7,458,636
                        )
                        
                        $
                        (22,593,218
                        )Basic
      weighted average common shares outstanding:
                        
                        
                        599,928
                        
                        
                        
                        600,566Add
      incremental shares for:Unvested
      restricted stock
                        
                        
                        -
                        
                        
                        
                        -Series
      E convertible preferred stock
                        
                        
                        -
                        
                        
                        
                        -Outstanding
      warrants
                        
                        
                        -
                        
                        
                        
                        -Diluted
      weighted average common shares outstanding:
                        
                        
                        599,928
                        
                        
                        
                        600,566Earnings
      per share - Basic:Loss
      from continuing operations
                        
                        $
                        (12.45
                        )
                        
                        $
                        (23.84
                        )Discontinued
      operations
                        
                        
                        0.02
                        
                        
                        
                        (13.76
                        )Net
      loss
                        
                        $
                        (12.43
                        )
                        
                        $
                        (37.60
                        )Earnings
      per share - Diluted:Loss
      from continuing operations
                        
                        $
                        (12.45
                        )
                        
                        $
                        (23.84
                        )Discontinued
      operations
                        
                        
                        0.02
                        
                        
                        
                        (13.76
                        )Net
      loss
                        
                        $
                        (12.43
                        )
                        
                        $
                        (37.60
                        )





The
following potentially dilutive securities were excluded from the calculation of
net loss per share because the effects are antidilutive based on the
application of the treasury stock method and/or because the Company incurred net
losses during the period:


42





September 30,2010
                    
                    
                    2009Options
      to purchase shares of common stock
                    
                    
                    23,767
                    
                    
                    
                    40,303Series
      E convertible preferred stock
                    
                    
                    127,840
                    
                    
                    
                    127,840Shares
      of non-vested restricted stock
                    
                    
                    53,922
                    
                    
                    
                    152,169205,529
                    
                    
                    
                    320,312





9.    COMMITMENTS
AND CONTINGENCIES





Operating Leases and Service
Contracts





The
Company leases its office space and certain equipment under long-term operating
leases expiring through fiscal year 2013.  Rent expense under these
leases was $519,716 and $733,626 for the years ended September 30, 2010 and
2009, respectively.  The Company has also entered into several
non-cancelable service contracts.





As of
September 30, 2010, future minimum annual lease payments under operating lease
agreements and non-cancelable service contracts for fiscal years ended September
30 are as follows:





Payments Due by Fiscal YearTotal
                          
                          
                          2011
                          
                          
                          2012
                          
                          
                          2013
                          
                          
                          2014
                          
                          
                          2015
                          
                          
                          ThereafterOperating
      lease commitments
                          
                          $
                          813,516
                          
                          
                          $
                          419,465
                          
                          
                          $
                          315,331
                          
                          
                          $
                          78,720
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -Non-cancelable
      service contracts
                          
                          
                          773,583
                          
                          
                          
                          635,583
                          
                          
                          
                          138,000
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -$
                          1,587,099
                          
                          
                          $
                          1,055,048
                          
                          
                          $
                          453,331
                          
                          
                          $
                          78,720
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -





The
Company is also a party to certain capital leases – see Note 6.





Change in Officers and
Employment Agreements





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





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




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




In
connection with the appointment of Mr. Sommer, he and the Company entered into
an Employment Agreement effective May 19, 2009 (the “Employment
Agreement”).  The Employment Agreement provided for a three-year
employment term.  Pursuant to the Employment Agreement, Mr. Sommer was
to be paid an annual salary of $300,000 and was eligible to receive a bonus of
up to $100,000 per year if the Company achieved certain performance targets
established by the Company’s Board of Directors and/or its Compensation
Committee.  Mr. Sommer was also entitled to a success fee payable in
cash equal to 2% of the excess above $9,000,000 of any cash distributed to or
received by the Company’s stockholders in the form of a dividend, in the event
of liquidation or upon a change of control.  If the Company terminated
Mr. Sommer’s employment prior to the end of his term of employment without cause
(as defined in the Employment Agreement) and certain other conditions were met
(including that Mr. Sommer provide a valid release of claims in favor of the
Company), Mr. Sommer would have been entitled to receive severance payments
equal to his then current monthly salary for three months.  The
Employment Agreement also provided that the Company would reimburse Mr. Sommer
for reasonable business expenses and allow him to participate in its regular
benefit programs.


43


On
November 23, 2009, the Company and Mr. Sommer entered into an amendment to Mr.
Sommer’s Employment Agreement.  The amendment, which was effective as
of October 29, 2009, provided that Mr. Sommer was entitled to an option to
purchase 250,000 shares of the Company’s common stock at an exercise price of
$1.95 per share, which was equal to the closing price of the Company’s common
stock on the date of grant.  The option was granted pursuant to the
Company’s 2003 Stock Plan and was to vest according to the following
schedule:  25% on October 29, 2010 (the first anniversary of the date
of grant) and 1/36 of the remainder each month beginning on November 29,
2010.  Previously, the Employment Agreement provided that Mr. Sommer
was entitled to a success fee payable in cash equal to 2% of the excess above
$9,000,000 of any cash distributed to or received by the Company’s stockholders
in the form of a dividend, in the event of liquidation or upon a change of
control.





On
November 25, 2009, Rajeev Seshadri entered into a Separation Agreement and Full
Release of Claims with the Company in connection with his departure as Chief
Financial Officer of the Company, which was agreed upon on November 19, 2009 and
which took effect on January 2, 2010 (the “Resignation Date”).





Under the
terms of the Separation Agreement and in accordance with his employment
agreement, the Company continued to pay Mr. Seshadri his base salary for three
months following the Resignation Date (less applicable taxes and other
withholdings).  Mr. Seshadri could also elect to receive such payment
(the gross amount of which is $53,750) in a lump sum on the Resignation
Date.  The $15,000 bonus to which Mr. Seshadri was entitled under his
employment agreement for the Company’s fourth quarter of fiscal 2009 was paid in
a lump sum on the Resignation Date.  The Company paid Mr. Seshadri’s
COBRA payments for three months and reimbursed his reasonable attorneys’ fees
related to the negotiation of the Separation Agreement.  The
Separation Agreement also provided for Mr. Seshadri to serve as a consultant to
the Company until January 31, 2010 for at least 16 hours per week at a rate of
$230 per hour.  Finally, Mr. Seshadri continued to be entitled to
exercise his vested stock options in accordance with the terms of the applicable
stock option agreements for a period of 180 days from the date of his
resignation; his unvested options thereafter would be forfeited and
cancelled.





In
exchange for the payments described above, Mr. Seshadri provided a full release
of claims arising out of, or relating to, his employment with the Company, his
termination from the position of Chief Financial Officer of the Company, and/or
his resignation.  The Separation Agreement also contained customary
provisions with respect to confidentiality and non-solicitation, as well as
mutual covenants on the part of Mr. Seshadri and the Company regarding public
statements and non-disparagement.  As of September 30, 2010, all
amounts pertaining to this separation have been paid.





Also on
November 19, 2009, the Company appointed Lawrence W. Tomsic to replace Mr.
Seshadri as its Chief Financial Officer, effective on the Resignation
Date.  In connection with Mr. Tomsic’s appointment as Chief Financial
Officer, he and the Company were to enter into an Employment
Agreement.  The Employment Agreement provided for a one-year
employment term that could be extended upon the mutual agreement of the Company
and Mr. Tomsic.





Pursuant
to the Employment Agreement, Mr. Tomsic was to be paid an annual salary of
$215,000 and was eligible to receive a bonus of up to $60,000 per year if the
Company achieves certain performance targets established by the Company’s Board
of Directors and/or its Compensation Committee.  Mr. Tomsic was to be
be granted an option to purchase 100,000 shares of the Company’s common stock
under the Company’s Amended and Restated 2003 Stock Plan.  Twenty-five
percent of the option award was to vest on the first anniversary of Mr. Tomsic’s
first formal date of employment, and the remainder was to vest in equal
increments over the subsequent 36 months.  The award would immediately
vest upon Mr. Tomsic’s termination as an employee of the Company following a
change of control of the Company.  If the Company terminated Mr.
Tomsic’s employment prior to the end of his term of employment without cause (as
defined in the Employment Agreement), Mr. Tomsic was to be entitled to receive a
severance payment equal to one month of his then-current salary for each full
year of his employment with the Company.  The Employment Agreement
also provided that the Company would reimburse Mr. Tomsic for reasonable
business expenses and allow him to participate in its regular benefit
programs.





On
January 4, 2010, Mr. Sommer resigned as Chief Executive Officer of the
Company.  As a result of his departure, Mr. Sommer also resigned as a
member of our Board of Directors.  Mr. Sommer did not receive any
severance as part of his resignation.  All 25,000 options granted on
November 23, 2009 were forfeited.  Given this forfeiture, the Company
elected not to expense such options because the effects on the financial
statements would not have been material.  Following Mr. Sommer’s
departure, Kevin A. Hall was appointed as our interim Chief Operating Officer
(COO).





On May
20, 2010, the Board of Directors of LiveDeal appointed Kevin A. Hall as
President and Chief Operating Officer of the Company.  Mr. Hall’s
compensation and benefits were not affected by his appointment as President of
the Company.




Litigation





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





Except as
described below, as of September 30, 2010, the Company was not a party to any
pending material legal proceedings other than claims that arise in the normal
conduct of its business. While management currently believes that the ultimate
outcome of these proceedings will not have a material adverse effect on its
consolidated financial condition or results of operations, litigation is subject
to inherent uncertainties. If an unfavorable ruling were to occur, there exists
the possibility of a material adverse impact on the Company’s net income in the
period in which a ruling occurs. The Company’s estimate of the potential impact
of the following legal proceedings on its financial position and its results of
operation could change in the future.


44


Joe
Cunningham v. LiveDeal, Inc. et al.





On July
16, 2008, Joseph Cunningham, who was at the time a member of LiveDeal’s Board of
Directors, filed a complaint with the U.S. Department of Labor's Occupational
Safety and Health Administration (“OSHA”) alleging that the Company and certain
members of its Board of Directors had engaged in discriminatory employment
practices in violation of the Sarbanes-Oxley Act of 2002’s statutory protections
for corporate whistleblowers when the Board of Directors removed him as Chairman
on May 22, 2008.  In his complaint, Mr. Cunningham asked OSHA to order
his appointment as Chief Executive Officer of the Company or, in the
alternative, to order his reinstatement as Chairman of the Board.  Mr.
Cunningham also sought back pay, special damages and litigation
costs.




On July
16, 2010, Mr. Cunningham attempted to amend his OSHA complaint to include an
additional adverse action allegation.  On September 20, 2010, OSHA issued a
letter informing Mr. Cunningham that as a former board member and alleged
prospective interim CEO, he is not considered an “employee” under the
relevant statute, which is a required element for his claims.  Accordingly,
OSHA dismissed Mr. Cunningham’s complaint.




On
October 20, 2010, Mr. Cunningham filed objections to OSHA’s findings.  Mr.
Cunningham's appeal of OSHA’s ruling is currently pending.




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





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





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





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





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





On June
6, 2008, Global Education Services, Inc. ("GES") filed a consumer fraud class
action lawsuit against the Company in King County (Washington) Superior Court.
GES has alleged in its complaint that the Company's use of activator checks
violated the Washington Consumer Protection Act.  GES seeks
injunctive relief against the Company'suse of the checks, as
well as judgment in an amount equal to three times the alleged damages sustained
by GES and the members of the class. LiveDeal has denied the
allegations.  Early in 2010, the Court denied both parties’
dispositive motions after oral argument.   Active litigation is
temporarily suspended and the parties are engaged in settlement
discussions.





The
Company has not recorded any accruals pertaining to this matter since it does
not meet the criteria for accrual under FASB ASC 450.




Complaint
filed by Illinois Attorney General against LiveDeal, Inc.





As the
Company has previously disclosed, on November 12, 2008, the Illinois Attorney
General filed a complaint in the Court against the Company requesting money
damages and injunctive relief for claims that the Company
employed deceptive and unfair acts and practices in violation of the
Illinois Consumer Fraud and Deceptive Business Act in a telemarketing
campaign that in part promoted premium Internet yellow page listings to
Illinois consumers.  The Company denied the allegations, and the Court
subsequently denied both parties’ dispositive motions.


45


On
September 2, 2010, a Final Judgment and Consent Decree (the “Consent Decree”)
providing for the settlement of the Company’s ongoing litigation with the
Illinois Attorney General was filed by the Circuit Court of the Seventh Judicial
Circuit of the State of Illinois (Sangamon County).  The Consent
Decree was previously executed by the Company and the Illinois Attorney
General.





As set
forth in the Consent Decree, the terms of the settlement require the Company to
make a $10,000 contribution to the Illinois Attorney General Court Ordered and
Voluntary Compliance Payment Projects Fund for Consumer Enforcement and
Education.  Illinois consumers who entered into an Internet yellow
pages contract on or after January 1, 2007, and who have not already cancelled
such listing and received a full refund, are also entitled to a full refund from
the Company (provided that they did not actually and knowingly agree to purchase
the Company’s Internet yellow page listings).  Consumers must provide
written notice of their demand for a refund within 60 days after the entry of
the Consent Decree, and the Company has up to 120 days after the date of the
Consent Decree to challenge any consumer’s right to a refund.  There
were no claims made during the claim period.





Among
other things, the Consent Decree restricts the Company from soliciting, billing,
or knowingly causing Illinois consumers to be billed for Internet yellow page
listings for a period of five years.





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





Restructuring
Activities




On
January 4, 2010, our Board of Directors approved a reduction in force that
resulted in the termination of approximately 33% of the Company's workforce,
effective January 7, 2010.  On February 23, 2010, our Board of
Directors approved an additional reduction in force that resulted in the
termination of approximately 20% of our workforce, effective March 4,
2010.  These reductions in force were related to our ongoing
restructuring and cost reduction efforts as the Board of Directors explores a
variety of strategic alternatives, including the potential sale of the Company
or certain of its assets and/or the acquisition of other entities or
businesses.




The
Company incurred charges of $143,000 in connection with the reductions in force,
consisting of one-time employee termination benefits.  All amounts
were paid as of September 30, 2010.





On
November 30, 2010, our Board of Directors approved a reduction in force that
resulted in the termination of 36 employees of the Company, or approximately 60%
of the Company’s workforce, effective December 1, 2010.   The
reduction in force was related to the Company’s ongoing restructuring and cost
reduction efforts and strategy of focusing its resources on the development and
expansion of its core InstantProfile product, the successor to the Company’s
LEC-billed directory product.  All terminated employees were involved
in the marketing and sale of the Company’s InstantPromote product by its
subsidiary, Local Marketing Experts, Inc.





The
Company incurred expenses of $99,319 in connection with the reduction in force,
of which $37,500 was incurred for one-time employee termination benefits payable
in cash.  The remaining expenses relate to salaries and wages payable
in cash to the affected employees.  Substantially all of these charges
will be expensed in the first quarter of fiscal 2011.




Other Contractual
Agreements





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





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


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


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





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





10.
            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.


46


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





2010
                  
                  
                  2009Current
      provision (benefit)
                  
                  $
                  (230,382
                  )
                  
                  $
                  (1,071,763
                  )Deferred
      (benefit) provision
                  
                  
                  -
                  
                  
                  
                  4,405,251Net
      income tax (benefit) provision
                  
                  $
                  (230,382
                  )
                  
                  $
                  3,333,488





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




2010
                        
                        
                        2009Amount
                        
                        
                        Percent
                        
                        
                        Amount
                        
                        
                        PercentFederal
      statutory rates
                        
                        $
                        (2,613,614
                        )
                        
                        
                        34
                        %
                        
                        $
                        (6,547,656
                        )
                        
                        
                        381
                        %State
      income taxes
                        
                        
                        (258,378
                        )
                        
                        
                        3
                        %
                        
                        
                        (647,294
                        )
                        
                        
                        38
                        %Write
      off of deferred tax assetrelated
      to vested restricted stock
                        
                        
                        50,905
                        
                        
                        
                        (1
                        )%
                        
                        
                        48,570
                        
                        
                        
                        (3
                        )%Valuation
      allowance against netdeferred
      tax assets
                        
                        
                        2,786,003
                        
                        
                        
                        (36
                        )%
                        
                        
                        10,586,854
                        
                        
                        
                        (55
                        )%Other
                        
                        
                        (195,298
                        )
                        
                        
                        3
                        %
                        
                        
                        (106,986
                        )
                        
                        
                        6
                        %Effective
      rate
                        
                        $
                        (230,382
                        )
                        
                        
                        3
                        %
                        
                        $
                        3,333,488
                        
                        
                        
                        (194
                        )%





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





2010
                  
                  
                  2009Deferred
      income tax asset, current:Book
      to tax differences in accounts receivable
                  
                  $
                  643,209
                  
                  
                  $
                  1,118,416Book
      to tax differences in prepaid assets and accrued expenses
                  
                  
                  (43,011
                  )
                  
                  
                  (34,829
                  )Total
      deferred income tax asset, current
                  
                  
                  600,198
                  
                  
                  
                  1,083,587Less:
      valuation allowance
                  
                  
                  (600,198
                  )
                  
                  
                  (1,083,587
                  )Deferred
      income tax asset, current, net
                  
                  
                  -
                  
                  
                  
                  -Deferred
      income tax asset, long-term:Net
      operating loss carryforwards
                  
                  
                  7,084,995
                  
                  
                  
                  3,481,786Book
      to tax differences for stock based compensation
                  
                  
                  187,614
                  
                  
                  
                  218,565Book
      to tax differences in intangible assets
                  
                  
                  7,234,473
                  
                  
                  
                  7,377,360Book
      to tax differences in other assets
                  
                  
                  326
                  
                  
                  
                  326Book
      to tax differences in depreciation
                  
                  
                  (1,734,750
                  )
                  
                  
                  (1,574,770
                  )Total
      deferred income tax asset, long-term
                  
                  
                  12,772,658
                  
                  
                  
                  9,503,267Less:
      valuation allowance
                  
                  
                  (12,772,658
                  )
                  
                  
                  (9,503,267
                  )Deferred
      income tax asset, net
                  
                  
                  -
                  
                  
                  
                  -Total
      deferred income tax asset
                  
                  $
                  -
                  
                  
                  $
                  -





A full
valuation allowance is established against all net deferred tax assets as of
September 30, 2010 and 2009 based on estimates of
recoverability.  While the Company has optimistic plans for its new
business strategy, it determined that such a valuation allowance was necessary
given the current and expected near term losses and the uncertainty with respect
to its ability to generate sufficient profits from its new business
model.





The
Company annually conducts an analysis of its tax positions and has concluded
that it has no uncertain tax positions as of September 30, 2010.





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





11.
            CONCENTRATION OF CREDIT
      RISK





The
Company maintains cash balances at banks in California, Arizona and
Nevada.  Accounts are insured by the Federal Deposit Insurance
Corporation up to $250,000 per institution as of September 30,
2010.


47


Financial
instruments that potentially subject the Company to concentrations of credit
risk are primarily trade accounts receivable.  The trade accounts
receivable are due primarily from business customers over widespread
geographical locations within the LEC billing areas across the United
States.  The Company historically has experienced significant dilution
and customer credits due to billing difficulties and uncollectible trade
accounts receivable.  The Company estimates and provides an allowance
for uncollectible accounts receivable.  The handling and processing of
cash receipts pertaining to trade accounts receivable is maintained primarily by
three third-party billing companies.  The Company is dependent upon
these billing companies for collection of its accounts
receivable.  The billing companies and LECs charge fees for their
services, which are netted against the gross accounts receivable
balance.  The billing companies also apply holdbacks to the
remittances for potentially uncollectible accounts.  These amounts
will vary due to numerous factors and the Company may not be certain as to the
actual amounts on any specific billing submittal until several months after that
submittal.  The Company estimates the amount of these charges and
holdbacks based on historical experience and subsequent information received
from the billing companies.  The Company also estimates uncollectible
account balances and provides an allowance for such estimates.  The
billing companies retain certain holdbacks that may not be collected by the
Company for a period extending beyond one year.   Additionally,
certain other billings’ channels consisting of billings submitted to LEC
Processors through third parties were discontinued. As such, a significant
portion of the receivables at September 30, 2010 and 2009 pertaining to LEC
service providers represent the holdbacks described above.





The
Company has concentrations of receivables with respect to certain wholesale
accounts and remaining holdbacks with LEC service providers.  Three
such entities accounted for 27%, 27% and 16% of gross receivables at September
30, 2010.




12.  STOCK-BASED
COMPENSATION




Restricted Stock
Awards





During
the year ended September 30, 2003, the Company’s board of directors and a
majority of it stockholders voted to terminate the Company’s 2002 Employees,
Officers & Directors Stock Option Plan and approved the Company’s 2003 Stock
Plan.  The 30,000 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 20,000 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, 2010, there were 52,294 shares authorized under the 2003 Plan that
were granted and remain outstanding, of which 47,836 have vested and 4,658 are
in the form of restricted stock.  These shares of restricted stock
were granted to the Company’s service providers, officers and
directors.  Of the 4,658 restricted shares, 3,000 shares vest on a
cliff basis three years from the date of grant and 1,658 shares vest on a cliff
basis 10 years from the date of grant.  Certain market performance
criteria may accelerate the vesting of a portion of these awards if the stock
price exceeds $50 per share.  As of September 30, 2010, total
unrecognized compensation cost related to unvested awards was
$160,590.  The weighted average period over which such compensation
cost is to be recognized is 0.80 years.  Additionally, the Company has
200 shares of unvested restricted stock awards related to the LiveDeal
acquisition that were issued outside of the 2003 Plan which vested in June
2010.





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





Outstanding
      (unvested) at September 30, 2008
                  
                  
                  22,743Granted
                  
                  
                  2,000Forfeited
                  
                  
                  (8,325
                  )Vested
                  
                  
                  (5,775
                  )Outstanding
      (unvested) at September 30, 2009
                  
                  
                  10,643Granted
                  
                  
                  -Forfeited
                  
                  
                  (3,700
                  )Vested
                  
                  
                  (2,285
                  )Outstanding
      (unvested) at September 30, 2010
                  
                  
                  4,658





The
vesting of substantially all shares of restricted stock accelerates upon a
change of control, as defined in the 2003 Plan.  Compensation expense
is determined at the date of grant, is equal to the stock price at the date of
grant, and is deferred and recognized on a straight-line basis over the vesting
period. The weighted-average grant-date fair value of awards issued during the
year ended September 30, 2009 was $15.6 per share.  The
weighted-average grant-date fair value of the shares outstanding is $97.1 per
share.





During
the years ended September 30, 2010 and 2009 the Company recognized compensation
expense of $100,980 and $(198,672), respectively, under the 2003 Plan and other
restricted stock issuances.  The net compensation expense reversal in
the year ended September 30, 2009 is attributable to a change in estimated
forfeiture rate of awards granted to officers, directors and key personnel from
40% to 70% and true-ups to reflect actual forfeiture rates of awards whose
vesting period had passed.


48


Stock Option
Awards:





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





Year
      Ended
                    
                    
                    Year
      EndedSeptember 30,2010
                    
                    
                    September 30,2009Volatility
                    
                    
                    97
                    %
                    
                    
                    97
                    %Risk-free
      interest rate
                    
                    
                    2.2
                    %
                    
                    
                    1.7%-2.8
                    %Expected
      term
                    
                    6.0
      years
                    
                    
                    6.0
      yearsForfeiture
      rate
                    
                    
                    40
                    %
                    
                    
                    40
                    %Dividend
      yield rate
                    
                    
                    0
                    %
                    
                    
                    0
                    %





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





On
November 23, 2009, the Company granted an aggregate of 25,000 options to Richard
Sommer, the Company’s then-current Chief Executive Officer. In connection with
Mr. Sommer’s resignation on January 4, 2010, all such options were
forfeited.  Given this forfeiture, the Company elected not to expense
such options because the effects on the financial statements would not have been
material.  No other options were granted during the year ended
September 30, 2010.





Stock
option awards are expensed on a straight-line basis over the requisite service
period.  During the years ended September 30, 2010 and 2009, the
Company recognized expense of $38,448 and $82,036, respectively. At September
30, 2010, future stock compensation expense (net of estimated forfeitures) not
yet recognized was $128,774 and will be recognized over a weighted average
remaining vesting period of 2.1 years.  This future expense does not
include the options forfeited by Mr. Sommer in January 2010.  The
following summarizes stock option activity for the year ended September 30,
2010:





Weighted
                      
                      
                      Weighted
                      
                      
                      WeightedAverage
                      
                      
                      Average
                      
                      
                      Average
                      
                      
                      AggregateNumber
      of
                      
                      
                      Exercise
                      
                      
                      Fair
                      
                      
                      Remaining
                      
                      
                      IntrinsicShares
                      
                      
                      Price
                      
                      
                      Value
                      
                      
                      Contractual Life
                      
                      
                      ValueOutstanding
      at September 30, 2009
                      
                      
                      33,000Granted
      at market price
                      
                      
                      25,000
                      
                      
                      $
                      19.50
                      
                      
                      
                      n/mExercised
                      
                      
                      -
                      
                      
                      $
                      -Forfeited
                      
                      
                      (53,000
                      )
                      
                      $
                      17.00Outstanding
      at September 30, 2010
                      
                      
                      5,000
                      
                      
                      $
                      14.50
                      
                      
                      
                      
                      
                      
                      
                      8.1
                      
                      
                      $
                      -Exercisable
                      
                      
                      2,292
                      
                      
                      $
                      14.50
                      
                      
                      
                      
                      
                      
                      
                      8.1
                      
                      
                      $
                      -





As noted
above, Mr. Sommer’s 25,000 options were forfeited in connection with his
resignation on January 4, 2010.  Upon the exercise of stock options,
the Company may issue new shares or, if circumstances permit, issue shares held
as treasury stock.





13.
            EMPLOYEE BENEFIT
      PLAN





The
Company maintains a 401(k) retirement plan for its employees who are eligible to
participate in the plan.  The Company made contributions of $34,336
and $112,040 to the plan for the years ended September 30, 2010 and 2009,
respectively.





14.
            OTHER INCOME
      (EXPENSE)





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





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


49


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





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




15.
            SEGMENT
      REPORTING





The
Company has two reportable operating segments (excluding the discontinued
classifieds business):  Directory Services and Direct Sales - Customer
Acquisition Services.  While the product offerings have been changing,
the reportable segments have not changed, and management continues to evaluate
operating performance of these operating segments.  The Company does
not identify and allocate operating costs or impairment charges to its
reportable segments below the gross profit level.  Additionally, the
reportable segments share many common costs, including, but not limited to, IT
support, office and administrative expenses.  Therefore, the following
table of operating results does not allocate costs to its reportable segments
below the gross profit level:





Year Ended September 30,
    2010DirectoryServices
                    
                    
                    Direct Sales -
                      Customer
                      Acquisition
                      Services
                    
                    
                    Unallocated
                    
                    
                    ConsolidatedNet
      revenues
                    
                    $
                    4,238,955
                    
                    
                    $
                    3,838,479
                    
                    
                    $
                    -
                    
                    
                    $
                    8,077,434Cost
      of services
                    
                    
                    761,154
                    
                    
                    
                    3,096,530
                    
                    
                    
                    -
                    
                    
                    
                    3,857,684Gross
      profit
                    
                    
                    3,477,801
                    
                    
                    
                    741,949
                    
                    
                    
                    -
                    
                    
                    
                    4,219,750Operating
      expenses
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    11,960,564
                    
                    
                    
                    11,960,564Operating
      income (loss)
                    
                    
                    3,477,801
                    
                    
                    
                    741,949
                    
                    
                    
                    (11,960,564
                    )
                    
                    
                    (7,740,814
                    )Other
      income (expense)
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    41,189
                    
                    
                    
                    41,189Income
      (loss) before income taxes and discontinued operations
                    
                    $
                    3,477,801
                    
                    
                    $
                    741,949
                    
                    
                    $
                    (11,919,375
                    )
                    
                    $
                    (7,699,625
                    )





Year Ended September 30,
    2009Directory Services
                    
                    
                    Direct Sales -
                      Customer
                      Acquisition
                      Services
                    
                    
                    Unallocated
                    
                    
                    ConsolidatedNet
      revenues
                    
                    $
                    9,331,057
                    
                    
                    $
                    4,107,598
                    
                    
                    $
                    -
                    
                    
                    $
                    13,438,655Cost
      of services
                    
                    
                    3,624,177
                    
                    
                    
                    2,767,601
                    
                    
                    
                    -
                    
                    
                    
                    6,391,778Gross
      profit
                    
                    
                    5,706,880
                    
                    
                    
                    1,339,997
                    
                    
                    
                    -
                    
                    
                    
                    7,046,877Operating
      expenses
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    25,503,153
                    
                    
                    
                    25,503,153Operating
      income (loss)
                    
                    
                    5,706,880
                    
                    
                    
                    1,339,997
                    
                    
                    
                    (25,503,153
                    )
                    
                    
                    (18,456,276
                    )Other
      income (expense)
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    7,527,934
                    
                    
                    
                    7,527,934Income
      before income taxes and discontinued operations
                    
                    $
                    5,706,880
                    
                    
                    $
                    1,339,997
                    
                    
                    $
                    (17,975,219
                    )
                    
                    $
                    (10,928,342
                    )





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




50




September 30, 2010DirectoryServices
                    
                    
                    Direct Sales -
                      Customer
                      Acquisition
                      Services
                    
                    
                    TotalAccounts
      receivable, net - short term
                    
                    $
                    872,977
                    
                    
                    $
                    75,462
                    
                    
                    $
                    948,439Accounts
      receivable, net - long term
                    
                    
                    330,234
                    
                    
                    
                    -
                    
                    
                    
                    330,234Total
      accounts receivable, net
                    
                    $
                    1,203,211
                    
                    
                    $
                    75,462
                    
                    
                    $
                    1,278,673





September 30, 2009DirectoryServices
                  
                  
                  Direct Sales -
                    Customer
                    Acquisition
                    Services
                  
                  
                  TotalAccounts
      receivable, net - short term
                  
                  $
                  1,442,037
                  
                  
                  $
                  36,146
                  
                  
                  $
                  1,478,183Accounts
      receivable, net - long term
                  
                  
                  1,039,403
                  
                  
                  
                  -
                  
                  
                  
                  1,039,403Total
      accounts receivable, net
                  
                  $
                  2,481,440
                  
                  
                  $
                  36,146
                  
                  
                  $
                  2,517,586





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





16. 
SUBSEQUENT EVENTS





On November 29, 2010, the Company and
Joint Corporation FeelTech Investment Unit 1 (the “Purchaser”) entered into a
Stock Purchase Agreement for the purchase of $200,000 worth of the Company’s
common stock, $0.001 par value per share, over a three month period. During
December 2010, the Company received $100,000 from the Purchaser in exchange
for 15,014 shares of the Company’s common stock and will receive an
additional $50,000 in January 2011 and $50,000 in February
2011.





On
November 30, 2010, the Board of Directors approved a reduction in force that
resulted in the termination of 36 employees of the Company, or approximately 60%
of the Company’s workforce, effective December 1, 2010.   The
reduction in force was related to the Company’s ongoing restructuring and cost
reduction efforts and strategy of focusing its resources on the development and
expansion of its core InstantProfile product, the successor to the Company’s
LEC-billed directory product.  All terminated employees were involved
in the marketing and sale of the Company’s InstantPromote product by its
subsidiary, Local Marketing Experts, Inc.





The
Company incurred expenses of $99,319 in connection with the reduction in force,
of which $37,500 was incurred for one-time employee termination benefits payable
in cash.  The remaining expenses relate to salaries and wages payable
in cash to the affected employees.  Substantially all of these charges
will be expensed in the first quarter of fiscal 2011.





17.  SELECTED
QUARTERLY FINANCIAL DATA (UNAUDITED)





Quarterly
financial information for 2010 and 2009 follows:


51





Quarter EndedDecember
      31,
                
                
                March
      31,
                
                
                June
      30,
                
                
                September
      30,2009
                
                
                2010
                
                
                2010
                
                
                2010Net
      revenues
                
                $
                2,477,447
                
                
                $
                2,165,653
                
                
                $
                1,651,107
                
                
                $
                1,783,227Gross
      profit
                
                
                1,648,633
                
                
                
                1,143,314
                
                
                
                1,014,749
                
                
                
                413,054Loss
      from continuing operations
                
                
                (2,527,378
                )
                
                
                (1,773,522
                )
                
                
                (1,339,934
                )
                
                
                (1,828,409
                )Income
      (loss) from discontinued operations
                
                
                1,725
                
                
                
                -
                
                
                
                -
                
                
                
                10,800Net
      loss
                
                $
                (2,525,653
                )
                
                $
                (1,773,522
                )
                
                $
                (1,339,934
                )
                
                $
                (1,817,609
                )Earnings
      per share information:Basic
      income per shareLoss
      from continuing operations
                
                $
                (4.22
                )
                
                $
                (2.96
                )
                
                $
                (2.23
                )
                
                $
                (3.05
                )Discontinued
      operations
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                0.02Net
      loss
                
                $
                (4.21
                )
                
                $
                (2.96
                )
                
                $
                (2.23
                )
                
                $
                (3.03
                )Diluted
      income per shareLoss
      from continuing operations
                
                $
                (4.22
                )
                
                $
                (2.96
                )
                
                $
                (2.23
                )
                
                $
                (3.05
                )Discontinued
      operations
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                0.02Net
      loss
                
                $
                (4.21
                )
                
                $
                (2.96
                )
                
                $
                (2.23
                )
                
                $
                (3.03
                )





Quarter EndedDecember
      31,
                
                
                March
      31,
                
                
                June
      30,
                
                
                September
      30,2008
                
                
                2009
                
                
                2009
                
                
                2009Net
      revenues
                
                $
                5,009,514
                
                
                $
                3,548,275
                
                
                $
                2,448,569
                
                
                $
                2,432,297Gross
      profit
                
                
                3,408,864
                
                
                
                2,081,393
                
                
                
                1,636,248
                
                
                
                (79,628
                )Income
      (loss) from continuing operations
                
                
                944,440
                
                
                
                (10,797,953
                )
                
                
                (2,116,971
                )
                
                
                (2,351,373
                )Income
      (loss) from discontinued operations
                
                
                (57,077
                )
                
                
                (8,285,663
                )
                
                
                4,649
                
                
                
                68,648Net
      income (loss)
                
                $
                887,362
                
                
                $
                (19,083,616
                )
                
                $
                (2,112,322
                )
                
                $
                (2,282,725
                )Earnings
      per share information:Basic
      income per shareIncome
      (loss) from continuing operations
                
                $
                1.56
                
                
                $
                (18.04
                )
                
                $
                (3.53
                )
                
                $
                (3.92
                )Discontinued
      operations
                
                $
                (0.09
                )
                
                $
                (13.85
                )
                
                $
                0.01
                
                
                $
                0.12Net
      income (loss)
                
                $
                1.47
                
                
                $
                (31.89
                )
                
                $
                (3.52
                )
                
                $
                (3.80
                )Diluted
      income per shareIncome
      (loss) from continuing operations
                
                $
                1.55
                
                
                $
                (18.04
                )
                
                $
                (3.53
                )
                
                $
                (3.92
                )Discontinued
      operations
                
                
                (0.09
                )
                
                
                (13.85
                )
                
                
                0.01
                
                
                
                0.12Net
      income (loss)
                
                $
                1.46
                
                
                $
                (31.89
                )
                
                $
                (3.52
                )
                
                $
                (3.80
                )


52


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. We carried out an evaluation, under
the supervision and with the participation of our management, including our
Chief Executive Officer and Chief Financial Officer, of the effectiveness of our
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)). Based upon that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that, as of the end of the period covered in
this report, our disclosure controls and procedures were effective to ensure
that information required to be disclosed in reports filed under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
required time periods and is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required
disclosure.
 
 Changes in Internal
Control Over Financial Reporting.There was no change in our internal
control over financial reporting during our most recently completed fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
 
 Management’s Report
on Internal Control Over Financial Reporting.Our management is responsible for
establishing and maintaining adequate internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)). Because of its
inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
 
 Our management assessed the
effectiveness of our internal control over financial reporting as of September
30, 2010. In making this assessment, we used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in
Internal Control — Integrated Framework. Based on our assessment using those
criteria, our management concluded that our internal control over financial
reporting was effective as of September 30, 2010.
 
 This
annual report does not include an attestation report of the Company's registered
public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by the Company's registered
public accounting firm pursuant to a permanent exemption of the Securities and
Exchange Commission that permits the Company to provide only management's report
in this annual report. Accordingly, our management's assessment of the
effectiveness of our internal control over financial reporting as of September
30, 2010 has not been audited by our auditors, Mayer Hoffman McCann P.C. or any
other independent registered accounting firm.


53


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 2011 Annual Meeting
of Stockholders to be filed pursuant to Regulation 14A of the Exchange Act (the
“Proxy Statement”) not later than 120 days after the end of the fiscal year
covered by this Annual Report. Certain information included in the Proxy
Statement is incorporated herein by reference.





ITEM 10.
            Directors, Executive Officers and
      Corporate Governance





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





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





ITEM 11.
            Executive
      Compensation





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





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





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





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





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





ITEM 14.
            Principal Accounting Fees and
      Services





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





PART
IV





ITEM 15.
            Exhibits and Financial Statement
      Schedules





(1)
            Financial Statements are listed
      on the Index to Consolidated Financial Statements on page 28 of this
      Annual Report.


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


54


SCHEDULE
II – VALUATION AND QUALIFYING ACCOUNTS AND RESERVES





REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON SCHEDULE





To the
Stockholders and Board of Directors of





LIVEDEAL,
INC. AND SUBSIDIARIES





We have
audited the consolidated financial statements of LiveDeal, Inc. and Subsidiaries(the
“Company”)as of September 30, 2010 and 2009 and for the years then ended
and have issued our report thereon dated January 5, 2011.   Our audit
was conducted for the purpose of forming an opinion on the basic consolidated
financial statements taken as a whole.  The information included in
the accompanying Schedule II–Valuation and Qualifying Accounts is presented for
purposes of complying with the Securities and Exchange Commission’s rules and is
not a required part of the basic consolidated financial
statements.  Such information for the years ended September 30, 2010
and 2009 has been subjected to the auditing procedures applied in the audits of
the basic consolidated financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic consolidated financial
statements taken as a whole.




/s/ Mayer Hoffman McCann
    P.C.




Phoenix,
Arizona


January
5, 2011





Balance at
                                          
                                          
                                          Charged to
                                          
                                          
                                          Charged to
                                          
                                          
                                          
                                          
                                          
                                          Balance atBeginning
                                          
                                          
                                          Costs
      and
                                          
                                          
                                          Other
                                          
                                          
                                          Deductions/
                                          
                                          
                                          End
      ofDescription
                                          
                                          of
      Period
                                          
                                          
                                          Expenses
                                          
                                          
                                          Accounts
                                          
                                          
                                          Writeoffs
                                          
                                          
                                          PeriodAllowance
      for dilution and fees on amounts due from billing
    aggregatorsYear
      ended September 30, 2009
                                          
                                          $
                                          1,775,276
                                          
                                          
                                          $
                                          5,196,360
                                          
                                          
                                          $
                                          
                                          
                                          
                                          $
                                          (4,280,741
                                          )
                                          
                                          $
                                          2,690,895Year
      ended September 30, 2010
                                          
                                          $
                                          2,690,895
                                          
                                          
                                          $
                                          (354,989
                                          )
                                          
                                          $
                                          
                                          
                                          
                                          $
                                          (231,080
                                          )
                                          
                                          $
                                          2,104,826Allowance
      for customer refundsYear
      ended September 30, 2009
                                          
                                          $
                                          428,269
                                          
                                          
                                          $
                                          2,511,706
                                          
                                          
                                          $
                                          
                                          
                                          
                                          $
                                          (2,789,544
                                          )
                                          
                                          $
                                          150,431Year
      ended September 30, 2010
                                          
                                          $
                                          150,431
                                          
                                          
                                          $
                                          553,214
                                          
                                          
                                          $
                                          
                                          
                                          
                                          $
                                          (656,643
                                          )
                                          
                                          $
                                          47,002


55


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





Exhibit
                Number
              
              Description
              
              Previously Filed as Exhibit
              
              Date
                Previously
                Filed3.1
              
              Amended
      and Restated Articles of Incorporation
              
              Exhibit
      3.1 to the Registrant’s Current Report on Form 8-K filed on August 15,
      2007
              
              8/15/073.1.1
              
              Certificate
      of Change
              
              Exhibit
      3.1 to the Registrant’s Current Report on Form 8-K filed on September 7,
      2010
              
              9/7/103.2
              
              Amended
      and Restated Bylaws
              
              Exhibit
      3.2 to the Registrant’s Annual Report on Form 10-K for the fiscal year
      ended September 30, 2007
              
              12/20/0710.1
              
              LiveDeal,
      Inc. Amended and Restated 2003 Stock Plan*
              
              Exhibit
      10.1 to the Registrant’s Annual Report on Form 10-K for the fiscal year
      ended September 30, 2007
              
              12/20/0710.1.1
              
              First
      Amendment to Amended and Restated 2003 Stock Plan*
              
              Appendix
      A to 2009 Proxy Statement
              
              1/29/0910.2
              
              Form
      of 2003 Stock Plan Restricted Stock Agreement*
              
              Exhibit
      10 to the Registrant’s Quarterly Report on Form 10-QSB for the fiscal
      quarter ending March 31, 2005
              
              5/16/0510.3
              
              Form
      of 2003 Stock Plan Stock Option Agreement*
              
              Exhibit
      10.3 to the Registrant’s Annual Report on Form 10-K for the fiscal year
      ending September 30, 2008
              
              12/29/0810.4
              
              Standard
      Industrial/Commercial Multi-Tenant Lease for Mesa facility, dated June 1,
      1998, between the Registrant and Art Grandlich, d/b/a McKellips Corporate
      Square
              
              Exhibit
      10.5 to the Registrant’s Annual Report on Form 10-KSB for the fiscal year
      ended September 30, 1999
              
              9/19/0010.4.1
              
              Amendment
      No. 1 to Standard Industrial/Commercial Multi-Tenant Lease for Mesa
      facility, dated August 17, 1998, between the Registrant and Arthur
      Grandlich, d/b/a McKellips Corporate Square
              
              Exhibit
      10.4 to the Registrant’s Annual Report on Form 10-K for the fiscal year
      ended September 30, 2006
              
              12/29/0610.4.2
              
              Amendment
      No. 2 to Standard Industrial/Commercial Multi-Tenant Lease for Mesa
      facility, dated January 7, 2003, between the Registrant and Arthur
      Grandlich, d/b/a McKellips Corporate Square
              
              Exhibit
      10.14 to Amendment No. 2 to the Registrant’s Annual Report on Form
      10-KSB/A for the fiscal year ended September 30, 2002
              
              7/8/0310.4.3
              
              Amendment
      No. 3 to Standard Industrial/Commercial Multi-Tenant Lease for Mesa
      facility, dated March 23, 2006, between the Registrant and J3 Harmon,
      LLC, successor in interest to The Estate of Arthur
    Grandlich
              
              Exhibit
      10.4.2 to the Registrant’s Annual Report on Form 10-K for the fiscal year
      ended September 30, 2006
              
              12/29/0610.4.4
              
              Amendment
      No. 4 to Standard Industrial/Commercial Multi-Tenant Lease for Mesa
      facility, dated April 12, 2006, between the Registrant and J3 Harmon,
      LLC, successor in interest to The Estate of Arthur
    Grandlich
              
              Exhibit
      10.4.3 to the Registrant’s Annual Report on Form 10-K for the fiscal year
      ended September 30, 2006
              
              12/29/06


56





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
              
              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
              
              12/29/0610.7
              
              Master
      Services Agreement, dated August 1, 2002, between the Registrant and
      eBillit, Inc.
              
              Exhibit
      10.24 to Amendment No. 1 to the Registrant’s Quarterly Report on Form
      10-QSB/A for the fiscal quarter ended March 31, 2003
              
              7/8/0310.8
              
              Billings
      and Related Services Agreement, dated September 1, 2001, between the
      Registrant and ACI Communications, Inc.
              
              Exhibit
      10.33 to Amendment No. 2 to the Registrant’s Annual Report on Form
      10-KSB/A for the fiscal year ended September 30, 2002
              
              7/8/0310.9
              
              Domain
      Name Purchase and Transfer Agreement, dated November 5, 2008, between the
      Registrant and YellowPages.com LLC
              
              Exhibit
      10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly
      period ended December 31, 2008
              
              2/17/0910.10
              
              Asset
      Purchase Agreement, dated as of March 9, 2009, by and among the
      Registrant, Telco Billing, Inc., and Local.com Corporation
              
              Exhibit
      10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly
      period ended March 31, 2009
              
              5/15/0910.11
              
              Settlement
      Agreement and Mutual release, dated as of February 3, 2010 by and among
      Oncall Superior Management, SM Ventures, LiveDeal, Inc. and Telco Billing,
      Inc.
              
              Exhbit
      10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly
      period ended March 31, 2010
              
              5/14/1010.12
              
              Stock
      Purchase Agreement, dated as of November 29, 2010, by and between the
      Registrant and Joint Corporation FeelTech Investment Unit
1
              
              Attached
      hereto
              
              10.2114
              
              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
              
              5/13/0421
              
              Company
      Subsidiaries
              
              Attached
      hereto23
              
              Consent
      of Mayer Hoffman McCann P.C.
              
              Attached
      hereto31
              
              Certifications
      pursuant to SEC Release No. 33-8238, as adopted pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002
              
              Attached
      hereto32
              
              Certifications
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002
              
              Attached
      hereto





*
Management contract or compensatory plan or arrangement


57


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:  January
      5, 2011
              /s/Kevin A. HallKevin
      A. HallPresident
      and Chief Operating Officer(PrincipalExecutiveOfficer)Dated:  January
      5, 2011
              /s/ Larry TomsicLarry
      TomsicChief
      Financial Officer
                (Principal Financial and
      Accounting Officer)





BOARD OF
DIRECTORS





Signature
              
              Title
              
              Date/s/ Richard D. Butler
              
              Director
              
              January
      5, 2011Richard
      D. Butler/s/ Sheryle Bolton
              
              Director
              
              January
      5, 2011Sheryle
      Bolton/s/ Thomas Clarke, Jr.
              
              Director
              
              January
      5, 2011Thomas
      Clark, Jr/s/ Greg LeClaire
              
              Director
              
              January
      5, 2011Greg
      LeClaire


58