UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
D.C. 20549
 FORM
10-Q
 
 (Mark
One)
 
 T
              Quarterly
      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934
 
 For the
quarterly period ended March 31, 2008
 
 £
              Transition
      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934
 
 For the
transition period from _____________ to _______________
 
 Commission
File Number 0-24217
 
 LiveDeal,
Inc.
 
 (Exact
name of registrant as specified in its charter)
 
 Nevada
              85-0206668(State
      or other jurisdiction of incorporation or organization)
              (IRS
      Employer Identification No.)2490
      East Sunset Road, Suite 100
              89120Las
      Vegas, Nevada
              (Zip
      Code)(Address
      of principal executive offices)
 
 (702)
939-0230
 (Registrant’s
telephone number, including area code)
 
 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  þ    No  £
 
 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  £
              Accelerated
      Filer  £Non-Accelerated
      Filer  £ (Do not check if a
      smaller reporting company)
              Smaller
      reporting company  þ
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes  £    No  þ
 
 APPLICABLE
ONLY TO CORPORATE ISSUERS
 
 The
number of shares of the issuer’s common equity outstanding as of May 1, 2008 was
6,555,281 shares of common stock, par value $0.001.
  
 
  INDEXTO FORM 10-Q FILING
 FOR
THE QUARTER ENDED MARCH 31, 2008
 
 TABLE
OF CONTENTS
 
 PART
I
 FINANCIAL
INFORMATION
 
 PageItem
      1.
              Financial StatementsConsolidated Balance Sheets as of March 31, 2008 (Unaudited)
      and September 30, 2007
              3Unaudited Consolidated Statements of Operations for the Three
      and Six Month Periods Ended March 31, 2008 and March 31,
      2007
              4Unaudited Consolidated Statements of Cash Flows for the Six
      Month Periods Ended March 31, 2008 and March 31, 2007
              5Notes to Unaudited Consolidated Financial
      Statements
              6Item
      2.
              Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
              13Item
      3.
              Quantitative and Qualitative Disclosures About Market
      Risk
              22Item
      4.
              Controls and Procedures
              22PART
      IIOTHER
      INFORMATIONItem
      I.
              Not
      ApplicableItem
      1A.
              Risk Factors
              23Item
      2.
              Unregistered Sale of Equity Securities and Use of
      Proceeds
              23Item
      3.
              Not
      ApplicableItem
      4.
              Submission of Matters to a Vote of Security
      Holders
              23Item
      5.
              Not
      ApplicableItem
      6.
              Exhibits
              24Signatures
              25
 2
 Index
  PART
I – FINANCIAL INFORMATION
 
 ITEM 1.
              FINANCIAL
      STATEMENTS
 
 LIVEDEAL, INC. AND SUBSIDIARIES
 CONSOLIDATED
BALANCE SHEETS
 
 March 31,
              
              
              September 30,2008
              
              
              2007(unaudited)AssetsCash
      and cash equivalents
              
              $
              6,112,170
              
              
              $
              5,674,533Accounts
      receivable, net
              
              
              7,334,805
              
              
              
              6,919,180Prepaid
      expenses and other current assets
              
              
              535,407
              
              
              
              510,609Income
      taxes receivable
              
              
              56,236
              
              
              
              316,429Deferred
      tax asset
              
              
              486,850
              
              
              
              546,145Total
      current assets
              
              
              14,525,468
              
              
              
              13,966,896Accounts
      receivable, long term portion, net
              
              
              1,858,771
              
              
              
              1,941,996Customer
      acquisition costs, net
              
              
              1,605,556
              
              
              
              -Property
      and equipment, net
              
              
              680,046
              
              
              
              423,563Deposits
      and other assets
              
              
              103,380
              
              
              
              103,057Intangible
      assets, net
              
              
              6,866,230
              
              
              
              7,372,147Goodwill
              
              
              11,706,406
              
              
              
              11,683,163Deferred
      tax asset, long term
              
              
              4,620,741
              
              
              
              4,551,644Total
      assets
              
              $
              41,966,598
              
              
              $
              40,042,466Liabilities
      and Stockholders' EquityLiabilities:Accounts
      payable
              
              $
              929,964
              
              
              $
              1,138,265Accrued
      liabilities
              
              
              2,937,642
              
              
              
              1,196,330Total
      current liabilities
              
              
              3,867,606
              
              
              
              2,334,595Total
      liabilities
              
              
              3,867,606
              
              
              
              2,334,595Commitments
      and contingenciesStockholders'
      Equity:Series
      E convertible preferred stock, $0.001 par value, 200,000 shares
      authorized, 127,840 issued and outstanding, liquidation preference
      $38,202
              
              
              10,866
              
              
              
              10,866Common
      stock, $0.001 par value, 100,000,000 shares authorized, 6,575,415 and
      6,693,676 outstanding at March 31, 2008 and September 30, 2007, respectively
              
              
              6,575
              
              
              
              6,694Treasury
      stock (0 and 328,566 shares carried at cost)
              
              
              -
              
              
              
              (2,714,698
              )Paid
      in capital
              
              
              20,673,960
              
              
              
              23,325,888Retained
      earnings
              
              
              17,407,591
              
              
              
              17,079,121Total
      stockholders' equity
              
              
              38,098,992
              
              
              
              37,707,871Total
      liabilities and stockholders' equity
              
              $
              41,966,598
              
              
              $
              40,042,466
 
 See
accompanying notes to unaudited consolidated financial
statements.
  3
 Index
  LIVEDEAL, INC. AND SUBSIDIARIES
 UNAUDITED
CONSOLIDATED STATEMENTS OF OPERATIONS
 
 Three
      Months ended
              
              
              Six
      Months endedMarch 31,
              
              
              March 31,2008
              
              
              2007
              
              
              2008
              
              
              2007Net
      revenues
              
              $
              6,637,785
              
              
              $
              6,106,544
              
              
              $
              13,706,674
              
              
              $
              13,230,227Cost
      of services
              
              
              1,105,689
              
              
              
              957,709
              
              
              
              2,111,238
              
              
              
              2,068,579Gross
      profit
              
              
              5,532,096
              
              
              
              5,148,835
              
              
              
              11,595,436
              
              
              
              11,161,648Operating
      expenses:General
      and administrative expenses
              
              
              3,845,145
              
              
              
              3,127,732
              
              
              
              7,240,116
              
              
              
              6,314,457Sales
      and marketing expenses
              
              
              1,673,384
              
              
              
              1,116,095
              
              
              
              3,859,270
              
              
              
              3,202,128Litigation
      and related expenses
              
              
              -
              
              
              
              (200,718
              )
              
              
              -
              
              
              
              (200,718
              )Total
      operating expenses
              
              
              5,518,529
              
              
              
              4,043,109
              
              
              
              11,099,386
              
              
              
              9,315,867Operating
      income
              
              
              13,567
              
              
              
              1,105,726
              
              
              
              496,050
              
              
              
              1,845,781Other
      income (expense):Interest
      income
              
              
              27,719
              
              
              
              86,462
              
              
              
              63,752
              
              
              
              164,696Other
      income (expense)
              
              
              4,753
              
              
              
              (1,309
              )
              
              
              3,631
              
              
              
              13,756Total
      other income (expense)
              
              
              32,472
              
              
              
              85,153
              
              
              
              67,383
              
              
              
              178,452Income
      before income taxes
              
              
              46,039
              
              
              
              1,190,879
              
              
              
              563,433
              
              
              
              2,024,233Income
      tax provision
              
              
              42,701
              
              
              
              564,617
              
              
              
              234,002
              
              
              
              912,773Net
      income
              
              $
              3,338
              
              
              $
              626,262
              
              
              $
              329,431
              
              
              $
              1,111,460Net
      income per common share:Basic
              
              $
              -
              
              
              $
              0.14
              
              
              $
              0.05
              
              
              $
              0.24Diluted
              
              $
              -
              
              
              $
              0.13
              
              
              $
              0.05
              
              
              $
              0.23Weighted
      average common shares outstanding:Basic
              
              
              6,189,371
              
              
              
              4,570,024
              
              
              
              6,209,995
              
              
              
              4,561,425Diluted
              
              
              6,358,116
              
              
              
              4,802,766
              
              
              
              6,391,245
              
              
              
              4,780,872
 
 See
accompanying notes to unaudited consolidated financial
statements.
  4
 Index
  LIVEDEAL, INC. AND SUBSIDIARIES
 UNAUDITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 Six Months Ended
    March 31,2008
              
              
              2007CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
              
              $
              329,431
              
              
              $
              1,111,461Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
              
              
              1,002,336
              
              
              
              701,611Amortization
      of deferred stock compensation
              
              
              457,170
              
              
              
              834,901Deferred
      income taxes
              
              
              (9,802
              )
              
              
              1,418,642Provision
      for uncollectible accounts
              
              
              268,730
              
              
              
              157,608Changes
      in assets and liabilities:Accounts
      receivable
              
              
              (601,130
              )
              
              
              (237,250
              )Customer
      acquisition costs
              
              
              94,444
              
              
              
              -Prepaid
      expenses and other current assets
              
              
              (24,798
              )
              
              
              (69,626
              )Deposits
      and other assets
              
              
              (323
              )
              
              
              6,933Accounts
      payable
              
              
              (208,301
              )
              
              
              (54,330
              )Accrued
      liabilities
              
              
              41,312
              
              
              
              (2,330,059
              )Income
      taxes receivable
              
              
              260,193
              
              
              
              (1,375,869
              )Net
      cash provided by operating activities
              
              
              1,609,262
              
              
              
              164,022CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchases
      of certificates of deposits and other investments
              
              
              -
              
              
              
              (58,265
              )Additional
      closing costs related to acquisition of LiveDeal, Inc.
              
              
              (7,000
              )
              
              
              -Additional
      closing costs related to acquisition of OnCall Subscriber
      Management, Inc.
              
              
              (16,243
              )
              
              
              -Expenditures
      for intangible assets
              
              
              (391,123
              )
              
              
              (502,487
              )Purchases
      of equipment
              
              
              (361,779
              )
              
              
              (83,922
              )Net
      cash used for investing activities
              
              
              (776,145
              )
              
              
              (644,674
              )CASH
      FLOWS FROM FINANCING ACTIVITIES:Series
      E preferred stock dividends
              
              
              (960
              )
              
              
              (1,437
              )Purchase
      of treasury stock
              
              
              (394,520
              )
              
              
              -Net
      cash used for financing activities
              
              
              (395,480
              )
              
              
              (1,437
              )INCREASE
      (DECREASE) IN CASH AND CASH EQUIVALENTS
              
              
              437,637
              
              
              
              (482,089
              )CASH
      AND CASH EQUIVALENTS, beginning of period
              
              
              5,674,533
              
              
              
              6,394,775CASH
      AND CASH EQUIVALENTS, end of period
              
              $
              6,112,170
              
              
              $
              5,912,686NONCASH
      INVESTING AND FINANCING ACTIVITIES:Customer
      acquisition costs unpaid at end of period
              
              $
              1,700,000
              
              
              $
              -
 
 See
accompanying notes to unaudited consolidated financial
statements
  5
 Index
  LIVEDEAL, INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (contd)
 
 1.  ORGANIZATION
AND BASIS OF PRESENTATION
 
 The
accompanying unaudited 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 is an
Internet-based provider of yellow page directories and online local classified
ads on or through www.YP.com, www.YP.net, www.Yellow-Page.net, and
www.livedeal.com.  No material or information contained on these
websites is a part of these notes or this Quarterly Report on Form
10-Q.  All material intercompany accounts and transactions have been
eliminated.
 
 The
accompanying unaudited consolidated financial statements as of March 31, 2008
and for the three and six months ended March 31, 2008 and 2007,respectively, have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for audited
financial statements. In the opinion of the Company’s management, the interim
information includes all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results for the interim
periods. The results of operations for the three and six months ended March 31,
2008 are not necessarily indicative of the results to be expected for the year
ending September 30, 2008. The footnote disclosures related to the interim
financial information included herein are also unaudited. Such financial
information should be read in conjunction with the consolidated financial
statements and related notes thereto as of September 30, 2007 and for the year
then ended included in the Company’s Annual Report on Form 10-K/A for the year
ended September 30, 2007.
 
 The
preparation of financial statements in accordance with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities at the date of the
financial statements and the reported amount of revenues and expenses during the
reporting period. Significant estimates and assumptions have been used by
management throughout the preparation of the consolidated financial statements
including in conjunction with establishing allowances for customer refunds,
non-paying customers, dilution and fees, analyzing the recoverability of the
carrying amount of intangible assets, estimating forfeitures of restricted stock
and evaluating the recoverability of deferred tax assets.  Actual
results could differ from these estimates.
  6
 Index
  LIVEDEAL,
INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (contd)
 
 2.  BALANCE
SHEET INFORMATION
 
 Balance
sheet information is as follows:
 
 March 31, 2008Current
              
              
              Long-Term
              
              
              TotalGross
      accounts receivable
              
              $
              9,490,261
              
              
              $
              2,006,406
              
              
              $
              11,496,667Allowance
      for doubtful accounts
              
              
              (2,155,456
              )
              
              
              (147,635
              )
              
              
              (2,303,091
              )Net
              
              $
              7,334,805
              
              
              $
              1,858,771
              
              
              $
              9,193,576
 
 September 30, 2007Current
              
              
              Long-Term
              
              
              TotalGross
      accounts receivable
              
              $
              9,221,903
              
              
              $
              2,101,071
              
              
              $
              11,322,974Allowance
      for doubtful accounts
              
              
              (2,302,723
              )
              
              
              (159,075
              )
              
              
              (2,461,798
              )Net
              
              $
              6,919,180
              
              
              $
              1,941,996
              
              
              $
              8,861,176
 
 Components
of the allowance for doubtful accounts are as follows:
 
 March 31, 2008
              
              
              September 30, 2007Allowance
      for dilution and fees on amounts due from billing
    aggregators
              
              $
              1,829,147
              
              
              $
              1,888,730Allowance
      for customer refunds
              
              
              473,944
              
              
              
              573,068$
              2,303,091
              
              
              $
              2,461,798
 
 Customer
acquisition costs, net consist of the following:
 
 March 31, 2008
              
              
              September 30, 2007Customer
      acquisition costs
              
              $
              1,700,000
              
              
              $
              -Less:
      Accumulated amortization
              
              
              (94,444
              )
              
              
              -Customer
      acquisition costs, net
              
              $
              1,605,556
              
              
              $
              -
 
 Customer
acquisition costs at March 31, 2008 consist of a gross amount of $1,700,000 of
costs of acquiring customer contracts that will be serviced in the
future.
 
 Property
and equipment, net consists of the following:
 
 March 31, 2008
              
              
              September 30, 2007Leasehold
      improvements
              
              $
              608,664
              
              
              $
              455,286Furnishings
      and fixtures
              
              
              455,381
              
              
              
              310,499Office
      and computer equipment
              
              
              1,480,153
              
              
              
              1,423,989Total
              
              
              2,544,198
              
              
              
              2,189,774Less:
      Accumulated depreciation
              
              
              (1,864,152
              )
              
              
              (1,766,211
              )Property
      and equipment, net
              
              $
              680,046
              
              
              $
              423,563
  7
 Index
  LIVEDEAL,
INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (contd)
 
 Intangible
assets, net consist of the following:
 
 March 31, 2008
              
              
              September 30, 2007Domain
      name
              
              $
              7,208,600
              
              
              $
              7,208,600Non-compete
      agreements
              
              
              3,465,000
              
              
              
              3,465,000Website
      development
              
              
              3,380,914
              
              
              
              3,006,093Software
      licenses
              
              
              -
              
              
              
              -Total
              
              
              14,054,514
              
              
              
              13,679,693Less:
      Accumulated amortization
              
              
              (7,188,284
              )
              
              
              (6,307,546
              )Intangible
      assets, net
              
              $
              6,866,230
              
              
              $
              7,372,147
 
 Accrued
liabilties include the following:
 
 March 31, 2008
              
              
              September 30, 2007Deferred
      revenue
              
              $
              341,010
              
              
              $
              323,596Accrued
      payroll & bonus
              
              
              337,138
              
              
              
              339,305Accrued
      expenses - other
              
              
              2,259,494
              
              
              
              533,429Accrued
      liabilities
              
              $
              2,937,642
              
              
              $
              1,196,330
 
 Included
in accrued expenses – other at March 31, 2008 are $1,700,000 of accrued customer
acquisition costs previously described in this Note.
 
 3.  PRO FORMA
FINANCIAL INFORMATION
 
 The
accompanying consolidated unaudited financial statements include the results of
LiveDeal, Inc. and OnCall Subscriber Management Inc. from June 6, 2007 and July
10, 2007, their respective dates of acquisition.  The following table
provides pro forma results of operations for the three and six months ended
March 31, 2007 as if LiveDeal had been acquired as of the beginning of the
period. The pro forma results include certain purchase accounting adjustments
such as the estimated changes in amortization expense on acquired intangible
assets, increased compensation expense resulting from the compensation
obligations to LiveDeal executives and the elimination of interest expense on
borrowings that were satisfied through the acquisition.  However, pro
formal results do not include any anticipated cost savings or other effects of
the integration of LiveDeal.  Accordingly, such amounts are not
necessarily indicative of the results that would have occurred if the
acquisition had occurred on the dates indicated or that may result in the
future.
 
 Three
      Months
              
              
              Six
      MonthsEnded
      March 31,
              
              
              Ended
      March 31,2007
              
              
              2007(unaudited)
              
              
              (unaudited)Net
      revenues
              
              $
              6,745,224
              
              
              $
              14,526,016Net
      loss
              
              $
              (389,241
              )
              
              $
              (1,061,163
              )Diluted
      net loss per share
              
              $
              (0.06
              )
              
              $
              (0.17
              )
  8
 Index
  LIVEDEAL,
INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (contd)
 
 Pro forma
financial information is not provided for the acquisition of OnCall Subscriber
Management Inc. as this entity was a carve-out of a larger entity.  As
such, historical financial information of the acquired entity on a stand-alone
basis cannot be obtained.
 
 4.  TREASURY
STOCK
 
 On May
25, 2007, the Company’s Board of Directors terminated its existing stock
repurchase plan and replaced it with a new plan authorizing repurchases of up to
$1,000,000 of common stock from time to time on the open market.  The
Company acquired 102,175 shares of its common stock during the six months ended
March 31, 2008 at an aggregate cost of $394,519.  As of March 31,
2008, all treasury stock has been retired.
 
 5.  COMMITMENTS
AND CONTINGENCIES
 
 At March
31, 2008, future minimum annual payments under operating lease agreements and
non-cancelable service contracts for fiscal years ending September 30 are as
follows:
 
 Payments Due by Fiscal YearTotal
              
              
              2008
              
              
              2009
              
              
              2010
              
              
              2011
              
              
              2012
              
              
              ThereafterOperating
      lease commitments
              
              $
              2,777,240
              
              
              $
              466,435
              
              
              $
              858,852
              
              
              $
              568,136
              
              
              $
              465,736
              
              
              $
              339,361
              
              
              $
              78,720Noncanceleable
      service contracts
              
              
              957,876
              
              
              
              299,292
              
              
              
              558,584
              
              
              
              100,000
              
              
              
              -
              
              
              
              -
              
              
              
              -$
              3,735,116
              
              
              $
              765,727
              
              
              $
              1,417,436
              
              
              $
              668,136
              
              
              $
              465,736
              
              
              $
              339,361
              
              
              $
              78,720
 
 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
the Company’s business, financial position, results of operations, cash flows or
liquidity.
 
 6.  INCOME
TAXES
 
 The
Company provides for income taxes based on the provisions of SFAS No. 109,Accounting for Income Taxes,which, among other things, requires that recognition of deferred income
taxes be measured by the provisions of enacted tax laws in effect at the date of
the financial statements. The Company records, among other items, deferred tax
assets related to book-tax differences in the recognition of restricted stock
awards to officers, directors, employees and consultants.  During the
three and six months ended March 31, 2008 and 2007, a portion of our restricted
stock awards had vested and, due to declines in our stock price from grant date
to vest date, the tax effects of the vesting of these awards were less than the
carrying value of our related deferred tax assets.  Accordingly, the
Company incurred an additional $22,000 and $112,000 of income tax expense for
the three months ended March 31, 2008 and 2007, respectively and $23,000 and
$135,000 of income tax expense for the six months ended March 31, 2008 and 2007,
respectively, related to the write-off of these deferred tax
assets.
  9
 Index
  LIVEDEAL,
INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (contd)
 
 7.  NET
INCOME PER SHARE
 
 Net
income per share is calculated using the weighted average number of shares
of common stock outstanding during the period.  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 unaudited consolidated balance sheet.  Diluted net income
per share is computed using the weighted average number of common shares and, if
dilutive, potential common shares outstanding during the period. Potential
common shares consist of the incremental common shares issuable from restricted
shares and convertible preferred stock. The dilutive effect of outstanding
restricted shares is reflected in diluted earnings per share by application of
the treasury stock method. Convertible preferred stock is reflected on an
if-converted basis. Preferred stock dividends are subtracted from net
income to determine the amount available to common
stockholders.
 
 The
following table presents the computation of basic and diluted net income per
share:
 
 Three Months Ended
      March 31,
              
              
              Six Months Ended
    March 31,2008
              
              
              2007
              
              
              2008
              
              
              2007Net
      income
              
              $
              3,338
              
              
              $
              626,262
              
              
              $
              329,431
              
              
              $
              1,111,460Less:
      preferred stock dividends
              
              
              (480
              )
              
              
              -
              
              
              
              (960
              )
              
              
              -Income
      applicable to common stock
              
              $
              2,858
              
              
              $
              626,262
              
              
              $
              328,471
              
              
              $
              1,111,460Basic
      weighted average common shares outstanding
              
              
              6,189,371
              
              
              
              4,570,024
              
              
              
              6,209,995
              
              
              
              4,561,425Add
      incremental shares for:Unvested
      restricted stock
              
              
              167,774
              
              
              
              226,254
              
              
              
              180,764
              
              
              
              213,105Series
      E convertible preferred stock
              
              
              971
              
              
              
              6,488
              
              
              
              486
              
              
              
              6,342Diluted
      weighted average common shares outstanding
              
              
              6,358,116
              
              
              
              4,802,766
              
              
              
              6,391,245
              
              
              
              4,780,872Net
      income per share:Basic
              
              $
              -
              
              
              $
              0.14
              
              
              $
              0.05
              
              
              $
              0.24Diluted
              
              $
              -
              
              
              $
              0.13
              
              
              $
              0.05
              
              
              $
              0.23
 
 The
following potentially dilutive securities were excluded from the calculation of
diluted net income per share because the effects were antidilutive based on the
application of the treasury stock method:
 
 Three Months Ended
      March 31,
              
              
              Six Months Ended
    March 31,2008
              
              
              2007
              
              
              2008
              
              
              2007Shares
      of non-vested restricted stock
              
              
              53,075
              
              
              
              65,075
              
              
              
              53,788
              
              
              
              73,988
 
 8. CONCENTRATION
OF CREDIT RISK
 
 The
Company maintains cash balances at major nationwide institutions in Arizona and
Nevada.  Accounts are insured by the Federal Deposit Insurance
Corporation up to $100,000.
 
 Financial
instruments that potentially subject the Company to concentrations of credit
risk are primarily trade accounts receivable.  The trade accounts
receivable are due primarily from business customers over widespread
geographical locations within the LEC billing areas across the United
States.  The Company historically has experienced significant dilution
and customer credits due to billing difficulties and uncollectible trade
accounts receivable.  The Company estimates and provides an allowance
for uncollectible accounts receivable.  The handling and processing of
cash receipts pertaining to trade accounts receivable is maintained primarily by
four third-party billing companies.  The net receivable due from three
of these billing service providers individually exceeded 10% and represented
27%, 16% and 10%, respectively, of the Company’s total net accounts receivable
(excluding non-specific reserves) at March 31, 2008. The net
receivable due from such billing service providers represented 31%, 23% and 16%,
respectively, of the Company’s total net accounts receivable at September 30,
2007.
  10
 Index
  LIVEDEAL,
INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (contd)
 
 9. RECENT
ACCOUNTING PRONOUNCEMENTS
 
 In
September 2006, the SEC issued Staff Accounting Bulletin No. 108, Considering
the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements (“SAB 108”).  SAB 108 provides
guidance on how prior year misstatements should be considered when quantifying
misstatements in the current year financial statements.  The SAB
requires registrants to quantify misstatements using both a balance sheet and an
income statement approach and evaluate whether either approach results in
quantifying a misstatement that, when all relevant quantitative and qualitative
factors are considered, is material.  SAB 108 does not change the
guidance in SAB 99, “Materiality”, when evaluating the materiality of
misstatements.  SAB 108 is effective for fiscal years ending after
November 15, 2006.  The adoption of this pronouncement did not have a
material effect of the Company’s consolidated financial statements.
 
 In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS No.
157”). SFAS No. 157 establishes a framework for measuring fair value under
generally accepted accounting procedures and expands disclosures on fair value
measurements. This statement applies under previously established valuation
pronouncements and does not require the changing of any fair value measurements,
though it may cause some valuation procedures to change. Under SFAS No. 157,
fair value is established by the price that would be received to sell the item
or the amount to be paid to transfer the liability of the asset as opposed to
the price to be paid for the asset or received to transfer the liability.
Further, it defines fair value as a market specific valuation as opposed to an
entity specific valuation, though the statement does recognize that there may be
instances when the low amount of market activity for a particular item or
liability may challenge an entity’s ability to establish a market amount. In the
instances that the item is restricted, this pronouncement states that the owner
of the asset or liability should take into consideration what affects the
restriction would have if viewed from the perspective of the buyer or assumer of
the liability. This statement is effective for all assets valued in financial
statements for fiscal years beginning after November 15, 2007. The Company is
currently evaluating the impact of SFAS No. 157 on its financial position and
result of operations.
 
 In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities (“SFAS No. 159”), which provides companies
with an option to report selected financial assets and liabilities at fair
value.  SFAS No. 159 also establishes presentation and disclosure
requirements designed to facilitate comparisons between companies that choose
different measurement attributes for similar types of assets and
liabilities.  SFAS No. 159 is effective as of the beginning of an
entity’s first fiscal year beginning after November 15, 2007 with early adoption
allowed.  The Company has not yet determined what impact, if any, that
adopting this standard might have on its financial position and results of
operations.
  11
 Index
  LIVEDEAL,
INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (contd)
 
 In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business
Combinations (“SFAS No. 141(R)”) and No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51 (“SFAS No. 160”).
SFAS No. 141(R) and SFAS No. 160 are products of a joint project between the
FASB and the International Accounting Standards Board.  The revised
standards continue the movement toward the greater use of fair values in
financial reporting. SFAS No. 141(R) will significantly change how business
acquisitions are accounted for and will impact financial statements both on the
acquisition date and in subsequent periods. These changes include the expensing
of acquisition related costs and restructuring costs when incurred, the
recognition of all assets, liabilities and noncontrolling interests at fair
value during a step-acquisition, and the recognition of contingent consideration
as of the acquisition date if it is more likely than not to be
incurred.  SFAS No. 160 will change the accounting and reporting for
minority interests, which will be recharacterized as noncontrolling interests
and classified as a component of equity.  SFAS No. 141(R) and SFAS No.
160 are effective for both public and private companies for fiscal years
beginning on or after December 15, 2008 (October 1, 2009 for the Company). SFAS
No. 141(R) will be applied prospectively. SFAS No. 160 requires retroactive
adoption of the presentation and disclosure requirements for existing minority
interests. All other requirements of SFAS No. 160 shall be applied
prospectively. Early adoption is prohibited for both standards.  The
Company is currently evaluating the effects of these pronouncements on its
financial position and results of operations.
 
 *                      *                      *
  12
 Index
  ITEM 2. 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 three and six
months ended March 31, 2008, this “Item 2.  Management’s Discussion
and Analysis of Financial Condition and Results of Operations” (hereafter
referred to as “MD&A”) should be read in conjunction with the Consolidated
Financial Statements, including the related notes, appearing in Item 1 of this
Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the
year ended September 30, 2007.
 
 Forward-Looking
Statements
 
 This
portion of this Quarterly Report on Form 10-Q, 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 herein include,
but are not limited to our expectation that continued investment in online
advertising to bring increased traffic to our websites will drive increased
revenues; our belief that our existing cash on hand will provide us with
sufficient liquidity to meet our operating needs for the next 12 months; the
anticipated benefits relating to our acquisition of LiveDeal, Inc.; and our
intention to continue to invest in online advertising.
 
 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 our Annual Report on Form
10-K/A for the fiscal year ended September 30, 2007 under 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
 
 We
maintain a combined local online classifieds and Yellow Pages marketplace with
millions of goods and services listed for sale, in nearly every city and zip
code across the U.S. By combining the benefits of classifieds, business
listings, mobile services, advertising/distribution networks and e-commerce into
a single online solution, we offer businesses and consumers an affordable and
effective solution for creating a web presence and marketing their products and
services locally. Through our online properties YP.com and LiveDeal.com, we
enable buyers and sellers to find and list business services, merchandise, real
estate, automobiles, pets and more in their local communities. Using our
marketplace, consumers can search or browse for items in a particular city,
state or zip code, or reach out on a national or global scope if they so
choose.
 
 Relocation
of Certain Functions
 
 During
the three months ended March 31, 2008, began closing our corporate
offices in Mesa, Arizona that housed certain customer service functions, IT
functions and corporate administration.  The corporate and IT
functions are being relocated to our Las Vegas, Nevada offices and
our customer service functions are being transitioned to our
headquarters in the Philippines.  We applied the provisions of SFAS No.
146, "Accounting for Costs Associated with Cut or Disposal Activities" in
accounting for these events.
 
 Listing
on NASDAQ Capital Market
 
 On
February 1, 2008, we began trading on the NASDAQ Capital
Market.   Concurrent with this change, our ticker symbol was
changed from LVDL.OB to LIVE.
  13
 Index
  Acquisition
of LiveDeal, Inc.
 
 On June
6, 2007, we completed the acquisition of LiveDeal, Inc.
(“LiveDeal”).  LiveDeal developed and operates an online local
classifieds marketplace, www.livedeal.com, which lists millions of goods and
services for sale in almost every city and zip code across the
U.S.   The technology acquired in the acquisition offers such
classifieds functionality as fraud protection, identity protection, e-commerce,
listing enhancements, photos, community-building, package pricing, premium
stores, featured Yellow Page business listings and advanced local search
capabilities.
 
 The
acquisition represents a major strategic event in our history and we hope
results in significant efficiencies as well as future growth
opportunities.  With the acquisition of LiveDeal, we are now able to
supplement our telemarketing campaigns with online marketing
efforts.  Our online traffic acquisition strategy includes activities
in e-mail marketing, search engine marketing (“SEM”), search engine optimization
(“SEO”) partnerships with major online marketing companies, and the generation
of word of mouth advertising.  We anticipate continued investment in
online advertising to bring increased traffic to our websites that should result
in increased value to the local business advertising community thereby driving
increased revenues.
 
 We have
consolidated the results of LiveDeal in our financial statements beginning June
6, 2007, the date of acquisition. The following table provides pro forma
results of operations for the three and six months ended March 31, 2007 as if
LiveDeal had been acquired as of the beginning of the period. The pro forma
results include certain purchase accounting adjustments such as the estimated
changes in amortization expense on acquired intangible assets, increased
compensation expense resulting from the contractual obligation for
Mr. Navar’s salary and the elimination of interest expense on borrowings
that were satisfied through the acquisition.  However, pro forma
results do not include any anticipated cost savings or other effects of the
integration of LiveDeal.  Accordingly, such amounts are not
necessarily indicative of the results that would have occurred if the
acquisition had occurred on the dates indicated or that may result in the
future.
 
 Three
      Months
              
              
              Six
      MonthsEnded
      March 31,
              
              
              Ended
      March 31,2007
              
              
              2007(unaudited)
              
              
              (unaudited)Net
      revenues
              
              $
              6,745,224
              
              
              $
              14,526,016Net
      loss
              
              $
              (389,241
              )
              
              $
              (1,061,163
              )Diluted
      net loss per share
              
              $
              (0.06
              )
              
              $
              (0.17
              )
 
 Acquisition
of OnCall Subscriber Management Inc.
 
 On July
10, 2007, we acquired substantially all of the assets and assumed certain
liabilities of OnCall Subscriber Management Inc. (a Manila, Philippines-based
company) (“OnCall”), which OnCall purchased recently under option from 24 by 7
Contact Solutions, Inc. This acquisition allowed us to bring our entire
telemarketing operations in-house through the addition of 170 Philippines-based
employees to our workforce.  We have consolidated the results of this
entity in our consolidated financial statements beginning July 10, 2007, the
date of acquisition.
  14
 Index
  Recent
Operating Results
 
 The
following represents a summary of recent financial results:
 
 Q2 2008
              
              
              
              Q1 2008
              
              
              
              Q4 2007
              
              
              
              Q3 2007
              
              
              
              Q2 2007
              
              
              
              Q1 2007Net
      Revenues
              
              $
              6,637,785
              
              
              $
              7,068,888
              
              
              $
              7,120,697
              
              
              $
              5,989,437
              
              
              $
              6,106,544
              
              
              $
              7,123,683Gross
      margin
              
              
              5,532,096
              
              
              
              6,063,339
              
              
              
              5,860,893
              
              
              
              5,113,544
              
              
              
              5,148,835
              
              
              
              6,012,813Operating
      expenses
              
              
              5,518,529
              
              
              
              5,580,857
              
              
              
              4,956,356
              
              
              
              4,537,182
              
              
              
              4,043,109
              
              
              
              5,272,758Operating
      income
              
              
              13,567
              
              
              
              482,482
              
              
              
              904,537
              
              
              
              576,362
              
              
              
              1,105,726
              
              
              
              740,055Net
      income
              
              
              3,338
              
              
              
              326,092
              
              
              
              376,053
              
              
              
              266,405
              
              
              
              626,262
              
              
              
              485,198
 
 Net
income decreased in the second quarter of fiscal 2008 as compared to the first
quarter of fiscal 2008 due primarily to the following :
 
 ·
              Net
      revenues decreased by approximately $431,000 due primarily to an increase
      in returns and allowances due to the effects of the Chapter 11 bankruptcy
      filing of one of our LEC aggregators.  We have been
      transitioning customers away from this aggregator to other aggregators
      given the uncertainty associated with the bankruptcy
      filing.  This transition caused an increase in the number of
      unbillable accounts and chargebacks.  Gross revenues were
      relatively consistent between the first and second quarters of fiscal
      2008.
 
 ·
              Cost
      of services increased by approximately $100,000 due primarily to an
      increase of $118,000 in reserves associated with receivables due from the
      LEC aggregator that is currently in bankruptcy proceedings, partially
      offset by other minor fluctuations in cost of
  services.
 
 ·
              General
      and administrative expense increased by approximately $450,000 primarily
      due to the following:
 
 o
              A
      bonus payment of $150,000 in the second quarter of fiscal 2008 to our CEO
      as stipulated in his employment contract for our listing on the NASDAQ
      Capital Market, a national
exchange.
 
 o
              Increased
      compensation costs of approximately $299,000 primarily attributable to the
      hiring and training of other employees related to the transition of
      functions to the Philippines and the development of telemarketing
      functions.
 
 o
              Increased
      investor relations, legal and other corporate expenses of approximately
      $61,000 associated with our listing on the NASDAQ Capital Market, the
      preparation of our annual proxy statement and other current
      activities.
 
 o
              Decreased
      professional fees of approximately $90,000 associated with the conclusion
      of certain consulting projects.
 
 ·
              Sales
      and marketing decreased by approximately $513,000 primarily due to the
      following:
 
 o
              A
      decrease in customer acquisition costs of approximately $285,000 stemming
      from the renegotiation of a wholesale contract which resulted in the
      forgiveness of approximately $129,000 of customer acquisition costs
      related to this agreement;
 
 o
              A
      decrease in telemarketing costs of approximately $112,000 attributable to
      the conclusion of certain wholesale telemarketing
  programs;
 
 o
              A
      decrease in other telemarketing costs of approximately $213,000 due to the
      discontinuance of certain programs and efficiencies gained through the
      transition of certain outsourced activities to in-house
      functions,
  15
 Index
  o
              An
      increase of approximately $94,000 in amortization of capitalized customer
      acquisition costs associated with a new wholesale fulfillment
      contract
 
 ·
              Income
      tax provision decreased by approximately $149,000 due to primarily to
      changes in pretax income as described
above
 
 Results
of Operations
 
 Net Revenues
 
 Net Revenues2008
              
              
              2007
              
              
              Change
              
              
              PercentThree
      Months Ended March 31,
              
              $
              6,637,785
              
              
              $
              6,106,544
              
              
              $
              531,241
              
              
              
              9
              %Six
      Months Ended March 31,
              
              $
              13,706,674
              
              
              $
              13,230,227
              
              
              $
              476,447
              
              
              
              4
              %
 
 Net
revenues increased in the second quarter of fiscal 2008 as compared to the
second quarter of 2007 due primarily to the acquisition of LiveDeal in June
2007.  Net revenues from the acquired entity were approximately
$598,000 and $1,261,000 in the second quarter and first six months of fiscal
2008, respectively.  For the first six months of  fiscal
2008, this increase in revenues was partially offset by a decline in directory
services accounts as we were precluded from billing accounts in certain Local
Exchange Carrier (“LEC”) areas and adding additional accounts in other LEC areas
as the LEC’s tightened their thresholds for inquiries.
 
 Although
we have concentrations of risk with our billing aggregators (as described in
Note 8 to our Unaudited Consolidated Financial Statements included elsewhere in
this report) these aggregators bill via many underlying LECs, thereby reducing
our risk associated with credit concentrations.  However, there are a
few LECs that service a significant number of our customers.  To the
extent that future changes in the LEC’s billing practices cause a disruption in
our ability to bill through these channels, our revenues could be adversely
affected.
 
 Our
Internet Advertising Package (“IAP”) is our primary source of
revenue.  The majority of our IAP customers pay between $27.50 and
$39.95 per month.
 
 Cost
of Services
 
 Cost of Services2008
              
              
              2007
              
              
              Change
              
              
              PercentThree
      Months Ended March 31,
              
              $
              1,105,689
              
              
              $
              957,709
              
              
              $
              147,980
              
              
              
              15
              %Six
      Months Ended March 31,
              
              $
              2,111,238
              
              
              $
              2,068,579
              
              
              $
              42,659
              
              
              
              2
              %
 
 Cost of
services increased in the second quarter of fiscal 2008 as compared to the
second quarter of fiscal 2007 due to increased bad debt expense associated with
receivables due from the LEC aggregator that is currently in bankruptcy
proceedings and increased inquiry fees associated with the transition of certain
customers to different aggregators to reduce our exposure from these bankruptcy
proceedings.  This increase was partially offset for the first six
months of fiscal 2008 as compared to the first six months of fiscal 2007 due to
cost reduction efforts and a reduction in LEC monitoring and Internet service
fees.  We have increased our LEC billings as a percent of net revenues
from 64% in the second quarter of fiscal 2007 to 71% in the second quarter of
fiscal 2008.  While LEC billings typically have higher costs than
other billing channels, we have reduced our costs per customer by renegotiating
vendor service contracts and improving our quality assurance
procedures.
  16
 Index
  Gross
Profit
 
 Gross Profit2008
              
              
              2007
              
              
              Change
              
              
              PercentThree
      Months Ended March 31,
              
              $
              5,532,096
              
              
              $
              5,148,835
              
              
              $
              383,261
              
              
              
              7
              %Six
      Months Ended March 31,
              
              $
              11,595,436
              
              
              $
              11,161,648
              
              
              $
              433,788
              
              
              
              4
              %
 
 Gross
margins were generally consistent at 83.3% and 84.3% of net revenues in the
second quarter of fiscal 2008 and 2007, respectively, and 84.6% and 84.4% of net
revenues in the first six months of fiscal 2008 and 2007,
respectively.
 
 General and Administrative
Expenses
 
 General and Administrative
      Expenses2008
              
              
              2007
              
              
              Change
              
              
              PercentThree
      Months Ended March 31,
              
              $
              3,845,145
              
              
              $
              3,127,732
              
              
              $
              717,413
              
              
              
              23
              %Six
      Months Ended March 31,
              
              $
              7,240,116
              
              
              $
              6,314,457
              
              
              $
              925,659
              
              
              
              15
              %
 
 General
and administrative expenses increased in the second quarter of fiscal 2008 as
compared to the second quarter of fiscal 2007 primarily due to the
following:
 
 ·
              An
      increase in depreciation and amortization expense of approximately
      $122,000 stemming primarily from the effects of the LiveDeal acquisition,
      which added $2.2 million of depreciable and amortizable long-lived and
      intangible assets;
 
 ·
              An
      increase in compensation expense of approximately $500,000 due
      to:
 
 o
              Salaries
      and other compensation expense of $410,000 associated with the LiveDeal
      acquisition that took place in June 2007;
and
 
 o
              Increased
      compensation costs of $401,000 associated with the hiring and training of
      other employees related to the transition of functions to the Philippines
      and the development of telemarketing
functions;
 
 o
              A
      bonus payment of $150,000 to our CEO as stipulated in his employment
      contract for our listing on the NASDAQ Capital Market, a national
      exchange; partially offset by
 
 o
              Decreased
      bonus accruals of $242,000 for other executives;
  and
 
 o
              Decreased
      stock based compensation charges of approximately $219,000 as more
      historical awards become fully
vested;
 
 ·
              An
      increase in other general and administrative expenses of approximately
      $224,000 primarily due to increased facility, office and other corporate
      expenses associated with the LiveDeal acquisition; and partially offset
      by
 
 ·
              A
      decrease in professional and consulting fees of approximately $129,000 as
      we incurred significant expenses in the first quarter of 2007 to develop
      our strategic direction following the effects of the Attorneys’ General
      settlement.
  17
 Index
  General
and administrative expenses increased in the first six months of fiscal 2008 as
compared to the first six months of fiscal 2007 primarily due to the
following:
 
 ·
              An
      increase in depreciation and amortization expense of approximately
      $264,000 stemming primarily from the effects of the LiveDeal acquisition,
      which added $2.2 million of depreciable and amortizable long-lived and
      intangible assets;
 
 ·
              An
      increase in compensation expense of approximately $555,000 due
      to:
 
 o
              Salaries
      and other compensation expense of $816,000 associated with the LiveDeal
      acquisition that took place in June 2007;
and
 
 o
              Increased
      compensation costs of $353,000 associated with the hiring and training of
      other employees related to the transition of functions to the Philippines
      and the development of telemarketing
functions;
 
 o
              A
      bonus payment of $150,000 to our CEO as stipulated in his employment
      contract for our listing on a national exchange; partially offset
      by
 
 o
              Decreased
      bonus accruals of $386,000 for other executives;
  and
 
 o
              Decreased
      stock based compensation charges of approximately $378,000 as more
      historical awards become fully
vested.
 
 ·
              An
      increase in other general and administrative expenses of approximately
      $348,000 primarily due to increased facility, office and other corporate
      expenses associated with the LiveDeal acquisition; and partially offset
      by
 
 ·
              A
      decrease in professional and consulting fees of approximately $241,000 as
      we incurred significant expenses in the first quarter of 2007 to develop
      our strategic direction following the effects of the Attorneys’ General
      settlement.
 
 Our
general and administrative expenses consist largely of fixed and semi-fixed
expenses such as compensation, rent, and utilities.  Therefore, we do
not consider short-term trends of general and administrative expenses as a
percentage of revenues to be meaningful indicators for evaluating operational
performance.
 
 The following table sets forth our
recent operating performance for general and administrative
expenses:
 
 Q2 2008
              
              
              
              Q1 2008
              
              
              
              Q4 2007
              
              
              
              Q3 2007
              
              
              
              Q2 2007
              
              
              
              Q1 2007Compensation
      for employees, leased employees, officers and directors
              
              $
              2,377,412
              
              
              $
              1,928,272
              
              
              $
              1,535,115
              
              
              $
              1,760,439
              
              
              $
              1,877,103
              
              
              $
              1,873,582Professional
      fees
              
              
              191,330
              
              
              
              281,418
              
              
              
              184,507
              
              
              
              529,139
              
              
              
              319,948
              
              
              
              394,028Reconfirmation,
      mailing, billing and other customer-related costs
              
              
              27,735
              
              
              
              17,601
              
              
              
              33,662
              
              
              
              24,269
              
              
              
              34,042
              
              
              
              23,715Depreciation
      and amortization
              
              
              487,085
              
              
              
              478,433
              
              
              
              460,554
              
              
              
              396,759
              
              
              
              364,724
              
              
              
              336,887Other
      general and administrative costs
              
              
              761,583
              
              
              
              689,247
              
              
              
              757,136
              
              
              
              522,583
              
              
              
              531,915
              
              
              
              558,513$
              3,845,145
              
              
              $
              3,394,971
              
              
              $
              2,970,974
              
              
              $
              3,233,189
              
              
              $
              3,127,732
              
              
              $
              3,186,725
 
 Sales and Marketing
Expenses
 
 Sales and Marketing
Expenses2008
              
              
              2007
              
              
              Change
              
              
              PercentThree
      Months Ended March 31,
              
              $
              1,673,384
              
              
              $
              1,116,095
              
              
              $
              557,289
              
              
              
              50
              %Six
      Months Ended March 31,
              
              $
              3,859,270
              
              
              $
              3,202,128
              
              
              $
              657,142
              
              
              
              21
              %
  18
 Index
  Sales and
marketing expenses increased in the second quarter of fiscal 2008 as compared to
the second quarter of fiscal 2007 due to expanded marketing efforts in
telemarketing, and online advertising and the amortization of customer
acquisition costs related to acquired wholesale customers, partially offset by a
reduction of approximately $1 million in direct response advertising costs as we
have discontinued our direct mail campaigns.  Online advertising has
increased from zero in the second quarter of fiscal 2007 to approximately
$606,000 in the second quarter of fiscal 2008 as we seek to increase customers’
awareness and use of our online marketplace.
 
 Sales and
marketing expenses increased similarly for the first six months of fiscal 2008
as compared to the first six months of fiscal 2007. Direct response advertising
costs related to our discontinued direct mail campaigns totaled $2,792,000 in
the first six months of fiscal 2007.  Online advertising has increased
from zero in the first six months of fiscal 2007 to approximately $1,199,000 in
the first six months of fiscal 2008.
 
 Included
in sales and marketing expenses for the three and six months ended March 31,
2008 is depreciation expense of $18,408 and $36,818, respectively, related to
our subsidiary in the Philippines that exclusively provides telemarketing
services.
 
 Operating Income
 
 Operating Income (Loss)2008
              
              
              2007
              
              
              Change
              
              
              PercentThree
      Months Ended March 31,
              
              $
              13,567
              
              
              $
              1,105,726
              
              
              $
              (1,092,159
              )
              
              
              (99
              )%Six
      Months Ended March 31,
              
              $
              496,050
              
              
              $
              1,845,781
              
              
              $
              (1,349,731
              )
              
              
              (73
              )%
 
 The
decrease in operating income for the three and six months ended March 31, 2008
as compared to the three and six months ended March 31, 2007 is primarily due to
increased operating expenses partially offset by increased gross margins, each
of which is described above.
 
 Other
Income (Expense)
 
 Other Income (Expense)2008
              
              
              2007
              
              
              Change
              
              
              PercentThree
      Months Ended March 31,
              
              $
              32,472
              
              
              $
              85,153
              
              
              $
              (52,681
              )
              
              
              (62
              )%Six
      Months Ended March 31,
              
              $
              67,383
              
              
              $
              178,452
              
              
              $
              (111,069
              )
              
              
              (62
              )%
 
 Other
income (expense), consisting primarily of interest income, decreased in the
three and six months ended March 31, 2008 as compared to the three and six
months ended March 31, 2007 due primarily to a reduction of our cash and
short-term investment balances, which decreased as a result of investments in
acquired businesses and the effects of the Attorneys’ General
settlement.
 
 Income
Tax Provision
 
 Income Tax Provision2008
              
              
              2007
              
              
              Change
              
              
              PercentThree
      Months Ended March 31,
              
              $
              42,701
              
              
              $
              564,617
              
              
              $
              (521,916
              )
              
              
              (92
              )%Six
      Months Ended March 31,
              
              $
              234,002
              
              
              $
              912,773
              
              
              $
              (678,771
              )
              
              
              (74
              )%
 
 The
change in our income tax provision in each of the above periods is due primarily
to corresponding decreases in our pre-tax income.  However, in the
three and six months ended March 31, 2008 we incurred additional income tax
expense of $22,000 and 23,000 respectively, due to book-tax differences in the
recognition of restricted stock awards, as compared to $112,000 and $135,000 for
the three and six months ended March 31, 2007.  During these periods,
a portion of our restricted stock awards had vested and, due to declines in our
stock price from grant date to vest date, the tax effects of the vesting of
these awards were less than the carrying value of the related deferred tax
assets.
  19
 Index
  Net Income
 
 Net Income (Loss)2008
              
              
              2007
              
              
              Change
              
              
              PercentThree
      Months Ended March 31,
              
              $
              3,338
              
              
              $
              626,262
              
              
              $
              (622,924
              )
              
              
              (99
              )%Six
      Months Ended March 31,
              
              $
              329,431
              
              
              $
              1,111,460
              
              
              $
              (782,029
              )
              
              
              (70
              )%
 
 Changes
in net income are primarily attributable to changes in operating income and
changes in income tax expense.  The results from the impact of the
Attorneys’ General settlement, changes in the use of billing channels, changes
in marketing strategies and other operating changes are discussed in more detail
in the narratives included above.
 
 Liquidity
and Capital Resources
 
 Net cash
provided by operating activities increased $1,445,250, or 881%, to $1,609,262
for the first six months of fiscal 2008 as compared to net cash provided of
$164,022 for the first six months of fiscal 2007.  The increase in
cash generated from operations is primarily due to the payment of over $2
million related to the Attorney’s General settlement in the first quarter of
fiscal 2007 that did not recur in fiscal 2008, partially offset by increases in
accounts receivable and other changes in working capital.
 
 Our
primary source of cash inflows is net remittances from our billing channels,
including ACH billings and LEC billings.  For ACH billings, we
generally receive the net proceeds through our billing service processors within
15 days of submission.  For LEC billings, we receive collections on
accounts receivable through the billing service aggregators under contracts to
administer this billing and collection process.  The billing service
aggregators generally do not remit funds until they are
collected.  Generally, cash is collected and remitted to us (net of
dilution and other fees and expenses) over a 60- to 120-day period subsequent to
the billing dates.  Additionally, for each monthly billing cycle, the
billing aggregators and LECs withhold certain amounts, or “holdback reserves,”
to cover potential future dilution and bad debt expense.  These
holdback reserves lengthen our cash conversion cycle as they are remitted to us
over a 12- to 18-month period of time.  We classify these holdback
reserves as current or long-term receivables on our consolidated balance sheet,
depending on when they are scheduled to be remitted to us.  As of
March 31, 2008, approximately 53% of our gross accounts receivable are due from
three aggregators.
 
 Our most
significant cash outflows include payments for marketing expenses and general
operating expenses.  General operating cash outflows consist of
payroll costs, income taxes, and general and administrative expenses that
typically occur within close proximity of expense recognition.
 
 Net cash
used for investing activities totaled $776,145 during the first six months of
fiscal 2008 and consisted of $7,000 of additional closing costs related to the
acquisition of LiveDeal, Inc. $16,243 of additional closing costs related to the
acquisition of OnCall Subscriber Management Inc., $391,123 of expenditures for
software and intangible assets and $361,779 of purchases of
equipment.  Net cash used in investing activities totaled $644,674
during the first six months of fiscal 2007 and consisted of $502,487 of
expenditures for software and intangible assets, equipment purchases totaling
$83,922 and $58,265 of purchases of certificates of deposit and other
investments.
 
 Net cash
used for financing activities was $395,480 during the first six months of fiscal
2008, consisting primarily of treasury stock repurchases as described
below.  Financing activities also included $960 and $1,437 of
preferred stock dividends paid in the first six months of fiscal 2008 and 2007,
respectively.
 
 We had
working capital of $10,657,862 as of March 31, 2008, compared to $11,632,301 as
of September 30, 2007, with current assets increasing by approximately $559,000
and current liabilities increasing approximately $1,533,000 from September 30,
2007 to March 31, 2008.  Our cash position increased to $6,112,170 at
March 31, 2008 compared to $5,674,533 at September 30, 2007 due to the effects
of our results of operations, partially offset by purchases of software,
intangible assets,  equipment and purchases of treasury
stock.
  20
 Index
  On May
25, 2007, the Company’s Board of Directors terminated our existing stock
repurchase plan and replaced it with a new plan authorizing repurchases of up to
$1,000,000 of common stock from time to time on the open market.  The
Company acquired 102,175 shares of its common stock during the six months ended
March 31, 2008 at an aggregate cost of $394,519.  As of March 31,
2008, all treasury stock has been retired.
 
 The
following table summarizes our contractual obligations at March 31, 2008 and the
effect such obligations are expected to have on our future liquidity and cash
flows
 
 Payments Due by Fiscal YearTotal
              
              
              2008
              
              
              2009
              
              
              2010
              
              
              2011
              
              
              2012
              
              
              ThereafterOperating
      lease commitments
              
              $
              2,777,240
              
              
              $
              466,435
              
              
              $
              858,852
              
              
              $
              568,136
              
              
              $
              465,736
              
              
              $
              339,361
              
              
              $
              78,720Noncanceleable
      service contracts
              
              
              957,876
              
              
              
              299,292
              
              
              
              558,584
              
              
              
              100,000
              
              
              
              -
              
              
              
              -
              
              
              
              -$
              3,735,116
              
              
              $
              765,727
              
              
              $
              1,417,436
              
              
              $
              668,136
              
              
              $
              465,736
              
              
              $
              339,361
              
              
              $
              78,720
 
 We
believe that our existing cash on hand and additional cash generated from
operations will provide us with sufficient liquidity to meet our operating needs
for the next 12 months.
 
 At March
31, 2008, we had no other off-balance sheet arrangements, commitments or
guarantees that require additional disclosure or measurement.
 
 *                      *                      *
  21
 Index
  ITEM 3.
              QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
 
 As of
March  31, 2008, we did not participate in any market risk-sensitive
commodity instruments for which fair value disclosure would be required under
Statement of Financial Accounting Standards No. 107. We believe that we are not
subject in any material way to other forms of market risk, such as foreign
currency exchange risk or foreign customer purchases (of which there were none
in the periods set forth in this report) or commodity price risk.
 
 ITEM 4.
              CONTROLS
      AND PROCEDURES
 
 Disclosure
controls and procedures are designed with an objective of ensuring that
information required to be disclosed in our periodic reports filed with the
Securities and Exchange Commission, such as this Quarterly Report on Form 10-Q,
is recorded, processed, summarized and reported within the time periods
specified by the Securities and Exchange Commission.  Disclosure
controls are also designed with an objective of ensuring that such information
is accumulated and communicated to our management, including our chief executive
officer and chief financial officer, in order to allow timely consideration
regarding required disclosures.
 
 The
evaluation of our disclosure controls by our principal executive officer and
principal financial officer included a review of the controls’ objectives and
design, the operation of the controls, and the effect of the controls on the
information presented in this Quarterly Report.  Our management,
including our chief executive officer and chief financial officer, does not
expect that disclosure controls can or will prevent or detect all errors and all
fraud, if any.  A control system, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met.  Also, projections of any
evaluation of the disclosure controls and procedures to future periods are
subject to the risk that the disclosure controls and procedures may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
 
 Based on
their review and evaluation as of the end of the period covered by this Form
10-Q, and subject to the inherent limitations as described above, our principal
executive officer and principal financial officer have concluded that our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934) are effective as of the end of the
period covered by this report.  They are not aware of any significant
changes in our disclosure controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.  During the period covered by this Form 10-Q, there have
not been any changes in our internal control over financial reporting that have
materially affected, or that are reasonably likely to materially affect, our
internal control over financial reporting.
  22
 Index
  PART
II – OTHER INFORMATION
 
 ITEM 1A.
              RISK
      FACTORS
 
 There
have been no material changes to the factors disclosed in Item 1A Risk Factors
in our Annual Report on Form 10-K/A for the year ended September 30,
2007.
 
 ITEM 2.
              UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
 
 Issuer
Purchases of Equity Securities
 
 Period
              
              Total
      Number of Shares Purchased
              
              
              Average
      Price Paid per Share
              
              
              Total
      Number of Shares Purchased as Part of Publicly Announced Plans orPrograms1
              
              
              Maximum
      Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased
      Under the Plans or ProgramsJanuary
      2008
              
              
              14,600
              
              
              $
              4.10
              
              
              
              14,600
              
              
              $
              646,308February
      2008
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              $
              646,308March
      2008
              
              
              10,850
              
              
              $
              3.76
              
              
              
              10,850
              
              
              $
              605,481Total
              
              
              25,450
              
              
              $
              3.96
              
              
              
              25,450
              
              
              $
              605,481
 
 1On May 18,
2005, we announced the adoption of a $3,000,000 stock repurchase plan, under
which 85,385 shares were repurchased at an aggregate price of $686,793. On May
25, 2007, the Company’s Board of Directors terminated the May 18, 2005 stock
repurchase plan and replaced it with a new plan authorizing repurchases of up to
$1,000,000 of common stock from time to time on the open market.
 
 ITEM 4.
              SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY
HOLDERS
 
 The
following matters were submitted to a vote of our stockholders at our annual
stockholders meeting held on February 28, 2008:
 
 ·
              Election
      of Joseph Cunningham, Daniel L. Coury, Sr., Richard Butler, Thomas Clarke,
      Jr., John Evans, Benjamin Milk and Rajesh Navar to the Company’s board of
      directors.
 
 ·
              Approval
      of an amendment to the Company’s 2003 Stock Plan to increase the number of
      shares authorized for issuance under the plan from 800,000 shares to
      1,100,000 shares.
 
 ·
              Ratification
      of the appointment of Mayer Hoffman McCann P.C. as the Company’s
      independent auditor for the fiscal year ending September 30,
      2008.
 
 Election
of Directors
 
 The
allocation of votes for the election of the nominees to the board of directors
was as follows:
 
 Nominee
              Votes For
              Votes Withheld
              Abstentions and Broker
      Non-VotesJoseph
      F Cunningham, Jr
              4,479,313
              930,066
              N/AJohn
      Evans
              5,127,230
              282,149
              N/ADaniel
      L. Coury Sr.
              4,482,484
              926,895
              N/ABenjamin
      Milk
              3,776,748
              1,632,631
              N/ARichard
      Butler
              3,776,998
              1,632,381
              N/ARajesh
      Navar
              5,128,010
              281,369
              N/AThomas
      J. Clarke Jr.
              5,128,230
              281,149
              N/A
  23
 Index
  Approval
of Amendment to 2003 Stock Plan
 
 The
allocation of votes with respect to the proposed amendment to the Company’s 2003
Stock Plan was as follows:
 
 Votes For
              Votes Against
              Abstentions and Broker
      Non-VotesProposal
      to Increase the Number of Shares Authorized for Issuance Under the 2003
      Stock Plan from 800,000 shares to 1,100,000 shares
              2,511,923
              2,895,056
              2,400
 
 Ratification
of Independent Auditors
 
 The
allocation of votes for the ratification of Mayer Hoffman McCann P.C. as the
Company’s independent auditor for the fiscal year ending September 30, 2008 was
as follows:
 
 Votes For
              Votes Against
              Abstentions and Broker
      Non-VotesProposal
      to Ratify Mayer Hoffman McCann P.C. as the Company’s Independent
      Auditor
              5,282,493
              29,274
              97,612
 
 The
proposals above are described in detail in the Company’s definitive proxy
statement dated January 24, 2008, for the Annual Meeting of Stockholders held on
February 28, 2008.
 
 ITEM 6.EXHIBITS
 
 The
following exhibits are either attached hereto or incorporated herein by
reference as indicated:
 
 Exhibit
      Number
              
              Description3.1
              
              Amended
      and Restated Articles of Incorporation (incorporated by reference to
      Exhibit 3.1 to Form 8-K, SEC File No. 000-24217, filed on August 15,
      2007).3.2
              
              Amended
      and Restated Bylaws (incorporated by reference to Exhibit 3.2 to Form
      10-K, SEC File No. 000-24217, for the year ended September 30,
      2007).31
              
              Rule
      13a - 14(a)/15d - 14(a) Certificates32
              
              Section
      1350 Certificate
  24
 Index
  SIGNATURES
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
 
 LiveDeal,
      Inc.Dated:  May
      15, 2008
              /s/ Gary L. PerschbacherGary
      L. PerschbacherChief
      Financial Officer