UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549


FORM
10-Q


___________





(Mark
One)




x           QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934




For the
quarterly period ended December 31, 2010




 ̈           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 001-33937





LiveDeal,
Inc.




(Exact
name of registrant as specified in its charter)




Nevada
                
                85-0206668(State
      or other jurisdiction of incorporation or organization)
                
                (IRS
      Employer Identification No.)2490
      East Sunset Road, Suite 100
                
                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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes  ̈  No   ̈





Indicate
by check mark 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




The number of shares of the issuer’s
common stock, par value $.001 per share, outstanding as of February 1, 2011 was
620,405.





INDEX
TO FORM 10-Q FILING


FOR
THE QUARTER ENDED DECEMBER 31, 2010





TABLE
OF CONTENTS





PART
I


FINANCIAL
INFORMATION


PageItem
      1.
                        
                        Financial
      StatementsCondensed
      Consolidated Balance Sheets as of December 31, 2010 (unaudited) and
      September 30, 2010
                        
                        3Unaudited
      Condensed Consolidated Statements of Operations for the Three Months Ended
      December 31, 2010 and 2009
                        
                        4Unaudited
      Condensed Consolidated Statements of Cash Flows for the Three Months Ended
      December 31, 2010 and 2009
                        
                        5Notes
      to Unaudited Condensed Consolidated Financial Statements
                        
                        6Item
      2.
                        
                        Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                        
                        16Item
      4.
                        
                        Controls
      and Procedures
                        
                        23PART
      IIOTHER
      INFORMATIONItem
      1.
                        
                        Legal
      Proceedings
                        
                        24Item
      1A.
                        
                        Risk
      Factors
                        
                        24Item
      2.
                        
                        Unregistered
      Sales of Equity Securities and Use of Proceeds
                        
                        24Item
      6.
                        
                        Exhibits
                        
                        25Signatures
                        
                        26




2


PART
I – FINANCIAL INFORMATION





ITEM
1. FINANCIAL STATEMENTS





LIVEDEAL,
INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS





December 31,
                  
                  
                  September 30,2010
                  
                  
                  2010(unaudited)AssetsCash
      and cash equivalents
                  
                  $
                  1,851,701
                  
                  
                  $
                  3,227,374Certificates
      of deposit
                  
                  
                  101,293
                  
                  
                  
                  101,293Accounts
      receivable, net
                  
                  
                  881,919
                  
                  
                  
                  948,439Prepaid
      expenses and other current assets
                  
                  
                  92,680
                  
                  
                  
                  219,121Total
      current assets
                  
                  
                  2,927,593
                  
                  
                  
                  4,496,227Accounts
      receivable, long term portion, net
                  
                  
                  298,752
                  
                  
                  
                  330,234Property
      and equipment, net
                  
                  
                  341,972
                  
                  
                  
                  397,382Deposits
      and other assets
                  
                  
                  49,294
                  
                  
                  
                  49,294Intangible
      assets, net
                  
                  
                  1,788,885
                  
                  
                  
                  1,938,952Total
      assets
                  
                  $
                  5,406,496
                  
                  
                  $
                  7,212,089Liabilities
      and Stockholders' EquityLiabilities:Accounts
      payable
                  
                  $
                  420,702
                  
                  
                  $
                  354,440Accrued
      liabilities
                  
                  
                  613,024
                  
                  
                  
                  880,188Current
      portion of capital lease obligation
                  
                  
                  60,104
                  
                  
                  
                  60,327Total
      current liabilities
                  
                  
                  1,093,830
                  
                  
                  
                  1,294,955Long
      term portion of capital lease obligation
                  
                  
                  23,303
                  
                  
                  
                  38,283Total
      liabilities
                  
                  
                  1,117,133
                  
                  
                  
                  1,333,238Commitments
      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, 10,000,000 shares authorized, 624,657 and 609,643
      shares issued, 620,405 and 605,391 shares outstanding at December 31, 2010
      and September 30, 2010, respectively
                  
                  
                  625
                  
                  
                  
                  610Treasury
      stock (4,252 shares carried at cost)
                  
                  
                  (70,923
                  )
                  
                  
                  (70,923
                  )Paid
      in capital
                  
                  
                  20,583,092
                  
                  
                  
                  20,441,721Accumulated
      deficit
                  
                  
                  (16,234,297
                  )
                  
                  
                  (14,503,423
                  )Total
      stockholders' equity
                  
                  
                  4,289,363
                  
                  
                  
                  5,878,851Total
      liabilities and stockholders' equity
                  
                  $
                  5,406,496
                  
                  
                  $
                  7,212,089





The
accompanying notes are an integral part of these condensed consolidated
financial statements.


3





LIVEDEAL,
INC. AND SUBSIDIARIES


UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS





Three Months Ended December 31,2010
                    
                    
                    2009Net
      revenues
                    
                    $
                    1,717,008
                    
                    
                    $
                    2,477,446Cost
      of services
                    
                    
                    1,462,803
                    
                    
                    
                    828,812Gross
      profit
                    
                    
                    254,205
                    
                    
                    
                    1,648,634Operating
      expenses:General
      and administrative expenses
                    
                    
                    1,972,569
                    
                    
                    
                    3,961,890Sales
      and marketing expenses
                    
                    
                    13,592
                    
                    
                    
                    171,058Total
      operating expenses
                    
                    
                    1,986,161
                    
                    
                    
                    4,132,948Operating
      loss
                    
                    
                    (1,731,956
                    )
                    
                    
                    (2,484,314
                    )Other
      income (expense):Interest
      income, net
                    
                    
                    1,562
                    
                    
                    
                    6,910Other
      income (expense)
                    
                    
                    -
                    
                    
                    
                    50,000Total
      other income (expense)
                    
                    
                    1,562
                    
                    
                    
                    56,910Loss
      before income taxes
                    
                    
                    (1,730,394
                    )
                    
                    
                    (2,427,404
                    )Income
      tax provision (benefit)
                    
                    
                    -
                    
                    
                    
                    99,975Loss
      from continuing operations
                    
                    
                    (1,730,394
                    )
                    
                    
                    (2,527,379
                    )Discontinued
      operationsIncome
      (loss) from discontinued component, including disposal
    costs
                    
                    
                    -
                    
                    
                    
                    1,725Income
      tax provision (benefit)
                    
                    
                    -
                    
                    
                    
                    -Income
      (loss) from discontinued operations
                    
                    
                    -
                    
                    
                    
                    1,725Net
      loss
                    
                    $
                    (1,730,394
                    )
                    
                    $
                    (2,525,654
                    )Earnings
      per share - basic and diluted1:Loss
      from continuing operations
                    
                    $
                    (2.86
                    )
                    
                    $
                    (4.22
                    )Discontinued
      operations
                    
                    
                    -
                    
                    
                    
                    -Net
      loss
                    
                    $
                    (2.86
                    )
                    
                    $
                    (4.22
                    )Weighted
      average common shares outstanding:Basic
                    
                    
                    604,987
                    
                    
                    
                    599,541Diluted
                    
                    
                    604,987
                    
                    
                    
                    599,541





The
accompanying notes are an integral part of these condensed consolidated
financial statements.


4





LIVEDEAL,
INC. AND SUBSIDIARIES


UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS





Three Months EndedDecember 31,2010
                  
                  
                  2009CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                  
                  $
                  (1,730,394
                  )
                  
                  $
                  (2,525,654
                  )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
                  
                  
                  205,477
                  
                  
                  
                  225,653Non-cash
      stock compensation expense
                  
                  
                  23,499
                  
                  
                  
                  (8,160
                  )Amortization
      of deferred stock compensation
                  
                  
                  17,885
                  
                  
                  
                  96,750Provision
      for uncollectible accounts
                  
                  
                  206,990
                  
                  
                  
                  227,872Loss
      on disposal of property and equipment and intangible
assets
                  
                  
                  -
                  
                  
                  
                  715Changes
      in assets and liabilities:Accounts
      receivable
                  
                  
                  (108,988
                  )
                  
                  
                  102,695Prepaid
      expenses and other current assets
                  
                  
                  126,441
                  
                  
                  
                  86,279Deposits
      and other assets
                  
                  
                  -
                  
                  
                  
                  (6,545
                  )Accounts
      payable
                  
                  
                  66,263
                  
                  
                  
                  62,043Accrued
      liabilities
                  
                  
                  (267,643
                  )
                  
                  
                  353,706Income
      taxes receivable and payable
                  
                  
                  -
                  
                  
                  
                  99,975Net
      cash used in operating activities
                  
                  
                  (1,460,470
                  )
                  
                  
                  (1,284,671
                  )CASH
      FLOWS FROM INVESTING ACTIVITIES:Expenditures
      for intangible assets
                  
                  
                  -
                  
                  
                  
                  (131,234
                  )Purchases
      of property and equipment
                  
                  
                  -
                  
                  
                  
                  (40,126
                  )Net
      cash used in investing activities
                  
                  
                  -
                  
                  
                  
                  (171,360
                  )CASH
      FLOWS FROM FINANCING ACTIVITIES:Principal
      repayments on capital lease obligations
                  
                  
                  (15,203
                  )
                  
                  
                  (17,105
                  )Issuance
      of common stock for cash
                  
                  
                  100,000
                  
                  
                  
                  -Purchase
      of treasury stock
                  
                  
                  -
                  
                  
                  
                  (24,532
                  )Net
      cash provided by (used in) financing activities
                  
                  
                  84,797
                  
                  
                  
                  (41,637
                  )DECREASE
      IN CASH AND CASH EQUIVALENTS
                  
                  
                  (1,375,673
                  )
                  
                  
                  (1,497,668
                  )CASH
      AND CASH EQUIVALENTS, beginning of period
                  
                  
                  3,227,374
                  
                  
                  
                  7,568,030CASH
      AND CASH EQUIVALENTS, end of period
                  
                  $
                  1,851,701
                  
                  
                  $
                  6,070,362Supplemental
      cash flow disclosures:Noncash
      financing and investing activities:Accrued
      and unpaid dividends
                  
                  $
                  479
                  
                  
                  $
                  479Interest
      paid
                  
                  $
                  832
                  
                  
                  $
                  2,114





The
accompanying notes are an integral part of these condensed consolidated
financial statements


5





LIVEDEAL,
INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





Note 1:  Organization and
Basis of Presentation





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




The
accompanying condensed consolidated balance sheet as of September 30, 2010,
which has been derived from the audited consolidated financial statements, and
the accompanying unaudited condensed consolidated financial statements as of
December 31, 2010, and for the three months ended December 31, 2010
and December 31, 2009, 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 months ended December 31,
2010 are not necessarily indicative of the results to be expected for the year
ending September 30, 2011. 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, 2010 and for the year
then ended included in the Company’s Annual Report on Form 10-K for the year
ended September 30, 2010.




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
made by management throughout the preparation of the condensed 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 stock-based compensation and evaluating the recoverability of
deferred tax assets.  Actual results could differ from these
estimates.




Note
2:  Balance Sheet Information





Balance
sheet information is as follows:


December 31,
                    
                    
                    September 30,2010
                    
                    
                    2010(unaudited)Receivables,
      current, net:Accounts
      receivable, current
                    
                    $
                    2,367,886
                    
                    
                    $
                    2,750,393Less:
      Allowance for doubtful accounts
                    
                    
                    (1,485,967
                    )
                    
                    
                    (1,801,954
                    )$
                    881,919
                    
                    
                    $
                    948,439Receivables,
      long term, net:Accounts
      receivable, long term
                    
                    $
                    608,917
                    
                    
                    $
                    680,108Less:
      Allowance for doubtful accounts
                    
                    
                    (310,165
                    )
                    
                    
                    (349,874
                    )$
                    298,752
                    
                    
                    $
                    330,234Total
      receivables, net:Gross
      receivables
                    
                    $
                    2,976,803
                    
                    
                    $
                    3,430,501Less:
      Allowance for doubtful accounts
                    
                    
                    (1,796,132
                    )
                    
                    
                    (2,151,828
                    )$
                    1,180,671
                    
                    
                    $
                    1,278,673





Our
accounts receivable consist primarily of amounts due from customers of our
directory services business.


6





LIVEDEAL,
INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont)





December 31,
                  
                  
                  September 30,2010
                  
                  
                  2010(unaudited)Property
      and equipment, net:Leasehold
      improvements
                  
                  $
                  239,271
                  
                  
                  $
                  239,271Furnishings
      and fixtures
                  
                  
                  319,004
                  
                  
                  
                  319,004Office,
      computer equipment and other
                  
                  
                  704,388
                  
                  
                  
                  704,3881,262,663
                  
                  
                  
                  1,262,663Less:
      Accumulated depreciation
                  
                  
                  (920,691
                  )
                  
                  
                  (865,281
                  )$
                  341,972
                  
                  
                  $
                  397,382





December 31,
                  
                  
                  September 30,2010
                  
                  
                  2010(unaudited)Intangible
      assets, net:Domain
      name and marketing related intangibles
                  
                  $
                  1,509,600
                  
                  
                  $
                  1,509,600Website
      and technology related intangibles
                  
                  
                  1,914,991
                  
                  
                  
                  1,914,9913,424,591
                  
                  
                  
                  3,424,591Less:  Accumulated
      amortization
                  
                  
                  (1,635,706
                  )
                  
                  
                  (1,485,639
                  )$
                  1,788,885
                  
                  
                  $
                  1,938,952





December 31,
                  
                  
                  September 30,2010
                  
                  
                  2010(unaudited)Accrued
      liabilities:Deferred
      revenue
                  
                  $
                  67,564
                  
                  
                  $
                  87,574Accrued
      payroll and bonuses
                  
                  
                  83,143
                  
                  
                  
                  124,544Accruals
      under revenue sharing agreements
                  
                  
                  131,176
                  
                  
                  
                  133,119Accrued
      expenses - other
                  
                  
                  331,141
                  
                  
                  
                  534,951$
                  613,024
                  
                  
                  $
                  880,188





Note
3:  Restructuring Activities





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





During
the three months ended December 31, 2010, the Company incurred expenses of
$99,319 in connection with the reduction in force, of which $37,500 were
incurred for one-time employee termination benefits payable in
cash.  The remaining expenses relate to salaries and wages payable in
cash to the affected employees. All amounts were paid as of December 31,
2010 and no additional expenses pertaining to this reduction in force are
expected to be incurred subsequent to December 31, 2010.





Note
4:  Stock-based Compensation





From time
to time, the Company grants restricted stock awards and stock options to
officers, directors, employees and consultants.  Such awards are
valued based on the grant date fair-value of the instruments, net of estimated
forfeitures.  The value of each award is amortized on a straight-line
basis over the requisite service period.


7





LIVEDEAL,
INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont)





Stock
Options





During
the three months ended December 31, 2010 and 2009, the Company recognized
compensation expense (benefit) of $23,499  and $(8,160), respectively,
related to stock option awards granted to certain employees and executives based
on the grant date fair value of the awards, net of estimated
forfeitures. During the three months ended December 31, 2009, the Company
changed the estimated forfeiture rate of awards from 40% to 60% based on actual
forfeiture experience and other factors, resulting in a net benefit from the
expense reversal of $8,160.  There were no such changes in the
estimated forfeiture rate in the three months ending December 31,
2010.





The
Company had stock option activity summarized as follows during the three months
ended December 31, 2010:





Weighted
                    
                    
                    WeightedAverage
                    
                    
                    Average
                    
                    
                    AggregateNumber of
                    
                    
                    Exercise
                    
                    
                    Remaining
                    
                    
                    IntrinsicShares
                    
                    
                    Price
                    
                    
                    Contractual Life
                    
                    
                    ValueOutstanding
      at September 30, 2010
                    
                    
                    5,000Granted
      at market price
                    
                    
                    -Exercised
                    
                    
                    -Forfeited
                    
                    
                    (2,500
                    )
                    
                    $
                    14.50Outstanding
      at December 31, 2010
                    
                    
                    2,500
                    
                    
                    $
                    14.50
                    
                    
                    
                    0.2
                    
                    
                    $
                    -Exercisable
                    
                    
                    2,500
                    
                    
                    $
                    14.50
                    
                    
                    
                    0.2
                    
                    
                    $
                    -





As of
December 31, 2010, all of the Company’s stock option awards had vested or been
terminated.  Therefore, there is no future unrecognized compensation
expense associated with any outstanding stock option awards.





Restricted
Stock Awards





From time
to time, the Company also has historically granted shares of restricted stock to
certain individuals.  The following table sets forth the activity with
respect to compensation-related restricted stock grants during the three months
ended December 31, 2010:





Outstanding
      (unvested) at September 30, 2010
                  
                  
                  4,658Granted
                  
                  
                  -Forfeited
                  
                  
                  -Vested
                  
                  
                  (2,375
                  )Outstanding
      (unvested) at December 31, 2010
                  
                  
                  2,283





As the
Company’s outstanding unvested stock has been reduced to an immaterial amount,
the Company has recognized all expense associated with unvested awards based on
estimated forfeiture rates ranging from 25 percent to 70 percent based on the
outstanding duration of the awards.  As a result of these actions, the
Company recognized an aggregate expense of $17,885 during the three months ended
December 31, 2010.  To the extent that actual forfeiture rates differ
from estimates, future expense recognition or reversals could
result.





Note
5:  Equity




On
November 29, 2010, LiveDeal, Inc. (the “Company”) and Joint Corporation FeelTech
Investment Unit 1 (the “Purchaser”) entered into a Stock Purchase Agreement (the
“Agreement”) for the purchase of $200,000 worth of the Company’s common
stock, $0.001 par value per share (“Common Stock”), over a three month
period.





Under the
terms of the Agreement, the Company agreed to sell, and the Purchaser is
obligated to purchase, unregistered shares of Common Stock in multiple
investment tranches (each, a “Tranche”) for an aggregate purchase price of
$200,000.  The per share price in each Tranche is to be determined by
adding (i) $0.50 and (ii) the average closing price for the Common Stock as
reported by the NASDAQ Capital Market for the 90-day period immediately
preceding (but not including) the closing date of the applicable Tranche.
 The Agreement provides that the Tranches will be satisfied by the
Purchaser as follows:


8





LIVEDEAL,
INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont)





·
            $50,000
      was wired to the Company on December 3, 2010 in exchange for the Company’s
      issuance of 8,000 shares of Common Stock (determined by using the $6.25
      per share purchase price applicable to the first
  Tranche).





·
            $50,000
      was wired to the Company’s designated account on December 22, 2010 in
      exchange for the issuance of 7,014 shares (determined by using the $7.13
      per share purchase price applicable to the second
  Tranche).





·
            $50,000
      was wired to the Company’s designated account on January 22, 2011 in
      exchange for the issuance of 6,704 shares (determined by using the $7.46
      per share purchase price applicable to the third
  Tranche).





·
            an
      additional US$50,000 shall be wired to the Company’s designated account on
      or before February 25, 2011.





As of
December 31, 2010, the Company received the first two payments totaling $100,000
and issued an aggregate of 15,014 shares to the Purchaser.





The
Purchaser’s obligation to purchase shares in future Tranches by the dates
specified is conditioned upon, among other things, the representations and
warranties of the Company contained in the Agreement being accurate as of such
dates. The Purchaser’s failure to satisfy the terms of the remaining
Tranches would result in the Company having the right to repurchase any and all
shares previously issued to the Purchaser for an amount equal to the applicable
purchase price of such shares less US$0.50 per share.





The
Company issued and sold the shares of Common Stock to the Purchaser in reliance
on the exemption provided under Section 4(2) of the Securities Act of 1933, as
amended, and Regulation D promulgated by the Securities and Exchange Commission
(the “SEC”) thereunder.





The
Agreement contains certain representations and warranties of the Purchaser and
the Company, including customary investment-related representations provided by
the Purchaser, as well as acknowledgements by the Purchaser that it has reviewed
certain disclosures of the Company (including the periodic reports that the
Company has filed with the SEC) and that the Company’s issuance of the shares
has not been registered with the SEC or qualified under any state securities
laws. The Company provided customary representations regarding, among other
things, its organization, capital structure, subsidiaries, disclosure reports,
absence of certain legal or governmental proceedings, financial statements, tax
matters, insurance matters, real property and other assets, and compliance with
applicable laws and regulations.





Note
6:  Net Loss Per Share




Net loss
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 condensed consolidated balance sheet.  Diluted net loss per
share is computed using the weighted average number of common shares outstanding
and if dilutive, potential common shares outstanding during the
period.  Potential common shares consist of the incremental common
shares issuable from restricted shares, stock options and convertible preferred
stock.  Preferred stock dividends are subtracted from net loss to
determine the amount available to common stockholders.




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


9





LIVEDEAL,
INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont)





Three Months Ended December 31,2010
                    
                    
                    2009Loss
      from continuing operations
                    
                    $
                    (1,730,394
                    )
                    
                    $
                    (2,527,379
                    )Less:
      preferred stock dividends
                    
                    
                    (479
                    )
                    
                    
                    (479
                    )Loss
      from continuing operations applicable to common stock
                    
                    
                    (1,730,873
                    )
                    
                    
                    (2,527,858
                    )Income
      (loss) from discontinued operations
                    
                    
                    -
                    
                    
                    
                    1,725Net
      loss applicable to common stock
                    
                    $
                    (1,730,873
                    )
                    
                    $
                    (2,526,133
                    )Weighted
      average common shares outstanding -basic
      and diluted
                    
                    
                    604,987
                    
                    
                    
                    599,541Earnings
      per share - basic and diluted1:Loss
      from continuing operations
                    
                    $
                    (2.86
                    )
                    
                    $
                    (4.22
                    )Discontinued
      operations
                    
                    
                    -
                    
                    
                    
                    -Net
      loss
                    
                    $
                    (2.86
                    )
                    
                    $
                    (4.22
                    )





1 Certain
amounts may not total due to rounding of individual components.





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





Three Months Ended December 31,2010
                  
                  
                  2009Options
      to purchase shares of common stock
                  
                  
                  2,500
                  
                  
                  
                  55,000Series
      E convertible preferred stock
                  
                  
                  127,840
                  
                  
                  
                  127,840Shares
      of non-vested restricted stock
                  
                  
                  2,283
                  
                  
                  
                  9,443132,623
                  
                  
                  
                  192,283





Note
7:  Income Taxes





At
December 31, 2010, the Company maintains a valuation allowance against its
deferred tax assets.  The Company determined that such a valuation
allowance was necessary given the current and expected near term losses and the
uncertainty with respect to the Company’s ability to generate sufficient profits
from its new business model.


During
the three months ended December 31, 2010, the Company did not incur any income
tax benefit associated with its net loss due to the establishment of a valuation
allowance against deferred tax assets generated during the period.





Note
8:  Commitments and Contingencies





Operating Leases and Service
Contracts





As of
December 31, 2010, future minimum annual payments under operating lease
agreements and non-cancelable service contracts for fiscal years ending
September 30 are as follows:


10





LIVEDEAL,
INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont)





Payments Due by Fiscal YearTotal
                
                
                2011
                
                
                2012
                
                
                2013
                
                
                2014
                
                
                2015
                
                
                ThereafterOperating
      lease commitments
                
                $
                699,572
                
                
                $
                305,521
                
                
                $
                315,331
                
                
                $
                78,720
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -Noncanceleable
      service contracts
                
                
                602,708
                
                
                
                464,708
                
                
                
                138,000
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -$
                1,302,280
                
                
                $
                770,229
                
                
                $
                453,331
                
                
                $
                78,720
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -





This
table excludes minimum payment obligations under capital leases as such
obligations are set forth elsewhere in this footnote.




Capital
leases





As of
December 31, 2010, future obligations under non-cancelable capital leases are as
follows for the fiscal years ended September 30:





2011
                  
                  $
                  48,1072012
                  
                  
                  37,4172013
                  
                  
                  -2014
                  
                  
                  -2015
                  
                  
                  -Thereafter
                  
                  
                  -Total
      minimum lease payments
                  
                  
                  85,524Less
      imputed interest
                  
                  
                  (2,117
                  )Present
      value of minimum lease payments
                  
                  
                  83,407Less:
      current maturities of capital lease obligations
                  
                  
                  60,104Noncurrent
      maturities of capital lease obligations
                  
                  $
                  23,303





Litigation





Except as
described below, as of December 31, 2010, the Company was not a party to any
pending material legal proceedings other than claims that arise in the normal
conduct of its business.  While management currently believes that the
ultimate outcome of these proceedings will not have a material adverse effect on
its consolidated financial condition or results of operations, litigation is
subject to inherent uncertainties.  If an unfavorable ruling were to
occur, there exists the possibility of a material adverse impact on the
Company’s net income(loss) in the period in which a ruling
occurs.  The Company’s estimate of the potential impact of the
following legal proceedings on its financial position and its results of
operations could change in the future.





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





Joe
Cunningham v. LiveDeal, Inc. et al.





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




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


11





LIVEDEAL,
INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont)





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




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





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





Note
9:  Concentration of Credit Risk





The
Company maintains cash balances at major nationwide institutions in Arizona,
California and Nevada.  Accounts are insured by the Federal Deposit
Insurance Corporation up to $250,000, and bank balances periodically exceed the
FDIC limit. At December 31, 2010 and September 30, 2010, the Company had
uninsured cash and cash equivalents of approximately $1,062,000 and
$2,154,000




The
Company has concentrations of receivables with respect to certain wholesale
accounts and remaining holdbacks with Local Exchange Carrier (“LEC”) service
providers.  Three such entities accounted for 27%, 27% and 17% of
gross receivables at December 31, 2010 and 27%, 27%, and 16% of gross
receivables at September 30, 2010.




Note
10:  Segment Reporting





The
Company has two reportable operating segments:  Directory Services and
Direct Sales - Customer Acquisition Services.  The Company has yet to
identify and allocate operating costs or impairment charges to its reportable
segments below the gross profit level.  Additionally, the reportable
segments share many common costs, including, but not limited to, IT support,
office and administrative expenses.  Therefore, the following table of
operating results does not allocate costs to its reportable segments below the
gross profit level:


12





LIVEDEAL,
INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont)





Three Months Ended December 31, 2010DirectoryServices
                    
                    
                    Direct Sales -
                      Customer
                      Acquisition
                      Services
                    
                    
                    Unallocated
                    
                    
                    ConsolidatedNet
      revenues
                    
                    $
                    994,622
                    
                    
                    $
                    722,386
                    
                    
                    $
                    -
                    
                    
                    $
                    1,717,008Cost
      of services
                    
                    
                    828,577
                    
                    
                    
                    634,226
                    
                    
                    
                    -
                    
                    
                    
                    1,462,803Gross
      profit
                    
                    
                    166,045
                    
                    
                    
                    88,160
                    
                    
                    
                    -
                    
                    
                    
                    254,205Operating
      expenses
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,986,161
                    
                    
                    
                    1,986,161Operating
      income (loss)
                    
                    
                    166,045
                    
                    
                    
                    88,160
                    
                    
                    
                    (1,986,161
                    )
                    
                    
                    (1,731,956
                    )Other
      income (expense)
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,562
                    
                    
                    
                    1,562Income
      (loss) before income taxes and discontinued operations
                    
                    $
                    166,045
                    
                    
                    $
                    88,160
                    
                    
                    $
                    (1,984,599
                    )
                    
                    $
                    (1,730,394
                    )





Three Months Ended December 31, 2009DirectoryServices
                    
                    
                    Direct Sales -
                      Customer
                      Acquisition
                      Services
                    
                    
                    Unallocated
                    
                    
                    ConsolidatedNet
      revenues
                    
                    $
                    1,107,523
                    
                    
                    $
                    1,369,923
                    
                    
                    $
                    -
                    
                    
                    $
                    2,477,446Cost
      of services
                    
                    
                    66,002
                    
                    
                    
                    762,810
                    
                    
                    
                    -
                    
                    
                    
                    828,812Gross
      profit
                    
                    
                    1,041,521
                    
                    
                    
                    607,113
                    
                    
                    
                    -
                    
                    
                    
                    1,648,634Operating
      expenses
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    4,132,948
                    
                    
                    
                    4,132,948Operating
      income (loss)
                    
                    
                    1,041,521
                    
                    
                    
                    607,113
                    
                    
                    
                    (4,132,948
                    )
                    
                    
                    (2,484,314
                    )Other
      income (expense)
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    56,910
                    
                    
                    
                    56,910Income
      (loss) before income taxes and discontinued operations
                    
                    $
                    1,041,521
                    
                    
                    $
                    607,113
                    
                    
                    $
                    (4,076,038
                    )
                    
                    $
                    (2,427,404
                    )





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


13


LIVEDEAL,
INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont)





December 31, 2010Directory Services
                  
                  
                  Direct Sales -
                    Customer
                    Acquisition
                    Services
                  
                  
                  TotalAccounts
      receivable, net - short term
                  
                  $
                  808,285
                  
                  
                  $
                  73,634
                  
                  
                  $
                  881,919Accounts
      receivable, net - long term
                  
                  
                  298,752
                  
                  
                  
                  -
                  
                  
                  
                  298,752Total
      accounts receivable, net
                  
                  $
                  1,107,037
                  
                  
                  $
                  73,634
                  
                  
                  $
                  1,180,671





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





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





Note
11:  Liquidity




While the
Company believes that its existing cash on hand will provide it with sufficient
liquidity to meet its operating needs for the next 12 months, it will not be
able to stay in business in the future without improvements in its
profitability, additional financing or a fundamental change in its
business.  As the Company continues to maintain its existing business
lines, it is simultaneously exploring other strategic initiatives.





Note
12:  Recent Accounting Pronouncements





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





Note
13:  Subsequent Events




On
February 2, 2011, the Company  received a letter from Nasdaq’s Listing
Qualifications Department informing the Company of its failure to comply with
Nasdaq Listing Rule 5550(a)(4), which requires that the Company have at least
500,000 publicly held shares for continued listing on the Nasdaq Capital
Market.


14





LIVEDEAL,
INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont)







In
accordance with Listing Rule 5810(c)(2)(C), the Company was given a 45-day
period (until March 19, 2011) to provide the Nasdaq staff with a specific plan
to achieve and sustain compliance with all of the Nasdaq Capital Market listing
requirements, including a time frame for the completion of the
plan.  After the Nasdaq staff reviews the Company’s plan, the staff
will provide the Company with written notice of its decision.  If the
Nasdaq staff rejects the Company’s plan, the Company will have the opportunity
to appeal any resulting delisting determination or public reprimand letter to a
Nasdaq hearings panel.  During the 45-day period described above,
including any extension thereof, and the pendency of an appeal (if any), the
Company’s common stock will continue to be traded on the Nasdaq Capital
Market.




Potential
compliance strategies under consideration include implementing a forward stock
split to increase the number of publicly held shares of the Company’s common
stock and/or issuing additional shares of common stock in one or more private
placement transactions, assuming a suitable investor can be
identified.  There can be no assurance that these strategies (or any
alternative strategy) will be consummated, or accepted by the Nasdaq
staff.  As of the date of this filing, the Company has not made any
final decisions regarding what action(s) to take in response to the letter
described above.


15




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 months
ended December 31, 2010, 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 condensed consolidated
financial statements, including the related notes, appearing in Part I, Item 1
of this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K
for the fiscal year ended September 30, 2010.




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,”
“intends,” “expects,” or “anticipates,” and do not reflect historical
facts.  Specific forward-looking statements contained herein include,
but are not limited to, our belief that our existing cash on hand will provide
us with sufficient liquidity to meet our operating needs for the next 12 months;
that our customer acquisition services will account for a smaller percentage of
total net revenues in the future; trends relating to our accounts receivable;
the timing, amount and expectations about the cost and impact of legal
proceedings that we are involved in; trends in Internet advertising and customer
acquisition strategies; our expectation that we will continue to experience
operating losses and operating cash outflows; our plans and expectations with
respect to new product and service offerings in our Directory Services segment;
and strategic alternatives we may pursue and their potential impact on the
Company.  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 for the fiscal year ended September 30, 2010 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.




Our
Company





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





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





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





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





Summary
Business Description





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





The
InstantAgency® products include:





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


16





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





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





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





Recent
Developments





Financial
Performance





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





Change
in Business Strategy





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




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


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


·
            The
      reconstitution of our management
team;


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


·
            Continuing
      losses in our Direct Sales
business.





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





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


17


Restructuring
Activities





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





During
the three months ended December 31, 2010, the Company incurred expenses of
$99,319 in connection with the reduction in force, of which $37,500 were
incurred for one-time employee termination benefits payable in
cash.  The remaining expenses relate to salaries and wages payable in
cash to the affected employees. All amounts were paid as of December 31,
2010 and no additional expenses pertaining to this reduction in force are
expected to be incurred subsequent to December 31, 2010.





Results
of Operations




The
following sets forth a discussion of our financial results for the three months
ended December 31, 2010 as compared to the three months ended December 31, 2009.
In evaluating our business, management reviews several key performance
indicators including new customer signups, total customers in each line of
business, revenues per customer, customer retention rates,
etc.  However, given the changing nature of our business strategy, the
decline in emphasis on our Directory Services segment and the infancy of our new
Direct Sales Services line of business, we do not believe that presentation of
such metrics would reveal any meaningful trends in our operations that are not
otherwise apparent from the discussion of our financial results
below.




Net
Revenues




Net Revenues2010
                    
                    
                    2009
                    
                    
                    Change
                    
                    
                    PercentThree
      Months Ended December 31,
                    
                    $
                    1,717,008
                    
                    
                    $
                    2,477,446
                    
                    
                    $
                    (760,438
                    )
                    
                    
                    (31
                    )%




Net
revenues decreased in the first quarter of fiscal 2011 as compared to the first
quarter of fiscal 2010 attributable to a decrease of approximately $648,000 of
revenues associated with our customer acquisition services business and $113,000
of revenues associated with our directory services
business.   The decline in customer acquisition services business
reflects our transition away from this line of business to focus our efforts on
subscription based business using LEC billing channels marketed under our
Velocity Marketing Concepts, Inc. subsidiary.  We expect our revenues
from our customer acquisition services business to continue to decline as we are
not entering into any sales new contracts for this line of
business.




Cost
of Services




Cost of Services2010
                    
                    
                    2009
                    
                    
                    Change
                    
                    
                    PercentThree
      Months Ended December 31,
                    
                    $
                    1,462,803
                    
                    
                    $
                    828,812
                    
                    
                    $
                    633,991
                    
                    
                    
                    76
                    %




Cost of
services increased in the first quarter of fiscal 2011 as compared to the first
quarter of fiscal 2010 attributable to a $763,000 increase in customer
acquisition costs associated with our directory services business, and a
$129,000 decrease in costs associated with our customer acquisition services
business.




Gross
Profit




Gross Profit2010
                    
                    
                    2009
                    
                    
                    Change
                    
                    
                    PercentThree
      Months Ended December 31,
                    
                    $
                    254,205
                    
                    
                    $
                    1,648,634
                    
                    
                    $
                    (1,394,429
                    )
                    
                    
                    (85
                    )%




Gross
profit decreased in the first quarter of fiscal 2011 as compared to the first
quarter of fiscal 2010 due to a decline in revenues and a reduction in our gross
profit margins.  The following table sets forth changes in our gross
margin by business segment:


18




Three Months Ended December 31,2010
                
                
                2009Direct
      sales -  customer acquisition services -Gross
      profit
                
                $
                88,160
                
                
                $
                607,113Gross
      margin
                
                
                12.2
                %
                
                
                44.3
                %Directory
      services -Gross
      profit
                
                $
                166,045
                
                
                $
                1,041,521Gross
      margin
                
                
                16.7
                %
                
                
                94.0
                %




Direct
sales fulfillment costs have remained relatively stable in an effort to maintain
the customer base.




The
directory services gross profit and margin were higher than average last year
due to increased reserve collections resulting in lower bad debt
expense.




General and Administrative
Expenses




General and Administrative Expenses2010
                  
                  
                  2009
                  
                  
                  Change
                  
                  
                  PercentThree
      Months Ended December 31,
                  
                  $
                  1,972,569
                  
                  
                  $
                  3,961,890
                  
                  
                  $
                  (1,989,321
                  )
                  
                  
                  (50
                  )%




General
and administrative expenses decreased in the first quarter of fiscal 2011 as
compared to the first quarter of fiscal 2010 primarily due to the
following:




·
            Decreased
      compensation costs of approximately $1,305,000 reflecting the impacts of
      our restructuring actions and reduction in force during 2009 and 2010 from
      111 employees at September 30, 2009 to 23 employees as of December 31,
      2010;




·
            Other
      expense decreases of $328,000, including, but not limited  to,
      rent and utilities, services and fees, office and supplies expenses,
      office closure expenses, travel and entertainment and other corporate
      expenses associated with our office closures, reductions in force and
      other cost containment initiatives;




·
            A
      reduction of $300,000 in litigation costs related to a legal settlement
      incurred in the first quarter of fiscal
2010;




·
            Decreased
      professional fees of approximately $36,000 related to a $163,000 decrease
      in litigation costs partially offset by an increase of $96,000 in
      consulting fees related to the implementation and management of the new
      subscription based LEC billed customer program and $31,000 increase in
      fees paid to an investment banking firm to assist us in with our
      previously announced examination of strategic opportunities;
      and




·
            Decreased
      depreciation and amortization expense of
  $20,000.




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




Q1 2011
                
                
                
                Q4 2010
                
                
                
                Q3 2010
                
                
                
                Q2 2010
                
                
                
                Q1 2010Compensation
      for employees, officers and directors
                
                $
                936,426
                
                
                $
                1,048,094
                
                
                $
                967,323
                
                
                $
                1,352,108
                
                
                $
                2,241,198Professional
      fees
                
                
                453,062
                
                
                
                551,394
                
                
                
                677,507
                
                
                
                1,023,582
                
                
                
                488,993Depreciation
      and amortization
                
                
                205,477
                
                
                
                214,617
                
                
                
                215,102
                
                
                
                218,200
                
                
                
                225,653Other
      general and administrative costs
                
                
                377,604
                
                
                
                462,278
                
                
                
                497,865
                
                
                
                544,162
                
                
                
                1,006,046




Included
in other general and administrative expenses for the first quarter of fiscal
2010 was an accrual of $300,000 related to a legal settlement with OSM and
SMe.


19




Sales
and Marketing Expenses




Sales and Marketing Expenses2010
                  
                  
                  2009
                  
                  
                  Change
                  
                  
                  PercentThree
      Months Ended December 31,
                  
                  $
                  13,592
                  
                  
                  $
                  171,058
                  
                  
                  $
                  (157,466
                  )
                  
                  
                  (92
                  )%




Sales and
marketing expenses decreased in the first quarter of fiscal 2011 as compared to
the first quarter of fiscal 2010 primarily due to cost containment
initiatives.  Virtually all of our sales and marketing activities in
the first quarter of fiscal 2010 consisted of in-house personnel activities
whose costs are included in general and administrative expenses. We expect our
sales and marketing expenses to increase in the future as we promote our new
Directory Services product offerings.




Operating
Loss




Operating Loss2010
                  
                  
                  2009
                  
                  
                  Change
                  
                  
                  PercentThree
      Months Ended December 31,
                  
                  $
                  (1,731,956
                  )
                  
                  $
                  (2,484,314
                  )
                  
                  $
                  752,358
                  
                  
                  
                  (30
                  )%




The
decrease in operating loss for the first quarter of fiscal 2011 as compared to
the first quarter of fiscal 2010 is primarily due to decreases in general and
administrative expenses and sales and marketing expenses as a result of our cost
containment initiatives, partially offset by a decrease in our gross profit each
of which is described above.




Total
Other Income (Expense)




Total Other Income (Expense)2010
                  
                  
                  2009
                  
                  
                  Change
                  
                  
                  PercentThree
      Months Ended December 31,
                  
                  $
                  1,562
                  
                  
                  $
                  56,910
                  
                  
                  $
                  (55,348
                  )
                  
                  
                  (97
                  )%




During
the first quarter of fiscal 2010, we recognized $50,000 of income related to the
adjustment of certain accruals.  The remaining activity in fiscal 2011
and fiscal 2010 consisted primarily of interest income on cash balances and
short-term investments.




Income
Tax Provision (Benefit)




Income Tax Provision (Benefit)2010
                  
                  
                  2009
                  
                  
                  Change
                  
                  
                  PercentThree
      Months Ended December 31,
                  
                  $
                  -
                  
                  
                  $
                  99,975
                  
                  
                  $
                  (99,975
                  )
                  
                  
                  (100
                  )%




In the
second quarter of fiscal 2009, the Company established a valuation allowance
against all deferred tax assets given the uncertainty with respect to future
operations and we continue to maintain a full valuation allowance against such
assets.  Accordingly, there is no tax expense or benefit for the first
quarter of fiscal 2011.  The income tax provision during the first
quarter of fiscal 2010 reflects a true up to our income tax receivable based on
information received during the preparation of our 2009 tax
returns.





Income
(Loss) from Discontinued Operations




Income (Loss) from Discontinued Operations2010
                  
                  
                  2009
                  
                  
                  Change
                  
                  
                  PercentThree
      Months Ended December 31,
                  
                  $
                  -
                  
                  
                  $
                  1,725
                  
                  
                  $
                  (1,725
                  )
                  
                  
                  (100
                  )%




During
the second quarter of fiscal 2009, we discontinued our online classifieds
business.  As of December 31, 2010 we have concluded the wind down of
that business and no longer expect to incur any future losses.


20


Net
Income (Loss)




Net income (loss)2010
                  
                  
                  2009
                  
                  
                  Change
                  
                  
                  PercentThree
      Months Ended December 31,
                  
                  $
                  (1,730,394
                  )
                  
                  $
                  (2,525,654
                  )
                  
                  $
                  795,260
                  
                  
                  
                  (31
                  )%




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




Liquidity
and Capital Resources




Net cash
used in operating activities was approximately $1,460,000 for the first quarter
of fiscal 2011 as compared to approximately $1,285,000 for the first quarter of
fiscal 2010.  While our net loss decreased by $795,000 in the first
quarter of fiscal 2011 as compared to the first quarter of fiscal 2010, the cash
impacts of this decreased net loss were partially offset by a reduction of
non-cash expenses of $89,000 including depreciation expense, stock compensation
and bad debt expense.  Changes in working capital and other current
assets caused a decrease in operating cash flows of $882,000 during the first
quarter of fiscal 2011 as compared to the first quarter of fiscal
2010.  Our primary source of cash inflows has historically been net
remittances from Directory Services customers processed in the form of ACH
billings and LEC billings.  As of December 31, 2010, three such
entities accounted for 27%, 27% and 17% of gross accounts
receivable.




With
respect to our Direct Sales Services, we generally receive upfront payments
averaging approximately one-sixth of the gross contract
amount.  Subsequent payments are received on an installment basis
after the application of the initial payment amounts and are billed ratably over
the remaining life of the contract.  As we are in the process of
exiting this line of business, we are no longer accepting new sales
contracts.




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




There
were no investing activities during the first quarter of fiscal
2011.  Net cash used for investing activities totaled approximately
$171,000 for the first quarter of fiscal 2010 consisting of $131,000 for
expenditures for software development and $40,000 of purchases of property and
equipment.




During
the first quarter of fiscal 2011, our cash flows from financing activities
consisted of $100,000 received from the issuance of stock to an investor,
partially offset by $15,000 of payments on capital lease
obligations.  During the first quarter of fiscal 2010, we experienced
financing cash outflows consisting of $17,000 for capital lease obligations and
$25,000 for purchases of treasury stock.




We had
working capital of $1,834,000 as of December 31, 2010 compared to $3,201,000 as
of September 30, 2010 with current assets decreasing by $1,569,000 and current
liabilities decreasing by $201,000 from September 30, 2010 to December 31,
2010.  Declines in working capital are primarily attributable to our
operating net loss.




Contractual
Obligations




The
following table summarizes our contractual obligations at December 31, 2010 and
the effect such obligations are expected to have on our future liquidity and
cash flows:




Payments Due by Fiscal YearTotal
                        
                        
                        2011
                        
                        
                        2012
                        
                        
                        2013
                        
                        
                        2014
                        
                        
                        2015
                        
                        
                        ThereafterOperating
      lease commitments
                        
                        $
                        699,572
                        
                        
                        $
                        305,521
                        
                        
                        $
                        315,331
                        
                        
                        $
                        78,720
                        
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        -Capital
      lease commitments
                        
                        
                        85,524
                        
                        
                        
                        48,107
                        
                        
                        
                        37,417
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Noncanceleable
      service contracts
                        
                        
                        602,708
                        
                        
                        
                        464,708
                        
                        
                        
                        138,000
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -$
                        1,387,804
                        
                        
                        $
                        818,336
                        
                        
                        $
                        490,748
                        
                        
                        $
                        78,720
                        
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        -




21


While 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, we will not be able to stay in business in the future
without improvements in our profitability, additional financing or a fundamental
change in our business.





At
December 31, 2010, we had no off-balance sheet arrangements, commitments or
guarantees that require additional disclosure or measurement.


22


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 principal
executive officer and principal 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 principal executive officer and principal 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
Quarterly Report, 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.  During
the period covered by this Quarterly Report, 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.


23


PART
II – OTHER INFORMATION




ITEM
1.  LEGAL PROCEEDINGS




Except as
described below, as of December 31, 2010, the Company was not a party to any
pending material legal proceedings other than claims that arise in the normal
conduct of its business.  While management currently believes that the
ultimate outcome of these proceedings will not have a material adverse effect on
its consolidated financial condition or results of operations, litigation is
subject to inherent uncertainties.  If an unfavorable ruling were to
occur, there exists the possibility of a material adverse impact on the
Company’s net income(loss) in the period in which a ruling
occurs.  The Company’s estimate of the potential impact of the
following legal proceedings on its financial position and its results of
operations could change in the future.





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





Joe
Cunningham v. LiveDeal, Inc. et al.





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





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





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





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





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


Active
litigation is temporarily suspended, but Plaintiff is seeking to restart the
litigation.





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 for the fiscal year ended September 30,
2010.





ITEM
2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS





The
Company issued a total of 15,014 shares of its common stock in private
transactions during the quarter that ended on December 31,
2010.  Additional information about those transactions, including the
consideration received by the Company and the exemptions from registration
relied on by the Company, is set forth in Note 4 to the financial statements
included in Part I, Item 1 of this Quarterly Report on Form
10-Q.


24


ITEM
6. EXHIBITS




The
following exhibits are either attached hereto or incorporated herein by
reference as indicated:





Exhibit
                    Number
                  
                  Description31
                  
                  Certifications
      pursuant to Section 302 of the Sarbanes-Oxley Act of
  200232
                  
                  Section
      1350
Certifications


25


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:  February
      14, 2011
                  /s/ Lawrence W.
      TomsicLawrence
      W. TomsicChief
      Financial Officer




26