UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
D.C. 20549
 FORM
10-Q
 
 (Mark
One)
 
 T
              Quarterly
      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934
 
 For the
quarterly period ended June 30, 2008
 
 £
              Transition
      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934
 
 For the
transition period from _____________ to _______________
 
 Commission
File Number 0-24217
 
 LiveDeal,
Inc.
 (Exact
name of registrant as specified in its charter)
  Nevada
              
              85-0206668(State
      or other jurisdiction of incorporation or organization)
              
              (IRS
      Employer Identification No.)2490
      East Sunset Road, Suite 100
              
              89120Las
      Vegas, Nevada
              
              (Zip
      Code)(Address
      of principal executive offices)
 
 (702)
939-0230
 (Registrant’s
telephone number, including area code)
 
 Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes þ  No  o
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer”,
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
 
 Large
      Accelerated Filer o
              
              Accelerated
      Filer oNon-Accelerated
      Filer  o
              
              Smaller
      reporting company  þ(Do
      not check if a smaller reporting company)
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  Yes oNo  þ
 
 APPLICABLE
ONLY TO CORPORATE ISSUERS
 
 The
number of shares of the issuer’s common equity outstanding as of August 1, 2008
was 6,519,738 shares of common stock, par value $0.001.
  
 
  INDEXTO FORM 10-Q FILING
 FOR
THE QUARTER ENDED JUNE 30, 2008
 
 TABLE
OF CONTENTS
 
 PART
I
 FINANCIAL
INFORMATION
  PageItem
      1.
              
              Financial
      StatementsCondensed Consolidated Balance Sheets as of June 30, 2008
      (Unaudited) and September 30, 2007
              
              3Unaudited Condensed Consolidated Statements of Operations for
      the Three and Nine Months Ended June 30, 2008 and June 30,
      2007
              
              4Unaudited Condensed Consolidated Statements of Cash Flows for
      the Nine Months Ended June 30, 2008 and June 30, 2007
              
              5Notes to Unaudited Condensed Consolidated Financial
      Statements
              
              6Item
      2.
              
              Management’s Discussion and Analysis of Financial Condition and
      Results of Operations
              
              13Item
      3.
              
              Quantitative and Qualitative Disclosures About Market
      Risk
              
              21Item
      4.
              
              Controls and Procedures
              
              21
 
 PART
II
 OTHER
INFORMATION
 
 Item
      1.
              
              Legal Proceedings
              
              25Item
      1A.
              
              Risk Factors
              
              25Item
      2.
              
              Unregistered Sale of Equity Securities and Use of
      Proceeds
              
              25Item
      6.
              
              Exhibits
              
              25Signatures
              
              26
  2
 Table of Contents
  PART
I – FINANCIAL INFORMATION
 
 ITEM1.
              FINANCIAL
      STATEMENTS
 
 
 LIVEDEAL, INC. AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED BALANCE SHEETS
 
 June
      30,
              
              
              September
      30,2008
              
              
              2007(unaudited)AssetsCash
      and cash equivalents
              
              $
              4,059,034
              
              
              $
              5,674,533Accounts
      receivable, net
              
              
              7,283,156
              
              
              
              6,919,180Prepaid
      expenses and other current assets
              
              
              661,922
              
              
              
              510,609Customer
      acquisition costs, net
              
              
              1,123,888
              
              
              
              -Income
      taxes receivable
              
              
              769,464
              
              
              
              316,429Deferred
      tax asset
              
              
              521,268
              
              
              
              546,145Total
      current assets
              
              
              14,418,732
              
              
              
              13,966,896Accounts
      receivable, long term portion, net
              
              
              1,927,266
              
              
              
              1,941,996Property
      and equipment, net
              
              
              809,938
              
              
              
              423,563Deposits
      and other assets
              
              
              94,888
              
              
              
              103,057Intangible
      assets, net
              
              
              6,662,347
              
              
              
              7,372,147Goodwill
              
              
              11,706,406
              
              
              
              11,683,163Deferred
      tax asset, long term
              
              
              4,117,591
              
              
              
              4,551,644Total
      assets
              
              $
              39,737,168
              
              
              $
              40,042,466Liabilities
      and Stockholders' EquityLiabilities:Accounts
      payable
              
              $
              1,191,606
              
              
              $
              1,138,265Accrued
      liabilities
              
              
              1,732,026
              
              
              
              1,196,330Total
      current liabilities
              
              
              2,923,632
              
              
              
              2,334,595Total
      liabilities
              
              
              2,923,632
              
              
              
              2,334,595Commitments
      and contingenciesStockholders'
      Equity:Series
      E convertible preferred stock, $0.001 par value, 200,000 shares
      authorized,127,840 issued and outstanding, liquidation preference
      $38,202
              
              
              10,866
              
              
              
              10,866Common
      stock, $0.001 par value, 100,000,000 shares authorized,6,525,962 and
      6,693,676 outstanding at June 30, 2008 and September 30,
      2007,respectively
              
              
              6,526
              
              
              
              6,694Treasury
      stock (2,000 and 328,566 shares carried at cost)
              
              
              (4,845
              )
              
              
              (2,714,698
              )Paid
      in capital
              
              
              20,974,573
              
              
              
              23,325,888Retained
      earnings
              
              
              15,826,416
              
              
              
              17,079,121Total
      stockholders' equity
              
              
              36,813,536
              
              
              
              37,707,871Total
      liabilities and stockholders' equity
              
              $
              39,737,168
              
              
              $
              40,042,466
 
 See
accompanying notes to unaudited condensed consolidated financial
statements.
  3
 Table of Contents
  LIVEDEAL, INC. AND SUBSIDIARIES
 UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
 Three
      Months ended
              
              
              Nine
      Months endedJune
      30,
              
              
              June
      30,2008
              
              
              2007
              
              
              2008
              
              
              2007Net
      revenues
              
              $
              5,812,141
              
              
              $
              5,989,437
              
              
              $
              19,518,815
              
              
              $
              19,219,664Cost
      of services
              
              
              1,129,371
              
              
              
              875,894
              
              
              
              3,240,610
              
              
              
              2,944,472Gross
      profit
              
              
              4,682,770
              
              
              
              5,113,543
              
              
              
              16,278,205
              
              
              
              16,275,192Operating
      expenses:General
      and administrative expenses
              
              
              4,807,459
              
              
              
              3,233,189
              
              
              
              12,047,575
              
              
              
              9,547,646Sales
      and marketing expenses
              
              
              1,710,862
              
              
              
              1,303,992
              
              
              
              5,570,132
              
              
              
              4,506,122Litigation
      and related expenses
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (200,718
              )Total
      operating expenses
              
              
              6,518,321
              
              
              
              4,537,181
              
              
              
              17,617,707
              
              
              
              13,853,050Operating
      income (loss)
              
              
              (1,835,551
              )
              
              
              576,362
              
              
              
              (1,339,502
              )
              
              
              2,422,142Other
      income (expense):Interest
      income
              
              
              14,837
              
              
              
              68,914
              
              
              
              78,588
              
              
              
              233,611Other
      income (expense)
              
              
              (18,269
              )
              
              
              537
              
              
              
              (14,637
              )
              
              
              14,294Total
      other income (expense)
              
              
              (3,432
              )
              
              
              69,451
              
              
              
              63,951
              
              
              
              247,905Income
      (loss) before income taxes
              
              
              (1,838,983
              )
              
              
              645,813
              
              
              
              (1,275,551
              )
              
              
              2,670,047Income
      tax provision (benefit)
              
              
              (258,286
              )
              
              
              379,408
              
              
              
              (24,284
              )
              
              
              1,292,181Net
      income (loss)
              
              $
              (1,580,697
              )
              
              $
              266,405
              
              
              $
              (1,251,267
              )
              
              $
              1,377,866Net
      income (loss) per common share:Basic
              
              $
              (0.25
              )
              
              $
              0.05
              
              
              $
              (0.20
              )
              
              $
              0.29Diluted
              
              $
              (0.25
              )
              
              $
              0.05
              
              
              $
              (0.20
              )
              
              $
              0.28Weighted
      average common shares outstanding:Basic
              
              
              6,222,351
              
              
              
              5,024,229
              
              
              
              6,214,099
              
              
              
              4,715,630Diluted
              
              
              6,222,351
              
              
              
              5,262,554
              
              
              
              6,214,099
              
              
              
              4,941,271
 
 See
accompanying notes to unaudited condensed consolidated financial
statements.
  4
 Table of Contents
  LIVEDEAL, INC. AND SUBSIDIARIES
 UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 Nine
      Months Ended June 30,2008
              
              
              2007CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income (loss)
              
              $
              (1,251,267
              )
              
              $
              1,377,865Adjustments
      to reconcile net income (loss) to net cash provided by (used in) operating
      activities:Depreciation
      and amortization
              
              
              1,525,972
              
              
              
              1,098,370Amortization
      of deferred stock compensation
              
              
              859,271
              
              
              
              1,169,543Issuance
      of common stock as compensation for services
              
              
              -
              
              
              
              78,837Noncash
      compensation expense to Chief Executive Officer
              
              
              -
              
              
              
              88,680Deferred
      income taxes
              
              
              458,930
              
              
              
              1,489,654Loss
      on disposal of equipment
              
              
              15,352
              
              
              
              4,128Provision
      for uncollectible accounts
              
              
              430,880
              
              
              
              (1,434,426
              )Changes
      in assets and liabilities:Accounts
      receivable
              
              
              (780,126
              )
              
              
              2,230,324Customer
      acquisition costs
              
              
              (1,700,000
              )
              
              
              -Prepaid
      expenses and other current assets
              
              
              (151,313
              )
              
              
              (81,751
              )Deposits
      and other assets
              
              
              8,169
              
              
              
              (3,560
              )Accounts
      payable
              
              
              53,341
              
              
              
              (780,990
              )Accrued
      liabilities
              
              
              535,696
              
              
              
              (2,928,662
              )Income
      taxes receivable
              
              
              (453,035
              )
              
              
              (1,067,660
              )Net
      cash provided by (used for) operating activities
              
              
              (448,130
              )
              
              
              1,240,352CASH
      FLOWS FROM INVESTING ACTIVITIES:Redemptions
      (purchases) of certificates of deposits and other
    investments
              
              
              -
              
              
              
              3,082,053Cash
      acquired in connection with acquisition of LiveDeal, Inc.
              
              
              -
              
              
              
              397,876Additional
      closing costs related to acquisition of LiveDeal, Inc.
              
              
              (7,000
              )
              
              
              -Additional
      closing costs related to acquisition of OnCall Subscriber Management,
      Inc.
              
              
              (16,243
              )
              
              
              -Expenditures
      for intangible assets
              
              
              (55,942
              )
              
              
              (674,580
              )Purchases
      of equipment
              
              
              (585,845
              )
              
              
              (192,373
              )Net
      cash provided by (used for) investing activities
              
              
              (665,030
              )
              
              
              2,612,976CASH
      FLOWS FROM FINANCING ACTIVITIES:Series
      E preferred stock dividends
              
              
              (1,438
              )
              
              
              -Purchase
      of treasury stock
              
              
              (500,901
              )
              
              
              -Net
      cash used for financing activities
              
              
              (502,339
              )
              
              
              -INCREASE
      (DECREASE) IN CASH AND CASH EQUIVALENTS
              
              
              (1,615,499
              )
              
              
              3,853,328CASH
      AND CASH EQUIVALENTS, beginning of period
              
              
              5,674,533
              
              
              
              6,394,775CASH
      AND CASH EQUIVALENTS, end of period
              
              $
              4,059,034
              
              
              $
              10,248,103NONCASH
      INVESTING AND FINANCING ACTIVITIES:Issuance
      of common stock for acquisition of LiveDeal, Inc.
              
              $
              -
              
              
              $
              12,328,045
 
 See
accompanying notes to unaudited condensed consolidated financial
statements
  5
 Table of Contents
  LIVEDEAL, INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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 is an Internet-based provider of yellow page directories and online
local classified ads on or through www.YP.com, www.YP.net, www.Yellow-Page.net,
and www.livedeal.com.  No material or information contained on these
websites is a part of these notes or this Quarterly Report on Form
10-Q.  All material intercompany accounts and transactions have been
eliminated in consolidation.
 
 The
accompanying condensed consolidated balance sheet as of September 30, 2007,
which has been derived from audited financial statements, andthe accompanying
unaudited condensed consolidated financial statements for the three and nine
months ended June 30, 2008 and for the three and nine months ended June 30,
2007,respectively,
have been prepared in accordance with generally accepted accounting principles
for interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for audited financial statements. In the opinion of the Company’s management,
the interim information includes all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results for the
interim periods. The results of operations for the three and nine months ended
June 30, 2008 are not necessarily indicative of the results to be expected for
the year ending September 30, 2008. The footnote disclosures related to the
interim financial information included herein are also unaudited. Such financial
information should be read in conjunction with the consolidated financial
statements and related notes thereto as of September 30, 2007 and for the year
then ended included in the Company’s Annual Report on Form 10-K/A for the year
ended September 30, 2007.
 
 The
preparation of financial statements in accordance with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities at the date of the
financial statements and the reported amount of revenues and expenses during the
reporting period. Significant estimates and assumptions have been used by
management throughout the preparation of the consolidated financial statements
including in conjunction with establishing allowances for customer refunds,
non-paying customers, dilution and fees, analyzing the recoverability of the
carrying amount of intangible assets, estimating forfeitures of restricted stock
and evaluating the recoverability of deferred tax assets.  Actual
results could differ from these estimates.
 
 2.  BALANCE
SHEET INFORMATION
 
 Balance
sheet information is as follows:
 
 June
      30, 2008Current
              
              
              Long-Term
              
              
              TotalGross
      accounts receivable
              
              $
              9,524,187
              
              
              $
              2,081,446
              
              
              $
              11,605,633Allowance
      for doubtful accounts
              
              
              (2,241,031
              )
              
              
              (154,180
              )
              
              
              (2,395,211
              )Net
              
              $
              7,283,156
              
              
              $
              1,927,266
              
              
              $
              9,210,422September
      30, 2007Current
              
              
              Long-Term
              
              
              TotalGross
      accounts receivable
              
              $
              9,221,903
              
              
              $
              2,101,071
              
              
              $
              11,322,974Allowance
      for doubtful accounts
              
              
              (2,302,723
              )
              
              
              (159,075
              )
              
              
              (2,461,798
              )Net
              
              $
              6,919,180
              
              
              $
              1,941,996
              
              
              $
              8,861,176
  6
 Table of Contents
  LIVEDEAL,
INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont)
  Components
of the allowance for doubtful accounts are as follows:
 
 June
      30, 2008
              
              
              September
      30, 2007Allowance
      for dilution, fees and noncollectible amounts due from billing
      aggregators
              
              $
              1,925,295
              
              
              $
              1,888,730Allowance
      for customer refunds
              
              
              469,916
              
              
              
              573,068$
              2,395,211
              
              
              $
              2,461,798
 
 Included
in accounts receivable at June 30, 2008 are $817,684 from a LEC aggregator that
is currently in bankruptcy proceedings, against which the Company maintains
allowances totaling $615,431.  During the three and nine months ended
June 30, 2008, the Company recognized $92,971 and $229,922 of additional bad
debt expense associated with this aggregator.
 
 Customer
acquisition costs, net consist of the following:
 
 June
      30, 2008
              
              
              September
      30, 2007Customer
      acquisition costs
              
              $
              1,700,000
              
              
              $
              -Less:
      Accumulated amortization
              
              
              (576,112
              )
              
              
              -Customer
      acquisition costs, net
              
              $
              1,123,888
              
              
              $
              -
 
 Included
in customer acquisitions costs at June 30, 2008 are $1,700,000 of costs to
acquire approximately 10,000 accounts from a third party that are now being
serviced by the Company.  These 10,000 accounts are guaranteed by the
seller for a twelve month period, and the seller will replace any cancelled
accounts within the guarantee period.  The Company is amortizing the
customer acquisition costs over a twelve month period.  After the
guarantee period, these customers will continue to generate revenues for the
Company subject to normal rates of attrition.
 
 
 
 
 Property
and equipment, net consists of the following:
 
 June
      30, 2008
              
              
              September
      30, 2007Leasehold
      improvements
              
              $
              227,666
              
              
              $
              455,286Furnishings
      and fixtures
              
              
              305,032
              
              
              
              310,499Office
      and computer equipment
              
              
              715,428
              
              
              
              1,423,989Total
              
              
              1,248,126
              
              
              
              2,189,774Less:
      Accumulated depreciation
              
              
              (438,188
              )
              
              
              (1,766,211
              )Property
      and equipment, net
              
              $
              809,938
              
              
              $
              423,563
 
 During
the three months ended June 30, 2008, we began closing our corporate offices in
Mesa, Arizona that housed certain customer service functions, IT functions and
corporate administration.  The corporate and IT functions are being
relocated to our Las Vegas, Nevada offices and our customer service functions
are being transitioned to our offices in the Philippines.  We applied
the provisions of SFAS No. 146, “Accounting for Costs Associated with Exit or
Disposal Activities” in accounting for these events and recorded an expense of
$15,942 related to the disposal of certain assets.  The Company also
disposed of a significant amount of fully depreciated assets in connection with
this relocation.
  7
 Table of Contents
  LIVEDEAL,
INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont)
  Intangible
assets, net consist of the following:
 
 June
      30, 2008
              
              
              September
      30, 2007Domain
      name
              
              $
              7,208,600
              
              
              $
              7,208,600Non-compete
      agreements
              
              
              3,465,000
              
              
              
              3,465,000Website
      development
              
              
              3,621,846
              
              
              
              3,006,093Total
              
              
              14,295,446
              
              
              
              13,679,693Less:
      Accumulated amortization
              
              
              (7,633,099
              )
              
              
              (6,307,546
              )Intangible
      assets, net
              
              $
              6,662,347
              
              
              $
              7,372,147
  In accordance with GAAP,
the Company will perform its annual evaluation of long-lived assets, including
intangible assets and goodwill, in the fourth quarter of fiscal
2008.
  Accrued
liabilities include the following:
 
 June
      30, 2008
              
              
              September
      30, 2007Deferred
      revenue
              
              $
              722,673
              
              
              $
              323,596Accrued
      payroll & bonus
              
              
              274,323
              
              
              
              339,305Amounts
      due under revenue sharing agreements
              
              
              326,085
              
              
              
              302,593Accrued
      expenses - other
              
              
              408,945
              
              
              
              230,836Accrued
      liabilities
              
              $
              1,732,026
              
              
              $
              1,196,330
 
 3.  PRO FORMA
FINANCIAL INFORMATION
 
 The
accompanying consolidated unaudited financial statements include the results of
LiveDeal, Inc. and OnCall Subscriber Management Inc. from June 6, 2007 and July
10, 2007, their respective dates of acquisition.  The following table
provides pro forma results of operations for the three and nine months ended
June 30, 2007 as if LiveDeal had been acquired as of the beginning of the
period. The pro forma results include certain purchase accounting adjustments
such as the estimated changes in amortization expense on acquired intangible
assets, increased compensation expense resulting from the compensation
obligations to LiveDeal executives and the elimination of interest expense on
borrowings that were satisfied through the acquisition.  However, pro
forma results do not include any anticipated cost savings or other effects of
the integration of LiveDeal.  Accordingly, such amounts are not
necessarily indicative of the results that would have occurred if the
acquisition had occurred on the dates indicated or that may result in the
future.
 
 Three
      Months
              
              
              Nine
      MonthsEnded
      June 30,
              
              
              Ended
      June 30,2007
              
              
              2007(unaudited)
              
              
              (unaudited)Net
      revenues
              
              $
              6,410,361
              
              
              $
              20,936,377Net
      loss
              
              $
              (1,118,971
              )
              
              $
              (2,165,640
              )Diluted
      net loss per share
              
              $
              (0.18
              )
              
              $
              (0.35
              )
 
 Pro
forma financial information is not provided for the acquisition of OnCall
Subscriber Management Inc. as this entity was a carve-out of a larger
entity.  As such, historical financial information of the acquired
entity on a stand-alone basis cannot be obtained.
  8
 Table of Contents
  LIVEDEAL,
INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont)
  4.  TREASURY
STOCK
 
 On May
25, 2007, the Company’s Board of Directors terminated its existing stock
repurchase plan and replaced it with a new plan authorizing repurchases of up to
$1,000,000 of common stock from time to time on the open market.  The
Company acquired 137,295 shares of its common stock at market prices during the
nine months ended June 30, 2008 at an aggregate cost of $500,901.  The
majority of these shares have been retired.  As of June 30, 2008, the
Company held 2,000 shares of treasury stock at a cost of $4,845.
 
 5.    STOCK-BASED
COMPENSATION
 
 From time
to time, the Company grants restricted stock awards 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 vesting
period.
 
 Each
quarter, the Company evaluates its historical forfeitures on vested awards and
adjusts the amount of stock-based compensation expense to reflect actual
forfeiture rates.  Additionally, the Company evaluates its estimates
of forfeitures for unvested awards when facts and circumstances indicate that a
change may be needed.  During the three months ended June 30, 2008,
the Company performed an analysis of its estimated forfeiture rate and
determined that, in light of historical experience, it was appropriate to
increase its estimates of forfeitures for directors and officers from 30% to 40%
and for all other employees and consultants from 60% and 70%.  The net
impact of this change in estimate (excluding tax effects) was to decrease stock
based compensation by $280,782 during the three and nine months ended June 30,
2008.
 
 6.   RELATED
PARTY TRANSACTIONS
 
 Change
in Officers and Board of Directors
 
 During
the three months ended June 30, 2008, the Company experienced the following
changes in officers and directors:
 
 ·
              Rajesh
      Navar resigned as President but remained a member of the Board of
      Directors;
 ·
              John
      Raven assumed the role of
President;
 ·
              Dan
      Coury was terminated as our Chief Executive Officer and, in connection
      with this termination, he resigned as a member of the Board of
      Directors;
 ·
              Michael
      Edelhart was appointed as Interim Chief Executive Officer and to serve as
      a director of the Company;
 ·
              Rajesh
      Navar replaced Joe Cunningham as the Chairman of the Board of
      Directors;
 ·
              Greg
      LeClaire was appointed to serve as a director of the Company and as
      Chairman of the Audit Committee;
 ·
              Richard
      Sommer was appointed to serve as a director of the Company and as Chairman
      of the Compensation Committee; and
 ·
              Benjamin
      Milk resigned as a member of the Board of
  Directors.
 
 Pursuant
to the terms of his employment agreement dated September 19, 2006 (the
"Employment Agreement"), the Company paid Mr. Coury (i) his earned but unpaid
salary and vacation through May 19, 2008 and (ii) a one-time lump sum payment of
$496,000 in connection with his termination. Of the 155,000 shares of restricted
stock of the Company that Mr. Coury owned at the date of his departure, 111,667
shares were immediately vested and the remaining 43,333 shares were forfeited
and cancelled. Mr. Coury will also be maintained on our health, dental and
disability benefit plans (or reimbursed for similar coverage in the event that
we are unable to maintain him on such plans) for a period of 12 months. As
required under the Employment Agreement, Mr. Coury provided the Company with a
general release of any and all claims relating to his employment and/or the
termination thereof in consideration of the payments described
above.
 
 Each of
the above members of the Board receives monthly compensation of $3,000 per month
with the exception of Mr. Navar, who receives $6,000 per month as the Chairman
of the Board of Directors.  Chairpersons of the Audit
and Compensation committees receive additional compensation of $10,000 per
annum, respectively.
  9
 Table of Contents
  LIVEDEAL,
INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont)
  In
exchange for his role as Interim Chief Executive Officer, Mr. Edelhart receives
compensation of $20,000 per month and is eligible for performance
bonuses.
 
 In
connection with their respective appointments, Messrs. Edelhart, LeClaire and
Sommer each received 10,000 shares of restricted stock that vest over three
years from the date of grant.  The grant date fair value of such
awards  (net of estimated forfeitures) is being amortized on a
straight line basis over their vesting period.
 
 7.  COMMITMENTS
AND CONTINGENCIES
 
 At June
30, 2008, future minimum annual payments under operating lease agreements and
non-cancelable service contracts for fiscal years ending September 30 are as
follows:
 
 Payments
      Due by Fiscal YearTotal
              
              
              2008
              
              
              2009
              
              
              2010
              
              
              2011
              
              
              2012
              
              
              ThereafterOperating
      lease commitments
              
              $
              2,527,367
              
              
              $
              216,562
              
              
              $
              858,852
              
              
              $
              568,136
              
              
              $
              465,736
              
              
              $
              339,361
              
              
              $
              78,720Noncanceleable
      service contracts
              
              
              808,230
              
              
              
              149,646
              
              
              
              558,584
              
              
              
              100,000
              
              
              
              -
              
              
              
              -
              
              
              
              -$
              3,335,597
              
              
              $
              366,208
              
              
              $
              1,417,436
              
              
              $
              668,136
              
              
              $
              465,736
              
              
              $
              339,361
              
              
              $
              78,720
 
 Litigation
 
 On June
4, 2008, Global Education Services, Inc. (“Global”) filed a class action lawsuit
against the Company and its wholly owned subsidiary, Telco Billing Inc.,
alleging that certain of the Company’s marketing practices were
deceptive.  The lawsuit is Global Education Services, Inc. v.
LiveDeal, Inc. et al. (Class Action No. 08-2-19503-1 SEA) and was filed in the
Superior Court of the State of Washington for King County.  In its
complaint, Global alleged that the Company engaged in deceptive marketing
practices in violation of the Washington Consumer Protection
Act.  Global sought declaratory and injunctive relief, treble damages
and recovery of its litigation fees and expenses.
 
 On August
1, 2008, the Company provided notice that it was removing the lawsuit from
Washington Superior Court to the United States District Court for the Western
District of Washington.  The federal case number is
C08-1153JLR.  As of the date of this report, further action is pending
in the United States District Court.
 
 The
Company is party to certain legal proceedings incidental to the conduct of its
business. Management believes that the outcome of pending legal proceedings will
not, either individually or in the aggregate, have a material adverse effect on
the Company’s business, financial position, results of operations, cash flows or
liquidity.
 
 8.  INCOME
TAXES
 
 The
Company provides for income taxes based on the provisions of SFAS No. 109,Accounting for Income
Taxes,which, among
other things, requires that recognition of deferred income taxes be measured by
the provisions of enacted tax laws in effect at the date of the financial
statements. The Company records, among other items, deferred tax assets related
to book-tax differences in the recognition of restricted stock awards to
officers, directors, employees and consultants.  During the three and
nine months ended June 30, 2008 and 2007, a portion of our restricted stock
awards had vested and, due to declines in our stock price from grant date to
vest date, the tax effects of the vesting of these awards were less than the
carrying value of our related deferred tax assets.  Accordingly, the
Company incurred an additional $421,657 and $144,630 of income tax expense for
the three months ended June 30, 2008 and 2007, respectively and $445,022 and
$279,342 of income tax expense for the nine months ended June 30, 2008 and 2007,
respectively, related to the write-off of these deferred tax
assets.  Such amounts served to reduce the income tax benefit in the
three and nine months ended June 30, 2008 and increase income tax expense in the
three and nine months ended June 30, 2007, respectively.
  10
 Table of Contents
  LIVEDEAL,
INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont)
  9.  NET
INCOME (LOSS) PER
SHARE
 
 Net
income (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 income (loss) per share is computed using the
weighted average number of common shares and, if dilutive, potential common
shares outstanding during the period. Potential common shares consist of the
incremental common shares issuable from restricted shares and convertible
preferred stock. The dilutive effect of outstanding restricted shares is
reflected in diluted earnings per share by application of the treasury stock
method. Convertible preferred stock is reflected on an if-converted basis.
Preferred stock dividends are subtracted from net income to determine the
amount available to common stockholders.
 
 The
following table presents the computation of basic and diluted net income
(loss) per share:
 
 Three
      Months Ended June 30,
              
              
              Nine
      Months Ended June 30,2008
              
              
              2007
              
              
              2008
              
              
              2007Net
      income (loss)
              
              $
              (1,580,697
              )
              
              $
              266,405
              
              
              $
              (1,251,267
              )
              
              $
              1,377,866Less:
      preferred stock dividends
              
              
              (480
              )
              
              
              (478
              )
              
              
              (1,438
              )
              
              
              (1,916
              )Income
      (loss) applicable to common stock
              
              $
              (1,581,177
              )
              
              $
              265,927
              
              
              $
              (1,252,705
              )
              
              $
              1,375,950Basic
      weighted average common shares outstanding
              
              
              6,222,351
              
              
              
              5,024,229
              
              
              
              6,214,099
              
              
              
              4,715,630Add
      incremental shares for:Unvested
      restricted stock
              
              
              -
              
              
              
              231,507
              
              
              
              -
              
              
              
              219,142Series
      E convertible preferred stock
              
              
              -
              
              
              
              6,818
              
              
              
              -
              
              
              
              6,499Diluted
      weighted average common shares outstanding
              
              
              6,222,351
              
              
              
              5,262,554
              
              
              
              6,214,099
              
              
              
              4,941,271Net
      income (loss) per share:Basic
              
              $
              (0.25
              )
              
              $
              0.05
              
              
              $
              (0.20
              )
              
              $
              0.29Diluted
              
              $
              (0.25
              )
              
              $
              0.05
              
              
              $
              (0.20
              )
              
              $
              0.28
 
 The
following potentially dilutive securities were excluded from the calculation of
diluted net income (loss) per share because the effects were antidilutive
based on the application of the treasury stock method:
 
 Three
      Months Ended June 30,
              
              
              Nine
      Months Ended June 30,2008
              
              
              2007
              
              
              2008
              
              
              2007Shares
      of non-vested restricted stock
              
              
              239,175
              
              
              
              53,075
              
              
              
              354,576
              
              
              
              67,082Shares
      of Series E convertible preferred stock
              
              
              127,840
              
              
              
              
              
              
              
              127,840
 
 10. CONCENTRATION
OF CREDIT RISK
 
 The
Company maintains cash balances at major nationwide institutions in Arizona and
Nevada.  Accounts are insured by the Federal Deposit Insurance
Corporation up to $100,000.
 
 Financial
instruments that potentially subject the Company to concentrations of credit
risk are primarily trade accounts receivable.  The trade accounts
receivable are due primarily from business customers over widespread
geographical locations within the LEC billing areas across the United
States.  The Company historically has experienced significant dilution
and customer credits due to billing difficulties and uncollectible trade
accounts receivable.  The Company estimates and provides an allowance
for uncollectible accounts receivable.  The handling and processing of
cash receipts pertaining to trade accounts receivable is maintained primarily by
three third-party billing companies.  The net receivable due from
these entities represented 38%, 22% and 20%, respectively, of the Company’s
total net accounts receivable (excluding non-specific reserves) at June 30,
2008.
  11
 Table of Contents
  LIVEDEAL,
INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont)
  11. RECENT
ACCOUNTING PRONOUNCEMENTS
 
 In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS No.
157”). SFAS No. 157 establishes a framework for measuring fair value under
generally accepted accounting procedures and expands disclosures on fair value
measurements. This statement applies under previously established valuation
pronouncements and does not require the changing of any fair value measurements,
though it may cause some valuation procedures to change. Under SFAS No. 157,
fair value is established by the price that would be received to sell the item
or the amount to be paid to transfer the liability of the asset as opposed to
the price tobe paid
for the asset or received to transfer the liability. Further, it defines fair
value as a market specific valuation as opposed to an entity specific valuation,
though the statement does recognize that there may be instances when the low
amount of market activity for a particular item or liability may challenge an
entity’s ability to establish a market amount. In the instances that the item is
restricted, this pronouncement states that the owner of the asset or liability
should take into consideration what affects the restriction would have if viewed
from the perspective of the buyer or assumer of the liability. This statement is
effective for all assets valued in financial statements for fiscal years
beginning after November 15, 2007. The Company is currently evaluating the
impact of SFAS No. 157 on its financial position and result of
operations.
 
 In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities (“SFAS No. 159”), which provides companies with
an option to report selected financial assets and liabilities at fair
value.  SFAS No. 159 also establishes presentation and disclosure
requirements designed to facilitate comparisons between companies that choose
different measurement attributes for similar types of assets and
liabilities.  SFAS No. 159 is effective as of the beginning of an
entity’s first fiscal year beginning after November 15, 2007 with early adoption
allowed.  The Company has not yet determined what impact, if any, that
adopting this standard might have on its financial position and results of
operations.
 
 In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business
Combinations (“SFAS No. 141(R)”) and No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51 (“SFAS No. 160”).
SFAS No. 141(R) and SFAS No. 160 are products of a joint project between the
FASB and the International Accounting Standards Board.  The revised
standards continue the movement toward the greater use of fair values in
financial reporting. SFAS No. 141(R) will significantly change how business
acquisitions are accounted for and will impact financial statements both on the
acquisition date and in subsequent periods. These changes include the expensing
of acquisition related costs and restructuring costs when incurred, the
recognition of all assets, liabilities and noncontrolling interests at fair
value during a step-acquisition, and the recognition of contingent consideration
as of the acquisition date if it is more likely than not to be
incurred.  SFAS No. 160 will change the accounting and reporting for
minority interests, which will be recharacterized as noncontrolling interests
and classified as a component of equity.  SFAS No. 141(R) and SFAS No.
160 are effective for both public and private companies for fiscal years
beginning on or after December 15, 2008 (October 1, 2009 for the Company). SFAS
No. 141(R) will be applied prospectively. SFAS No. 160 requires retroactive
adoption of the presentation and disclosure requirements for existing minority
interests. All other requirements of SFAS No. 160 shall be applied
prospectively. Early adoption is prohibited for both standards.  The
Company is currently evaluating the effects of these pronouncements on its
financial position and results of operations.


In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities - an amendment of FASB Statement No. 133 ("SFAS 161"). 
SFAS 161 modifies existing requirements to include qualitative disclosures
regarding the objectives and strategies for using derivatives, fair value
amounts of gains and losses on derivative instruments and disclosures about
credit-risk-related contingent features in derivative agreements. The
pronouncement also requires the cross-referencing of derivative disclosures
within the financial statements and notes thereto. The requirements of SFAS 161
are effective for interim and annual periods beginning after November 15, 2008.
The Company is currently evaluating the impact of the adoption of SFAS 161 on
its financial statements.
 
 In April
2008, the FASB issued FSP No. FAS 142-3, Determination of the Useful Life of
Intangible Assets ("FSP FAS 142-3")- FSP FAS 142-3 amends the factors that
should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under SFAS No. 142,
Goodwill and Other Intangible Assets. The intent of the position is to improve
the consistency between the useful life of a recognized intangible asset under
SFAS No. 142 and the period of expected cash flows used to measure the fair
value of the asset under SFAS No. 141(R), and other GAAP. FSP FAS 142-3 is
effective for fiscal years beginning after December 15, 2008. FSP FAS 142-3 is
effective for the Company on October 1, 2009. The Company is currently
evaluating the impact that the adoption of FSP FAS 142-3 will have on its
financial condition, results of operations, and disclosures.
 
 In May
2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles ("SFAS 162"). SFAS 162 identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with GAAP. This statement shall be effective 60 days
following the Securities and Exchange Commission's approval of the Public
Company Accounting Oversight Board amendments to AU Section 411, The Meaning of
Present Fairly in Conformity With Generally Accepted Accounting Principles. The
Company is currently evaluating the impact that the adoption of SFAS 162 will
have on its financial condition, results of operations, and
disclosures.
 
 In May
2008, the FASB issued SFAS No. 163, Accounting for Financial Guarantee Insurance
Contracts-an interpretation of FASB Statement No. 60 ("SFAS 163"). The scope of
SFAS 163 is limited to financial guarantee insurance (and reinsurance)
contracts. The pronouncement is effective for fiscal years beginning after
December 31, 2008. The Company does not believe this pronouncement will impact
its financial statements.


*            *            *
  12
 Table of Contents
  ITEM2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 
 For a
description of our significant accounting policies and an understanding of the
significant factors that influenced our performance during the three and nine
months ended June 30, 2008, this “Item 2.  Management’s Discussion and
Analysis of Financial Condition and Results of Operations” (hereafter referred
to as “MD&A”) should be read in conjunction with the Consolidated Financial
Statements, including the related notes, appearing in Part I, Item 1 of this
Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K/A for
the year ended September 30, 2007 as filed on May 13, 2008.
 
 Forward-Looking
Statements
 
 This
portion of this Quarterly Report on Form 10-Q, includes statements that
constitute “forward-looking statements.”  These forward-looking
statements are often characterized by the terms “may,” “believes,” “projects,”
“expects,” or “anticipates,” and do not reflect historical
facts.  Specific forward-looking statements contained herein include,
but are not limited to our expectation that continued investment in online
advertising to bring increased traffic to our websites will drive increased
revenues; our belief that our existing cash on hand will provide us with
sufficient liquidity to meet our operating needs for the next 12 months; the
anticipated benefits relating to our acquisition of LiveDeal, Inc.; and our
intention to continue to invest in online advertising.
 
 Forward-looking
statements involve risks, uncertainties and other factors, which may cause our
actual results, performance or achievements to be materially different from
those expressed or implied by such forward-looking
statements.  Factors and risks that could affect our results and
achievements and cause them to materially differ from those contained in the
forward-looking statements include those identified in our Annual Report on Form
10-K for the fiscal year ended September 30, 2007 under Item 1A “Risk Factors”,
as well as other factors that we are currently unable to identify or quantify,
but that may exist in the future.
 
 In
addition, the foregoing factors may affect generally our business, results of
operations, and financial position.  Forward-looking statements speak
only as of the date the statement was made.  We do not undertake and
specifically decline any obligation to update any forward-looking
statements.
 
 Executive
Overview
 
 We
maintain a combined local online classifieds and Yellow Pages marketplace with
millions of goods and services listed for sale, in nearly every city and zip
code across the U.S. By combining the benefits of classifieds, business
listings, mobile services, advertising/distribution networks and e-commerce into
a single online solution, we offer businesses and consumers an affordable and
effective solution for creating a web presence and marketing their products and
services locally. Through our online properties YP.com and LiveDeal.com, we
enable buyers and sellers to find and list business services, merchandise, real
estate, automobiles, pets and more in their local communities. Using our
marketplace, consumers can search or browse for items in a particular city,
state or zip code, or reach out on a national or global scope if they so
choose.
 
 Change
in Officers and Board of Directors
 
 During
the three months ended June 30, 2008, we experienced the following changes in
officers and directors, which have been previously disclosed in filings on Form
8-K:
 
 ·
              Rajesh
      Navar resigned as President but remained a member of our Board of
      Directors;
 ·
              John
      Raven assumed the role of
President;
 ·
              Dan
      Coury was terminated as our Chief Executive Officer and, in connection
      with this termination, he resigned as a member of our Board of
      Directors;
 ·
              Michael
      Edelhart was appointed as Interim Chief Executive Officer and to serve as
      a director of the Company;
 ·
              Rajesh
      Navar replaced Joe Cunningham as the Chairman of our Board of Directors
      with Mr. Cunningham remaining as a director of the
  Company;
  13
 Table of Contents
  ·
              Greg
      LeClaire was appointed to serve as a director of the Company and as
      Chairman of our Audit Committee;
 ·
              Richard
      Sommer was appointed to serve as a director of the Company and as Chairman
      of our Compensation Committee; and
 ·
              Benjamin
      Milk resigned as a member of our Board of
  Directors.
 
 Pursuant
to the terms of his employment agreement dated September 19, 2006 (the
"Employment Agreement"), we paid Mr. Coury (i) his earned but unpaid salary and
vacation through May 19, 2008 and (ii) a one-time lump sum payment of $496,000
in connection with his termination. Of the 155,000 shares of restricted stock of
the Company that Mr. Coury owned at the date of his departure, 111,667 shares
were immediately vested and the remaining 43,333 shares were forfeited and
cancelled. Mr. Coury will also be maintained on our health, dental and
disability benefit plans (or reimbursed for similar coverage in the event that
we are unable to maintain him on such plans) for a period of 12 months. As
required under the Employment Agreement, Mr. Coury provided us with a general
release of any and all claims relating to his employment and/or the termination
thereof in consideration of the payments described above.
 
 Each of
the above members of our Board receives monthly compensation of $3,000 per month
with the exception of Mr. Navar, who receives $6,000 per month as the Chairman
of our Board of Directors.  Chairpersons of the Audit
and Compensation committees receive additional compensation of $10,000 per
annum, respectively.
 
 In
exchange for his role as Interim Chief Executive Officer, Mr. Edelhart receives
compensation of $20,000 per month and is eligible for performance
bonuses.
 
 In
connection with their respective appointments, Messrs. Edelhart, LeClaire and
Sommer each received 10,000 shares of restricted stock that vest over three
years from the date of grant.
 
 Relocation
of Certain Functions
 
 During
the three months ended June 30, 2008, we began closing our corporate offices in
Mesa, Arizona that housed certain customer service functions, IT functions and
corporate administration.  The corporate and IT functions are being
relocated to our Las Vegas, Nevada offices and our customer service functions
are being transitioned to our operations in the Philippines.  We
applied the provisions of SFAS No. 146, “Accounting for Costs Associated with
Exit or Disposal Activities” in accounting for these events and recorded an
expense of $15,942 related to the disposal of certain assets in connection with
this relocation.
 
 Listing
on NASDAQ Capital Market
 
 On
February 1, 2008, we began trading on the NASDAQ Capital
Market.   Concurrent with this change, our ticker symbol was
changed from LVDL.OB to LIVE.
  14
 Table of Contents
  Acquisition
of LiveDeal, Inc.
 
 On June
6, 2007, we completed the acquisition of LiveDeal, Inc.
(“LiveDeal”).  LiveDeal developed and operates an online local
classifieds marketplace, www.livedeal.com, which lists millions of goods and
services for sale in almost every city and zip code across the
U.S.   The technology acquired in the acquisition offers such
classifieds functionality as fraud protection, identity protection, e-commerce,
listing enhancements, photos, community-building, package pricing, premium
stores, featured Yellow Page business listings and advanced local search
capabilities.
 
 The
acquisition represents a major strategic event in our history, and we hope
results in significant efficiencies as well as future growth
opportunities.  With the acquisition of LiveDeal, we are now able to
supplement our telemarketing campaigns with online marketing
efforts.  Our online traffic acquisition strategy includes activities
in e-mail marketing, search engine marketing (“SEM”), search engine optimization
(“SEO”) partnerships with major online marketing companies, and the generation
of word of mouth advertising.  We anticipate continued investment in
online advertising to bring increased traffic to our websites that should result
in increased value to the local business advertising community thereby driving
increased revenues.
 
 We have
consolidated the results of LiveDeal in our consolidated financial statements
beginning June 6, 2007, the date of acquisition. The following table
provides pro forma results of operations for the three and nine months ended
June 30, 2007 as if LiveDeal had been acquired as of the beginning of the
period. The pro forma results include certain purchase accounting adjustments
such as the estimated changes in amortization expense on acquired intangible
assets, increased compensation expense resulting from the contractual obligation
for Mr. Navar’s salary and the elimination of interest expense on
borrowings that were satisfied through the acquisition.  However, pro
forma results do not include any anticipated cost savings or other effects of
the integration of LiveDeal.  Accordingly, such amounts are not
necessarily indicative of the results that would have occurred if the
acquisition had occurred on the dates indicated or that may result in the
future.
 
 Three
      Months
              
              
              Nine
      MonthsEnded
      June 30,
              
              
              Ended
      June 30,2007
              
              
              2007(unaudited)
              
              
              (unaudited)Net
      revenues
              
              $
              6,410,361
              
              
              $
              20,936,377Net
      loss
              
              $
              (1,118,971
              )
              
              $
              (2,165,640
              )Diluted
      net loss per share
              
              $
              (0.18
              )
              
              $
              (0.35
              )
 
 Acquisition
of OnCall Subscriber Management Inc.
 
 On July
10, 2007, we acquired substantially all of the assets and assumed certain
liabilities of OnCall Subscriber Management Inc. (a Manila, Philippines-based
company) (“OnCall”), which OnCall purchased recently under option from 24 by 7
Contact Solutions, Inc. This acquisition allowed us to bring our entire
telemarketing operations in-house through the addition of 170 Philippines-based
employees to our workforce.  We have consolidated the results of this
entity in our consolidated financial statements beginning July 10, 2007, the
date of acquisition.
 
 Recent
Operating Results
 
 The
following represents a summary of recent financial results:
  15
 Table of Contents
  
 Q3 2008
              
              
              
              Q2 2008
              
              
              
              Q1 2008
              
              
              
              Q4 2007
              
              
              
              Q3 2007
              
              
              
              Q2 2007
              
              
              
              Q1 2007Net
      Revenues
              
              $
              5,812,141
              
              
              $
              6,637,785
              
              
              $
              7,068,888
              
              
              $
              7,120,697
              
              
              $
              5,989,437
              
              
              $
              6,106,544
              
              
              $
              7,123,683Gross
      margin
              
              
              4,682,770
              
              
              
              5,532,096
              
              
              
              6,063,339
              
              
              
              5,860,893
              
              
              
              5,113,544
              
              
              
              5,148,835
              
              
              
              6,012,813Operating
      expenses
              
              
              6,518,321
              
              
              
              5,518,529
              
              
              
              5,580,857
              
              
              
              4,956,356
              
              
              
              4,537,182
              
              
              
              4,043,109
              
              
              
              5,272,758Operating
      income (loss)
              
              
              (1,835,551
              )
              
              
              13,567
              
              
              
              482,482
              
              
              
              904,537
              
              
              
              576,362
              
              
              
              1,105,726
              
              
              
              740,055Net
      income (loss)
              
              
              (1,580,697
              )
              
              
              3,338
              
              
              
              326,092
              
              
              
              376,053
              
              
              
              266,405
              
              
              
              626,262
              
              
              
              485,198
 
 Net
income decreased in the third quarter of fiscal 2008 as compared to the second
quarter of fiscal 2008 due primarily to the following:
 
 ·
              Net
      revenues decreased by approximately $825,000 due primarily to a decrease
      in revenues billed through Local Exchange Carriers (“LEC”s) of
      approximately $469,000, a decrease in classified revenues of approximately
      $214,000 (primarily due to decreased classified web revenue in the second
      quarter and shortfalls in advertising and premium stores revenues) and a
      decrease in ACH billings of approximately $91,000.   With
      respect to the decrease in LEC revenues, due to the LECs tightened
      thresholds for customer inquiries, we are limited in the volume of new
      customers that we are able to bill through the LEC channel, and our LEC
      revenues have been negatively affected by these limitations and our normal
      attrition. Because of this LEC limitation, an increasing number of newly
      acquired customers must now be billed through direct invoicing
      methods.  Given our historical low levels of collectability, we
      do not recognize revenue on direct bill accounts until such revenues have
      been collected.
 
 ·
              Cost
      of services was roughly flat (increased by approximately
      $24,000).  While cost of services is typically correlated with
      LEC revenues and we experienced a decline in LEC revenues, our cost per
      account serviced increased due to changes in our customer base from
      internally generated sales to customers acquired through wholesale
      means.  Wholesale accounts typically experience higher bad
      debts, inquiry fees and other costs than internally generated
      accounts.
 
 ·
              General
      and administrative expense increased by approximately $962,000 due to the
      following:
 
 o
              Increased
      compensation costs of approximately $804,000 primarily attributable
      to:
 
 §
              $496,000
      of severance costs associated with the termination of our former Chief
      Executive Officer;
 
 §
              $281,000
      of increased personnel costs associated with the development of a
      telemarketing department; and
 
 §
              $439,000
      of increased stock based compensation expense associated with the
      accelerated vesting of stock awards to the former Chief Executive Officer;
      partially offset by
 
 §
              $281,000
      of decreased stock based compensation expense resulting from an increase
      in the estimated forfeiture rate on awards based on historical forfeiture
      experience; and
 
 §
              $131,000
      of decreased compensation costs associated with other business
      changes.
 
 o
              Other
      cost increases in rent, depreciation, software expenses, recruiting fees,
      legal and other professional fees of approximately $158,000 are
      attributable to changes in our business including the development of
      certain functions in our new Las Vegas headquarters, costs associated with
      management turnover and other corporate
  activities.
 
 ·
              Sales
      and marketing increased by approximately $37,000 due to the
      following:
  16
 Table of Contents
  o
              An
      increase of approximately $387,000 in customer acquisition costs primarily
      associated with the amortization of customer acquisition costs of a new
      wholesale fulfillment contract acquired in the second quarter of fiscal
      2008;
 
 o
              A
      decrease of approximately $260,000 of Philippines telemarketing costs due
      primarily to truing up estimated expense accruals for that
      location; and
 
 o
              $90,000
      of other expense reductions most of which was attributable to lower
      branding expenditures.
 
 ·
              Income
      tax provision decreased by approximately $301,000 due primarily to
      decreases in pretax income as described above, partially offset by the
      write-off of approximately $422,000 of deferred tax assets associated with
      vested restricted stock awards. During this period, a portion of our
      restricted stock awards had vested and, due to declines in our stock price
      from grant date to vest date, the tax effects of the vesting of these
      awards were less than the carrying value of the related deferred tax
      assets.
 
 Results
of Operations
 
 Net
Revenues
 
 Net
      Revenues2008
              
              
              2007
              
              
              Change
              
              
              PercentThree
      Months Ended June 30,
              
              $
              5,812,141
              
              
              $
              5,989,437
              
              
              $
              (177,296
              )
              
              
              (3
              )%Nine
      Months Ended June 30,
              
              $
              19,518,815
              
              
              $
              19,219,664
              
              
              $
              299,151
              
              
              
              2
              %
 
 Net
revenues decreased in the third quarter of fiscal 2008 as compared to the third
quarter of fiscal 2007 due primarily to a decrease in revenues from
directory services of approximately $263,000 that was partially offset by
approximately $86,000 increase in classified and other revenues stemming from
our acquisition of LiveDeal. Our directory services were most negatively
affected by declines in ACH billing that have occurred over the last two years
in part due to the effects of the attorneys’ general settlement; while we
continue to offer this payment method as an option to our subscribers, it is not
used as significantly as in the past.
 
 Net
revenues increased in the first nine months of fiscal 2008 as compared to the
first nine months of fiscal 2007 due to an increase in classified revenues of
approximately $1,145,000 stemming from our acquisition of LiveDeal in June 2007
(fiscal 2007 only reflected such revenues beginning on June 6, 2007, the date of
acquisition), partially offset by a decline in directory services accounts of
approximately $846,000, most notably through our ACH billing channel as
described above.
 
 Although
we have concentrations of risk with our billing aggregators (as described in
Note 10 to our Unaudited Condensed Consolidated Financial Statements included
elsewhere in this report) these aggregators bill via many underlying LECs,
thereby reducing our risk associated with credit concentrations. However, there
are a few LECs that service a significant number of our customers. To the extent
that LECs implement additional changes to billing practices in the future, our
revenues could be adversely affected.
 
 Our
Internet Advertising Package (“IAP”) is our primary source of
revenue.  The majority of our IAP customers pay between $27.50 and
$39.95 per month.
 
 Cost
of Services
  17
 Table of Contents
  
 Cost
      of Services2008
              
              
              2007
              
              
              Change
              
              
              PercentThree
      Months Ended June 30,
              
              $
              1,129,371
              
              
              $
              875,894
              
              
              $
              253,477
              
              
              
              29
              %Nine
      Months Ended June 30,
              
              $
              3,240,610
              
              
              $
              2,944,472
              
              
              $
              296,138
              
              
              
              10
              %
 
 Cost of
services increased in the third quarter and first nine months of fiscal 2008 as
compared to the third quarter and first nine months of fiscal 2007,
respectively, due primarily to increased usage of LEC billing
channels.  We increased our LEC billings as a percent of net revenues
from 66% in the third quarter of fiscal 2007 to 73% in the third quarter of
fiscal 2008.  LEC billings typically have higher costs than other
billing channels. Additionally, our cost per account serviced through LEC
billing has increased due to changes in our customer base from internally
generated sales to customers acquired through wholesale
means.  Wholesale accounts typically experience higher bad debts,
inquiry fees, and other costs than internally generated accounts.  All
of these costs are included in cost of services above.
 
 Gross
Profit
 
 Gross
      Profit2008
              
              
              2007
              
              
              Change
              
              
              PercentThree
      Months Ended June 30,
              
              $
              4,682,770
              
              
              $
              5,113,543
              
              
              $
              (430,773
              )
              
              
              (8
              )%Nine
      Months Ended June 30,
              
              $
              16,278,205
              
              
              $
              16,275,192
              
              
              $
              3,013
              
              
              
              0
              %
 
 Gross
margins decreased to 80.6% of net revenues in the third quarter of fiscal 2008
from 85.4% of net revenues in the third quarter of fiscal 2007, and decreased to
83.4% of net revenues for the first nine months of fiscal 2008 from 84.7% of net
revenues in the first nine months of fiscal 2007.  This decrease
was due in large part to the increase in LEC billings as a percentage of total
revenues as described above
 
 General and Administrative
Expenses
 
 General
      and Administrative Expenses2008
              
              
              2007
              
              
              Change
              
              
              PercentThree
      Months Ended June 30,
              
              $
              4,807,459
              
              
              $
              3,233,189
              
              
              $
              1,574,270
              
              
              
              49
              %Nine
      Months Ended June 30,
              
              $
              12,047,575
              
              
              $
              9,547,646
              
              
              $
              2,499,929
              
              
              
              26
              %
 
 General
and administrative expenses increased in the third quarter of fiscal 2008 as
compared to the third quarter of fiscal 2007 primarily due to the
following:
 
 ·
              Increased
      compensation costs of approximately $1,421,000 primarily attributable
      to:
 
 o
              $496,000
      of severance costs associated with the termination of our former Chief
      Executive Officer;
 
 o
              $297,000
      of increased personnel costs associated with the acquisition of LiveDeal,
      Inc. which took place in June 2007;
 
 o
              $465,000
      of increased compensation costs associated with the development of certain
      call center functions in our Las Vegas
  headquarters;
 
 o
              $439,000
      of increased stock based compensation expense associated with the
      accelerated vesting of stock awards to the former Chief Executive Officer;
      and
  18
 Table of Contents
  o
              $5,000
      of other miscellaneous cost increases; partially offset
  by
 
 o
              $281,000
      of decreased stock based compensation expense resulting from an increase
      in the estimated forfeiture rate on awards based on historical forfeiture
      experience.
 
 ·
              An
      increase in depreciation and amortization expense of approximately
      $108,000 stemming primarily from the effects of the LiveDeal acquisition,
      which added $2.2 million of depreciable and amortizable long-lived and
      intangible assets, and additional capitalized costs for enhancements to
      our websites and on-line customer service
  applications;
 
 ·
              An
      increase in other general and administrative expenses of approximately
      $299,000 due to an approximate increase of $107,000 associated with the
      LiveDeal acquisition and an approximate expenditure of $192,000 (primarily
      in rents, communications, and software expense) associated with the
      development of our Las Vegas headquarters; partially offset
    by
 
 ·
              A
      decrease in professional and consulting fees of approximately $254,000 as
      we incurred significant consulting fees in the third quarter of fiscal
      2007 associated with our change in strategic
  direction.
 
 General
and administrative expenses increased in the first nine months of fiscal 2008 as
compared to the first nine months of fiscal 2007 primarily due to the
following:
 
 ·
              An
      increase in depreciation and amortization expense of approximately
      $372,000 stemming primarily from the effects of the LiveDeal acquisition,
      which added $2.2 million of depreciable and amortizable long-lived and
      intangible assets, and additional capitalized costs for enhancements to
      our websites and on-line customer service
  applications;
 
 ·
              An
      increase in compensation expense of approximately $1,976,000 due
      to:
 
 o
              Salaries
      and other compensation expense of $1,113,000 associated with the LiveDeal
      acquisition that took place in June 2007, as 2007 only included LiveDeal
      expenses beginning with June 6, 2007, the date of
    acquisition;
 
 o
              $496,000
      of severance costs associated with the termination of our former Chief
      Executive Officer;
 
 o
              $896,000
      of increased compensation costs associated with the development of certain
      call center functions in our Las Vegas
  headquarters;
 
 o
              $439,000
      of increased stock based compensation expense associated with the
      accelerated vesting of stock awards to the former Chief Executive Officer;
      partially offset by
 
 o
              $281,000
      of decreased stock based compensation expense resulting from an increase
      in the estimated forfeiture rate on awards based on historical forfeiture
      experience; and
 
 o
              $687,000
      of other compensation cost decreases primarily due to reductions in
      staffing and bonus expense.
 
 ·
              An
      increase in other general and administrative expenses of approximately
      $417,000 primarily due to increased facility, office and other corporate
      expenses associated with the LiveDeal acquisition, as 2007 only included
      LiveDeal expenses beginning with June 6, 2007, the date of acquisition;
      and
 
 ·
              Other
      general and administrative cost increases, primarily in travel, rent,
      office supplies and corporate expenses, of $230,000; partially offset
      by
  19
 Table of Contents
  ·
              A
      decrease in professional and consulting fees of approximately $495,000 as
      we incurred significant expenses in the first nine months of fiscal 2007
      to develop our strategic direction following the effects of the Attorneys’
      General settlement.
 
 The following table sets forth our
recent operating performance for general and administrative
expenses:
 
 Q3 2008
              
              
              
              Q2 2008
              
              
              
              Q1 2008
              
              
              
              Q4 2007
              
              
              
              Q3 2007
              
              
              
              Q2 2007
              
              
              
              Q1 2007Compensation
      for employees, leased employees, officers and directors
              
              $
              3,181,375
              
              
              $
              2,377,412
              
              
              $
              1,928,272
              
              
              $
              1,535,115
              
              
              $
              1,760,439
              
              
              $
              1,877,103
              
              
              $
              1,873,582Professional
      fees
              
              
              275,638
              
              
              
              191,330
              
              
              
              281,418
              
              
              
              184,507
              
              
              
              529,139
              
              
              
              319,948
              
              
              
              394,028Reconfirmation,
      mailing, billing and other customer-related costs
              
              
              18,185
              
              
              
              27,735
              
              
              
              17,601
              
              
              
              33,662
              
              
              
              24,269
              
              
              
              34,042
              
              
              
              23,715Depreciation
      and amortization
              
              
              505,095
              
              
              
              487,085
              
              
              
              478,433
              
              
              
              460,554
              
              
              
              396,759
              
              
              
              364,724
              
              
              
              336,887Other
      general and administrative costs
              
              
              827,166
              
              
              
              761,583
              
              
              
              689,247
              
              
              
              757,136
              
              
              
              522,583
              
              
              
              531,915
              
              
              
              558,513$
              4,807,459
              
              
              $
              3,845,145
              
              
              $
              3,394,971
              
              
              $
              2,970,974
              
              
              $
              3,233,189
              
              
              $
              3,127,732
              
              
              $
              3,186,725
 
 Sales and Marketing
Expenses
 
 Sales
      and Marketing Expenses2008
              
              
              2007
              
              
              Change
              
              
              PercentThree
      Months Ended June 30,
              
              $
              1,710,862
              
              
              $
              1,303,992
              
              
              $
              406,870
              
              
              
              31
              %Nine
      Months Ended June 30,
              
              $
              5,570,132
              
              
              $
              4,506,122
              
              
              $
              1,064,010
              
              
              
              24
              %
 
 Sales and
marketing expenses in the third quarter of fiscal 2008 as compared to the third
quarter of fiscal 2007 increased approximately $407,000 primarily due to the
following:
 
 ·
              $431,000
      of increased online advertising as we sought to increase customers’
      awareness and use of our online marketplace;
and
 
 ·
              $53,000
      of increased  customer acquisition costs as we transitioned from
      direct response mail campaigns to telemarketing and direct purchases of
      wholesale accounts (of which we incurred $872,000 of wholesale acquisition
      costs, $318,000 of telemarketing costs and $22,000 in direct response
      marketing costs in the third quarter of fiscal 2008, respectively, as
      compared to $92,000 of wholesale acquisition costs and $1,067,000 of
      direct response marketing costs in the third quarter of fiscal 2007,
      respectively); partially offset by
 
 ·
              a
      reduction of approximately $77,000 in branding and other marketing
      expenses.
 
 Sales and
marketing expenses increased by approximately $1,064,000 for the first nine
months of fiscal 2008 as compared to the first nine months of fiscal 2007 for
similar reasons. Online advertising increased by $1,629,000 in the first nine
months of fiscal 2008 as compared to the first nine months of 2007 as we sought
to increase traffic to our sites.  Partially offsetting the increase
in online advertising were decreased expenditures in branding and related
expenses and customer acquisition costs.
 
 Included
in sales and marketing expenses for the three and nine months ended June 30,
2008 is depreciation expense of $18,542 and $55,360, respectively, related to
our subsidiary in the Philippines that was acquired in the fourth quarter of
fiscal 2007.
  20
 Table of Contents
  Operating
Income(Loss)
 
 Operating
      Income (Loss)2008
              
              
              2007
              
              
              Change
              
              
              PercentThree
      Months Ended June 30,
              
              $
              (1,835,551
              )
              
              $
              576,362
              
              
              $
              (2,411,913
              )
              
              
              (418
              )%Nine
      Months Ended June 30,
              
              $
              (1,339,502
              )
              
              $
              2,422,142
              
              
              $
              (3,761,644
              )
              
              
              (155
              )%
 
 The
decrease in operating income for the three and nine months ended June 30, 2008
as compared to the three and nine months ended June 30, 2007 is primarily due to
increased operating expenses as described above.
 
 Other
Income (Expense)
 
 Other
      Income (Expense)2008
              
              
              2007
              
              
              Change
              
              
              PercentThree
      Months Ended June 30,
              
              $
              (3,432
              )
              
              $
              69,451
              
              
              $
              (72,883
              )
              
              
              (105
              )%Nine
      Months Ended June 30,
              
              $
              63,951
              
              
              $
              247,905
              
              
              $
              (183,954
              )
              
              
              (74
              )%
 
 Other
income (expense), consisting primarily of interest income, decreased in the
three and nine months ended June 30, 2008 as compared to the three and nine
months ended June 30, 2007 due primarily to a reduction of our cash and
short-term investment balances.  Also included in the three and nine
months ended June 30, 2008 is a loss on disposal of fixed assets of $15,352
related to our relocation of our corporate headquarters from Mesa, Arizona to
Las Vegas, Nevada.
 
 Income
Tax Provision (Benefit)
 
 Income
      Tax Provision (Benefit)2008
              
              
              2007
              
              
              Change
              
              
              PercentThree
      Months Ended June 30,
              
              $
              (258,286
              )
              
              $
              379,408
              
              
              $
              (637,694
              )
              
              
              (168
              )%Nine
      Months Ended June 30,
              
              $
              (24,284
              )
              
              $
              1,292,181
              
              
              $
              (1,316,465
              )
              
              
              (102
              )%
 
 The
change in our income tax provision in each of the above periods is due primarily
to corresponding decreases in our pre-tax income.  However, in the
three and nine months ended June 30, 2008 we incurred additional income tax
expense of $422,000 and $445,000 respectively, due to book-tax differences in
the recognition of restricted stock awards, as compared to $145,000 and $279,000
for the three and nine months ended June 30, 2007.  During these
periods, a portion of our restricted stock awards had vested and, due to
declines in our stock price from grant date to vest date, the tax effects of the
vesting of these awards were less than the carrying value of the related
deferred tax assets.  Such amounts served to reduce the income tax
benefit in the three and nine months ended June 30, 2008 and increase income tax
expense in the three and nine months ended June 30, 2007,
respectively.
 
 Net
Income (Loss)
 
 Net
      Income (Loss)2008
              
              
              2007
              
              
              Change
              
              
              PercentThree
      Months Ended June 30,
              
              $
              (1,580,697
              )
              
              $
              266,405
              
              
              $
              (1,847,102
              )
              
              
              (693
              )%Nine
      Months Ended June 30,
              
              $
              (1,251,267
              )
              
              $
              1,377,866
              
              
              $
              (2,629,133
              )
              
              
              (191
              )%
 
 Changes
in net income (loss) are primarily attributable to changes in operating
income and changes in income tax expense.  The results from changes in
the use of billing channels, changes in marketing strategies and other operating
changes are discussed in more detail in the narratives included
above.
  21
 Table of Contents
  Liquidity and Capital
Resources
 
 Net cash
used in operating activities was $448,130 for the first nine months of fiscal
2008 as compared to net cash provided by operating activities of $1,240,352 for
the first nine months of fiscal 2007.  The decrease in cash generated
from operations is primarily due to a decrease in net income of approximately
$2,629,000 and the payment of $1,700,000 of customer acquisition costs,
partially offset by the payment of over $2,000,000 related to the Attorney’s
General settlement in the first quarter of fiscal 2007 that did not recur in
fiscal 2008 and other changes in working capital.
 
 Our
primary source of cash inflows is net remittances from our billing channels,
including ACH billings and LEC billings.  For ACH billings, we
generally receive the net proceeds through our billing service processors within
15 days of submission.  For LEC billings, we receive collections on
accounts receivable through the billing service aggregators under contracts to
administer this billing and collection process.  The billing service
aggregators generally do not remit funds until they are
collected.  Generally, cash is collected and remitted to us (net of
dilution and other fees and expenses) over a 60- to 120-day period subsequent to
the billing dates.  Additionally, for each monthly billing cycle, the
billing aggregators and LECs withhold certain amounts, or “holdback reserves,”
to cover potential future dilution and bad debt expense.  These
holdback reserves lengthen our cash conversion cycle as they are remitted to us
over a 12- to 18-month period of time.  We classify these holdback
reserves as current or long-term receivables on our consolidated balance sheet,
depending on when they are scheduled to be remitted to us.  As of June
30, 2008, approximately 79% of our gross accounts receivable are due from three
aggregators.
 
 Our most
significant cash outflows include payments for marketing expenses and general
operating expenses.  General operating cash outflows consist of
payroll costs, income taxes, and general and administrative expenses that
typically occur within close proximity of expense recognition.
 
 Net cash
used for investing activities totaled $665,030 during the first nine months of
fiscal 2008 and consisted of $23,243 of additional closing costs related to the
acquisitions of OnCall Subscriber Management Inc. and LiveDeal, Inc., $55,942 of
expenditures for software and intangible assets and $585,845 of purchases of
equipment.  Net cash provided by investing activities totaled
$2,612,976 during the first nine months of fiscal 2007 and consisted of
$3,082,053 from the redemption of certificates of deposit and other investments
and $397,876 of cash acquired in connection with the LiveDeal acquisition,
partially offset by $674,580 of expenditures for software and intangible assets
and equipment purchases totaling $192,373.
 
 Net cash
used for financing activities was $502,339 during the first nine months of
fiscal 2008, consisting primarily of treasury stock repurchases as described
below.  Financing activities also included $1,438 of preferred stock
dividends paid in the first nine months of fiscal 2008.  There were no
financing activities in the first nine months of fiscal 2007.
 
 We had
working capital of $11,495,100 as of June 30, 2008, compared to $11,632,301 as
of September 30, 2007, with current assets increasing by $451,836 and current
liabilities increasing approximately $589,037 from September 30, 2007 to June
30, 2008.  Our cash position decreased to $4,059,034 at June 30, 2008
compared to $5,674,533 at September 30, 2007 due to the effects of our results
of operations and expenditures for software, intangible assets, equipment and
purchases of treasury stock.
 
 On May
25, 2007, the Company’s Board of Directors terminated our existing stock
repurchase plan and replaced it with a new plan authorizing repurchases of up to
$1,000,000 of common stock from time to time on the open market or in privately
negotiated transactions.  The Company acquired 137,925 shares of its
common stock during the nine months ended June 30, 2008 at an aggregate cost of
$500,901.  As of June 30, 2008, the Company had retired all treasury
shares acquired with the exception of 2,000 shares of treasury stock at a cost
of $4,845.
 
 The
following table summarizes our contractual obligations at June 30, 2008 and the
effect such obligations are expected to have on our future liquidity and cash
flows:
  22
 Table of Contents
  
 Payments
      Due by Fiscal YearTotal
              
              
              2008
              
              
              2009
              
              
              2010
              
              
              2011
              
              
              2012
              
              
              ThereafterOperating
      lease commitments
              
              $
              2,527,367
              
              
              $
              216,562
              
              
              $
              858,852
              
              
              $
              568,136
              
              
              $
              465,736
              
              
              $
              339,361
              
              
              $
              78,720Noncanceleable
      service contracts
              
              
              808,230
              
              
              
              149,646
              
              
              
              558,584
              
              
              
              100,000
              
              
              
              -
              
              
              
              -
              
              
              
              -$
              3,335,597
              
              
              $
              366,208
              
              
              $
              1,417,436
              
              
              $
              668,136
              
              
              $
              465,736
              
              
              $
              339,361
              
              
              $
              78,720
 
 We
believe that our existing cash on hand and additional cash generated from
operations will provide us with sufficient liquidity to meet our operating needs
for the next 12 months.
 
 At June
30, 2008, we had no other off-balance sheet arrangements, commitments or
guarantees that require additional disclosure or measurement.
 
 * * *
  23
 Table of Contents
  ITEM3.
              QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
 
 As of
June 30, 2008, we did not participate in any market risk-sensitive commodity
instruments for which fair value disclosure would be required under Statement of
Financial Accounting Standards No. 107. We believe that we are not subject in
any material way to other forms of market risk, such as foreign currency
exchange risk or foreign customer purchases (of which there were none in the
periods set forth in this report) or commodity price risk.
 
 ITEM4.
              CONTROLS
      AND PROCEDURES
 
 Disclosure
controls and procedures are designed with an objective of ensuring that
information required to be disclosed in our periodic reports filed with the
Securities and Exchange Commission, such as this Quarterly Report on Form 10-Q,
is recorded, processed, summarized and reported within the time periods
specified by the Securities and Exchange Commission.  Disclosure
controls are also designed with an objective of ensuring that such information
is accumulated and communicated to our management, including our chief executive
officer and chief financial officer, in order to allow timely consideration
regarding required disclosures.
 
 The
evaluation of our disclosure controls by our principal executive officer and
principal financial officer included a review of the controls’ objectives and
design, the operation of the controls, and the effect of the controls on the
information presented in this Quarterly Report.  Our management,
including our chief executive officer and chief financial officer, does not
expect that disclosure controls can or will prevent or detect all errors and all
fraud, if any.  A control system, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met.  Also, projections of any
evaluation of the disclosure controls and procedures to future periods are
subject to the risk that the disclosure controls and procedures may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
 
 Based on
their review and evaluation as of the end of the period covered by this Form
10-Q, and subject to the inherent limitations as described above, our principal
executive officer and principal financial officer have concluded that our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934) are effective as of the end of the
period covered by this report.  They are not aware of any significant
changes in our disclosure controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.  During the period covered by this Form 10-Q, there have
not been any changes in our internal control over financial reporting that have
materially affected, or that are reasonably likely to materially affect, our
internal control over financial reporting.
  24
 Table of Contents
  PART
II – OTHER INFORMATION
 
 ITEM1.
              LEGAL
      PROCEEDINGS
 
 On June
4, 2008, Global Education Services, Inc. (“Global”) filed a class action lawsuit
against the Company and its wholly owned subsidiary, Telco Billing Inc.,
alleging that certain of the Company’s marketing practices were
deceptive.  The lawsuit is Global Education Services, Inc. v.
LiveDeal, Inc. et al. (Class Action No. 08-2-19503-1 SEA) and was filed in the
Superior Court of the State of Washington for King County.  In its
complaint, Global alleged that the Company engaged in deceptive marketing
practices in violation of the Washington Consumer Protection
Act.  Global sought declaratory and injunctive relief, treble damages
and recovery of its litigation fees and expenses.
 
 On August
1, 2008, the Company provided notice that it was removing the lawsuit from
Washington Superior Court to the United States District Court for the Western
District of Washington.  The federal case number is
C08-1153JLR.  As of the date of this report, further action is pending
in the United States District Court.
 
 ITEM1A.
              RISK
      FACTORS
 
 There
have been no material changes to the factors disclosed in Item 1A Risk Factors
in our Annual Report on Form 10-K/A for the year ended September 30,
2007.
 
 ITEM2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE
OF PROCEEDS
 
 Issuer
Purchases of Equity Securities
 Period
              
              Total
      Number of SharesPurchased
              
              
              Average
      Price Paid perShare
              
              
              Total
      Number of Shares Purchased as Part of Publicly Announced Plans orPrograms1
              
              
              Maximum
      Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased
      Under the Plans or ProgramsApril
      1-30, 2008
              
              
              22,635
              
              
              $
              3.23
              
              
              
              22,635
              
              
              $
              532,473May
      1-31, 2008
              
              
              5,800
              
              
              $
              2.73
              
              
              
              5,800
              
              
              $
              516,662June
      1-30, 2008
              
              
              6,685
              
              
              $
              2.63
              
              
              
              6,685
              
              
              $
              499,099Total
              
              
              35,120
              
              
              $
              3.03
              
              
              
              35,120
              
              
              $
              499,099
  1           On
May 18, 2005, we announced the adoption of a $3,000,000 stock repurchase plan,
under which 85,385 shares were repurchased at an aggregate price of $686,793. On
May 25, 2007, the Company’s Board of Directors terminated the May 18, 2005 stock
repurchase plan and replaced it with a new plan authorizing repurchases of up to
$1,000,000 of common stock from time to time on the open market.
  
 ITEM6.  EXHIBITS
 
 The
following exhibits are either attached hereto or incorporated herein by
reference as indicated:
 
 Exhibit Number
              
              Description3.1
              
              Amended
      and Restated Articles of Incorporation (incorporated by reference to
      Exhibit 3.1 to Form 8-K, SEC File No. 000-24217, filed on August 15,
      2007).3.2
              
              Amended
      and Restated Bylaws (incorporated by reference to Exhibit 3.2 to Form
      10-K, SEC File No. 000-24217, for the year ended September 30,
      2007).10.1
              
              Employment
      Agreement with Michael Edelhart, dated June 1,
200810.2
              
              First
      Amendment to Employment Agreement with Michael Edelhart, dated July
      1, 200831
              
              Certifications
      pursuant to Section 302 of the Sarbanes-Oxley Act of
  200232
              
              Section
      1350 Certificate
  25
 Table of Contents
  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:  August
      14, 2008
              
              /s/ Gary L. PerschbacherGary
      L. PerschbacherChief
      Financial Officer