UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549


FORM
10-Q





(Mark
One)




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




For the
quarterly period ended March 31, 2010




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




For the
transition period from _____________ to _______________





Commission
File Number 001-33937





LiveDeal,
Inc.




(Exact
name of registrant as specified in its charter)




Nevada
                (State
      or other jurisdiction of incorporation or organization)
              85-0206668
                (IRS
      Employer Identification No.)2490
      East Sunset Road, Suite 100
                Las
      Vegas, Nevada
                (Address
      of principal executive offices)
              89120
                (Zip
      Code)





(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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes o  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
            (do
      not check if a smaller reporting company)
            Smaller
      reporting company  þ





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




The number of shares of the issuer’s
common stock, par value $.001 per share, outstanding as of April 30, 2010 was
6,063,918.








INDEX
TO FORM 10-Q FILING


FOR
THE QUARTER ENDED MARCH 31, 2010





TABLE
OF CONTENTS





PagePART
      I
                            FINANCIAL
      INFORMATIONItem
      1.
                          Financial
      StatementsCondensed
      Consolidated Balance Sheets as of March 31, 2010 (unaudited) and September
      30, 2009
                          
                          3Unaudited
      Condensed Consolidated Statements of Operationsfor
      the Three and Six Months Ended March 31, 2010 and 2009
                          
                          4Unaudited
      Condensed Consolidated Statements of Cash Flowsfor
      the Six Months Ended March 31, 2010 and 2009
                          
                          5Notes
      to Unaudited Condensed Consolidated Financial Statements
                          
                          6Item
      2.
                          Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                          
                          15Item
      4.
                          Controls
      and Procedures
                          
                          25PART
      IIOTHER
      INFORMATIONItem
      1.
                          Legal
      Proceedings
                          
                          26Item
      1A.
                          Risk
      Factors
                          
                          27Item
      2.
                          Unregistered
      Sales of Equity Securities and Use of Proceeds
                          
                          27Item
      6.
                          Exhibits
                          
                          27Signatures
                          
                          
                          28


2


PART
I – FINANCIAL INFORMATION





ITEM 1.
FINANCIAL STATEMENTS




LIVEDEAL,
INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS





March
      31.
                                      
                                      
                                      September
      30,2010
                                      
                                      
                                      2009(unaudited)AssetsCash
      and cash equivalents
                                      
                                      $
                                      5,467,114
                                      
                                      
                                      $
                                      7,568,030Certificates
      of deposit
                                      
                                      
                                      300,000
                                      
                                      
                                      
                                      100,000Accounts
      receivable, net
                                      
                                      
                                      1,254,770
                                      
                                      
                                      
                                      1,478,183Prepaid
      expenses and other current assets
                                      
                                      
                                      493,798
                                      
                                      
                                      
                                      326,442Income
      taxes receivable
                                      
                                      
                                      -
                                      
                                      
                                      
                                      1,490,835Total
      current assets
                                      
                                      
                                      7,515,682
                                      
                                      
                                      
                                      10,963,490Accounts
      receivable, long term portion, net
                                      
                                      
                                      505,496
                                      
                                      
                                      
                                      1,039,403Property
      and equipment, net
                                      
                                      
                                      519,327
                                      
                                      
                                      
                                      615,906Deposits
      and other assets
                                      
                                      
                                      87,327
                                      
                                      
                                      
                                      81,212Intangible
      assets, net
                                      
                                      
                                      2,240,183
                                      
                                      
                                      
                                      2,336,714Total
      assets
                                      
                                      $
                                      10,868,015
                                      
                                      
                                      $
                                      15,036,725Liabilities
      and Stockholders' EquityLiabilities:Accounts
      payable
                                      
                                      $
                                      735,082
                                      
                                      
                                      $
                                      549,681Accrued
      liabilities
                                      
                                      
                                      995,445
                                      
                                      
                                      
                                      1,092,811Current
      portion of capital lease obligation
                                      
                                      
                                      60,549
                                      
                                      
                                      
                                      69,612Total
      current liabilities
                                      
                                      
                                      1,791,076
                                      
                                      
                                      
                                      1,712,104Long
      term portion of capital lease obligation
                                      
                                      
                                      68,068
                                      
                                      
                                      
                                      117,073Total
      liabilities
                                      
                                      
                                      1,859,144
                                      
                                      
                                      
                                      1,829,177Commitments
      and contingenciesStockholders'
      equity:Series
      E convertible preferred stock, $0.001 par value, 200,000 shares
      authorized, 127,840 issued and outstanding, liquidation preference
      $38,202
                                      
                                      
                                      10,866
                                      
                                      
                                      
                                      10,866Common
      stock, $0.001 par value, 100,000,000 shares authorized, 6,106,433 and
      6,133,433 shares issued, 6,063,918 and 6,104,327 shares outstanding
      at March 31, 2010 and September 30, 2009,
respectively
                                      
                                      
                                      6,106
                                      
                                      
                                      
                                      6,133Treasury
      stock (42,515 and 29,106 shares carried at cost at March 31, 2010 and
      September 30, 2009, respectively)
                                      
                                      
                                      (70,923
                                      )
                                      
                                      
                                      (45,041
                                      )Paid
      in capital
                                      
                                      
                                      20,407,741
                                      
                                      
                                      
                                      20,280,377Accumulated
      deficit
                                      
                                      
                                      (11,344,919
                                      )
                                      
                                      
                                      (7,044,787
                                      )Total
      stockholders' equity
                                      
                                      
                                      9,008,871
                                      
                                      
                                      
                                      13,207,548Total
      liabilities and stockholders' equity
                                      
                                      $
                                      10,868,015
                                      
                                      
                                      $
                                      15,036,725





See
accompanying notes to unaudited condensed consolidated financial
statements.


3





LIVEDEAL,
INC. AND SUBSIDIARIES


UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS





Three Months Ended March
31,
                    
                    
                    Six Months Ended March 31,2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009Net
      revenues
                    
                    $
                    2,165,653
                    
                    
                    $
                    3,548,275
                    
                    
                    $
                    4,643,100
                    
                    
                    $
                    8,557,789Cost
      of services
                    
                    
                    1,022,339
                    
                    
                    
                    1,466,882
                    
                    
                    
                    1,851,152
                    
                    
                    
                    3,067,532Gross
      profit
                    
                    
                    1,143,314
                    
                    
                    
                    2,081,393
                    
                    
                    
                    2,791,948
                    
                    
                    
                    5,490,257Operating
      expenses:General
      and administrative expenses
                    
                    
                    3,138,052
                    
                    
                    
                    4,054,354
                    
                    
                    
                    7,099,942
                    
                    
                    
                    8,313,381Impairment
      of goodwill
                    
                    
                    -
                    
                    
                    
                    4,350,042
                    
                    
                    
                    -
                    
                    
                    
                    4,350,042Impairment
      of intangible assets
                    
                    
                    -
                    
                    
                    
                    3,516,068
                    
                    
                    
                    -
                    
                    
                    
                    3,516,068Sales
      and marketing expenses
                    
                    
                    90,054
                    
                    
                    
                    713,326
                    
                    
                    
                    261,111
                    
                    
                    
                    2,285,385Total
      operating expenses
                    
                    
                    3,228,106
                    
                    
                    
                    12,633,790
                    
                    
                    
                    7,361,053
                    
                    
                    
                    18,464,876Operating
      loss
                    
                    
                    (2,084,792
                    )
                    
                    
                    (10,552,397
                    )
                    
                    
                    (4,569,105
                    )
                    
                    
                    (12,974,619
                    )Other
      income (expense):Interest
      income, net
                    
                    
                    3,608
                    
                    
                    
                    6,159
                    
                    
                    
                    10,518
                    
                    
                    
                    19,919Other
      income (expense)
                    
                    
                    (22,693
                    )
                    
                    
                    3,458,220
                    
                    
                    
                    27,307
                    
                    
                    
                    7,263,998Total
      other income (expense)
                    
                    
                    (19,085
                    )
                    
                    
                    3,464,379
                    
                    
                    
                    37,825
                    
                    
                    
                    7,283,917Loss
      before income taxes
                    
                    
                    (2,103,877
                    )
                    
                    
                    (7,088,018
                    )
                    
                    
                    (4,531,280
                    )
                    
                    
                    (5,690,702
                    )Income
      tax provision (benefit)
                    
                    
                    (330,357
                    )
                    
                    
                    6,790,410
                    
                    
                    
                    (231,026
                    )
                    
                    
                    7,243,287Loss
      from continuing operations
                    
                    
                    (1,773,520
                    )
                    
                    
                    (13,878,428
                    )
                    
                    
                    (4,300,254
                    )
                    
                    
                    (12,933,989
                    )Discontinued
      operationsIncome
      (loss) from discontinued component, including disposal
    costs
                    
                    
                    -
                    
                    
                    
                    (8,309,685
                    )
                    
                    
                    1,725
                    
                    
                    
                    (8,400,806
                    )Income
      tax provision (benefit)
                    
                    
                    -
                    
                    
                    
                    (3,104,498
                    )
                    
                    
                    644
                    
                    
                    
                    (3,138,541
                    )Income
      (loss) from discontinued operations
                    
                    
                    -
                    
                    
                    
                    (5,205,187
                    )
                    
                    
                    1,081
                    
                    
                    
                    (5,262,265
                    )Net
      loss
                    
                    $
                    (1,773,520
                    )
                    
                    $
                    (19,083,615
                    )
                    
                    $
                    (4,299,173
                    )
                    
                    $
                    (18,196,254
                    )Earnings
      per share - basic and diluted:Loss
      from continuing operations
                    
                    $
                    (0.30
                    )
                    
                    $
                    (2.32
                    )
                    
                    $
                    (0.72
                    )
                    
                    $
                    (2.15
                    )Discontinued
      operations
                    
                    
                    -
                    
                    
                    
                    (0.87
                    )
                    
                    
                    -
                    
                    
                    
                    (0.88
                    )Net
      loss
                    
                    $
                    (0.30
                    )
                    
                    $
                    (3.19
                    )
                    
                    $
                    (0.72
                    )
                    
                    $
                    (3.03
                    )Weighted
      average common shares outstanding:Basic
                    
                    
                    5,996,526
                    
                    
                    
                    5,983,490
                    
                    
                    
                    5,995,939
                    
                    
                    
                    6,010,521Diluted
                    
                    
                    5,996,526
                    
                    
                    
                    5,983,490
                    
                    
                    
                    5,995,939
                    
                    
                    
                    6,010,521





See
accompanying notes to unaudited condensed consolidated financial
statements.


4




LIVEDEAL,
INC. AND SUBSIDIARIES


UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS





Six
      Months endedMarch 31,2010
                
                
                2009CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                
                $
                (4,299,173
                )
                
                $
                (18,196,254
                )Adjustments
      to reconcile net income (loss) to net cash used in operating
      activities:Depreciation
      and amortization
                
                
                443,853
                
                
                
                1,902,347Non-cash
      stock compensation expense
                
                
                7,205
                
                
                
                45,882Amortization
      of deferred stock compensation
                
                
                120,131
                
                
                
                (132,367
                )Deferred
      income taxes
                
                
                -
                
                
                
                3,705,525Provision
      for uncollectible accounts
                
                
                648,561
                
                
                
                836,873Non-cash
      impairment of goodwill and intangibles
                
                
                -
                
                
                
                16,111,494Gain
      on sale of customer list
                
                
                -
                
                
                
                (2,815,952
                )Gain
      on sale of internet domain name
                
                
                -
                
                
                
                (3,805,778
                )Gain
      on amendment of directory services contract
                
                
                -
                
                
                
                (642,268
                )Loss
      on disposal of property and equipment
                
                
                74,271
                
                
                
                37,943Changes
      in assets and liabilities:Accounts
      receivable
                
                
                108,760
                
                
                
                2,174,384Prepaid
      expenses and other current assets
                
                
                (167,356
                )
                
                
                (24,965
                )Deposits
      and other assets
                
                
                (6,114
                )
                
                
                1,835Accounts
      payable
                
                
                185,400
                
                
                
                (585,918
                )Accrued
      liabilities
                
                
                (98,325
                )
                
                
                93,603Income
      taxes receivable and payable
                
                
                1,490,835
                
                
                
                396,460Net
      cash used in operating activities
                
                
                (1,491,952
                )
                
                
                (897,156
                )CASH
      FLOWS FROM INVESTING ACTIVITIES:Proceeds
      from sale of internet domain name
                
                
                -
                
                
                
                3,850,000Proceeds
      from sale of customer list
                
                
                -
                
                
                
                2,783,097Proceeds
      from amendment of directory services contract
                
                
                -
                
                
                
                642,268Expenditures
      for intangible assets
                
                
                (268,693
                )
                
                
                (339,372
                )Investment
      in CD's and other securities
                
                
                (200,000
                )
                
                
                -Purchases
      of equipment
                
                
                (56,321
                )
                
                
                (65,104
                )Net
      cash provided by (used in) investing activities
                
                
                (525,014
                )
                
                
                6,870,889CASH
      FLOWS FROM FINANCING ACTIVITIES:Principal
      repayments on capital lease obligations
                
                
                (58,068
                )
                
                
                (35,561
                )Purchase
      of treasury stock
                
                
                (25,882
                )
                
                
                (487,480
                )Net
      cash used in financing activities
                
                
                (83,950
                )
                
                
                (523,041
                )INCREASE
      (DECREASE) IN CASH AND CASH EQUIVALENTS
                
                
                (2,100,916
                )
                
                
                5,450,692CASH
      AND CASH EQUIVALENTS, beginning of period
                
                
                7,568,030
                
                
                
                4,639,787CASH
      AND CASH EQUIVALENTS, end of period
                
                $
                5,467,114
                
                
                $
                10,090,479Supplemental
      cash flow disclosures:Noncash
      financing and investing activities:Accrued
      and unpaid dividends
                
                $
                958
                
                
                $
                958Interest
      paid
                
                $
                3,777
                
                
                $
                5,997Income
      tax paid (received)
                
                $
                (1,721,217
                )
                
                $
                1,960





See
accompanying notes to unaudited condensed consolidated financial
statements


5


LIVEDEAL,
INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS


Note 1:  Organization and
Basis of Presentation





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




The
accompanying condensed consolidated balance sheet as of September 30, 2009,
which has been derived from audited consolidated financial statements, and the
accompanying unaudited condensed consolidated financial statements as of March
31, 2010 and for the three and six months ended March 31, 2010 and
March 31, 2009have
been prepared in accordance with generally accepted accounting principles for
interim financial information.  Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for audited financial statements. In the opinion of the Company’s management,
the interim information includes all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results for the
interim periods.  The results of operations for the three and six months
ended March 31, 2010 are not necessarily indicative of the results to be
expected for the year ending September 30, 2010.  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,
2009 and for the fiscal year then ended included in the Company’s Annual Report
on Form 10-K for the fiscal year ended September 30, 2009.




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 condensed consolidated
financial statements including in conjunction with establishing allowances for
customer refunds, non-paying customers, dilution and fees, analyzing the
recoverability of the carrying amount of intangible assets, estimating
forfeitures of stock-based compensation and evaluating the recoverability of
deferred tax assets.  Actual results could differ from these
estimates.




Note
2:  Balance Sheet Information





Balance
sheet information is as follows:




March
      31,
                  
                  
                  September
      30,2010
                  
                  
                  2009Receivables,
      current, net:Accounts
      receivable, current
                  
                  $
                  2,798,302
                  
                  
                  $
                  3,776,966Less:
      Allowance for doubtful accounts
                  
                  
                  (1,543,532
                  )
                  
                  
                  (2,298,783
                  )$
                  1,254,770
                  
                  
                  $
                  1,478,183Receivables,
      long term, net:Accounts
      receivable, long term
                  
                  $
                  1,019,541
                  
                  
                  $
                  1,581,946Less:
      Allowance for doubtful accounts
                  
                  
                  (514,045
                  )
                  
                  
                  (542,543
                  )$
                  505,496
                  
                  
                  $
                  1,039,403Total
      receivables, net:Gross
      receivables
                  
                  $
                  3,817,843
                  
                  
                  $
                  5,358,912Allowance
      for doubtful accounts
                  
                  
                  (2,057,577
                  )
                  
                  
                  (2,841,326
                  )$
                  1,760,266
                  
                  
                  $
                  2,517,586





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


6


LIVEDEAL,
INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(cont)


March
      31,
                  
                  
                  September
      30,2010
                  
                  
                  2009Property
      and equipment, net:Leasehold
      improvements
                  
                  $
                  239,271
                  
                  
                  $
                  235,056Furnishings
      and fixtures
                  
                  
                  336,067
                  
                  
                  
                  336,067Office,
      computer equipment and other
                  
                  
                  704,390
                  
                  
                  
                  692,3171,279,728
                  
                  
                  
                  1,263,440Less:
      Accumulated depreciation
                  
                  
                  (760,401
                  )
                  
                  
                  (647,534
                  )$
                  519,327
                  
                  
                  $
                  615,906





March
      31,
                  
                  
                  September
      30,2010
                  
                  
                  2009Intangible
      assets, net:Domain
      name and marketing related intangibles
                  
                  $
                  1,509,600
                  
                  
                  $
                  6,699,600Non-compete
      agreements
                  
                  
                  -
                  
                  
                  
                  3,465,000Website
      and technology related intangibles
                  
                  
                  1,898,493
                  
                  
                  
                  4,678,9703,408,093
                  
                  
                  
                  14,843,570Less:  Accumulated
      amortization
                  
                  
                  (1,167,910
                  )
                  
                  
                  (12,506,856
                  )$
                  2,240,183
                  
                  
                  $
                  2,336,714





During
fiscal 2009, a significant amount of the Company’s intangible assets were
determined to be impaired and for comparative purposes, the original cost and
accumulated amortization amounts were set forth in the Company’s Annual Report
on Form 10-K for the fiscal year ended September 30, 2009.  As of
March 31, 2010, the cost and accumulated amortization on all fully amortized
assets were removed from the Company’s books.





March
      31,
                  
                  
                  September
      30,2010
                  
                  
                  2009Accrued
      liabilities:Deferred
      revenue
                  
                  $
                  122,249
                  
                  
                  $
                  148,916Accrued
      payroll and bonuses
                  
                  
                  116,727
                  
                  
                  
                  289,944Accruals
      under revenue sharing agreements
                  
                  
                  170,663
                  
                  
                  
                  314,754Accrued
      expenses - other
                  
                  
                  585,806
                  
                  
                  
                  339,197$
                  995,445
                  
                  
                  $
                  1,092,811





Note
3:  Restructuring Activities





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





The
Company incurred charges of $143,000 in connection with these reductions in
force, consisting entirely of employee termination benefits.  All
amounts were paid as of March 31, 2010.





Note
4:  Stock-based Compensation





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


7


LIVEDEAL,
INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(cont)


During
the three months and six months ended March 31, 2010, the Company recognized
compensation expense of $15,365 and $7,205, respectively, and $26,026 and
$45,882 for the three and six months ending March 31, 2009 respectively, related
to stock option awards granted to certain employees and executives based on the
grant date fair value of the awards, net of estimated
forfeitures.  During the three months ended December 31, 2009, the
Company changed the estimated forfeiture rate of awards from 40% to 60% based on
actual forfeiture experience and other factors, resulting in a net benefit from
the expense reversal of $8,160.  There were no such changes in the
estimated forfeiture rate in the three months ending March 31,
2010.





On
November 23, 2009, the Company granted an aggregate of 250,000 options to
Richard Sommer, the Company’s then-current CEO, with an exercise price equal to
the stock price on the date of grant and scheduled to vest according to the
following schedule: 25% on October 29, 2010 (the first anniversary of the date
of grant) and 1/36 of the remainder each month beginning on November 29,
2010.  As Mr. Sommer resigned on January 4, 2010, all such options
were forfeited.  Given this forfeiture, the Company elected not to
expense such options because the effects on the financial statements would not
have been material.  No other options were granted during the six
months ended March 31, 2010.





The
Company had stock option activity summarized as follows:




Weighted
                
                
                Weighted
                
                
                WeightedAverage
                
                
                Average
                
                
                Average
                
                
                AggregateNumber
      of
                
                
                Exercise
                
                
                Fair
                
                
                Remaining
                
                
                IntrinsicShares
                
                
                Price
                
                
                Value
                
                
                Contractual Life
                
                
                ValueOutstanding
      at September 30, 2009
                
                
                330,000Granted
      at market price
                
                
                250,000
                
                
                $
                1.95
                
                
                
                n/mExercised
                
                
                -
                
                
                
                -Forfeited
                
                
                (280,000
                )
                
                $
                1.92Outstanding
      at December 31, 2009
                
                
                300,000
                
                
                $
                1.45
                
                
                
                
                
                
                
                8.6
                
                
                $
                -Exercisable
                
                
                97,917
                
                
                $
                1.45
                
                
                
                
                
                
                
                8.6
                
                
                $
                -





As noted
above, Mr. Sommer’s 250,000 options were forfeited in connection with his
resignation on January 4, 2010.  The following table summarizes
information about the Company’s outstanding stock options at March 31,
2010:




Exercisable
                    
                    
                    Unexercisable
                    
                    
                    TotalWeighted
                    
                    
                    
                    
                    
                    Weighted
                    
                    
                    
                    
                    
                    WeightedNumber
                    
                    
                    Average
                    
                    
                    Number
                    
                    
                    Average
                    
                    
                    Number
                    
                    
                    AverageRange of Exercise Prices
                    
                    Outstanding
                    
                    
                    Exercise Price
                    
                    
                    Outstanding
                    
                    
                    Exercise Price
                    
                    
                    Outstanding
                    
                    
                    Exercise PriceLess
      than $2.00 per share
                    
                    
                    97,917
                    
                    
                    $
                    1.45
                    
                    
                    
                    202,083
                    
                    
                    
                    1.45
                    
                    
                    
                    300,000
                    
                    
                    $
                    1.45





At March
31, 2010, future stock compensation expense (net of estimated forfeitures) not
yet recognized is $160,018, which the Company expects will be amortized over a
weighted-average remaining vesting period of 2.6 years.





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








Outstanding
      (unvested) at September 30, 2009
                  
                  
                  106,425Granted
                  
                  
                  -Forfeited
                  
                  
                  (27,000
                  )Vested
                  
                  
                  (12,000
                  )Outstanding
      (unvested) at March 31, 2010
                  
                  
                  67,425





Total
unrecognized stock compensation expense related to unvested awards totaled
$205,908 at March 31, 2010, which the Company expects will be amortized over a
weighted-average period of 1.4 years.


8





LIVEDEAL,
INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont)


Note
5:  Treasury Stock




The
Company’s treasury stock consists of shares repurchased on the open market or
shares received through various agreements with third parties.  The
value of such shares is determined based on cash paid or quoted market
prices.  During the three and six months ended March 31, 2010, the
Company acquired an aggregate of 1,000 and 13,310 shares of common stock for an
aggregate purchase price of $1,350 and $25,882, respectively.  At
March 31, 2010, an aggregate of 42,515 shares of common stock were held as
treasury shares.





Note
6:  Net Loss per Share




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




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




Three Months Ended March
31,
                
                
                Six Months Ended March 31,2010
                
                
                2009
                
                
                2010
                
                
                2009Net
      loss from continuing operations
                
                $
                (1,773,520
                )
                
                $
                (13,878,428
                )
                
                $
                (4,300,254
                )
                
                $
                (12,933,989
                )Less:
      preferred stock dividends
                
                
                (479
                )
                
                
                (479
                )
                
                
                (958
                )
                
                
                (958
                )Net
      loss from continuing operations applicable to common stock
                
                
                (1,773,999
                )
                
                
                (13,878,907
                )
                
                
                (4,301,212
                )
                
                
                (12,934,947
                )Income
      (loss) from discontinued operations
                
                
                -
                
                
                
                (5,205,187
                )
                
                
                1,081
                
                
                
                (5,262,265
                )Net
      loss applicable to common stock
                
                $
                (1,773,999
                )
                
                $
                (19,084,094
                )
                
                $
                (4,300,131
                )
                
                $
                (18,197,212
                )Basic
      weighted average common shares outstanding:
                
                
                5,996,526
                
                
                
                5,983,490
                
                
                
                5,995,939
                
                
                
                6,010,521Add
      incremental shares for:Unvested
      restricted stock
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Series
      E convertible preferred stock
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Stock
      options
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Diluted
      weighted average common shares outstanding:
                
                
                5,996,526
                
                
                
                5,983,490
                
                
                
                5,995,939
                
                
                
                6,010,521Earnings
      per share - basic and diluted:Loss
      from continuing operations
                
                $
                (0.30
                )
                
                $
                (2.32
                )
                
                $
                (0.72
                )
                
                $
                (2.15
                )Discontinued
      operations
                
                
                -
                
                
                
                (0.87
                )
                
                
                -
                
                
                
                (0.88
                )Net
      loss
                
                $
                (0.30
                )
                
                $
                (3.19
                )
                
                $
                (0.72
                )
                
                $
                (3.03
                )




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





Three Months Ended March
31,
                  
                  
                  Six Months Ended March 31,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009Options
      to purchase shares of common stock
                  
                  
                  300,000
                  
                  
                  
                  540,217
                  
                  
                  
                  425,683
                  
                  
                  
                  476,064Series
      E convertible preferred stock
                  
                  
                  127,840
                  
                  
                  
                  127,840
                  
                  
                  
                  127,840
                  
                  
                  
                  127,840Shares
      of non-vested restricted stock
                  
                  
                  67,425
                  
                  
                  
                  158,425
                  
                  
                  
                  80,999
                  
                  
                  
                  188,589495,265
                  
                  
                  
                  826,482
                  
                  
                  
                  634,522
                  
                  
                  
                  792,493


9


LIVEDEAL,
INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(cont)


Note
7:  Income Taxes





During
the year ended September 30, 2009, the Company established a valuation
allowance against its deferred tax assets.  The Company
determined that such a valuation allowance was necessary given the current and
expected near term losses and the uncertainty with respect to the Company’s
ability to generate sufficient profits from its new business
model.  Therefore, the Company established a valuation allowance for
all deferred tax assets in excess of those expected to be realizable through the
application of operating loss carrybacks.





During
the six months ended March 31, 2010, the Company recognized an income tax
benefit of $230,382 associated with a true up to our income tax receivable
based on information received during the preparation of our 2009 tax
returns.





Note
8:  Commitments and Contingencies





Operating Leases and Service
Contracts





As of
March 31, 2010, 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
                  
                  
                  2010
                  
                  
                  2011
                  
                  
                  2012
                  
                  
                  2013
                  
                  
                  2014
                  
                  
                  ThereafterOperating
      lease commitments
                  
                  $
                  1,098,774
                  
                  
                  $
                  273,848
                  
                  
                  $
                  430,875
                  
                  
                  $
                  315,331
                  
                  
                  $
                  78,720
                  
                  
                  $
                  -
                  
                  
                  $
                  -Noncanceleable service contracts
                  
                  
                  1,482,820
                  
                  
                  
                  620,709
                  
                  
                  
                  721,111
                  
                  
                  
                  141,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -$
                  2,581,594
                  
                  
                  $
                  894,557
                  
                  
                  $
                  1,151,986
                  
                  
                  $
                  456,331
                  
                  
                  $
                  78,720
                  
                  
                  $
                  -
                  
                  
                  $
                  -




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




Capital
leases





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





2010
                    
                    $
                    32,0712011
                    
                    
                    64,1432012
                    
                    
                    37,4172013
                    
                    
                    -2014
                    
                    
                    -Thereafter
                    
                    
                    -Total
      minimum lease payments
                    
                    
                    133,631Less
      imputed interest
                    
                    
                    (5,014
                    )Present
      value of minimum lease payments
                    
                    
                    128,617Less:
      current maturities of capital lease obligations
                    
                    
                    60,549Noncurrent
      maturities of capital lease obligations
                    
                    $
                    68,068





Litigation





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





With the
exception of the settlement with OSM and SMe described below, the Company has
not recorded any accruals pertaining to its legal proceedings as they do not
meet the criteria for accrual under FASB ASC 450.


10


LIVEDEAL,
INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(cont)


Joe
Cunningham v. LiveDeal, Inc. et al.





On July
16, 2008, Joseph Cunningham, who was at the time a member of LiveDeal's Board of
Directors, filed a complaint with the U.S. Department of Labor's Occupational
Safety and Health Administration ("OSHA") alleging that the Company and certain
members of its Board of Directors had engaged in discriminatory employment
practices in violation of the Sarbanes-Oxley Act of 2002's statutory protections
for corporate whistleblowers when the Board of Directors removed him as Chairman
on May 22, 2008. In his complaint, Mr. Cunningham asked OSHA to order his
appointment as Chief Executive Officer of the Company or, in the alternative, to
order his reinstatement as Chairman of the Board.  Mr. Cunningham also
sought back pay, special damages and litigation costs.  The Company
has not received any correspondence from OSHA, and there have been no other
developments in the matter, since December 2008.





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





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





Complaint
filed by Illinois Attorney General against LiveDeal, Inc.





On
November 12, 2008, the Illinois Attorney General filed a complaint in the
Circuit Court of the Seventh Judicial Circuit of the State of Illinois (Sangamon
County) against the Company requesting money damages and injunctive relief for
claims that we employed deceptive and unfair acts and practices in
violation of the Illinois Consumer Fraud and Deceptive Business Act in a
telemarketing campaign that in part promoted premium Internet Yellow
Page listings to Illinois consumers.  LiveDeal has denied
the allegations and is vigorously defending the claim.  Legal
proceedings in the matter are ongoing.




LiveDeal,
Inc. v. OnCall Superior Management (“OSM”) and SMeVentures, Inc. (“SME”)





On April
6, 2009, LiveDeal sought a declaratory judgment with respect to the termination
of certain contracts that it entered into with OSM and SME on November 1, 2007
and November 13, 2006, respectively.  Pursuant to the contracts, OSM
and SME (both of which are call center managers based in the Philippines) were
to provide certain telemarketing and other customer services to
LiveDeal.  LiveDeal subsequently filed a complaint in the United
States District Court for the District of Arizona (CV 09-976-PHX-DGC) alleging
breach of contract on May 29, 2009, and OSM and SME counterclaimed, also
alleging breach of contract.




On
February 3, 2010, the parties executed a Settlement Agreement and Mutual Release
pursuant to which LiveDeal agreed to pay OSM and SME a total of $300,000 in cash
in exchange for their agreement to terminate all litigation with respect to the
2006 and 2007 contracts.  The parties also entered into a new Services
Agreement pursuant to which OSM agreed to provide certain services to LiveDeal
until July 1, 2010 in exchange for cash payments totaling $125,000.





Note
9:  Concentration of Credit Risk





The
Company maintains cash balances at major nationwide institutions in Arizona,
California and Nevada.  Accounts are insured by the Federal Deposit
Insurance Corporation up to $250,000.




The
Company has concentrations of receivables with respect to certain wholesale
accounts and remaining holdbacks with LEC service providers.  Four
such entities accounted for 27%, 23%, 17% and 11% of gross receivables at March
31, 2010 and three such entities accounted for 23%, 22%, and 18% of gross
receivables at September 30, 2009, respectively.




Note
10:  Segment Reporting





Prior to
fiscal 2009, the Company operated as an integrated business and had only one
reportable segment.  During the second quarter of fiscal 2009, the
Company implemented a corporate initiative that evaluates its different product
lines as separate business units.  As part of this strategy,
management has begun evaluating operating performance by reviewing the
profitability of these product lines on a standalone
basis.  Therefore, the Company now has two reportable operating
segments (excluding the discontinued classifieds business):  Directory
Services and Direct Sales - Customer Acquisition Services.  The
Company has yet to identify and allocate operating costs or impairment charges
to its reportable segments below the gross profit
level.  Additionally, the reportable segments share many common costs,
including, but not limited to, IT support, office and administrative
expenses.  Therefore, the following table of operating results does
not allocate costs to its reportable segments below the gross profit
level:


11


LIVEDEAL,
INC. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(cont)


Six Months Ended March 31, 2010DirectoryServices
                    
                    
                    Direct Sales -
                      Customer
                      Acquisition
                      Services
                    
                    
                    Unallocated
                    
                    
                    ConsolidatedNet
      revenues
                    
                    $
                    2,209,340
                    
                    
                    $
                    2,433,760
                    
                    
                    $
                    -
                    
                    
                    $
                    4,643,100Cost
      of services
                    
                    
                    184,797
                    
                    
                    
                    1,666,356
                    
                    
                    
                    -
                    
                    
                    
                    1,851,153Gross
      profit
                    
                    
                    2,024,543
                    
                    
                    
                    767,404
                    
                    
                    
                    -
                    
                    
                    
                    2,791,947Operating
      expenses
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    7,361,053
                    
                    
                    
                    7,361,053Operating
      income (loss)
                    
                    
                    2,024,543
                    
                    
                    
                    767,404
                    
                    
                    
                    (7,361,053
                    )
                    
                    
                    (4,569,106
                    )Other
      income (expense)
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    37,825
                    
                    
                    
                    37,825Income
      (loss) before income taxes and discontinued operations
                    
                    $
                    2,024,543
                    
                    
                    $
                    767,404
                    
                    
                    $
                    (7,323,228
                    )
                    
                    $
                    (4,531,281
                    )





Six Months Ended March 31, 2009DirectoryServices
                    
                    
                    Direct Sales -
                      Customer
                      Acquisition
                      Services
                    
                    
                    Unallocated
                    
                    
                    ConsolidatedNet
      revenues
                    
                    $
                    6,863,243
                    
                    
                    $
                    1,694,546
                    
                    
                    $
                    -
                    
                    
                    $
                    8,557,789Cost
      of services
                    
                    
                    2,127,690
                    
                    
                    
                    939,842
                    
                    
                    
                    -
                    
                    
                    
                    3,067,532Gross
      profit
                    
                    
                    4,735,553
                    
                    
                    
                    754,704
                    
                    
                    
                    -
                    
                    
                    
                    5,490,257Operating
      expenses
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    18,464,876
                    
                    
                    
                    18,464,876Operating
      income (loss)
                    
                    
                    4,735,553
                    
                    
                    
                    754,704
                    
                    
                    
                    (18,464,876
                    )
                    
                    
                    (12,974,619
                    )Other
      income (expense)
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    7,283,917
                    
                    
                    
                    7,283,917Income
      (loss) before income taxes and discontinued operations
                    
                    $
                    4,735,553
                    
                    
                    $
                    754,704
                    
                    
                    $
                    (11,180,959
                    )
                    
                    $
                    (5,690,702
                    )





Included
in the decrease in costs associated with the directory services business segment
is an expense reversal of approximately $130,000 in the first six months of
fiscal 2010 reflecting revised estimates of bad debt expense based on recent
settlement experience.





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


12





LIVEDEAL,
INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont)





March 31, 2010Directory Services
                  
                  
                  Direct Sales -
                    Customer
                    Acquisition
                    Services
                  
                  
                  TotalAccounts
      receivable, net - short term
                  
                  $
                  1,208,835
                  
                  
                  $
                  45,935
                  
                  
                  $
                  1,254,770Accounts
      receivable, net - long term
                  
                  
                  505,496
                  
                  
                  
                  -
                  
                  
                  
                  505,496Total
      accounts receivable, net
                  
                  $
                  1,714,331
                  
                  
                  $
                  45,935
                  
                  
                  $
                  1,760,266





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





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





Note
11:  Liquidity




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





Note
12:  Recent Accounting Pronouncements





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





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


13





LIVEDEAL,
INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont)


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




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




Note
13:  Subsequent Events




We have
evaluated subsequent events through May 14, 2010, which is the date the
condensed consolidated financial statements were issued, and there are no
subsequent events to report.


14




ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS




For a
description of our significant accounting policies and an understanding of the
significant factors that influenced our performance during the three and six
months ended March 31, 2010, this “Item 2.  Management’s Discussion
and Analysis of Financial Condition and Results of Operations” (hereafter
referred to as “MD&A”) should be read in conjunction with the condensed
consolidated financial statements, including the related notes, appearing in
Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as our Annual
Report on Form 10-K for the year ended September 30, 2009.




Forward-Looking
Statements




This
portion of this Quarterly Report on Form 10-Q includes statements that
constitute “forward-looking statements.”  These forward-looking
statements are often characterized by the terms “may,” “believes,” “projects,”
“intends,” “expects,” or “anticipates,” and do not reflect historical
facts.  Specific forward-looking statements contained herein include,
but are not limited to, our belief that our existing cash on hand will provide
us with sufficient liquidity to meet our operating needs for the next 12 months;
that our customer acquisition services will account for a larger percentage of
total net revenues in the future; expectations about stock option and restricted
stock vesting; trends relating to our accounts receivable; the timing, amount
and expectations about the cost and impact of legal proceedings that we are
involved in; our expectation that we will experience declining revenues in our
Business Directory segment; trends in Internet advertising and customer
acquisition strategies; our expectation that we will continue to experience
operating losses and operating cash outflows; our plans and expectations with
respect to new product and service offerings in our Business Directory segment;
and strategic alternatives we may pursue and their potential impact on the
Company.  Forward-looking statements involve risks, uncertainties and
other factors, which may cause our actual results, performance or achievements
to be materially different from those expressed or implied by such
forward-looking statements.  Factors and risks that could affect our
results and achievements and cause them to materially differ from those
contained in the forward-looking statements include those identified in our
Annual Report on Form 10-K for the fiscal year ended September 30, 2009 under
Item 1A “Risk Factors”, as well as other factors that we are currently unable to
identify or quantify, but that may exist in the future.




In
addition, the foregoing factors may affect generally our business, results of
operations, and financial position.  Forward-looking statements speak
only as of the date the statement was made.  We do not undertake and
specifically decline any obligation to update any forward-looking
statements.




Our
Company




LiveDeal,
Inc. provides local customer acquisition services for small businesses to
deliver an affordable way for businesses to extend their marketing reach to
local, relevant customers via the Internet.  LiveDeal delivers local
search engine marketing (SEM) utilizing an inside sales
team.  LiveDeal resells search products from Google, Yahoo!, Bing and
others as part of its SEM marketing and also provides website , hosting and
Internet syndication services.  LiveDeal, Inc. is headquartered in Las
Vegas, Nevada.  For more information, please visit www.livedeal.com.




We have
two inter-related primary lines of business: (1) we deliver a suite of customer
acquisition services for small businesses, sold via telemarketing and supported
by our websites, distribution network, and best of breed software developed to
manage search and other Internet services efficiently, and (2) we deliver a
suite of promotional and operational support services for small businesses that
include but are not limited to submission in local online maps and directories,
webhosting, newsletters, teleconferencing, electronic fax, file storage, and
call routing sold via telemarketing and supported by an online, self service
customer portal.




Summary
Business Description





Direct Sales Services(also known as Telesold Suite
Services)





Commencing
in February 2008, we added a new line of business.  This line of
business is based around using telesales and Internet customer acquisition
technologies to deliver a suite of customer acquisition services to small
businesses.  We believe the most significant of these customer
acquisition services is Internet search and search-related advertising
services.  The Company’s strategy is to position its solutions where
85-95% of Internet and mobile search activity for local business services
occurs:  search engine results, the most popular business directories,
and the top social network destinations.  This development is intended
to create a presence, and enable individuals and businesses to find our
customers without ever going to a specific directory.  The small
business whose website information or advertising message is identified by a
search becomes the likely recipient of that business.  The Company’s
research indicates there are half a billion unique local searches a month on
Google.  On Yahoo alone, 100 million unique visitors per month search
with “local intent”. On top of that data, rapidly rising smart-phone sales will
increase mobile search utilization.  Therefore, we believe utilizing
mobile, Internet search and related advertising is fast becoming a necessity for
small businesses.


15





Another
key Internet development is the rise of user review sites and services, such as
Yelp.com and social networking sites, such as Facebook.  At these
sites, consumers let each other know about their experiences with local
businesses.  They rate and comment on the businesses.  The
sites also tend to provide some aspects of traditional directories as well as
new services, such as placing businesses on a local map, providing driving
directions, etc.  At these sites, as with Internet search, consumers
can select businesses for their commerce without ever using a traditional
directory.  Consumers are instead pursuaded to frequent a specific
business based on the experiences of others.





With the
emergence of these new Internet capabilities, and others that are fast emerging,
the role of directories, both paper and Internet, is becoming less relevant in
the customer acquisition process.  Search, review and social networking
sites are becoming the new standard.  We believe these sites will provide
the greatest value for both customers and businesses.





Our
websites offer businesses and consumers an affordable and effective
solution for creating a web presence and marketing their products and services
to a local audience through these new online media.





Our suite
currently includes the following menu of services, but the range of services we
deliver is designed to shift over time, based on the needs of our small business
customers and the ever-changing state of Internet technology:





§
            Website
      URL acquisition services whereby we obtain website address names on behalf
      of our small business clients;





§
            Website
      development and deployment services where we create, house and manage
      websites on behalf of our small business
  clients;





§
            Website
      traffic and audience development services, which utilize sophisticated
      search engine marketing techniques, partnerships with other websites and
      other techniques to generate traffic to our customers’ websites, whether
      created by us or not;





§
            Website
      analytics and performance reports that generate information for our
      customers about activities on their websites and generate leads for their
      businesses based on Internet
activities;





§
            Directory
      services whereby we provide both basic and enhanced directory listings for
      our customers on our own directory and on partner directories;
      and





§
            Business
      listing syndication whereby we provide for our customers a single point to
      publish their information on the top directories, create their point of
      presence in the search results of the major search engines, and broadcast
      their latest “happenings” on the most popular social networking
      destinations.





Business
Directory




We use a
business model similar to print Yellow Pages publishers for our Yellow Page
directory.  We publish basic directory listings on the
Internet.  Our directory listings contain the name, address and
telephone number for almost 17 million U.S. businesses.  We strive to
maintain a listing for almost every business in America in this format and we
generate revenue from the sale of various advertising packages to listed
businesses.  Previously, we shifted our business focus away from this
line of business and sold our primary URL and a portion of our customer list,
which contributed to a 68% decrease in net revenues in the six months ended
March 31, 2010 compared to the same period in 2009.  We expect to
continue to experience declining future revenues from this segment.




To
counter the decrease in this line of business, we have redefined our business to
business offerings to include a suite of promotional and operational support
services for small businesses. Packages are in final testing now and we
anticipate that they will be officially released to the marketplace within the
next quarter.


16





Recent
Developments





Change
in Business Strategy and Risks Associated with Such Changes





In fiscal
2009, we underwent a significant change in our business strategy as a result of
declining revenues in our legacy businesses (classifieds and business directory
services) and other economic and regulatory forces.  We embarked on a
transformation of our business away from our business directory services and
classified business and focused our efforts toward developing our Direct Sales
line of business.  As part of this change in strategy, we initiated a
series of key events including:





·
            We
      shut-down our Philippines-based call
center;


·
            We
      discontinued our classified
business;


·
            We
      sold a portion of our customer list associated with our directory services
      business;


·
            We
      sold our www.yp.com
      Internet domain name; and


·
            We
      experienced several management changes including turnover of our most
      senior executive positions.





As a
result of these events and transactions, we have experienced a significant
decline in revenues and have incurred recent operating losses and increased
operating cash outflows.  These losses and operating cash outflows are
expected to continue indefinitely as we address our new line of
business.  The risks associated with our Company are outlined in Part
I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended
September 30, 2009.  We encourage all investors, prospective investors
and other readers to refer to these risk factors.





As
discussed above, we have recently redefined out strategy in our Business
Directory segment to include a suite of promotional and operational support
services for small businesses, which we believe we can offer in bundles to
achieve competitive advantages as compared to our peers.  In addition,
we are currently exploring a number of other strategic
alternatives.  Such alternatives may include, but are not limited to,
potential partnership, joint venture, divestiture, or liquidation
strategies.  We make no statements with respect to the feasibility or
likelihood of such transactions, or whether any such scenario or combination of
scenarios necessarily may be in the best interest of all shareholders should
they happen to occur.





Management
Changes





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





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





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





On
January 4, 2010, Mr. Sommer resigned as our Chief Executive
Officer.  As a result of his departure, Mr. Sommer also resigned as a
member of our Board of Directors.  Following Mr. Sommer’s departure,
Kevin A. Hall was appointed as our interim Chief Operating Officer
(COO).  Mr. Hall has been serving as our General Counsel and Vice
President of Human Resources and Business Development since April 2009, and he
continues to serve in those capacities.


17


Restructuring
Activities




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




We
incurred charges of $143,000 in connection with the reductions in force,
consisting of one-time employee termination benefits.  All amounts
were paid as of March 31, 2010.





Results
of Operations




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




Net Revenues




Net Revenues2010
                    
                    
                    2009
                    
                    
                    Change
                    
                    
                    PercentThree
      Months Ended March 31,
                    
                    $
                    2,165,653
                    
                    
                    $
                    3,548,275
                    
                    
                    $
                    (1,382,622
                    )
                    
                    
                    (39
                    )%Six
      Months Ended March 31,
                    
                    $
                    4,643,100
                    
                    
                    $
                    8,557,789
                    
                    
                    $
                    (3,914,689
                    )
                    
                    
                    (46
                    )%




Net
revenues decreased in the second quarter of fiscal 2010 as compared to the
second quarter of fiscal 2009 due primarily to a decrease of approximately
$1,682,000 in sales of our directory service products, reflecting the
de-emphasis of this business line and the effects of the sale of our URL and a
portion of our customer list.  However, this decrease was partially
offset by an increase in our customer acquisition services of approximately
$300,000 as a result of expanded marketing efforts related to these products and
the further development in our business.




Net
revenues decreased in the first six months of fiscal 2010 as compared to the
first six months of fiscal 2009 for similar reasons, with a decrease of
approximately $4,654,000 in directory service products and an increase of
$739,000 in sales of customer acquisition services.


Cost
of Services




Cost of Services2010
                  
                  
                  2009
                  
                  
                  Change
                  
                  
                  PercentThree
      Months Ended March 31,
                  
                  $
                  1,022,339
                  
                  
                  $
                  1,466,882
                  
                  
                  $
                  (444,543
                  )
                  
                  
                  (30
                  )%Six
      Months Ended March 31,
                  
                  $
                  1,851,152
                  
                  
                  $
                  3,067,532
                  
                  
                  $
                  (1,216,380
                  )
                  
                  
                  (40
                  )%




Cost of
services decreased in the second quarter of fiscal 2010 as compared to the
second quarter of fiscal 2009 attributable to a $917,000 decrease in costs
associated with our directory services business, offset by a $473,000 increase
in costs associated with our customer acquisition services.  A portion
of the change in these costs reflects changes in our revenue mix as a result of
our new business strategy.  However, during the second quarter of
fiscal 2010, we incurred bad debt expense of approximately $411,000 associated
with our direct sales business, reflecting a reconciliation of our customer
accounts.




Costs of
services decreased in the first six months of fiscal 2010 as compared to the
first six months of fiscal 2009 for similar reasons, with a $1,943,000 decrease
in costs related to our directory services offset by increased costs related to
our customer acquisition services of approximately $727,000.  Included
in the decrease in costs associated with our directory services business is an
expense reversal of approximately $130,000 in the first quarter of fiscal 2010
reflecting revised estimates of bad debt expense based on recent settlement
experience.




18




Gross
Profit




Gross Profit2010
                  
                  
                  2009
                  
                  
                  Change
                  
                  
                  PercentThree
      Months Ended March 31,
                  
                  $
                  1,143,314
                  
                  
                  $
                  2,081,393
                  
                  
                  $
                  (938,079
                  )
                  
                  
                  (45
                  )%Six
      Months Ended March 31,
                  
                  $
                  2,791,948
                  
                  
                  $
                  5,490,257
                  
                  
                  $
                  (2,698,309
                  )
                  
                  
                  (49
                  )%




Gross
profit decreased in the second quarter and first six months of fiscal 2010 as
compared to the second quarter and first six months of fiscal 2009 due to a
decline in revenues offset by changes in gross margins in our various lines of
business.  The following table sets forth changes in our gross margin
by business segment:




Three Months Ended March 31,2010
                    
                    
                    2009Direct
      Sales -Customer
      Acquisition Services -Gross
      profit
                    
                    $
                    160,291
                    
                    
                    $
                    463,779Gross
      margin
                    
                    
                    15.1
                    %
                    
                    
                    52.0
                    %Directory
      services -Gross
      profit
                    
                    $
                    983,023
                    
                    
                    $
                    1,617,614Gross
      margin
                    
                    
                    89.2
                    %
                    
                    
                    60.9
                    %





Six
      Months Ended March 31,2010
                    
                    
                    2009Direct
      Sales -Customer
      Acquisition Services -Gross
      profit
                    
                    $
                    767,404
                    
                    
                    $
                    754,704Gross
      margin
                    
                    
                    31.5
                    %
                    
                    
                    44.5
                    %Directory
      services -Gross
      profit
                    
                    $
                    2,024,543
                    
                    
                    $
                    4,735,553Gross
      margin
                    
                    
                    91.6
                    %
                    
                    
                    69.0
                    %




General and Administrative
Expenses




General and Administrative
      Expenses2010
                  
                  
                  2009
                  
                  
                  Change
                  
                  
                  PercentThree
      Months Ended March 31,
                  
                  $
                  3,138,052
                  
                  
                  $
                  4,054,354
                  
                  
                  $
                  (916,302
                  )
                  
                  
                  (23
                  )%Six
      Months Ended March 31,
                  
                  $
                  7,099,942
                  
                  
                  $
                  8,313,381
                  
                  
                  $
                  (1,213,439
                  )
                  
                  
                  (15
                  )%




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




·      Decreased
compensation costs of approximately $1,193,000 primarily attributable to
reductions in our workforce resulting from actions taken in fiscal 2009
including the closure of our Santa Clara office and reductions in the workforce
in January 2010 and March 2010, partially offset by a $70,000 accrual for
separation expenses related to changes in management in the first quarter of
fiscal 2010 and $143,000 of termination benefits related to our restructuring
activities in the second quarter of fiscal 2010;




·      A
decrease of approximately $342,000 of depreciation and amortization expense
primarily attributable to the impairment of intangible assets in the second
quarter of fiscal 2009;




·      Rent
and utilities expense decreases of $121,000; and


19


·      Other
miscellaneous expense decreases of $106,000; partially offset by




·      Increased
professional fees of approximately $612,000 related to increased legal expenses
incurred in response to certain legal actions brought against us;
and




·      Increased
stock-based compensation of approximately $234,000, primarily due to a reversal
of $258,000 of stock based compensation during the second quarter of fiscal 2009
reflecting changes in our estimated forfeiture rate associated with restricted
stock awards.




General
and administrative expenses decreased in the first six months of fiscal 2010 as
compared to the first six months of fiscal 2009 for similar reasons, as outlined
below:





·      Decreased
compensation costs of approximately $1,450,000 primarily attributable to
reductions in our workforce resulting from actions taken in fiscal 2009 and
fiscal 2010 including the closure of our Santa Clara office and reductions in
the workforce in January 2010 and March 2010, partially offset by a $70,000
accrual for separation expenses related to changes in management in the first
quarter of fiscal 2010 and $143,000 of termination benefits related to our
restructuring activities in the second quarter of fiscal 2010;




·      A
decrease of approximately $676,000 of depreciation and amortization expense
primarily attributable to the impairment of intangible assets in the second
quarter of fiscal 2009;




·      Rent
and utilities expense decreases of $185,000; and




·      Other
miscellaneous expense decreases of $59,000; partially offset by




·      Increased
professional fees of approximately $643,000 related to increased legal expenses
incurred in response to certain legal actions brought against us;




·      Increased
stock based compensation of approximately $214,000, primarily due to a reversal
of $258,000 of stock based compensation during the second quarter of fiscal 2009
reflecting changes in our estimated forfeiture rate associated with restricted
stock award; and




·      A
$300,000 accrual for a litigation settlement in the first quarter of fiscal 2010
as outlined below.




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




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




Included
in other general and administrative expenses for the first quarter of fiscal
2010 was an accrual of $300,000 related to a legal settlement with On-Call
Superior Management (“OSM”) and SMeVentures, Inc. (“SMe”).  See Part
II, Item 1  (Legal Proceedings) in this report for further
information.




Impairment of Goodwill and Other
Intangible Assets




Impairment
      of Goodwill and Other Intangible Assets2010
                  
                  
                  2009
                  
                  
                  Change
                  
                  
                  PercentThree
      Months Ended March 31,
                  
                  $
                  -
                  
                  
                  $
                  7,866,110
                  
                  
                  $
                  (7,866,110
                  )
                  
                  
                  n/aSix
      Months Ended March 31,
                  
                  $
                  -
                  
                  
                  $
                  7,866,110
                  
                  
                  $
                  (7,866,110
                  )
                  
                  
                  n/a


20




As
described previously, we incurred an impairment charge in the second quarter of
fiscal 2009 to write-down goodwill and other intangible assets.  No
such charges were incurred in first six months of fiscal 2010.




Sales and Marketing
Expenses




Sales and Marketing
Expenses2010
                  
                  
                  2009
                  
                  
                  Change
                  
                  
                  PercentThree
      Months Ended March 31,
                  
                  $
                  90,054
                  
                  
                  $
                  713,326
                  
                  
                  $
                  (623,272
                  )
                  
                  
                  (87
                  )%Six
      Months Ended March 31,
                  
                  $
                  261,111
                  
                  
                  $
                  2,285,385
                  
                  
                  $
                  (2,024,274
                  )
                  
                  
                  (89
                  )%




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




·
            $287,000
      of decreased telemarketing and other customer acquisition costs as we have
      been transitioning away from marketing activities geared toward our
      directory services business;




·
            $145,000
      of reduced customer acquisition costs associated with fulfillment
      contracts that have been terminated or reduced in scope;
    and




·
            $191,000
      of other miscellaneous cost
decreases.




Sales and
marketing expenses decreased in the first six months of fiscal 2010 as compared
to the first six months of fiscal 2009 primarily due to the
following:




·
            $787,000
      of decreased telemarketing and other customer acquisition
      costs;




·
            $983,000
      of reduced customer acquisition costs associated with fulfillment
      contracts that have been terminated or reduced in scope;
    and




·
            $254,000
      of other miscellaneous cost
decreases.




Operating
Loss




Operating Loss2010
                  
                  
                  2009
                  
                  
                  Change
                  
                  
                  PercentThree
      Months Ended March 31,
                  
                  $
                  (2,084,792
                  )
                  
                  $
                  (10,552,397
                  )
                  
                  $
                  8,467,605
                  
                  
                  
                  (80
                  )%Six
      Months Ended March 31,
                  
                  $
                  (4,569,105
                  )
                  
                  $
                  (12,974,619
                  )
                  
                  $
                  8,405,514
                  
                  
                  
                  (65
                  )%




The
decrease in operating loss for the second quarter and first six months of 2010
as compared to the second quarter and first six months of 2009 is primarily due
to the impacts of the impairment charges that occurred in the second quarter of
fiscal 2009 and decreased operating expenses in fiscal 2010, partially offset by
the decrease in gross profit in fiscal 2010, each of which is described
above.




Total
Other Income (Expense)




Total Other Income
(Expense)2010
                  
                  
                  2009
                  
                  
                  Change
                  
                  
                  PercentThree
      Months Ended March 31,
                  
                  $
                  (19,085
                  )
                  
                  $
                  3,464,379
                  
                  
                  $
                  (3,483,464
                  )
                  
                  
                  (101
                  )%Six
      Months Ended March 31,
                  
                  $
                  37,825
                  
                  
                  $
                  7,283,917
                  
                  
                  $
                  (7,246,092
                  )
                  
                  
                  (99
                  )%




During
the first quarter of fiscal 2010, we recognized $50,000 of income related to the
adjustment of certain accruals associated with the sale of a portion of our
customer list that occurred in the previous year.




During
the second quarter of fiscal 2009, we entered into an agreement to sell a
portion of our customer list associated with our directory services business,
resulting in a gain of $2,815,952.  We also amended another directory
services contract in consideration of accelerated payments on our outstanding
accounts receivables and some anticipated future billings which resulted in an
increase in other income of $642,268 for the three and six months ended March
31, 2009, respectively.


21


During
the first quarter of fiscal 2009, we entered into an agreement to sell our
Internet domain name “www.yp.com” to
YellowPages.com for a cash payment of $3,850,000.  We had net gain from the
sale of that asset of $3,805,778, which is reflected in other
income.




The
remaining activity in fiscal 2010 and fiscal 2009 consisted primarily of
interest income on cash balances and short-term investments.




Income
Tax Provision (Benefit)




Income Tax Provision
    (Benefit)2010
                  
                  
                  2009
                  
                  
                  Change
                  
                  
                  PercentThree
      Months Ended March 31,
                  
                  $
                  (330,357
                  )
                  
                  $
                  6,790,410
                  
                  
                  $
                  (7,120,767
                  )
                  
                  
                  (105
                  )%Six
      Months Ended March 31,
                  
                  $
                  (231,026
                  )
                  
                  $
                  7,243,287
                  
                  
                  $
                  (7,474,313
                  )
                  
                  
                  (103
                  )%




In the
second quarter of fiscal 2009, the Company established a valuation allowance
against all deferred tax assets given the uncertainty with respect to future
operations and we continue to maintain a full valuation allowance against such
assets.  The income tax provision during the second quarter of fiscal
2010 and first six months of fiscal 2010 reflects a true up to our income tax
receivable based on information received during the finalization of our 2009 tax
returns.  The income tax provision in the second quarter of fiscal
2009 and first six months of fiscal 2009 reflects the tax impacts of changes in
our pre-tax income, coupled with the establishment of a valuation allowance in
the second quarter of fiscal 2009, which increased our income tax provision by
$9,392,488.  While we are optimistic about our plans for our new
business strategy, we determined that such a valuation allowance was necessary
given the current and expected near term losses and the uncertainty with respect
to our ability to generate sufficient profits from our new business
model.  Therefore, we established a valuation allowance for all
deferred tax assets in excess of those expected to be realizable through the
application of operating loss carrybacks.




Income
(Loss) from Discontinued Operations




Income (Loss) from Discontinued
      Operations2010
                  
                  
                  2009
                  
                  
                  Change
                  
                  
                  PercentThree
      Months Ended March 31,
                  
                  $
                  -
                  
                  
                  $
                  (5,205,187
                  )
                  
                  $
                  5,205,187
                  
                  
                  
                  (100
                  )%Six
      Months Ended March 31,
                  
                  $
                  1,081
                  
                  
                  $
                  (5,262,265
                  )
                  
                  $
                  5,263,346
                  
                  
                  
                  (100
                  )%




During
the second quarter of fiscal 2009, we discontinued our classifieds business, as
described above.  All prior periods have been restated to reflect the
classifieds operating results, net of tax, as discontinued
operations.  The decrease in loss in the first six months of fiscal
2010 as compared to the first six months of fiscal 2009 reflects the wind down
of this line of business and the effects of the impairment charges (and related
tax effects) which were incurred during fiscal 2009.


22


Net
Income (Loss)




Net Loss2010
                  
                  
                  2009
                  
                  
                  Change
                  
                  
                  PercentThree
      Months Ended March 31,
                  
                  $
                  (1,773,520
                  )
                  
                  $
                  (19,083,615
                  )
                  
                  $
                  17,310,095
                  
                  
                  
                  (91
                  )%Six
      Months Ended March 31,
                  
                  $
                  (4,299,173
                  )
                  
                  $
                  (18,196,254
                  )
                  
                  $
                  13,897,081
                  
                  
                  
                  (76
                  )%




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




Liquidity
and Capital Resources




Net cash
used in operating activities was approximately $1,492,000 for the first six
months of fiscal 2010 as compared to approximately $897,000 for the first six
months of fiscal 2009. While our net loss decreased by $13,897,000 in the first
six months of fiscal 2010 as compared to the first six months of fiscal 2009,
the net loss for the prior period included a non cash impairment charge of
$16,111,495 offset by gains on the sale of our domain name and customer list of
$6,622,000, which are not included as part of operating cash flows. Other
factors contributing to the change in operating cash flows include a decrease in
noncash expenses of $4,460,000 (including depreciation and amortization,
stock-based compensation, deferred income taxes , provisions for uncollectible
accounts and other non-cash gains and losses).




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




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 approximately $525,000 for the first six
months of fiscal 2010 consisting of  $325,000 for equipment and
software development costs and $200,000 to purchase a certificate of
deposit.  Net cash provided by investing activities was $6,871,000 for
the first six months of fiscal 2009 which was attributable to the sale of our
Internet domain name www.yp.com, the sale
of a portion of our customer list related to our directory services business,
and an amendment to an existing directory services contract which provided
aggregate cash inflows of $7,275,000, partially offset by purchases of equipment
and software development costs of $404,000.




Net cash
used for financing activities was approximately $84,000 during the first six
months of fiscal 2010 compared to approximately $523,000 during the first six
months of fiscal 2009, primarily attributable to a reduction in the amount of
treasury stock repurchases due to a suspension of the program.  The
timing of stock repurchases is influenced by market forces and our cash needs
and requirements.




We had
working capital of $5,725,000 as of March 31, 2010 compared to $9,251,000 as of
September 30, 2009 with current assets decreasing by $3,448,000 and current
liabilities increasing by $79,000 from September 30, 2009 to March 31,
2010.  Declines in working capital are primarily attributable to our
operating net loss.


23


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




Payments Due by Fiscal YearTotal
                  
                  
                  2010
                  
                  
                  2011
                  
                  
                  2012
                  
                  
                  2013
                  
                  
                  2014
                  
                  
                  ThereafterOperating
      lease commitments
                  
                  $
                  1,098,774
                  
                  
                  $
                  273,848
                  
                  
                  $
                  430,875
                  
                  
                  $
                  315,331
                  
                  
                  $
                  78,720
                  
                  
                  $
                  -
                  
                  
                  $
                  -Capital
      lease commitments
                  
                  
                  133,631
                  
                  
                  
                  32,071
                  
                  
                  
                  64,143
                  
                  
                  
                  37,417
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Noncanceleable service contracts
                  
                  
                  1,482,820
                  
                  
                  
                  620,709
                  
                  
                  
                  721,111
                  
                  
                  
                  141,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -$
                  2,715,225
                  
                  
                  $
                  926,628
                  
                  
                  $
                  1,216,129
                  
                  
                  $
                  493,748
                  
                  
                  $
                  78,720
                  
                  
                  $
                  -
                  
                  
                  $
                  -





This
table includes the service contract associated with the litigation settlement
entered into on February 3, 2010 as previously described.  While we
believe that our existing cash on hand and additional cash generated from
operations will provide us with sufficient liquidity to meet our operating needs
for the next 12 months, we will not be able to stay in business in the future
without improvements in our profitability, additional financing or a fundamental
change in our business.





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


24





ITEM
4. CONTROLS AND PROCEDURES




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




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




Based on
their review and evaluation as of the end of the period covered by this
Quarterly Report, our principal executive officer and principal financial
officer have concluded that our disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are
effective as of the end of the period covered by this report.  During
the period covered by this Quarterly Report, there have not been any changes in
our internal control over financial reporting that have materially affected, or
that are reasonably likely to materially affect, our internal control over
financial reporting.


25


PART
II – OTHER INFORMATION




ITEM
1.  LEGAL PROCEEDINGS




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





With the
exception of LiveDeal, Inc. v. On-Call Superior Management
(“OSM”)  and SMeVentures, Inc. (“SMe”) described below, the Company
has not recorded any accruals pertaining to its legal proceedings as they do not
meet the criteria for accrual under FASB ASC 450.





Joe
Cunningham v. LiveDeal, Inc. et al.





On July
16, 2008, Joseph Cunningham, who was at the time a member of LiveDeal's Board of
Directors, filed a complaint with the U.S. Department of Labor's Occupational
Safety and Health Administration ("OSHA") alleging that the Company and certain
members of its Board of Directors had engaged in discriminatory employment
practices in violation of the Sarbanes-Oxley Act of 2002's statutory protections
for corporate whistleblowers when the Board of Directors removed him as Chairman
on May 22, 2008. In his complaint, Mr. Cunningham asked OSHA to order his
appointment as Chief Executive Officer of the Company or, in the alternative, to
order his reinstatement as Chairman of the Board.  Mr. Cunningham also
sought back pay, special damages and litigation costs.  The Company
has not received any correspondence from OSHA, and there have been no other
developments in the matter, since December 2008.





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





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





Complaint
filed by Illinois Attorney General against LiveDeal, Inc.





On
November 12, 2008, the Illinois Attorney General filed a complaint against
us requesting money damages and injunctive relief for claims that we employed
deceptive and unfair acts and practices in violation of the Illinois Consumer
Fraud and Deceptive Business Act in a telemarketing campaign that in part
promoted premium Internet Yellow Page listings to Illinois
consumers.  LiveDeal has denied the allegations and is vigorously
defending the claim.  Legal proceedings in the manner are
ongoing.





LiveDeal, Inc. v. OnCall Superior
Management (“OSM”) and SMeVentures, Inc. (“SME”)





On April
6, 2009, LiveDeal sought a declaratory judgment with respect to the termination
of certain contracts that it entered into with OSM and SME on November 1, 2007
and November 13, 2006, respectively.  Pursuant to the contracts, OSM
and SME (both of which are call center managers based in the Philippines) were
to provide certain telemarketing and other customer services to
LiveDeal.  LiveDeal subsequently filed a complaint in the United
States District Court for the District of Arizona (CV 09-976-PHX-DGC) alleging
breach of contract on May 29, 2009, and OSM and SME counterclaimed, also
alleging breach of contract.




On
February 3, 2010, the parties executed a Settlement Agreement and Mutual Release
pursuant to which LiveDeal agreed to pay OSM and SME a total of $300,000 in cash
in exchange for their agreement to terminate all litigation with respect to the
2006 and 2007 contracts.  The parties also entered into a new Services
Agreement pursuant to which OSM agreed to provide certain services to LiveDeal
until July 1, 2010 in exchange for cash payments totaling
$125,000.


26


ITEM
1A.  RISK FACTORS





The
following represent material changes to the factors disclosed in Item 1A “Risk
Factors” in our Annual Report on Form 10-K for the fiscal year ended September
30, 2009.





Our
recent restructuring efforts may cause adverse business
consequences.





On
January 4, 2010, our Board of Directors approved a reduction in force that
resulted in the termination of approximately 33% of our workforce, effective
January 7, 2010.  On February 23, 2010, the Board of Directors of the
Company approved an additional  reduction in force that resulted in
the termination of approximately 20% of the Company’s workforce, effective March
4, 2010. These reductions in force could negatively impact both our ability to
develop our existing business lines and our ability to service existing
customers.  If so, we could experience adverse impacts on our
financial condition and results of operations.





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





d
                                                            
                                                            
                                                            (a) Total Number of Shares (or
                                                              Units) Purchased
                                                            
                                                            
                                                            (b) Average Price Paid per
                                                              Share (or Unit)
                                                            
                                                            
                                                            (c) Total Number of Shares (or
                                                              Units) Purchased as Part of
                                                              Publicly Announced Plans or
                                                              Programs
                                                            
                                                            
                                                            (d) Maximum Number
                                                              (or Approximate Dollar Value) of Shares
                                                              (or Units) that May Yet Be Purchased
                                                              Under the Plans or ProgramsJanuary
      1-31, 2010
                                                            
                                                            
                                                            
                                                            1,000
                                                            
                                                            
                                                            $
                                                            1.30
                                                            
                                                            
                                                            
                                                            1,000February
      1-28, 2010
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            -March
      1-31, 2010
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            -Total
                                                            
                                                            
                                                            
                                                            1,000
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            1,000
                                                            
                                                            
                                                            $
                                                            429,427





ITEM 6.
EXHIBITS




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





Exhibit
                  Number
                
                Description10.1
                
                Settlement
      Agreement and Mutual Release dated February 3, 201031
                
                Certifications
      pursuant to Section 302 of the Sarbanes-Oxley Act of
  200232
                
                Section
      1350 Certifications


27


SIGNATURES




Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.




LiveDeal,
      Inc.Dated:  May
      14, 2010
                /s/ Lawrence W. TomsicLawrence
      W. TomsicChief
      Financial Officer


28