UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549


FORM
10-Q









(Mark
One)




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




For the
quarterly period ended December 31, 2009




 ̈           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 February 1, 2010 was
6,077,017.





INDEX TO FORM 10-Q FILING


FOR
THE QUARTER ENDED DECEMBER 31, 2009





TABLE
OF CONTENTS





PART
I


FINANCIAL
INFORMATION





PageItem 1.   Financial StatementsCondensed Consolidated Balance Sheets as of December 31, 2009
      (unaudited) and September 30, 2009
                          
                          3Unaudited Condensed Consolidated Statements of Operations for
      the Three Months Ended December 31, 2009 and 2008
                          
                          4Unaudited Condensed Consolidated Statements of Cash Flows for
      the Three Months Ended December 31, 2009 and 2008
                          
                          5Notes to Unaudited Condensed Consolidated Financial
      Statements
                          
                          6Item 2.  Management’s Discussion and Analysis of
      Financial Condition and Results of Operations
                          
                          16Item 4.  Controls and
    Procedures
                          
                          24PART
      IIOTHER
      INFORMATIONItem 1.  Legal
Proceedings
                          
                          25Item 1A.  Risk Factors
                          
                          26Item 2.  Unregistered Sales of Equity
      Securities and Use of Proceeds
                          
                          26Item 6.  Exhibits
                          
                          26Signatures
                          
                          27


2
 Table of Contents


PART
I – FINANCIAL INFORMATION





ITEM 1.  FINANCIAL STATEMENTS





LIVEDEAL, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS





December 31,
                              
                              
                              September 30,2009
                              
                              
                              2009(unaudited)AssetsCash
      and cash equivalents
                              
                              $
                              6,070,362
                              
                              
                              $
                              7,568,030Certificates
      of deposit
                              
                              
                              100,000
                              
                              
                              
                              100,000Accounts
      receivable, net
                              
                              
                              1,240,396
                              
                              
                              
                              1,478,183Prepaid
      expenses and other current assets
                              
                              
                              240,163
                              
                              
                              
                              326,442Income
      taxes receivable
                              
                              
                              1,390,860
                              
                              
                              
                              1,490,835Total
      current assets
                              
                              
                              9,041,781
                              
                              
                              
                              10,963,490Accounts
      receivable, long term portion, net
                              
                              
                              946,622
                              
                              
                              
                              1,039,403Property
      and equipment, net
                              
                              
                              588,688
                              
                              
                              
                              615,906Deposits
      and other assets
                              
                              
                              87,757
                              
                              
                              
                              81,212Intangible
      assets, net
                              
                              
                              2,308,924
                              
                              
                              
                              2,336,714Total
      assets
                              
                              $
                              12,973,772
                              
                              
                              $
                              15,036,725Liabilities
      and Stockholders' EquityLiabilities:Accounts
      payable
                              
                              $
                              611,723
                              
                              
                              $
                              549,681Accrued
      liabilities
                              
                              
                              1,446,996
                              
                              
                              
                              1,092,811Current
      portion of capital lease obligation
                              
                              
                              69,742
                              
                              
                              
                              69,612Total
      current liabilities
                              
                              
                              2,128,461
                              
                              
                              
                              1,712,104Long
      term portion of capital lease obligation
                              
                              
                              99,837
                              
                              
                              
                              117,073Total
      liabilities
                              
                              
                              2,228,298
                              
                              
                              
                              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, 6,133,433 shares
      issued,6,092,018
      and 6,104,327 outstanding at December 31, 2009 and September 30,
      2009,respectively
                              
                              
                              6,133
                              
                              
                              
                              6,133Treasury
      stock (41,415 and 29,106 shares carried at cost at December 31, 2009
      and
                              
                              
                              (69,573
                              )
                              
                              
                              (45,041
                              )September
      30, 2009, respectively)Paid
      in capital
                              
                              
                              20,368,968
                              
                              
                              
                              20,280,377Accumulated
      deficit
                              
                              
                              (9,570,920
                              )
                              
                              
                              (7,044,787
                              )Total
      stockholders' equity
                              
                              
                              10,745,474
                              
                              
                              
                              13,207,548Total
      liabilities and stockholders' equity
                              
                              $
                              12,973,772
                              
                              
                              $
                              15,036,725





See
accompanying notes to unaudited condensed consolidated financial
statements.


3
 Table of Contents





LIVEDEAL, INC. AND SUBSIDIARIES


UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS





Three Months Ended December 31,2009
                          
                          
                          2008Net
      revenues
                          
                          $
                          2,477,446
                          
                          
                          $
                          5,009,514Cost
      of services
                          
                          
                          828,812
                          
                          
                          
                          1,600,650Gross
      profit
                          
                          
                          1,648,634
                          
                          
                          
                          3,408,864Operating
      expenses:General
      and administrative expenses
                          
                          
                          3,961,890
                          
                          
                          
                          4,259,027Sales
      and marketing expenses
                          
                          
                          171,058
                          
                          
                          
                          1,572,059Total
      operating expenses
                          
                          
                          4,132,948
                          
                          
                          
                          5,831,086Operating
      loss
                          
                          
                          (2,484,314
                          )
                          
                          
                          (2,422,222
                          )Other
      income (expense):Interest
      income, net
                          
                          
                          6,910
                          
                          
                          
                          13,759Other
      income (expense)
                          
                          
                          50,000
                          
                          
                          
                          3,805,778Total
      other income
                          
                          
                          56,910
                          
                          
                          
                          3,819,537Income
      (loss) before income taxes
                          
                          
                          (2,427,404
                          )
                          
                          
                          1,397,315Income
      tax provision (benefit)
                          
                          
                          99,975
                          
                          
                          
                          452,876Income
      (loss) from continuing operations
                          
                          
                          (2,527,379
                          )
                          
                          
                          944,439Discontinued
      operationsIncome
      (loss) from discontinued component, including disposal
    costs
                          
                          
                          1,725
                          
                          
                          
                          (91,121
                          )Income
      tax benefit
                          
                          
                          -
                          
                          
                          
                          (34,043
                          )Income
      (loss) from discontinued operations
                          
                          
                          1,725
                          
                          
                          
                          (57,078
                          )Net
      income (loss)
                          
                          $
                          (2,525,654
                          )
                          
                          $
                          887,361Earnings
      per share - Basic:Income
      (loss) from continuing operations
                          
                          $
                          (0.42
                          )
                          
                          $
                          0.16Discontinued
      operations
                          
                          
                          0.00
                          
                          
                          
                          (0.01
                          )Net
      income (loss)
                          
                          $
                          (0.42
                          )
                          
                          $
                          0.15Earnings
      per share - Diluted:Income
      (loss) from continuing operations
                          
                          $
                          (0.42
                          )
                          
                          $
                          0.15Discontinued
      operations
                          
                          
                          0.00
                          
                          
                          $
                          (0.01
                          )Net
      income (loss)
                          
                          $
                          (0.42
                          )
                          
                          $
                          0.14Weighted
      average common shares outstanding:Basic
                          
                          
                          5,995,414
                          
                          
                          
                          6,036,964Diluted
                          
                          
                          5,995,414
                          
                          
                          
                          6,109,473





See
accompanying notes to unaudited condensed consolidated financial
statements.


4
 Table of Contents




LIVEDEAL, INC. AND SUBSIDIARIES


UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS





Three Months endedDecember 31,2009
                  
                  
                  2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income (loss)
                  
                  $
                  (2,525,654
                  )
                  
                  $
                  887,361Adjustments
      to reconcile net income (loss) to net cashused
      in operating activities:Depreciation
      and amortization
                  
                  
                  225,653
                  
                  
                  
                  1,062,015Non-cash
      stock compensation expense
                  
                  
                  (8,160
                  )
                  
                  
                  19,856Amortization
      of deferred stock compensation
                  
                  
                  96,750
                  
                  
                  
                  89,077Deferred
      income taxes
                  
                  
                  -
                  
                  
                  
                  (267,101
                  )Provision
      for uncollectible accounts
                  
                  
                  227,872
                  
                  
                  
                  347,712Gain
      on sale of internet domain name
                  
                  
                  -
                  
                  
                  
                  (3,805,778
                  )Loss
      on disposal of property and equipment
                  
                  
                  715
                  
                  
                  
                  -Changes
      in assets and liabilities:Accounts
      receivable
                  
                  
                  102,695
                  
                  
                  
                  576,970Prepaid
      expenses and other current assets
                  
                  
                  86,279
                  
                  
                  
                  12,699Deposits
      and other assets
                  
                  
                  (6,545
                  )
                  
                  
                  (3,397
                  )Accounts
      payable
                  
                  
                  62,043
                  
                  
                  
                  (77,212
                  )Accrued
      liabilities
                  
                  
                  353,706
                  
                  
                  
                  192,373Income
      taxes receivable and payable
                  
                  
                  99,975
                  
                  
                  
                  683,974Net
      cash used in operating activities
                  
                  
                  (1,284,671
                  )
                  
                  
                  (281,451
                  )CASH
      FLOWS FROM INVESTING ACTIVITIES:Proceeds
      from sale of internet domain name
                  
                  
                  -
                  
                  
                  
                  3,850,000Expenditures
      for intangible assets
                  
                  
                  (131,234
                  )
                  
                  
                  (119,369
                  )Purchases
      of equipment
                  
                  
                  (40,126
                  )
                  
                  
                  (11,567
                  )Net
      cash provided by (used in) investing activities
                  
                  
                  (171,360
                  )
                  
                  
                  3,719,064CASH
      FLOWS FROM FINANCING ACTIVITIES:Principal
      repayments on capital lease obligations
                  
                  
                  (17,105
                  )
                  
                  
                  (19,927
                  )Purchase
      of treasury stock
                  
                  
                  (24,532
                  )
                  
                  
                  (487,480
                  )Net
      cash used in financing activities
                  
                  
                  (41,637
                  )
                  
                  
                  (507,407
                  )INCREASE
      (DECREASE) IN CASH AND CASH EQUIVALENTS
                  
                  
                  (1,497,668
                  )
                  
                  
                  2,930,206CASH
      AND CASH EQUIVALENTS, beginning of period
                  
                  
                  7,568,030
                  
                  
                  
                  4,639,787CASH
      AND CASH EQUIVALENTS, end of period
                  
                  $
                  6,070,362
                  
                  
                  $
                  7,569,993Supplemental
      cash flow disclosures:Noncash
      financing and investing activities:Accrued
      and unpaid dividends
                  
                  $
                  479
                  
                  
                  $
                  479





See
accompanying notes to unaudited condensed consolidated financial
statements


5
 Table of Contents


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 combined with an Internet Yellow Pages directory to deliver an
affordable way for businesses to extend their marketing reach to local, relevant
customers via the Internet through its online property, www.livedeal.com.




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
December 31, 2009 and for the three months ended December 31, 2009 and
December 31, 2008,have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for audited
financial statements. In the opinion of the Company’s management, the interim
information includes all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results for the interim
periods. The results of operations for the three months ended December 31, 2009
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 year then ended
included in the Company’s Annual Report on Form 10-K for the 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:


December 31,
                        
                        
                        September 30,2009
                        
                        
                        2009Receivables,
      current, net:Accounts
      receivable, current
                        
                        $
                        3,357,556
                        
                        
                        $
                        3,776,966Less:
      Allowance for doubtful accounts
                        
                        
                        (2,117,160
                        )
                        
                        
                        (2,298,783
                        )$
                        1,240,396
                        
                        
                        $
                        1,478,183Receivables,
      long term, net:Accounts
      receivable, long term
                        
                        $
                        1,436,389
                        
                        
                        $
                        1,581,946Less:
      Allowance for doubtful accounts
                        
                        
                        (489,767
                        )
                        
                        
                        (542,543
                        )$
                        946,622
                        
                        
                        $
                        1,039,403Total
      receivables, net:Gross
      receivables
                        
                        $
                        4,793,945
                        
                        
                        $
                        5,358,912Allowance
      for doubtful accounts
                        
                        
                        (2,606,927
                        )
                        
                        
                        (2,841,326
                        )$
                        2,187,018
                        
                        
                        $
                        2,517,586





Our
accounts receivable consist primarily of amounts due from customers of our
business directory and directory services business.  As we are
transitioning away from this business segment, we expect our accounts receivable
balance to continue to decrease in the future.


6
 Table of Contents





LIVEDEAL,
INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont)





December 31,
                  
                  
                  September 30,2009
                  
                  
                  2009Property
      and equipment, net:Leasehold
      improvements
                  
                  $
                  239,271
                  
                  
                  $
                  235,056Furnishings
      and fixtures
                  
                  
                  336,067
                  
                  
                  
                  336,067Office,
      computer equipment and other
                  
                  
                  727,946
                  
                  
                  
                  692,3171,303,284
                  
                  
                  
                  1,263,440Less:
      Accumulated depreciation
                  
                  
                  (714,596
                  )
                  
                  
                  (647,534
                  )$
                  588,688
                  
                  
                  $
                  615,906





December 31,
                  
                  
                  September 30,2009
                  
                  
                  2009Intangible
      assets, net:Domain
      name and marketing related intangibles
                  
                  $
                  1,509,600
                  
                  
                  $
                  6,699,600Non-compete
      agreements
                  
                  
                  -
                  
                  
                  
                  3,465,000Website
      and technology related intangibles
                  
                  
                  1,810,781
                  
                  
                  
                  4,678,9703,320,381
                  
                  
                  
                  14,843,570Less:  Accumulated
      amortization
                  
                  
                  (1,011,457
                  )
                  
                  
                  (12,506,856
                  )$
                  2,308,924
                  
                  
                  $
                  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
December 31, 2009, the cost and accumulated amortization on all fully amortized
assets were removed from the Company’s books.





December 31,
                    
                    
                    September 30,2009
                    
                    
                    2009Accrued
      liabilities:Deferred
      revenue
                    
                    $
                    119,797
                    
                    
                    $
                    148,916Accrued
      payroll and bonuses
                    
                    
                    260,142
                    
                    
                    
                    289,944Accruals
      under revenue sharing agreements
                    
                    
                    310,286
                    
                    
                    
                    314,754Accrued
      expenses - other
                    
                    
                    756,771
                    
                    
                    
                    339,197$
                    1,446,996
                    
                    
                    $
                    1,092,811





Included
in accrued expenses – other at December 31, 2009 is an accrual of $300,000
pertaining to a legal settlement that is expected to be paid in February
2010.





Note
3:  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.





During
the three months ended December 31, 2009 and 2008, the Company recognized
compensation expense (benefit) of $(8,160) and $19,856, 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.





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 three months ended
December 31, 2009.


7
 Table of Contents





LIVEDEAL,
INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont)





During
the three months ended December 31, 2009, the Company had stock option activity
summarized as follows:




Weighted
                                
                                
                                WeightedAverage
                                
                                
                                Average
                                
                                
                                AggregateNumber of
                                
                                
                                Exercise
                                
                                
                                Remaining
                                
                                
                                IntrinsicShares
                                
                                
                                Price
                                
                                
                                Contractual Life
                                
                                
                                ValueOutstanding
      at September 30, 2009
                                
                                
                                330,000Granted
      at market price
                                
                                
                                250,000
                                
                                
                                $
                                1.95Exercised
                                
                                
                                -
                                
                                
                                
                                -Forfeited
                                
                                
                                (30,000
                                )
                                
                                $
                                1.67Outstanding
      at December 31, 2009
                                
                                
                                550,000
                                
                                
                                $
                                1.71
                                
                                
                                
                                9.3
                                
                                
                                $
                                104,458Exercisable
                                
                                
                                71,875
                                
                                
                                $
                                1.45
                                
                                
                                
                                8.8
                                
                                
                                $
                                32,583





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 December 31,
2009:


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
                                                  
                                                  
                                                  71,875
                                                  
                                                  
                                                  $
                                                  1.45
                                                  
                                                  
                                                  
                                                  478,125
                                                  
                                                  
                                                  
                                                  1.71
                                                  
                                                  
                                                  
                                                  550,000
                                                  
                                                  
                                                  $
                                                  1.68








At
December 31, 2009, future stock compensation expense (net of estimated
forfeitures) not yet recognized is $175,383, which the Company expects will be
amortized over a weighted-average remaining vesting period of 3.4
years.  This future expense does not include the options forfeited by
Mr. Sommer in January 2010.





From time
to time, the Company also has historically granted shares of restricted stock to
certain individuals.  The following table sets forth the activity with
respect to compensation-related restricted stock grants during the three months
ended December 31, 2009:





Outstanding
      (unvested) at September 30, 2009
                    
                    
                    106,425Granted
                    
                    
                    -Forfeited
                    
                    
                    -Vested
                    
                    
                    (12,000
                    )Outstanding
      (unvested) at December 31, 2009
                    
                    
                    94,425





Total
unrecognized stock compensation expense related to unvested awards totaled
$232,645 at December 31, 2009, which the Company expects will be amortized over
a weighted-average period of 1.7 years.





Note
4:  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 months ended December 31, 2009, the Company
acquired an aggregate of 12,310 shares of common stock for an aggregate purchase
price of $24,532.  At December 31, 2009 an aggregate of 41,415 shares
of common stock were held as treasury shares.


8
 Table of Contents




LIVEDEAL,
INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont)




Note
5:  Net Income (Loss) per Share




Net
income (loss) per share is calculated using the weighted average number of
shares of common stock outstanding during the period.  Basic weighted
average common shares outstanding do not include shares of restricted stock that
have not yet vested, although such shares are included as outstanding shares in
the Company’s unaudited condensed consolidated balance sheet.  Diluted
net income (loss) per share is computed using the weighted average number of
common shares 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 income (loss) to
determine the amount available to common stockholders.




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




Three Months Ended December 31,2009
                  
                  
                  2008Net
      income (loss) from continuing operations
                  
                  $
                  (2,527,379
                  )
                  
                  $
                  944,439Less:
      preferred stock dividends
                  
                  
                  (479
                  )
                  
                  
                  (479
                  )Net
      income (loss) from continuing operations applicable to common
      stock
                  
                  
                  (2,527,858
                  )
                  
                  
                  943,960Income
      (loss) from discontinued operations
                  
                  
                  1,725
                  
                  
                  
                  (57,078
                  )Net
      income (loss) applicable to common stock
                  
                  $
                  (2,526,133
                  )
                  
                  $
                  886,882Basic
      weighted average common shares outstanding:
                  
                  
                  5,995,414
                  
                  
                  
                  6,036,964Add
      incremental shares for:Unvested
      restricted stock
                  
                  
                  -
                  
                  
                  
                  72,509Series
      E convertible preferred stock
                  
                  
                  -
                  
                  
                  
                  -Stock
      options
                  
                  
                  -
                  
                  
                  
                  -Diluted
      weighted average common shares outstanding:
                  
                  
                  5,995,414
                  
                  
                  
                  6,109,473Earnings
      per share - Basic:Income
      (loss) from continuing operations
                  
                  $
                  (0.42
                  )
                  
                  $
                  0.16Discontinued
      operations
                  
                  
                  0.00
                  
                  
                  
                  (0.01
                  )Net
      income (loss)
                  
                  $
                  (0.42
                  )
                  
                  $
                  0.15Earnings
      per share - Diluted:Income
      (loss) from continuing operations
                  
                  $
                  (0.42
                  )
                  
                  $
                  0.15Discontinued
      operations
                  
                  
                  0.00
                  
                  
                  
                  (0.01
                  )Net
      income (loss)
                  
                  $
                  (0.42
                  )
                  
                  $
                  0.14







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/or because the Company incurred net
losses during the period:





Three Months Ended December 31,2009
                    
                    
                    2008Options
      to purchase shares of common stock
                    
                    
                    550,000
                    
                    
                    
                    505,000Series
      E convertible preferred stock
                    
                    
                    127,840
                    
                    
                    
                    127,840Shares
      of non-vested restricted stock
                    
                    
                    94,425
                    
                    
                    
                    49,325772,265
                    
                    
                    
                    682,165


9
 Table of Contents


LIVEDEAL,
INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont)





Note
6:  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 three months ended December 31, 2009, the Company recognized an income tax
expense of $99,975 associated with a true up to our income tax receivable
based on information received during the preparation of our 2009 tax
returns.





Note
7:  Commitments and Contingencies





Operating Leases and Service
Contracts





As of
December 31, 2009, 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
                            
                            $
                            1,230,514
                            
                            
                            $
                            411,938
                            
                            
                            $
                            424,525
                            
                            
                            $
                            315,331
                            
                            
                            $
                            78,720
                            
                            
                            $
                            -
                            
                            
                            $
                            -Noncanceleable
      service contracts
                            
                            
                            958,591
                            
                            
                            
                            576,480
                            
                            
                            
                            361,111
                            
                            
                            
                            21,000
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -$
                            2,189,105
                            
                            
                            $
                            988,418
                            
                            
                            $
                            785,636
                            
                            
                            $
                            336,331
                            
                            
                            $
                            78,720
                            
                            
                            $
                            -
                            
                            
                            $
                            -




This
table includes the service contract associated with the litigation settlement
entered into on February 3, 2010 as described in Note 12, and excludes minimum
payment obligations under capital leases as such obligations are set forth
elsewhere in this footnote.




Capital
leases





As of
December 31, 2009, future obligations under non-cancelable capital leases are as
follows for the fiscal years ended September 30:


2010
                    
                    $
                    76,8762011
                    
                    
                    76,8762012
                    
                    
                    44,8922013
                    
                    
                    -2014
                    
                    
                    -Thereafter
                    
                    
                    -Total
      minimum lease payments
                    
                    
                    198,644Less
      imputed interest
                    
                    
                    (29,065
                    )Present
      value of minimum lease payments
                    
                    
                    169,579Less:
      current maturities of capital lease obligations
                    
                    
                    69,742Noncurrent
      maturities of capital lease obligations
                    
                    $
                    99,837





Litigation





The
Company is party to certain legal proceedings incidental to the conduct of its
business. Management believes that the outcome of pending legal proceedings will
not, either individually or in the aggregate, have a material adverse effect on
its business, financial position, and results of operations, cash flows or
liquidity, except with respect to the legal settlement between LiveDeal, Inc. v.
On-Call Superior Management (“OSM”)  and SMeVentures, Inc. (“SMe”)
described below.


10
 Table of Contents





LIVEDEAL,
INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont)







Except as
described below, as of December 31, 2009, 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 operation 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.





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.





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





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





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




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





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 parties have
filed dispositive motions and anticipate a ruling on such motions in early
2010.





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 manner are ongoing and discovery began in April
2009.


11
 Table of Contents





LIVEDEAL,
INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont)





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 alleging breach of
contract on May 29, 2009, and OSM and SME counterclaimed, also alleging breach
of contract.  The lawsuit (CV 09-976-PHX-DGC) was pending in the
United States District Court for the District of Arizona as of December 31,
2009, at which time LiveDeal had accrued a $300,000 reserve in connection with
an anticipated settlement.




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
8:  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.  Two such
entities accounted for 26% and 19% of gross receivables at December 31, 2009 and
three such entities accounted for 23%, 22%, and 18% at September 30, 2009,
respectively




Note
9:  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:


12
 Table of Contents


LIVEDEAL,
INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont)





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





Three Months Ended December 31, 2008Directory Services
                    
                    
                    Direct Sales -
                      Customer
                      Acquisition
                      Services
                    
                    
                    Unallocated
                    
                    
                    ConsolidatedNet
      revenues
                    
                    $
                    4,207,432
                    
                    
                    $
                    802,082
                    
                    
                    $
                    -
                    
                    
                    $
                    5,009,514Cost
      of services
                    
                    
                    1,089,493
                    
                    
                    
                    511,157
                    
                    
                    
                    -
                    
                    
                    
                    1,600,650Gross
      profit
                    
                    
                    3,117,939
                    
                    
                    
                    290,925
                    
                    
                    
                    -
                    
                    
                    
                    3,408,864Operating
      expenses
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    5,831,086
                    
                    
                    
                    5,831,086Operating
      income
                    
                    
                    3,117,939
                    
                    
                    
                    290,925
                    
                    
                    
                    (5,831,086
                    )
                    
                    
                    (2,422,222
                    )Other
      income (expense)
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    3,819,537
                    
                    
                    
                    3,819,537Income
      (loss) before income taxes anddiscontinued
      operations
                    
                    $
                    3,117,939
                    
                    
                    $
                    290,925
                    
                    
                    $
                    (2,011,549
                    )
                    
                    $
                    1,397,315





Included
in the decrease in costs associated with the directory services business segment
is an expense reversal of approximately $130,000 in the first three 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:


13
 Table of Contents





LIVEDEAL,
INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont)





December 31, 2009Directory Services
                    
                    
                    Direct Sales -
                      Customer
                      Acquisition
                      Services
                    
                    
                    TotalAccounts
      receivable, net - short term
                    
                    $
                    1,223,162
                    
                    
                    $
                    17,234
                    
                    
                    $
                    1,240,396Accounts
      receivable, net - long term
                    
                    
                    946,622
                    
                    
                    
                    -
                    
                    
                    
                    946,622Total
      accounts receivable, net
                    
                    $
                    2,169,784
                    
                    
                    $
                    17,234
                    
                    
                    $
                    2,187,018





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
10:  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.  While the Company still continues to maintain its existing
business lines, it is simultaneously exploring other strategic
initiatives.





Note
11:  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 this amendment
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.


14
 Table of Contents





LIVEDEAL,
INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont)





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




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




Note
12:  Subsequent Events




Effective
January 2, 2010, Rajeev Seshadri resigned as our Chief Financial Officer and was
replaced by Lawrence W. Tomsic as Chief Financial Officer.  In
connection with his departure, Mr. Seshadri received a severance payment,
including accrued bonuses and vacation, totaling $70,200, which was fully
accrued as of December 31, 2009 as such agreements were entered into during the
three months ended December 31, 2009.





On
January 4, 2010, the Company’s 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. The reduction in force was related to the
Company’s 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 will incur charges of $98,000 in connection with the reduction in force
consisting entirely of one-time employee termination benefits to be paid and
expensed in the second quarter of fiscal 2010 (ending March 31, 2010). No
amounts have been accrued as of December 31, 2009 relating to these
actions.




On
January 4, 2010, Richard F. Sommer resigned as the Company’s Chief Executive
Officer.  As a result of his departure, Mr. Sommer also resigned as a
member of the Company’s 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 will continue to
serve in those capacities as he assumes his new responsibilities as the
Company’s interim COO.




As
described in Note 7 (Commitments and Contingencies) to the Company’s Unaudited
Condensed Consolidated Financial Statements and Part II, Item 1 (Legal
Proceedings) of this Quarterly Report on Form 10-Q, the Company accrued $300,000
as of December 31, 2009 to establish a reserve in connection with signed
settlement dated February 3, 2010 of a legal proceeding involving OnCall
Superior Management and SMe Ventures, Inc.  Additionally, the Company
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.




We have
evaluated subsequent events through February 12, 2010, which is the date the
financial statements were issued.




15
 Table of Contents


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
  For a
description of our significant accounting policies and an understanding of the
significant factors that influenced our performance during the three months
ended December 31, 2009, 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 expectation that continued investment in online
advertising to bring increased traffic to our websites will drive increased
revenues; our belief that our existing cash on hand will provide us with
sufficient liquidity to meet our operating needs for the next 12 months; that
our customer acquisition services will account for a larger percentage of total
net revenues in the future; that our margins with our customer acquisition
services will continue to improve as the business matures; 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; estimated expenses associated with
our recent reduction in force; 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; 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 combined
with an Internet Yellow Pages directory to deliver an affordable way for
businesses to extend their marketing reach to local, relevant customers via the
Internet. Through its online property, www.livedeal.com, LiveDeal delivers
local search engine marketing (SEM) utilizing an inside sales
team.  LiveDeal resells search products from Google, Yahoo!, MSN and
others as part of its SEM marketing and also provides website and hosting
services. LiveDeal, Inc. is headquartered in Las Vegas, Nevada. For more
information, please visit www.livedeal.com. Through its
wholly-owned subsidiary, Telco Billing, Inc., LiveDeal also publishes a small
business directory online atwww.yellowpages.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 and software that we have developed to manage search and other
Internet services efficiently, and (2) we maintain an Internet Yellow Pages
service for every city and zip code across the U.S.
  Summary
Business Description
 
 Direct Sales Services(also known as Telesold Suite
Services)Commencing in February
2008, we added a new line of business that utilizes, but is not entirely
dependent on, our directory websites and billing services. This line of business
is based 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. This development is intended to
enable customers to find the businesses they need without ever going to a
directory.  The small business whose website information or
advertising message is identified by a search becomes the likely recipient of
that business.  We believe utilizing Internet search and related
advertising is fast becoming a necessity for small
businesses.
  16
 Table of Contents
  Another
key Internet development is the rise of user review sites and services, such as
Yelp.com.  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.
 
 With the
emergence of these new Internet capabilities, and others that are fast emerging,
the role of directories, both paper and Internet, is steadily becoming a less
preferred customer acquisition process.  Search and review 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
locally.
 
 Our
websites also support our audience acquisition services by providing locally and
vertically targeted Internet pages that are effective at producing website
traffic, form fills and phone calls and other valuable customer interactions on
behalf of our small business customers.  Our audience acquisition
services are not limited to our own websites. Our suite currently includes the
following activities, but the range of activities 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 provides sophisticated
      search engine marketing techniques, access to our own websites,
      partnerships with other websites and other techniques to generate traffic
      to our customers’ websites, whether created and housed by us or
      not;
 
 §
              Website
      analytics and performance reports that generate information for our
      customers about activities on their websites and lead activities for their
      businesses based on Internet activities;
and
 
 §
              Directory
      services whereby we provide both basic and enhanced directory listings for
      our customers on our own directory and on partner
    directories.
 
 This
business has been growing and we experienced a 70% increase in net revenues from
this business segment in the first quarter of fiscal 2010 as compared to the
first quarter of fiscal 2009.
 
 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 free
of charge.  Our basic listings contain the business 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.  As we have shifted our business strategy away from this
line of business and sold our primary URL and a portion of our customer list,
this business has experienced a 74% decrease in net revenues in the first
quarter of fiscal 2010 as compared to the first quarter of fiscal
2009.  We expect to continue to experience declining future revenues
from this segment.
 
 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:
  17
 Table of Contents
  ·
              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 for an indeterminate amount of time 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.
 
 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.
 
 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 will continue to serve in those
capacities as he assumes his new responsibilities as the Company’s interim
COO.
 
 Effective
January 2, 2010, Rajeev Seshadri, resigned as our Chief Financial Officer and
was replaced by Lawrence W. Tomsic as Chief Financial Officer.  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. in Accounting from the University of
Denver.
 
 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. The reduction in force was related 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 expect
to incur charges of $98,000 in connection with the reduction in force, of which
$98,000 will be incurred for one-time employee termination benefits.
Substantially all of these charges will be expensed in the second quarter of
fiscal 2010 (ending March 31, 2010) and we estimate that substantially all of
these charges will result in future cash expenditures.  No amounts
have been accrued as of December 31, 2009 relating to these
actions.
  18
 Table of Contents
  Results
of Operations
  The
following sets forth a discussion of our financial results for the first quarter
of fiscal 2010 as compared to the first quarter of fiscal 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
  Three Months Ended
                      December 31,
                    
                    Net
                      Revenues
                    
                    
                    Change from
                      Prior Year
                    
                    
                    Percent Change
                      from Prior Year2009
                    
                    $
                    2,477,446
                    
                    
                    $
                    (2,532,068
                    )
                    
                    
                    (50.5
                    )%2008
                    
                    $
                    5,009,514
  Net
revenues decreased in the first quarter of fiscal 2010 as compared to the first
quarter of fiscal 2009 due primarily to a decrease of approximately $3,100,000
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 $568,000 as a
result of expanded marketing efforts related to these products and the further
development in our business.
  We expect
a greater percentage of revenues to come from our customer acquisition services
segment as we de-emphasize our directory services products in order to focus on
our new business strategy.
  Cost
of Services
  Three Months Ended
                      December 31,
                    
                    Cost of
                      Services
                    
                    
                    Change from
                      Prior Year
                    
                    
                    Percent Change
                      from Prior Year2009
                    
                    $
                    828,812
                    
                    
                    $
                    (771,838
                    )
                    
                    
                    (48.2
                    )%2008
                    
                    $
                    1,600,650
  Cost of
services decreased in the first quarter of fiscal 2010 as compared to the first
quarter of fiscal 2009 attributable to a $1,024,000 decrease in costs associated
with our directory services business, offset by a $252,000 increase in costs
associated with our customer acquisition services, reflecting revenue changes in
each of these business lines and our new business strategy.  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.
  Gross
Profit
  Three MonthsEnded
                      December 31,
                    
                    Gross
                      Profit
                    
                    
                    Change from
                      Prior Year
                    
                    
                    PercentChange
                      from PriorYear2009
                    
                    $
                    1,648,634
                    
                    
                    $
                    (1,760,230
                    )
                    
                    
                    (51.6
                    )%2008
                    
                    $
                    3,408,864
 Gross
profit decreased in the first quarter of fiscal 2010 as compared to the first
quarter 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:
 19
 Table of Contents
  Three Months Ended December 31,2009
                      
                      
                      2008Direct
      Sales -Customer Acquisition Services -Gross
      profit
                      
                      $
                      607,113
                      
                      
                      $
                      290,925Gross
      margin
                      
                      
                      44.3
                      %
                      
                      
                      36.3
                      %Directory
      services -Gross
      profit
                      
                      $
                      1,041,521
                      
                      
                      $
                      3,117,939Gross
      margin
                      
                      
                      94.0
                      %
                      
                      
                      74.1
                      %
  The
increase in gross margin in the customer acquisition services segment represents
the results of economies of scale from the growth in this business as well as
our cost-cutting initiatives.  However, given the infancy of this line
of business, our margins are susceptible to fluctuations and are not necessarily
indicative of future margins.  The increase in gross margin in our
directory services segment reflects a decrease in inquiry fees and bad debt
expense in the first quarter of fiscal 2010.  These expenses can also
fluctuate from period to period and are not necessarily indicative of future
margins.
  General and Administrative
Expenses
  Three Months Ended
                        December 31,
                      
                      General &
                        Administrative
                        Expenses
                      
                      
                      Change from
                        Prior Year
                      
                      
                      Percent Change
                        from Prior Year2009
                      
                      $
                      3,961,890
                      
                      
                      $
                      (297,137
                      )
                      
                      
                      (7.0
                      )%2008
                      
                      $
                      4,259,027
  General
and administrative expenses decreased in the first quarter of fiscal 2010 as
compared to the first quarter of fiscal 2009 primarily due to the
following:
  ·      Decreased
compensation costs of approximately $268,000 primarily attributable to
reductions in our workforce resulting from actions taken in fiscal 2009
including the closure of our Santa Clara office, partially offset by a $70,000
accrual for separation expenses related to changes in management in the first
quarter of fiscal 2010;
  ·      A
decrease of approximately $334,000 of depreciation and amortization expense
primarily attributable to the impairment of intangible assets in the second
quarter of fiscal 2009; and
  ·      Other
miscellaneous expense decreases of $28,000; partially offset by
  ·      Increased
professional fees of approximately $33,000 related to increased legal expenses
incurred in response to certain legal actions brought against us;
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:
  Q1 2010
                    
                    
                    Q4 2009
                    
                    
                    Q3 2009
                    
                    
                    Q2 2009
                    
                    
                    Q1 2009Compensation
      for employees, leased employees, officers and directors
                    
                    $
                    2,241,198
                    
                    
                    $
                    2,054,709
                    
                    
                    $
                    2,392,081
                    
                    
                    $
                    2,311,056
                    
                    
                    $
                    2,508,836Professional
      fees
                    
                    
                    488,993
                    
                    
                    
                    336,273
                    
                    
                    
                    421,700
                    
                    
                    
                    411,564
                    
                    
                    
                    455,832Depreciation
      and amortization
                    
                    
                    225,653
                    
                    
                    
                    211,336
                    
                    
                    
                    186,077
                    
                    
                    
                    560,383
                    
                    
                    
                    559,289Other
      general and administrative costs
                    
                    
                    1,006,046
                    
                    
                    
                    451,300
                    
                    
                    
                    813,124
                    
                    
                    
                    771,352
                    
                    
                    
                    735,070
  20
 Table of Contents
  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.
  Sales and Marketing
Expenses
  Three MonthsEnded
                      December 31,
                    
                    Sales &
                      Marketing
                      Expenses
                    
                    
                    Change from
                      Prior Year
                    
                    
                    PercentChange
                      from PriorYear2009
                    
                    $
                    171,058
                    
                    
                    $
                    (1,401,001
                    )
                    
                    
                    (89.1
                    )%2008
                    
                    $
                    1,572,059
  Sales and
marketing expenses decreased in the first quarter of fiscal 2010 as compared to
the first quarter of fiscal 2009 primarily due to the following:
  ·
              $500,000
      of decreased telemarketing and other customer acquisition costs as we
      began transitioning away from marketing activities geared toward our
      directory services business;
  ·
              $838,000
      of reduced customer acquisition costs associated with fulfillment
      contracts that have been terminated or reduced in scope;
    and
  ·
              $63,000
      of other miscellaneous cost
decreases.
  Operating
Loss
  Three MonthsEnded
                      December 31,
                    
                    Operating
                      Loss
                    
                    
                    Change from
                      Prior Year
                    
                    
                    PercentChange
                      from PriorYear2009
                    
                    $
                    (2,484,314
                    )
                    
                    $
                    (62,092
                    )
                    
                    
                    (2.6
                    )%2008
                    
                    $
                    (2,422,222
                    )
  The
increase in operating loss for the first quarter of fiscal 2010 as compared to
the first quarter of fiscal 2009 is the result of a decrease in gross profit,
partially offset by decreases in operating expenses, each of which is described
above.
  Total
Other Income (Expense)
  Three Months Ended
                      December 31,
                    
                    Total Other Income
                      (Expense)
                    
                    
                    Change from
                      Prior Year
                    
                    
                    Percent Change
                      from Prior Year2009
                    
                    $
                    56,910
                    
                    
                    $
                    (3,762,627
                    )
                    
                    
                    (98.5
                    )%2008
                    
                    $
                    3,819,537
  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 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 2009 and fiscal 2008 consisted primarily of
interest income on cash balances and short-term investments.
  21
 Table of Contents
  Income
Tax Provision (Benefit)
  Three Months Ended
                      December 31,
                    
                    Income Tax
                      Provision (Benefit)
                    
                    
                    Change from
                      Prior Year
                    
                    
                    Percent Change
                      from Prior Year2009
                    
                    $
                    99,975
                    
                    
                    $
                    (352,901
                    )
                    
                    
                    (77.9
                    )%2008
                    
                    $
                    452,876
  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 first quarter of fiscal
2010 reflects a true up to our income tax receivable based on information
received during the preparation of our 2009 tax returns.  The income
tax provision in the first quarter of fiscal 2009 reflects the tax impacts of
our operating income.
  Income
(Loss) from Discontinued Operations
  Three MonthsEnded
                        December 31,
                      
                      Income (Loss) from
                        Discontinued
                        Operations
                      
                      
                      Change from
                        Prior Year
                      
                      
                      PercentChange
                        from PriorYear2009
                      
                      $
                      1,725
                      
                      
                      $
                      58,803
                      
                      
                      
                      103.0
                      %2008
                      
                      $
                      (57,078
                      )
  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 quarter of fiscal 2010
as compared to the first quarter of fiscal 2009 reflects the wind down of this
line of business.
  Net
Income (Loss)
  Three Months Ended
                        December 31,
                      
                      Net Income
                        (Loss)
                      
                      
                      Change from
                        Prior Year
                      
                      
                      Percent Change
                        from Prior Year2009
                      
                      $
                      (2,525,654
                      )
                      
                      $
                      (3,413,015
                      )
                      
                      
                      (384.6
                      )%2008
                      
                      $
                      887,361
  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 $1,285,000 for the first quarter
of fiscal 2010 as compared to approximately $281,000 for the first quarter of
fiscal 2009.  While our net income decreased by $3,413,000 in the
first quarter of fiscal 2010 as compared to the first quarter of fiscal 2009,
the net income for the prior period included a gain on the sale of an Internet
domain name of $3,805,000, which was not included as part of operating cash
flows (rather, it is a component of investing activities).  Other
factors contributing to the change in operating cash flows include a decrease in
non-cash expenses of $709,000 (including depreciation and amortization,
stock-based compensation, deferred income taxes and provisions for uncollectible
accounts) in the first quarter of fiscal 2010 as compared to the first quarter
of fiscal 2009 and changes in working capital and other asset balances which
favorably impacted cash flows by $687,000, including significant accounts
receivable collections and changes in the income tax receivable balance which
occurred in the first quarter of fiscal 2009.  Included in the changes
in working capital was an accrual of $300,000 during the first quarter of fiscal
2010 pertaining to a legal settlement as described in Part II, Item 1 of this
report.  This settlement is expected to be paid in February
2010.
  Our
primary source of cash inflows has historically been net remittances from
directory services customers processed in the form of ACH billings and LEC
billings.  In the first quarter of fiscal 2010, we have been
transitioning away from directory services toward our Direct Sales Services.
While we have experienced significant revenue declines in this business segment,
our accounts receivable have not shrunk commensurately as we have holdback
accounts with our LEC billing service providers that are remitted to us over an
extended period of time – typically between 120 and 180 days. We have
concentrations of receivables with respect to certain wholesale accounts and
remaining holdbacks with LEC service providers.  As of December 31,
2009, two such entities accounted for 26% and 19% of gross accounts receivable,
respectively.
  22
 Table of Contents
  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 effect 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 $171,000 for the first
quarter of fiscal 2010 consisting of equipment and software development
costs.  Net cash provided by investing activities was $3,719,000 for
the first quarter of fiscal 2009 which was attributable to the sale of our
Internet domain name www.yp.com,
which generated cash proceeds of $3,850,000, partially offset by purchases of
equipment and software development costs of $131,000.
  Net cash
used for financing activities was approximately $42,000 during the first quarter
of fiscal 2010 compared to approximately $508,000 during the first quarter of
fiscal 2009, primarily attributable to a reduction in the amount of treasury
stock repurchases.  The timing of stock repurchases is influenced by
market forces and our cash needs and requirements.
  We had
working capital of $6,913,000 as of December 31, 2009 compared to $9,251,000 as
of September 30, 2009 with current assets decreasing by $1,922,000 and current
liabilities increasing by $416,000 from September 30, 2009 to December 31,
2009.  Declines in working capital are primarily attributable to our
operating net loss.
  The
following table summarizes our contractual obligations at December 31, 2009 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
                    
                    $
                    1,230,514
                    
                    
                    $
                    411,938
                    
                    
                    $
                    424,525
                    
                    
                    $
                    315,331
                    
                    
                    $
                    78,720
                    
                    
                    $
                    -
                    
                    
                    $
                    -Capital
      lease commitments
                    
                    
                    198,644
                    
                    
                    
                    76,876
                    
                    
                    
                    76,876
                    
                    
                    
                    44,892
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Noncanceleable
      service contracts
                    
                    
                    958,591
                    
                    
                    
                    576,480
                    
                    
                    
                    361,111
                    
                    
                    
                    21,000
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -$
                    2,387,749
                    
                    
                    $
                    1,065,294
                    
                    
                    $
                    862,512
                    
                    
                    $
                    381,223
                    
                    
                    $
                    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. While we
still continue to maintain our existing business lines, we are simultaneously
exploring other strategic initiatives.
  At
December 31, 2009, we had no other off-balance sheet arrangements, commitments
or guarantees that require additional disclosure or
measurement.
  23
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  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.
  24
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  PART
II – OTHER INFORMATION
  ITEM 1.  LEGAL PROCEEDINGS
  Except as
described below, as of December 31, 2009, 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.
 
 State
of Washington v. LiveDeal, Inc. et al.
 
 On
December 16, 2006, the State of Washington Attorney General’s office entered
into a Consent Decree with LiveDeal, Inc. (known at the time as YP Corp.) and
its subsidiary, Telco Billing, Inc.  Pursuant to the Consent Decree,
the Company agreed to provide certain confidential, trade secret information to
the Attorney General’s office as part of the settlement of a regulatory dispute
between the State of Washington and the Company.
 
 On July
14, 2009, the Attorney General’s office contacted the Company to request certain
confidential, trade secret information to which it was entitled under the
Consent Decree.  The Company acknowledged its obligation to provide
the requested information but asked the Attorney General’s office to verify that
it would not provide such information to third parties.  When the
Company was informed by opposing legal counsel in a private litigation matter
that the Attorney General’s office intended to provide its confidential, trade
secret information to such counsel’s client and other third parties immediately
upon receipt, the Company began taking certain steps to protect the sensitive
information while complying with its obligations under the Consent
Decree.
 
 Following
unsuccessful settlement discussions in which the Attorney General’s office
refused to enter into any agreement not to share the confidential information
with third parties (including the Company’s opponents in pending private
litigation), the Company sought a protective order in the State of Washington’s
King County Superior Court (Case No. 06-2-39213-2 SEA) on September 8, 2009,
which was denied on November 16, 2009.  The Company is appealing that
decision with the State of Washington’s Court of Appeals (Division I, Case No.
64539-1) and has filed a motion to stay the effect of the November 16, 2009
ruling.  The appeal is pending.
 
 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 parties have filed
dispositive motions and anticipate a ruling on such motions in early
2010.
 
 25
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  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 and discovery
began in April 2009.
 
 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 alleging breach of
contract on May 29, 2009, and OSM and SME counterclaimed, also alleging breach
of contract.  The lawsuit (CV 09-976-PHX-DGC) was pending in the
United States District Court for the District of Arizona as of December 31,
2009, at which time LiveDeal had accrued a $300,000 reserve in connection with
an anticipated settlement.
  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.
  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 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.  This reduction 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
 
 Period
                          
                          (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(1)
                          
                          
                          (d) Maximum Number
                            (or Approximate Dollar Value) of Shares
                            (or Units) that May Yet Be Purchased
                            Under the Plans or ProgramsOctober
      1-31, 2009
                          
                          
                          700
                          
                          
                          $
                          1.60
                          
                          
                          
                          700November
      1-30, 2009
                          
                          
                          8,587
                          
                          
                          $
                          2.00
                          
                          
                          
                          8,587December
      1-31, 2009
                          
                          
                          3,023
                          
                          
                          $
                          1.79
                          
                          
                          
                          3,023Total
                          
                          
                          12,310
                          
                          
                          
                          
                          
                          
                          
                          12,310
                          
                          
                          $
                          430,427
  (1) In June
2009, the Company’s Board of Directors engaged a broker to make purchases
pursuant to a $500,000 stock repurchase plan previously authorized by the
Board.
  ITEM 6. EXHIBITS
  The
following exhibits are either attached hereto or incorporated herein by
reference as indicated:
 
 Exhibit
                  Number
                
                Description31
                
                Certifications
      pursuant to Section 302 of the Sarbanes-Oxley Act of
  200232
                
                Section
      1350 Certifications
  26
 Table of Contents
  SIGNATURES
  Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
  LiveDeal,
      Inc.Dated:  February
      12, 2010
                      /s/ Lawrence W. TomsicLawrence
      W. TomsicChief
      Financial
Officer
  27