##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, D.C.
    20549
    Form 10-K
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the Fiscal Year Ended
    December 31, 2007ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
    from            to   Commission file number
    000-26657
  LIVEWORLD,
    INC.
 (Exact name of registrant as
    specified in its charter)
  Delaware

77-0426524(State or other jurisdiction
    of
    incorporation or organization)

(I.R.S. Employer
    Identification No.)4340 Stevens Creek Blvd. Suite 101
    San Jose, California

95129(Zip Code)(Address of principal executive
    offices)   (408) 871-5200 (Issuers
    telephone number)
  Securities
    registered pursuant to Section 12(b) of the Act:
  Title of Each Class

Name of Each Exchange on Which RegisteredNone

None   Securities
    registered pursuant to Section 12(g) of the
    Act:
  (Title of Class)
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
  Large accelerated
    filer o

Accelerated
    filer o

Non-accelerated
    filer o
    (Do not check if a smaller reporting company)

Smaller reporting company þ   Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE
  Form 10-K.




---



##### 





LIVEWORLD,
    INC.
  TABLE OF
    CONTENTS
   
 PagePART IItem 1.


Business.


1Item 1A.


Risk Factors.


6Item 1B.


Unresolved Staff Comments.


12Item 2.


Properties.


12Item 3.


Legal Proceedings.


12Item 4.


Submission of Matters to a Vote of Security
    Holders.


12PART IIItem 5.


Market for Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities.


12Item 6.


Selected Financial Data.


13Item 7.


Managements Discussion and Analysis of
    Financial Condition and Results of Operation.


13Item 7A.


Quantitative and Qualitative Disclosures About
    Market Risk.


20Item 8.


Financial Statements and Supplementary
    Data.


21Item 9.


Changes in and Disagreements With Accountants on
    Accounting and Financial Disclosure.


40Item 9A.


Controls and Procedures.


40Item 9B.


Other Information.


40PART IIIItem 10.


Directors, Executive Officers and Corporate
    Governance.


40Item 11.


Executive Compensation.


40Item 12.


Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters.


41Item 13.


Certain Relationships and Related Transactions,
    and Director Independence.


41Item 14.


Principal Accountant Fees and Services.


41PART IVItem 15.


Exhibits and Financial Statement
    Schedules.


41EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1




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##### Table of Contents



PART I  Item 1.
    Business.  Forward-looking
    Statements
  Form 10-K Form 10-K.
  Overview
        Professional Services: set-up
  Application Hosting:
  
    LiveWorld Community Center, which is an integrated social
    network/online community that includes:  
    Expressive profiles   allow community members
    to create user profile pages to describe themselves and share
    information about themselves. Such information can include a
    screen name, list of interests, photos, an icon or avatar.
    Profiles can additionally include blogs, photo albums, guest 1




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##### Table of Contents



books, favorites lists, and a list of friends in the community
    (displaying their screen names and photo), with connection links
    to friends profiles.  
    Blogs allow users to write and display essays
    in journal or diary format, and optionally to permit other users
    to post comments on the essays. Blogs also feature the ability
    to link to other blogs and web sites.
    User videos  allow users to upload, display,
    comment on and share videos.
    Message forums  allow users to post comments
    to a web page, followed by other posts from the same
    and/or other
    users.
    Polls allow a content provider
    and/or
    members of an Internet community to publish a simple poll or
    survey, giving users the opportunity to answer the published
    questions and providing the poll results.
    Community galleries  features user content and
    community calendars for organizing and displaying online and
    offline events of interest to the community.  
    Other application hosting services provided by LiveWorld include:  
    Blogs (on a standalone basis)  allow users to
    write and display essays in journal or diary format, and
    optionally to permit other users to post comments on the essays.
    Blogs are also characterized by the ability to link to other
    blogs and web sites.
    User videos (on a standalone basis)  allow
    users to upload, display, comment on and share videos.
    Message forums (on a standalone basis)  allow
    users to post comments to a web page, followed by other posts
    from the same
    and/or other
    users.
    Groups  allow community members to create
    their own sub-communities, usually with message forum, email
    list, photo album and other such applications specific to that
    sub-community.
    Chats  allows users to text chat with each
    other in real time.
    Live events (interactive webcasts)  allow
    broadcasting of interviews or presentations in real time to
    attending users, each of whom can submit questions to the
    presenter and participate in polls.  Community Management Services:
  Moderation Services:
  Reporting Services:
     2




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##### Table of Contents



(408) 871-5200. http://www.liveworld.com. Form 10-K. Form 10-K,
  Our
    Clients
    A&E Television Networks


AOL (UK) Limited


AOL LLC


BBC Worldwide Limited


BEA Systems, Inc.The Campbell Soup
    Company


Coca Cola Company


Digitas


eBay, Inc.


Expedia, Inc.Home Box Office, Inc.


Hearst
    Communications, Inc.


Hillary Clinton for
    President
    Campaign


Hotels.com, L.P.


HSBC Bank PLCKraft Foods Global, Inc.


Marriot
    International, Inc.


Mattel, Inc.


MindShare


MINIMTV Networks, Latin
    America, Inc.


LeapFrog
    Enterprises, Inc.


Nuetrogena, Corporation


NBA Properties, Inc.


QVC, Inc.Scientific American, Inc.


Sony Ericsson Mobile
    Communications AB


The TJX Companies,
    Inc.


TV Guide Online, Inc.


Verizon Wireless, Inc.       (Coca-Cola),
   3




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##### Table of Contents



Competition
      
    A positive user experience, an effective and lasting brand
    impression, and the ability to create and manage the
    communitys culture such that it maps to and from the
    clients brand;
    A solutions approach and quality of client service with a
    return-on-investment
    focus;
    Brand recognition with corporate clients;
    User affinity and loyalty;
    A full range of value-added service including moderation,
    reporting, design and customization, as well as application
    hosting;
    Global and local capabilities;
    Quality, reliability and scalability of the systems; and
    Functionality, technology and system infrastructure.      
    Our position as a full solution social network marketing agency
    rather than the more narrow focus of being only an application
    service provider or only a moderation services provider;
    Fully integrated solutions in which the components interoperate
    and the overall community is integrated with the clients
    system;
    Structured community environments that engage and build loyalty
    with our clients constituencies;
    Large scale infrastructure, and proprietary technology including
    applications, moderation tools and reporting tools;
    Leadership in the moderation space and community management
    space;
    Global capabilities with years of experience providing solutions
    in dozens of countries and languages;
    Marquee list of current clients including some of the
    worlds leading brands; and
    Sales and marketing relationships, including our joint venture
    with WPP.    Intellectual
    Property, Proprietary Rights And Domain Names
   4




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##### Table of Contents



Backlog
    Executive
    Officers of the Registrant
    Name

Age

PositionPeter H. Friedman


52


Chairman of the Board and Chief Executive OfficerDavid S. Houston


37


Senior Vice President and Chief Financial OfficerJenna Woodul


59


Executive Vice President and Chief Community OfficerChris N. Christensen


47


Executive Vice President of Engineering and Operations   Peter H. Friedman
  David S. Houston
  Jenna Woodul
  Chris N. Christensen
 5




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##### Table of Contents



e-mail
  Employees
      Item 1A.
    Risk
    Factors.  You should carefully consider the risk factors discussed
    below as well as other information contained in this
    Form 10-K.
    The risks discussed below, together with all of the other
    information in this
    Form 10-K,
    including the consolidated financial statements and the related
    notes appearing herein, any of which could materially affect our
    business, financial conditions or results of operations.
    Additional risks and uncertainties not currently known to us or
    that we deem to be immaterial could also materially and
    adversely affect our business, financial condition and results
    of operations.
  Fluctuations
    in quarterly operating results may cause our stock price to
    decline.
    
    Our dependence on increased online community services revenues;
    Fluctuation of our revenues, especially with our largest clients;
    General economic conditions;
    The length of our sales cycle;
    Our ability to increase our base of clients;
    Our management of any growth;
    Potential technical difficulties or system down time affecting
    the Internet generally or our company specifically; and
    The success of our strategy to invest in growth, product
    development and sales and marketing efforts.    Historically
    our revenues have been highly concentrated in two clients. Our
    revenues will continue to be highly concentrated with one client
    the loss of part or all this business could severely
    damage our company.
   6




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##### Table of Contents



The
    market in which we compete is highly competitive, and if we are
    unable to compete effectively, our business will not
    succeed.
      We may
    need to raise capital in the future, and we may not be able to
    do so on attractive terms, or at all.
    
    Fund ongoing operations including adding personnel and equipment;
    Increase our client base;
    Increase our sales activities; and/or
    Adequately inform the market about our services positioning and
    new products.    Our
    sales cycle varies and at times is difficult to predict, which
    may result in greater variation in quarterly results than would
    otherwise prevail.
    
    Client budgetary constraints; 7




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
    Client internal acceptance reviews;
    The success and continued internal support of clients own
    development efforts; and
    The possibility of cancellation or delay of projects by business
    clients.    We are
    highly dependent upon the services of our key personnel, and if
    we were unable to timely replace any key employee, our business
    would be severely harmed.
    Private
    label online social network and community services are
    relatively new and our future success is dependent upon the
    growth of this market.
    Our
    success will be limited if we are unable to attract, retain and
    motivate highly skilled personnel.
   8




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##### Table of Contents



and/or
  We are
    parties to a joint venture agreement that may result in warrants
    to acquire a substantial portion of our capital stock being
    issued, which would dilute our existing investors.
    Peter
    Friedman is currently our sole director, and if he were to be
    unable or unwilling to continue in these roles, we would need to
    find a replacement, which could be difficult, costly and
    distracting to our business.
    A
    significant portion of our capital stock or rights to acquire
    capital stock are held by a small group of people and entities
    whose interests may be different than other
    investors.
   9




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##### Table of Contents



We may
    make strategic acquisitions or investments, which involves
    numerous risks, including the risk that we might pay too much
    for an acquisition or investment, that any transaction could
    distract management and that the failure to successfully
    integrate an acquired business may harm our business and cause
    our stock price to decline.
    We may
    cease to be a public reporting company, which could limit the
    information that is publicly available about us and further
    reduce the liquidity of our common stock.
    Any
    system failure or slow down could significantly harm our
    reputation and damage our business.
    We
    depend on third-party software to deliver specified aspects of
    our services.
   10




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##### Table of Contents



If our
    business becomes more highly regulated, we may not be able to
    pursue our business model and our business could be substantial
    harmed.
    
    User privacy and expression;
    The rights and safety of children;
    Information security;
    The convergence of traditional channels with Internet
    commerce; and
    Taxation and pricing.    We may
    be exposed to liability for publishing or distributing content
    over the Internet.
    The
    disclosure or misuse of data we collect could harm our
    business.
      We may
    be subject to litigation over intellectual property rights, and
    any such litigation could be costly, involve significant
    distraction of management, and have an uncertain
    outcome.
   11




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##### Table of Contents



Item 1B.
    Unresolved
    Staff Comments.    Item 2.
    Properties.    Item 3.
    Legal
    Proceedings.  Form 10-K.
  Item 4.
    Submission
    of Matters to a Vote of Security Holders.   PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities.      High


LowFiscal year ended December 31, 2006:First Quarter

$
0.60


$
0.37Second Quarter

$
0.48


$
0.35Third Quarter

$
0.60


$
0.41Fourth Quarter

$
0.60


$
0.48   High


LowFiscal year ended December 31, 2007:First Quarter

$
0.65


$
0.48Second Quarter

$
0.66


$
0.53Third Quarter

$
0.65


$
0.37Fourth Quarter

$
0.55


$
0.28  12




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##### Table of Contents



Holders
    of Our Common Stock
    Dividends
    Item 6.
    Selected
    Financial Data.    Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operation.  Special
    Note Regarding Forward-Looking Statements
  The following discussion and analysis should be read in
    conjunction with our consolidated financial statements and the
    notes to those statements included elsewhere in this
    Form 10-K.
    This discussion contains forward-looking statements reflecting
    our current expectations that involve risks and uncertainties.
    Actual results may differ materially from those discussed in
    these forward-looking statements due to a number of factors,
    including those set forth in the section entitled Risk
    Factors and elsewhere in this
    Form 10-K.
  Overview
    Professional Services: set-up
  Application Hosting:
  
    The LiveWorld Community Center, which is an integrated social
    network/online community that includes expressive profiles (user
    name, photo, interests, blog, user video, photo albums,
    guestbooks and friends lists), message forums, polls, community
    galleries, and community calendars.
    Standalone services such as blogs, user videos, message forums,
    groups, chats and live events (interactive webcasts).  Community Management Services:
  Moderation Services:
 13




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##### Table of Contents



Reporting Services:
        Total
    Revenues
  set-up
  set-up Set-up set-up
    Cost of
    Revenues
  set-up set-up set-up,
 14




---



##### Table of Contents



Operating
    Expenses
  Product Development.
  Sales and Marketing.
  General and Administrative.
  Stock Based Compensation.
  Critical
    Accounting Policies and Estimates
        Stock-Based Compensation.
   15




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##### Table of Contents



Revenue Recognition.
  
    persuasive evidence of an arrangement exists;
    the fees are fixed or determinable;  
    no obligations remain; and
    collection of the related receivable is reasonably assured.  Results
    From Operations
    LIVEWORLD,
    INC.
  STATEMENT OF OPERATIONS
  December 31,2005


2006


2007Total revenues


100.0
%


100.0
%


100.0
%Cost of revenues


43.2
%


40.1
%


40.2
%Gross Margin


56.8
%


59.9
%


59.8
%Operating ExpenseProduct development


14.2
%


17.8
%


25.8
%Sales and marketing


15.2
%


18.8
%


22.7
%General and administrative


17.5
%


26.1
%


30.3
%Stock based compensation


5.3
%


1.1
%


2.7
%Total operating expense


52.2
%


63.8
%


81.5
%Income (loss) from operations


4.6
%


(3.9
)%


(21.7
)%Other income (expense)Interest Income, net


0.5
%


1.4
%


1.5
%Loss on sale of assets


(0.6
)%



%



%Settlement income, net


2.1
%


0.7
%



%Income (loss) before tax


6.6
%


(1.8
)%


(20.2
)%  16




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##### Table of Contents



Fiscal
    Years Ended December 31, 2005, 2006 and 2007
  Total
    Revenues
            Cost of
    Revenues
      Operating
    Expenses
  Product Development.
 17




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##### Table of Contents



Sales and Marketing.
      General and Administrative.
      Stock Based Compensation.
     18




---



##### Table of Contents



Financial
    Condition, Liquidity and Capital Resources
           19




---



##### Table of Contents



Payment Due by Period< 1


1-3


3-5


> than 5Total


Year


Years


Years


YearsContractual ObligationsOperating lease obligations

$
506


$
177


$
329


$



$
Capital lease obligations

$
278



117



161







Total

$
784


$
294


$
490


$



$
       Off-Balance
    Sheet Arrangements
    Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk.   20




---



##### 



Item 8.
    Financial
    Statements and Supplementary Data.  LIVEWORLD,
    INC.
  INDEX TO
    FINANCIAL STATEMENTS
   
 PageFinancial Statements for the Years Ended December 31,
    2005, 2006, 2007Report of Independent Registered Public
    Accounting Firm


22Balance Sheets


23Statements of Operations


24Statements of Stockholders Equity


25Statements of Cash Flows


26Notes to Financial Statements


27   21




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  Board of
    Directors and Stockholders 
    LiveWorld, Inc.
          Stonefield
    Josephson, Inc.
    22




---



##### Table of Contents



LIVEWORLD
    INC.
  BALANCE
    SHEETS
 (In thousands, except per share data)
  December 31,2006


2007ASSETSCurrent assetsCash and cash equivalents

$
3,217


$
2,020Accounts receivable, net


1,222



1,394Accrued development and set up fees


72



Prepaid expenses


47



82Other current assets


13



8Total current assets


4,571



3,504Property and equipment, net


1,110



908Investment in joint venture


977



817Other assets


4



5Total assets

$
6,662


$
5,234LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable

$
343


$
555Accrued salaries and wages


91



38Accrued vacation


278



413Due to officer


34



4Accrued liabilities


73



135Current portion of capital lease obligations


53



100Deferred revenue


527



727Total current liabilities


1,399



1,972Long-term capital lease obligation


121



150Total liabilities


1,520



2,122Stockholders equityCommon stock: $0.001 par value, 100,000,000 shares
    authorized 30,682,811 and 30,862,811 issued and outstanding at
    December 31, 2006 and 2007, respectively


31



31Additional paid-in capital


139,589



139,932Accumulated deficit


(134,478
)


(136,851
)Total stockholders equity


5,142



3,112Total liabilities and stockholders equity

$
6,662


$
5,234    23




---



##### Table of Contents



LIVEWORLD,
    INC.
  STATEMENTS
    OF OPERATIONS
 (In
    thousands, except per share data)
  December 31,2005


2006


2007Total revenues

$
9,635


$
9,834


$
10,863Cost of revenues


4,163



3,942



4,368Gross Margin


5,472



5,892



6,495Operating ExpenseProduct development


1,362



1,750



2,804Sales and marketing


1,465



1,847



2,463General and administrative


1,685



2,568



3,296Stock based compensation


513



110



293Total operating expense


5,025



6,275



8,856Income (loss) from operations


447



(383
)


(2,361
)Other income (expense)Interest income, net


46



138



162Loss on sale of assets


(62
)






Settlement income, net


203



67



Income (loss) before tax


634



(178
)


(2,199
)Provision for income taxes


(10
)


(51
)


(14
)Equity in net loss of unconsolidated affiliate






(34
)


(160
)Net income (loss)

$
624


$
(263
)

$
(2,373
)Basic net income (loss) per share

$
0.02


$
(0.01
)

$
(0.08
)Shares used in computing basic income (loss) per share


26,554,861



27,916,238



30,785,005Diluted net income (loss) per share

$
0.01


$
(0.01
)

$
(0.08
)Shares used in computing diluted income (loss) per share


42,583,606



27,916,238



30,785,005Departmental allocation of stock-based compensation:Product development

$
172


$
50


$
143Sales and marketing


175



25



60General and administrative


166



35



90Total stock-based compensation

$
513


$
110


$
293    24




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##### Table of Contents



LIVEWORLD,
    INC.STATEMENTS OF STOCKHOLDERS EQUITY
    FOR THE YEARS ENDED DECEMBER 31, 2005, 2006, and 2007
    (In thousands, expect share data)
  NoteAdditional





ReceivableCommon Stock





Paid-in


Accumulated


from


StockholdersShare


Amount


Capital


Deficit


Shareholder


EquityBalance December 31, 2004


26,551,222


$
27


$
136,237


$
(134,839
)

$
(93
)

$
1,332Common stock options exercised


265,667



0



3











3Stock-based compensation










513











513Net income














624







624Payment on note receivable


















6



6Balance December 31, 2005


26,816,889



27



136,753



(134,215
)


(87
)


2,478Common stock options exercised


380,050



0



71











71Issuance of common stock for cash


3,866,471



4



2,098











2,102Treasury stock


(380,599
)


(0
)


(204
)










(204
)Warrants










761











761Stock-based compensation










110











110Net loss














(263
)






(263
)Payment on note receivable


















87



87Balance December 31, 2006


30,682,811



31



139,589



(134,478
)






5,142Common stock options exercised


180,000



0



50











50Stock-based compensation










293











293Net loss














(2,373
)






(2,373
)Balance December 31, 2007


30,862,811


$
31


$
139,932


$
(136,851
)

$



$
3,112    25




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##### Table of Contents



LIVEWORLD,
    INC.STATEMENTS OF CASH FLOWS
    FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 and 2007
    (In thousands)
  2005


2006


2007Cash flows from operating activities:Net income (loss)

$
624


$
(263
)

$
(2,373
)Adjustments to reconcile net income (loss) provided by (used in)
    operating activities:Depreciation of long-lived assets


238



495



619Stock-based compensation


513



110



293Loss on sale of assets


62







Equity in net loss of unconsolidated affiliate






34



160Changes in operating assets and liabilities:Accounts receivable


(228
)


(405
)


(172
)Accrued development and setup fees






(72
)


72Other assets


(72
)


81



(31
)Accounts payable


(190
)


282



212Accrued liabilities


195



94



114Deferred revenue


(47
)


285



200Net cash provided by (used in) operating activities


1,095



641



(906
)Cash flows from investing activities:Purchase of property and equipment


(750
)


(656
)


(417
)Investment in joint venture






(250
)


Proceeds from repayment of note receivable from stockholder


6



87



Proceeds from sale of property


62







Net cash used in investing activities


(682
)


(819
)


(417
)Cash flows from financing activities:Increase in obligation under capital lease










134Payments on capital lease obligation










(58
)Proceeds from exercise of stock options


3



71



50Proceeds from issuance of common stock






2,102



Repurchase of common stock






(204
)


Net cash provided by financing activities


3



1,969



126Change in cash and cash equivalents


416



1,791



(1,197
)Cash and cash equivalents, beginning of period


1,010



1,426



3,217Cash and cash equivalents, end of period

$
1,426


$
3,217


$
2,020Supplemental disclosure of non-cash financing and investing
    activities:Acquisition of equipment under capital leases

$



$
174


$
111Warrants issued in connection to the investment in the L.L.C

$



$
761


$
Supplemental disclosure of non-cash financing and investing
    activities:Income tax paid

$
11


$
54


$
13Interest expense paid

$



$



$
15    26




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##### Table of Contents



LIVEWORLD,
    INC.
  NOTES TO
    FINANCIAL STATEMENTS
 FOR THE FISCAL YEARS ENDED 2005, 2006, and 2007
  1.
    ORGANIZATION      2.
    SUMMARY
    OF SIGNIFICANT ACCOUNTING POLICIES  Revenues
  set-up, No. 00-21, (EITF 00-21). EITF 00-21 set-up set-up
  set-up
  Cost of Revenues  set-up set-up set-up,
  Cash and cash equivalents 
  Accounts Receivable 
 27




---



##### Table of Contents



LIVEWORLD,
    INC.
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
  Accrued Liabilities 
  Deferred Revenue  set-up set-up
  Property and Equipment 
  Investment in Joint Venture  FIN 46-R
  Income Taxes 
  Fair Value of Financial Instruments 
  Product Development 
  Sales and Marketing 
  General and Administrative 
  Earnings Per Share 
 28




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##### Table of Contents



LIVEWORLD,
    INC.
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
      Year Ended December 31,2005


2006


2007(In thousands, except per share data)Numerator:Net income (loss) attributable to common stockholders

$
624


$
(263
)

$
(2,373
)Denominator:Weighted-average shares used to compute basic EPS


26,554



27,916



30,785Effect of dilutive securities:Diluted common shares


16,029







Weighted-average shares used to compute diluted EPS


42,583



27,916



30,785Net income (loss) per share:Basic

$
0.02


$
(0.01
)

$
(0.08
)Diluted

$
0.01


$
(0.01
)

$
(0.08
)     Concentrations of Credit Risk 
      Comprehensive Income or Loss 
  Allowances for Doubtful Accounts 
 29




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##### Table of Contents



LIVEWORLD,
    INC.
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
    Use of Estimates 
  Segment Reporting 
  Recently Issued Accounting Standards 
         30




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##### Table of Contents



LIVEWORLD,
    INC.
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
  3.
    STOCK-BASED
    COMPENSATION    Determining
    Fair Value
  Valuation Method
  Expected Term
  Expected Volatility 
  Risk-Free Interest Rate
  Expected Dividend
  Estimated Forfeitures 
      StockOptionsDividend yield

0%Expected volatility

100%Risk-free interest rate

4.17%Estimated term

4 YearsForfeiture rate

13%  31




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##### Table of Contents



LIVEWORLD,
    INC.
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
    2007Options Outstanding


Options ExercisableWeighted Average


Weighted AverageRemainingNumber


Exercise


Contractual


Number


ExerciseRange of Exercise Price

of Shares


Price


Term (Years)


of Shares


Price$0.010 - $0.017


6,931,040


$
0.01



4.3



6,931,040


$
0.01$0.020 - $0.034


3,367,250


$
0.03



3.8



3,367,250


$
0.03$0.055 - $0.171


6,793,124


$
0.10



6.3



6,793,124


$
0.10$0.231 - $0.480


3,435,175


$
0.39



8.3



1,864,522


$
0.65$0.510 - $9.000


1,162,688


$
0.55



8.9



301,588


$
0.5821,689,277


$
0.12



5.7



19,257,524


$
0.09   1 36
    WeightedWeighted


AverageShares


Number


Average


Remaining


AggregateAvailable


of


Exercise


Contractual


Intrinsicfor Grant


Shares


Price


Term in Years


ValueOptions Outstanding as of December 31, 2006






21,576,777


$
0.12Options available under 2007 stock plan


10,696,768Granted


(742,500
)


742,500


$
0.50Forfeited


275,000



(450,000
)

$
0.27Exercised






(180,000
)

$
0.23Balance outstanding as of December 31, 2007


10,229,268



21,689,277


$
0.12



5.7


$
4,808,147    32




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##### Table of Contents



LIVEWORLD,
    INC.
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
      WeightedAverageNumber


Grant DateNon-Vested Shares

of Shares


Fair ValueNon-vested at January 1, 2007


3,175,000


$
0.43Granted


742,500


$
0.50Vested


(1,247,830
)

$
0.43Forfeited


(237,917
)

$
0.44Non-vested at December 31, 2007


2,431,753


$
0.45   4.
    PROPERTY
    AND EQUIPMENT    Year Ended December 31,2005


2006


2007($ in thousands)Computer Equipment

$
1,404


$
1,978


$
2,198Software


1,017



1,034



1,119Furniture and fixtures


13



22



24Leased equipment






174



285Accumulated depreciation


(1,659
)


(2,098
)


(2,718
)Property, furniture and equipment, net

$
775


$
1,110


$
908     5.
    CAPITAL
    LEASE AGREEMENT  Master Lease Agreement 
 33




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##### Table of Contents



LIVEWORLD,
    INC.
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
    CapitalLeaseYear Ending December 31,

Obligations2008

$
1172009


1172010


44Total minimum lease payments


278Less amounts representing interest


(28
)Present value of capital lease obligations


250Less current portion


(100
)Long-term maturities

$
150   6.
    EQUITY
    INVESTMENT  and/or
  FIN 46-R.
    Assets:Cash

$
184,125Accounts receivable


118,451Fixed assets, net


1,613Total assets

$
304,189LiabilitiesAccounts payable


543Accrued liabilities


51,326Total liabilities

$
51,869Total Equity


252,32050% share of Equity

$
126,160Results of operations:Revenues

$
181,063Operating expenses


393,717Net loss from operations

$
(212,654
)Net investment loss for LiveWorld-WPP, pre-consolidating
    adjustments

$
(106,327
)  34




---



##### Table of Contents



LIVEWORLD,
    INC.
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
  7.
    STOCKHOLDERS
    EQUITY  Common Stock
    Warrants and/or
        8.
    RETIREMENT
    PLAN   35




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##### Table of Contents



LIVEWORLD,
    INC.
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
  9.
    INCOME
    TAXES    Years EndedDecember 31,2005


2006


2007Current:Federal

$



$
6


$
State


(10
)


45



14Foreign










Total current


(10
)


51



14DeferredFederal

$



$



$
State










Foreign










Total

$
10


$
51


$
14     Year EndedDecember 31,2005


2006


2007Provision at statutory rate


34
%


34
%


34
%State taxes, net of federal benefit


2



(5
)


(1
)Net operating loss not used










(32
)Permanent differences


24



(32
)


(5
)Change in valuation allowance


(99
)


3



2Tax benefit of NOL carry-forward


36







Other


5



(5
)


1Net tax provision


2
%


(5
)%


(1
)%    36




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##### Table of Contents



LIVEWORLD,
    INC.
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
    Year Ended December 31,2005


2006


2007($ in thousands)Deferred tax assets:Net operating loss carry-forwards

$
49,955


$
50,053


$
R&D credit carry-forward


714



714



Depreciation


116



15



(48
)Accruals


76



111



11150,861



50,893



63Less: valuation allowance


(50,861
)


(50,893
)


(63
)Net deferred tax asset

$



$



$
         Balance at January 1, 2007

$
0Additions based on tax positions related to the current year


0Reductions for tax positions taken in prior years


0Balance at December 31, 2007

$
0   10.
    CERTAIN
    RELATIONSHIPS AND RELATED PARTY TRANSACTIONS   37




---



##### Table of Contents



LIVEWORLD,
    INC.
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
  11.
    COMMITMENTS
    AND CONTINGENCIES  Leases 
  Year Ending December 31,

Operating Leases($ in thousands)2008

$
1772009


1882010


141Total minimum operating lease payments

$
506     Master Equipment Lease Agreement 
  Contingencies 
  Service Level Agreements
  12.
    SETTLEMENT
    AGREEMENT  Settlement with Sparks Networks 
  Settlement of the Talk City estate
 38




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##### Table of Contents



LIVEWORLD,
    INC.
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
    13.
    SUBSEQUENT
    EVENTS.  Line of Credit 
 39




---



##### Table of Contents



Item 9.
    Changes
    in and Disagreements With Accountants on Accounting and
    Financial Disclosure.    Item 9A.
    Controls
    and Procedures.  Form 10-K
  Evaluation
    of Disclosure Controls and Procedures
  Rules 13a-15(e) 15d-15(e)
    Changes
    in Internal Control Over Financial Reporting
    Item 9B.
    Other
    Information.   PART III  Form 10-K
  Item 10.
    Directors,
    Executive Officers and Corporate Governance.  Form 10-K.
    Item 11.
    Executive
    Compensation.   40




---



##### Table of Contents



Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters.    Equity
    Compensation Plan Information
    Number ofSecurities to be





Number ofIssued Upon


Weighted-Average


SecuritiesExercise of


Exercise Price of


Remaining AvailableOutstanding


Outstanding


for Future IssuanceOptions,


Options, Warrants


Under EquityPlan Category

and Rights


and Rights


Compensation PlansEquity compensation plans approved by security holders


21,689,277
(1)

$
0.12



10,479,268
(2)Equity compensation plans not approved by security holders


0


$
0.00



0Total


21,689,277


$
0.12



10,479,268     (1)
    
    Represent outstanding shares under the 1996 Stock Option Plan
    and the 2007 Stock Option Plan. No further stock options can be
    granted under the 1996 Stock Option Plan, which expired in 2006.(2)
    
    Represents 250,000 shares available for issuance under the
    Director Stock Plan and 10,229,268 shares available for
    issuance under the 2007 Stock Option Plan.  Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence.    Item 14.
    Principal
    Accountant Fees and Services   PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules.  1.
    Financial Statements: The financial statements are set forth
    under Part II, Item 8 of this annual report on
    Form 10-K.2.
    Financial Statement Schedules have been omitted since they are
    either not required, not applicable, or the information is
    otherwise included.3.
    Exhibits.  ExhibitNumber

Description3
.1(1)

Restated Certificate of Incorporation of LiveWorld.3
.2(1)

Amended and Restated Bylaws of LiveWorld.4
.1(1)

Form of Warrant entered into by and between LiveWorld and J.
    Walter Thompson U.S.A., Inc.4
.2(1)

Warrant Purchase Agreement, dated July 7, 2006, by and
    between LiveWorld and J. Walter Thompson U.S.A., Inc.4
.3(1)

Voting and Covenant Agreement, dated July 7, 2006, by and
    between LiveWorld and J. Walter Thompson U.S.A., Inc. 41




---



##### Table of Contents



ExhibitNumber

Description4
.4(1)

Amendment No. 1 to Voting and Covenant Agreement, dated
    September 11, 2006, by and between LiveWorld and J. Walter
    Thompson U.S.A., Inc.4
.5(1)

Purchase Agreement, dated September 11, 2006, by and
    between LiveWorld and the individuals and entities listed
    therein.4
.6(1)

Investors Rights Agreement, dated September 11, 2006,
    by and between LiveWorld and the individuals and entities listed
    therein.4
.7(1)

Amendment No. 1 to Investors Rights Agreement, dated
    December 22, 2006 by and between LiveWorld and J. Walter
    Thompson U.S.A., Inc.4
.8(1)

Form of Common Stock Certificate.4
.9(1)

Purchase Agreement, dated December 22, 2006, by and between
    LiveWorld and J. Walter Thompson U.S.A., Inc.10
.1(1)

Form of Indemnification Agreement entered into by LiveWorld with
    each of its directors and executive officers.10
.2(2)

1996 Stock Option Plan and related agreements.10
.3(2)

1999 Director Option Plan.10
.4(1)

Office Lease Agreement, dated June 9, 2006, by and between
    LiveWorld and JZM LLC.10
.5(1)

Office Lease Agreement, dated July 1, 2004, by and between
    LiveWorld and Carlyle Market Post Tower MMR, LLC.10
.6(1)

Agreement for Consulting Services, dated May 12, 2003, by
    and between LiveWorld and America Online, Inc.10
.6.1(1)

Schedule No. 9, dated December 7, 2004, to
    Agreement for Consulting Services, dated May 12, 2003, by
    and between LiveWorld and America Online, Inc.10
.6.2(1)

Amendment to Schedule No. 9, dated December 8,
    2006, to Agreement for Consulting Services, dated May 12,
    2003, by and between LiveWorld and America Online, Inc.10
.6.3(1)

Second Amendment to Schedule No. 9, dated May 11,
    2006, to Agreement for Consulting Services, dated May 12,
    2003, by and between LiveWorld and America Online, Inc.10
.6.4(1)

Third Amendment to Schedule No. 9, dated May 11,
    2006, to Agreement for Consulting Services, dated May 12,
    2003, by and between LiveWorld and America Online, Inc.10
.6.5(1)

Fourth Amendment to Schedule No. 9, dated
    April 1, 2007, to Agreement for Consulting Services, dated
    May 12, 2003, by and between LiveWorld and AOL LLC
    (formerly known as America Online, Inc.).10
.7(1)

Agreement for the Supply of Moderation Services, dated
    January 31, 2005, by and between LiveWorld and AOL (UK) Ltd.10
.7.1(1)

Change Order No. 1, dated September 28, 2006, to
    Agreement for the Supply of Moderation of Services, dated
    January 31, 2006, by and between LiveWorld and AOL (UK) Ltd.10
.8(1)

Services Agreement, dated May 6, 2004, by and between
    LiveWorld and eBay Inc.10
.8.1(1)

Addendum No. 2, dated November 20, 2006, to the
    LiveWorld Services Agreement, dated May 6, 2004, by and
    between LiveWorld and eBay Inc.10
.9(1)

Software Reseller Agreement, dated January 1, 2005, by and
    between LiveWorld and CoolServlets, Inc. d/b/a Jive Software.10
.10(1)

Sales Representative Agreement, dated July 7, 2006, by and
    between LiveWorld and LiveWorld-WPP, L.L.P.99
.1(1)

Operating Agreement of LiveWorld-WPP, L.L.C., dated July 7,
    2006.23
.1

Consent of Stonefield Josephson, Inc., Independent Registered
    Public Accounting Firm.31
.1

Certification of Chief Executive Officer pursuant to
    Section 302 of Sarbanes-Oxley Act of 2002.31
.2

Certification of Chief Financial Officer pursuant to
    Section 302 of Sarbanes-Oxley Act of 2002.32
.1

Certification of Principal Executive Officer and Principal
    Financial Officer pursuant to 18 U.S.C. Section 1350,
    as adopted pursuant to Section 906 of the Sarbanes-Oxley
    Act of 2002.  42




---



##### Table of Contents



(1)
    
    Incorporated by reference from LiveWorlds Registration
    Statement on Form 10-SB as declared effective by the Securities
    and Exchange Commission on July 30, 2007.(2)
    
    Incorporated by reference from LiveWorlds Registration
    Statement on Form
    S-8
    (333-144818)
    as declared effective by the Securities and Exchange Commission
    on July 24, 2007. 43




---



##### Table of Contents



SIGNATURES
      By:
    /s/  David
    S. Houston       POWER OF
    ATTORNEY
  Form 10-K
    Signature

Title

Date/s/  Peter
    H. FriedmanPeter
    H. Friedman

President and Chief Executive Officer (Principal Executive
    Officer)

March 25, 2008/s/  David
    S. HoustonDavid
    S. Houston

Chief Financial Officer
    (Principal Financial and Accounting Officer)

March 25, 2008  44




---



##### Table of Contents



EXHIBIT INDEX
  ExhibitNumber

Description3
.1(1)

Restated Certificate of Incorporation of LiveWorld.3
.2(1)

Amended and Restated Bylaws of LiveWorld.4
.1(1)

Form of Warrant entered into by and between LiveWorld and J.
    Walter Thompson U.S.A., Inc.4
.2(1)

Warrant Purchase Agreement, dated July 7, 2006, by and
    between LiveWorld and J. Walter Thompson U.S.A., Inc.4
.3(1)

Voting and Covenant Agreement, dated July 7, 2006, by and
    between LiveWorld and J. Walter Thompson U.S.A., Inc.4
.4(1)

Amendment No. 1 to Voting and Covenant Agreement, dated
    September 11, 2006, by and between LiveWorld and J. Walter
    Thompson U.S.A., Inc.4
.5(1)

Purchase Agreement, dated September 11, 2006, by and
    between LiveWorld and the individuals and entities listed
    therein.4
.6(1)

Investors Rights Agreement, dated September 11, 2006,
    by and between LiveWorld and the individuals and entities listed
    therein.4
.7(1)

Amendment No. 1 to Investors Rights Agreement, dated
    December 22, 2006 by and between LiveWorld and J. Walter
    Thompson U.S.A., Inc.4
.8(1)

Form of Common Stock Certificate.4
.9(1)

Purchase Agreement, dated December 22, 2006, by and between
    LiveWorld and J. Walter Thompson U.S.A., Inc.10
.1(1)

Form of Indemnification Agreement entered into by LiveWorld with
    each of its directors and executive officers.10
.2(2)

1996 Stock Option Plan and related agreements.10
.3(2)

1999 Director Option Plan.10
.4(1)

Office Lease Agreement, dated June 9, 2006, by and between
    LiveWorld and JZM LLC.10
.5(1)

Office Lease Agreement, dated July 1, 2004, by and between
    LiveWorld and Carlyle Market Post Tower MMR, LLC.10
.6(1)

Agreement for Consulting Services, dated May 12, 2003, by
    and between LiveWorld and America Online, Inc.10
.6.1(1)

Schedule No. 9, dated December 7, 2004, to
    Agreement for Consulting Services, dated May 12, 2003, by
    and between LiveWorld and America Online, Inc.10
.6.2(1)

Amendment to Schedule No. 9, dated December 8,
    2006, to Agreement for Consulting Services, dated May 12,
    2003, by and between LiveWorld and America Online, Inc.10
.6.3(1)

Second Amendment to Schedule No. 9, dated May 11,
    2006, to Agreement for Consulting Services, dated May 12,
    2003, by and between LiveWorld and America Online, Inc.10
.6.4(1)

Third Amendment to Schedule No. 9, dated May 11,
    2006, to Agreement for Consulting Services, dated May 12,
    2003, by and between LiveWorld and America Online, Inc.10
.6.5(1)

Fourth Amendment to Schedule No. 9, dated
    April 1, 2007, to Agreement for Consulting Services, dated
    May 12, 2003, by and between LiveWorld and AOL LLC
    (formerly known as America Online, Inc.).10
.7(1)

Agreement for the Supply of Moderation Services, dated
    January 31, 2005, by and between LiveWorld and AOL (UK) Ltd.10
.7.1(1)

Change Order No. 1, dated September 28, 2006, to
    Agreement for the Supply of Moderation of Services, dated
    January 31, 2006, by and between LiveWorld and AOL (UK) Ltd.10
.8(1)

Services Agreement, dated May 6, 2004, by and between
    LiveWorld and eBay Inc.10
.8.1(1)

Addendum No. 2, dated November 20, 2006, to the
    LiveWorld Services Agreement, dated May 6, 2004, by and
    between LiveWorld and eBay Inc.10
.9(1)

Software Reseller Agreement, dated January 1, 2005, by and
    between LiveWorld and CoolServlets, Inc. d/b/a Jive Software. 45




---



##### Table of Contents



ExhibitNumber

Description10
.10(1)

Sales Representative Agreement, dated July 7, 2006, by and
    between LiveWorld and LiveWorld-WPP, L.L.P.99
.1(1)

Operating Agreement of LiveWorld-WPP, L.L.C., dated July 7,
    2006.23
.1

Consent of Stonefield Josephson, Inc., Independent Registered
    Public Accounting Firm.31
.1

Certification of Chief Executive Officer pursuant to
    Section 302 of Sarbanes-Oxley Act of 2002.31
.2

Certification of Chief Financial Officer pursuant to
    Section 302 of Sarbanes-Oxley Act of 2002.32
.1

Certification of Principal Executive Officer and Principal
    Financial Officer pursuant to 18 U.S.C. Section 1350,
    as adopted pursuant to Section 906 of the Sarbanes-Oxley
    Act of 2002.     (1)
    
    Incorporated by reference from LiveWorlds Registration
    Statement on Form 10-SB () as declared effective by the
    Securities and Exchange Commission on July 30, 2007.(2)
    
    Incorporated by reference from LiveWorlds Registration
    Statement on Form
    S-8
    (333-144818)
    as declared effective by the Securities and Exchange Commission
    on July 24, 2007. 46