Unassociated Document

We account for stock-based compensation based on fair value. We follow the attribution method that requires companies to reduce current stock-based compensation expenses by the effect of anticipated forfeitures. We estimate forfeitures based upon our historical experience, which has resulted in a small expected forfeiture rate.

The fair value of each award is estimated on the date of the grant and amortized over the requisite service period, which is the vesting period.

We use the Black-Scholes option pricing model to estimate the fair value of stock-based payment awards on the date of grant. Determining the fair value of stock-based awards at the grant date under this model requires judgment, including estimating our value per share of common stock, volatility, expected term and risk-free interest rate. The assumptions used in calculating the fair value of stock-based awards represent our best estimates based on management judgment and subjective future expectations. These estimates involve inherent uncertainties. If any of the assumptions used in the Black-Scholes model significantly changes, stock-based compensation for future awards may differ materially from the awards granted previously.

Results of Operations

Note: Due to discontinued operations, the information for the year ended September 30, 2010 was restated and revised in this report.

Net Revenues

	Net Revenues
	2011		2010		Change			Percent

Year Ended September 30,	$	4,083,412	$	4,238,955	$	(155,543	)		(4	)%

Net revenues in fiscal 2011 decreased by approximately $156,000, caused by the $1,106,000 Legacy sales decline due to the slow attrition of the Legacy customer base less the $930,000 increase in Velocity sales due to new customers added by the current sales program and $20,000 increase in Web sales.

Cost of Services

	Cost of Services
	2011		2010		Change		Percent

Year Ended September 30,	$	3,606,143	$	1,127,970	$	2,478,173		220	%

Cost of services increased in fiscal 2011 as compared to fiscal 2010, as a result of increased costs for the new Velocity program, consisting of commissions for new customers of $1,323,000, fulfillment costs of $1,140,000, and leads of $124,000 offset by decreases in miscellaneous costs of $52,000 and internet site costs of $57,000.

Gross Profit

	Gross Profit
	2011		2010		Change			Percent

Year Ended September 30,	$	477,269	$	3,110,985	$	(2,633,716	)		(85	)%

Gross profit decreased approximately $2,634,000 in fiscal 2011 as compared to fiscal 2010 reflecting a decrease in net revenues and an increase in cost of services as described above.

General and Administrative Expenses

	General and Administrative Expenses
	2011		2010		Change			Percent

Year Ended September 30,	$	5,721,351	$	11,734,123	$	(6,012,772	)		(51	)%

General and administrative expenses decreased in fiscal 2011 as compared to fiscal 2010 as outlined below:

Decreased compensation costs of approximately $3,372,000 reflecting the impacts of our restructuring actions and reduction in force during 2010 and 2011 from 111 employees at September 30, 2009 to 12 employees as of September 30, 2011;

Decreased professional fees of approximately $1,009,000 related to reductions in legal costs of $248,000 due to the resolution and wind-down of certain litigation activities, IT consultants of $305,000, investment banker fees of $188,000, accounting fees of $83,000, marketing consultants of $78,000 ,other miscellaneous consultant costs of $60,000 and outside sales service costs of $47,000;

Software costs decrease of $550,000 reflecting a decrease in IT infrastructure and product development costs;

Other expense decreases of $467,000, including, but not limited to, rent and utilities, services and fees, office and supplies expenses, office closure expenses, travel and entertainment and other corporate expenses associated with our office closures, reductions in force and other cost containment initiatives;

A reduction of $305,000 in damages paid in a legal settlement incurred in fiscal 2010;

Decreased depreciation and amortization expense of $310,000;

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

	Q4 2011		Q3 2011		Q2 2011		Q1 2011		Q4 2010		Q3 2010		Q2 2010		Q1 2010
Compensation for employees, leased employees, officers and directors	$	340,888	$	422,901	$	536,269	$	936,426	$	1,048,094	$	967,323	$	1,352,109	$	2,241,197
Professional fees		360,221		378,960		539,950		453,062		551,394		677,507		1,023,582		488,994
Depreciation and amortization		88,868		79,227		190,254		205,477		214,617		215,102		218,200		225,653
Other general and administrative costs		174,887		291,448		344,909		377,604		462,278		497,865		544,163		1,006,045

Sales and Marketing Expenses

	Sales and Marketing Expenses
	2011		2010		Change			Percent

Year Ended September 30,	$	57,652	$	226,442	$	(168,790	)		(75	)%

Sales and marketing expenses decreased in fiscal 2011 as compared to fiscal 2010 primarily due to reduced spending on Robo Dialer and clicks for new customers of $219,000 partially offset by marketing of new web services of approximately $50,000.

Operating Loss

	Operating Income (Loss)
	2011			2010			Change		Percent

Year Ended September 30,	$	(5,301,734	)	$	(8,849,580	)	$	3,547,846		(40	)%

The decrease in our operating loss for fiscal 2011 as compared to fiscal 2010 reflect our cost containment efforts and change in strategic direction, which caused a variety of changes in net revenues, cost of sales, general and administrative expenses, and sales and marketing expenses, each of which are described above.

Total Other Income (Expense)

	Total Other Income (Expense)
	2011			2010		Change			Percent

Year Ended September 30,	$	(82,159	)	$	41,189	$	(123,348	)		(299	)%

Other income (expense) in fiscal 2011 consisted of:

($72,000) of interest expense;

($13,000) loss on disposal of fixed assets; partially offset by

$3,000 of interest income on cash balances.

Other income (expense) in fiscal 2010 consisted of:

$50,000 adjustment to the gain on sale of our customer list from fiscal 2009 reflecting adjustments to certain accruals;

$18,000 of interest income on cash balances; partially offset by

($27,000) loss on disposal of fixed assets.

Income Tax Provision (Benefit)

	Income Tax Provision (Benefit)
	2011		2010			Change		Percent

Year Ended September 30,	$	-	$	(230,382	)	$	230,382		(100	)%

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

Income (Loss) from Discontinued Operations

	Income (Loss) from Discontinued Operations
	2011			2010		Change			Percent

Year Ended September 30,	$	(118,355	)	$	1,121,291	$	(1,239,646	)		(111	)%

In March 2011, the Company decided to discontinue the Direct Sales business and closed that business segment in May 2011 and accordingly, are reflected as discontinued operations in our consolidated financial statements for all periods presented The decline in profitability between fiscal 2011 and fiscal 2010 reflects our wind-down of this business as well as approximately $375,000 of impairment and employee termination charges associated with our discontinued line of business recorded in the second fiscal quarter of 2011.

Net Loss

	Net Loss
	2011			2010			Change		Percent

Year Ended September 30,	$	(5,502,248	)	$	(7,456,718	)	$	1,954,470		(26	)%

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

Liquidity and Capital Resources

Net cash used in operating activities increased by $381,000, or 10%, to ($4,321,000) for the year ended September 30, 2011, compared to ($3,940,000) for the year ended September 30, 2010. This change in cash flows is attributable to the following: although our net loss decreased by approximately $1,954,000 in fiscal 2011 as compared to fiscal 2010, this was offset by a decrease in non-cash charges and other adjustments of $626,000 in fiscal 2011 as compared to fiscal 2010. Cash flows from operations were also impacted by a decrease of $1,709,000 in changes in working capital and other assets in fiscal 2011 as compared to fiscal 2010, primarily attributable to the collection of income taxes receivable in 2010 resulting from net operating loss carrybacks. Our primary source of cash inflows has historically been net remittances from Directory Services customers processed in the form of ACH billings and LEC billings. As of September 30, 2011, three such entities accounted for 31%, 25% and 20% of gross accounts receivable.

We discontinued the Direct Sales Services business in May 2011 as described above. We previously received upfront payments averaging approximately one-sixth of the gross contract amount. Subsequent payments were received on an installment basis after the application of the initial payment amounts and were billed ratably over the remaining life of the contract.

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

Net cash used for investing activities totaled approximately $100,000 for fiscal 2011 consisting of $101,000 from a certificate of deposit redeemed partially offset by $1,000 for expenditures for software development, . Net cash used in investing activities during fiscal 2010 was approximately $286,000, consisting primarily of expenditures for intangible assets primarily made up of software development and purchases of equipment in support of our new product offerings.

During fiscal 2011, our cash flows from financing activities consisted of $1,238,000 received from debt obtained of $1,000,000, the issuance of stock to investors of $300,000, partially offset by $62,000 of payments on capital lease obligations. Net cash used for financing activities was approximately $114,000 during fiscal 2010 and consisted of $26,000 of treasury stock repurchases and $88,000 of principal repayments on capital lease obligations.

We had a working capital deficit of $1,050,000 as of September 30, 2011 compared to working capital of $3,201,000 as of September 30, 2010 with current assets decreasing by $3,484,000 and current liabilities increasing by $767,000 from September 30, 2010 to September 30, 2011. Declines in working capital are primarily attributable to our operating net loss.

While our existing cash on hand is insufficient to sustain our current operating activities, we believe that we will be able to secure additional resources to fund our operations or to repay the loan facility. Other sources of financing may include: stock issuances; additional loans; advances from our existing LEC clearing houses through their current advance programs; or other forms of financing secured by or leveraged off our accounts receivable based on existing programs in place that are being offered to companies similar to ours. There can be no assurance that we will generate sufficient revenue or will achieve profitability, positive operating cash flows, or sufficient cash flows for operations. To the extent that we cannot repay the loan when it comes due or achieve profitability or sufficient operating cash flows, our business will be materially and adversely affected. Further, our business is likely to experience significant volatility in its revenues, operating losses, personnel involved, products or services for sale, and other business parameters, as management implements its strategies and responds to operating results. Although we paused new Velocity product sales July 15, 2011, we continue to maintain the Legacy business and we are simultaneously exploring other strategic alternatives. We cannot provide any assurance that additional financing arrangements will be available in amounts or on terms acceptable to us, if at all.

Contractual Obligations

The following table summarizes our contractual obligations at September 30, 2011 and the effect such obligations are expected to have on our future liquidity and cash flows:

	Payments Due by Fiscal Year
	Total		2012		2013		2014		2015		Thereafter
Operating lease commitments	$	514,871	$	375,747	$	114,965	$	24,159	$	-	$	-
Capital lease commitments		37,417		37,417		-		-		-		-
	$	552,288	$	413,164	$	114,965	$	24,159	$	-	$	-

At September 30, 2011, we had no other off-balance sheet arrangements, commitments or guarantees that require additional disclosure or measurement.

ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk

As of September 30, 2011, we did not participate in any market risk-sensitive commodity instruments for which fair value disclosure would be required. We believe that we are not subject in any material way to other forms of market risk, such as foreign currency exchange risk or foreign customer purchases (of which there were none in fiscal 2011 or 2010) or commodity price risk.

ITEM 8. Financial Statements and Supplementary Data

LIVEDEAL, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

		Page

Report of Independent Registered Public Accounting Firm		29

Consolidated Financial Statements:

Consolidated Balance Sheets at September 30, 2011 and 2010		30

Consolidated Statements of Operations for the Years Ended September 30, 2011 and 2010		31

Consolidated Statements of Stockholders’ Equity for the Years Ended September 30, 2011 and 2010		32

Consolidated Statements of Cash Flows for the Years Ended September 30, 2011 and 2010		33

Notes to Consolidated Financial Statements		34

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of

LiveDeal, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of LiveDeal, Inc. and Subsidiaries (the “Company”) as of September 30, 2011 and 2010, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the years in the two year period ended September 30, 2011. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of September 30, 2011 and 2010, and the results of their operations and their cash flows for each of the years in the two year period ended September 30, 2011, in conformity with U.S. generally accepted accounting principles.

/s/ Mayer Hoffman McCann P.C.

Phoenix, Arizona

December 29, 2011

LIVEDEAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	September 30,
	2011			2010

Assets
Cash and cash equivalents	$	244,470		$	3,227,374
Certificates of deposit		-			101,293
Accounts receivable, net		654,856			948,439
Prepaid expenses and other current assets		113,323			219,121
Total current assets		1,012,649			4,496,227
Accounts receivable, long term portion, net		371,438			330,234
Property and equipment, net		171,201			397,382
Deposits and other assets		31,007			49,294
Intangible assets, net		1,222,334			1,938,952
Total assets	$	2,808,629		$	7,212,089

Liabilities and Stockholders' Equity
Liabilities:
Accounts payable	$	600,908		$	354,440
Accrued liabilities		424,595			880,188
Notes payable		1,000,000			-
Current portion of capital lease obligation		36,992			60,327
Total current liabilities		2,062,495			1,294,955
Long term portion of capital lease obligation		-			38,283
Total liabilities		2,062,495			1,333,238

Commitments and contingencies

Stockholders' 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			10,866
Common stock, $0.001 par value, 10,000,000 shares authorized, 698,491 and 639,117
shares issued, 694,239 and 634,865 shares outstanding at September 30, 2011
and September 30, 2010, respectively		698			639
Treasury stock (4,252 shares carried at cost)		(70,923	)		(70,923	)
Paid in capital		20,813,082			20,441,692
Accumulated deficit		(20,007,589	)		(14,503,423	)
Total stockholders' equity		746,134			5,878,851

Total liabilities and stockholders' equity	$	2,808,629		$	7,212,089

See accompanying notes to consolidated financial statements

LIVEDEAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	Year Ended September 30,
	2011			2010

Net revenues	$	4,083,412		$	4,238,955
Cost of services		3,606,143			1,127,970
Gross profit		477,269			3,110,985

Operating expenses:
General and administrative expenses		5,721,351			11,734,123
Sales and marketing expenses		57,652			226,442
Total operating expenses		5,779,003			11,960,565
Operating loss		(5,301,734	)		(8,849,580	)
Other income (expense):
Interest income (expense), net		(69,223	)		18,186
Other income (expense)		(12,936	)		23,003
Total other income (expense)		(82,159	)		41,189

Loss before income taxes		(5,383,893	)		(8,808,391	)
Income tax provision (benefit)		-			(230,382	)
Loss from continuing operations		(5,383,893	)		(8,578,009	)

Discontinued operations
Income (loss) from discontinued component, including disposal costs		(118,355	)		1,121,291
Income tax provision (benefit)		-			-
Income (loss) from discontinued operations		(118,355	)		1,121,291

Net loss	$	(5,502,248	)	$	(7,456,718	)

Earnings per share - basic and diluted1:
Loss from continuing operations	$	(8.11	)	$	(13.59	)
Discontinued operations		(0.18	)		1.78
Net loss	$	(8.29	)	$	(11.81	)
Weighted average common shares outstanding:
Basic		664,167			631,503
Diluted		664,167			631,503

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

See accompanying notes to consolidated financial statements

LIVEDEAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

	Common Stock						Preferred Stock				Treasury			Paid-In		Retained
	Shares			Amount			Shares		Amount		Stock			Capital		Earnings			Total

Balance, September 30, 2009		643,012		$	643			127,840	$	10,866	$	(45,041	)	$	20,285,867	$	(7,044,787	)	$	13,207,548

Series E preferred stock dividends																	(1,918	)		(1,918	)
Stock based compensation - stock options															38,448					38,448
Restricted stock cancellations		(3,895	)		(4	)									4					-
Amortization of deferred stock compensation															117,373					117,373
Treasury stock purchases												(25,882	)							(25,882	)
Net loss																	(7,456,718	)		(7,456,718	)
Balance, September 30, 2010		639,117		$	639			127,840	$	10,866	$	(70,923	)	$	20,441,692	$	(14,503,423	)	$	5,878,851

Series E preferred stock dividends																	(1,918	)		(1,918	)
Stock based compensation - stock options															38,231					38,231
Issuance of common stock for cash		50,198			50										299,950					300,000
Restricted stock cancellations		(8	)		-										-					-
Amortization of deferred stock compensation															17,885					17,885
Issuance of common stock for services		9,184			9										15,324					15,333
Net loss																	(5,502,248	)		(5,502,248	)
Balance, September 30, 2011		698,491		$	698			127,840	$	10,866	$	(70,923	)	$	20,813,082	$	(20,007,589	)	$	746,134

See accompanying notes to consolidated financial statements

LIVEDEAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended September 30,
	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(5,502,248	)	$	(7,456,718	)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization		563,826			873,572
Non-cash stock compensation expense		38,231			38,448
Non-cash issuance of common stock for services		15,333			-
Amortization of deferred stock compensation		17,885			117,373
Provision for uncollectible accounts		336,929			921,804
Non-cash impairment of goodwill and intangibles		367,588			-
Loss on disposal of property and equipment		12,936			27,647
Changes in assets and liabilities:
Accounts receivable		(84,550	)		317,109
Prepaid expenses and other current assets		105,798			107,321
Deposits and other assets		18,287			31,918
Accounts payable		246,468			(195,241	)
Accrued liabilities		(457,511	)		(214,541	)
Income taxes receivable		-			1,490,835

Net cash used in operating activities		(4,321,028	)		(3,940,473	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment		-			5,000
Expenditures for intangible assets		-			(235,012	)
Redemption of (investment in) certificate of deposits		101,293			(1,293	)
Purchases of property and equipment		(1,551	)		(54,921	)

Net cash provided by (used in) investing activities		99,742			(286,226	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal repayments on capital lease obligations		(61,618	)		(88,075	)
Issuance of common stock for cash		300,000			-
Proceeds from notes payable		1,000,000			-
Purchase of treasury stock		-			(25,882	)

Net cash provided by (used in) financing activities		1,238,382			(113,957	)

DECREASE IN CASH AND CASH EQUIVALENTS		(2,982,904	)		(4,340,656	)

CASH AND CASH EQUIVALENTS, beginning of period		3,227,374			7,568,030

CASH AND CASH EQUIVALENTS, end of period	$	244,470		$	3,227,374

Supplemental cash flow disclosures:
Noncash financing and investing activities:
Accrued and unpaid dividends	$	1,918		$	1,918

Cash paid for interest	$	57,266		$	5,842

Cash paid for income taxes	$	1,600		$	1,600

See accompanying notes to consolidated financial statements

1.	ORGANIZATION AND BASIS OF PRESENTATION

The accompanying 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 online listing services to deliver an affordable way for businesses to extend their marketing reach to local, relevant customers via the Internet.

The Company’s new strategic focus is on delivering a suite of Internet-based, local search driven, customer acquisition services for small and medium-sized businesses, sold via telemarketing and supported by its websites and internally developed software.

The following sets forth historical transactions with respect to the Company’s organizational development:

Telco Billing, Inc. was formed in April 1998 to provide advertising and directory listings for businesses on its Internet website in a “Yellow Pages” format. Telco provides those services to its subscribers for a monthly fee. These services are provided primarily to businesses throughout the United States. Telco became a wholly owned subsidiary of the Company after the June 1999 acquisition.

At the time that the transaction was agreed to, the Company had 12,567,770 common shares issued and outstanding. As a result of the merger transaction with Telco, there were 29,567,770 common shares outstanding, and the former Telco stockholders held approximately 57% of the Company’s voting stock. For financial accounting purposes, the acquisition was a reverse acquisition of the Company by Telco, under the purchase method of accounting, and was treated as a recapitalization with Telco as the acquirer. Consistent with reverse acquisition accounting, (i) all of Telco’s assets, liabilities, and accumulated deficit were reflected at their combined historical cost (as the accounting acquirer) and (ii) the preexisting outstanding shares of the Company (the accounting acquiree) were reflected at their net asset value as if issued on June 16, 1999.

On June 6, 2007, the Company completed its acquisition of LiveDeal, Inc. (“LiveDeal”), a California corporation. LiveDeal operated an online local classifieds marketplace, www.livedeal.com, which listed millions of goods and services for sale across the United States. The technology acquired in the acquisition offered such classifieds functionality as fraud protection, identity protection, e-commerce, listing enhancements, photos, community-building, package pricing, premium stores, featured Yellow Page business listings and advanced local search capabilities. This business has since been discontinued – see Note 3.

On July 10, 2007, the Company acquired substantially all of the assets and assumed certain liabilities of OnCall Subscriber Management Inc., a Manila, Philippines-based company that provided telemarketing services. The acquisition took place through the Company’s wholly-owned subsidiary, 247 Marketing LLC, a Nevada limited liability company, which remains in existence but is inactive.

On August 10, 2007, the Company filed amended and restated articles of incorporation with the Office of the Secretary of State of the State of Nevada, pursuant to which the Company’s name was changed to LiveDeal, Inc., effective August 15, 2007. The name change was approved by the Company’s Board of Directors pursuant to discretion granted to it by the Company’s stockholders at a special meeting on August 2, 2007.

During 2009, the Company made strategic changes that impacted the Company’s consolidated financial statements in the following manner:

Impairment charges of $16,111,494 were recorded related to the write-down of the Company’s goodwill and other intangible assets;

The Company commenced a plan to discontinue its classifieds business and initiated shutdown activities and has reflected the operating results of this line of business as discontinued operations in the accompanying consolidated statements of operations;

The Company sold a portion of its customer list associated with its directory services business and recorded a gain of $3,040,952; and

The Company established a valuation allowance of $10,586,854 related to its deferred tax assets, as described in Note 12.

During 2010, we evaluated our business and adopted a new business strategy that addressed each of our business segments as separate entities and re-launched and restructured our legacy line of business. This evaluation was necessitated by the challenges facing our Direct Sales business lines that provide Internet-based customer acquisition strategies for small business, as well as declining revenues from our traditional business line (i.e. directory services).

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

During 2011, as part of our strategy to evaluate each of our business segments as separate entities, management noted that the Direct Sales business segment had incurred operating losses and declining revenues and did not fit with our change in strategic direction. Accordingly, in March 2011, we made the strategic decision to discontinue our Direct Sales business and product offerings. Prior year financial statements have been restated to present the Direct Sales business segment as a discontinued operation.

We initiated shutdown activities in March 2011 and completed such activities in May 2011. In conjunction with the discontinued operations, we recorded the following charges in fiscal 2011:

Employee contract termination charges of $7,083 reflecting the reduction in force of 7 employees;

Non cash impairment charges $367,588 consisting of the write-off of net intangible assets;

The Company had a net loss of $5.5 million for the year ended September 30, 2011, and $7.5 million for the year ended September 30, 2010. The Company had a negative operating cash flow of $4.3 million for the year ended September 30, 2011, and $3.9 million for the year ended September 30, 2010. The Company borrowed $1.0 million in May 2011 which is due May 2012 and the Company had cash of $244,470 as of September 30, 2011. Subsequent to September 30, 2011, the Company was able to obtain $2.0 million in equity financing – see Note 17. The Company has significantly reduced operating expenses by reviewing all expenses and improving operating efficiencies. Management believes the Company’s cash on hand and additional cash generated from operations together with potential sources of cash such as obtaining advances from the Company’s LEC clearing houses or leveraging off of its accounts receivable will provide the Company with sufficient liquidity for the next 12 months.

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation: The accompanying consolidated financial statements represent the consolidated financial position and results of operations of the Company and include the accounts and results of operations of the Company, LiveDeal, Local Marketing Experts, Inc., Velocity Marketing Concepts, Inc., 247 Marketing Inc., Telco Billing, Inc. and Telco of Canada, Inc., the Company’s wholly owned subsidiaries, for the years ended September 30, 2011 and 2010, as applicable. All intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates: The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Significant estimates made in connection with the accompanying consolidated financial statements include the estimate of dilution and fees associated with LEC billings, the estimated reserve for doubtful accounts receivable, estimated forfeiture rates for stock-based compensation, fair values in connection with the analysis of goodwill and long-lived assets for impairment, valuation allowances against net deferred tax assets and estimated useful lives for intangible assets and property and equipment.

Financial Instruments: Financial instruments consist primarily of cash, cash equivalents, accounts receivable, advances to affiliates and obligations under accounts payable, accrued expenses and notes payable. The carrying amounts of cash, cash equivalents, accounts receivable, accounts payable, accrued expenses and notes payable approximate fair value because of the short maturity of those instruments.

Cash and Cash Equivalents: This includes all short-term highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less. At times, cash deposits may exceed government-insured limits.

Property and Equipment: Property and equipment is stated at cost less accumulated depreciation. Depreciation is recorded on a straight-line basis over the estimated useful lives of the assets ranging from three to five years. Depreciation expense was $214,796 and $240,798 for the years ended September 30, 2011 and 2010, respectively.

Revenue Recognition:

Directory Services

Revenue is billed and recognized monthly for services subscribed in that specific month. The Company has historically utilized outside billing companies to perform billing services through two primary channels:

• direct ACH withdrawals; and

• inclusion on the customer’s local telephone bill provided by their Local Exchange Carriers, or LECs.

For billings via ACH withdrawals, revenue is recognized when such billings are accepted. For billings via LECs, the Company recognizes revenue based on net billings accepted by the LECs. Due to the periods of time for which adjustments may be reported by the LECs and the billing companies, the Company estimates and accrues for dilution and fees reported subsequent to year-end for initial billings related to services provided for periods within the fiscal year. Such dilution and fees are reported in cost of services in the accompanying consolidated statements of operations. Customer refunds are recorded as an offset to gross revenue.

The Company continues to service some wholesale accounts through LEC billing channels and is rebuilding its customer base billed through LECs through its Velocity Marketing Concepts, Inc. subsidiary.

Revenue for billings to certain customers that are billed directly by the Company and not through the outside billing companies is recognized based on estimated future collections. The Company continuously reviews this estimate for reasonableness based on its collection experience.

Direct Sales

The Company’s direct sales contracts typically involve upfront billing for an initial payment followed by monthly billings over the contractual period. The Company recognizes revenue on a straight line basis over the contractual period. Billings in excess of recognized revenue are included as deferred revenue in the accompanying consolidated balance sheets.

Deferred Revenues

In some instances, the Company receives payments in advance of rendering services, whereupon such revenues are deferred until the related services are rendered. Deferred revenue was $14,553 and $87,574 at September 30, 2011 and 2010, respectively.

Allowance for Doubtful Accounts: The Company maintains an allowance for doubtful accounts, which includes allowances for customer refunds, dilution and fees from LEC billing aggregators and other uncollectible accounts. The Company has decreased its allowances for doubtful accounts to 61.3% of gross accounts receivable at September 30, 2011 as compared to 63.5% of gross accounts receivable at September 30, 2010. The determination of the allowance for doubtful accounts is dependent on many factors, including regulatory activity, changes in fee schedules by LEC service providers and recent historical trends.

Legal Costs: The Company expenses legal costs associated with loss contingencies as they are incurred.

Income Taxes: Income taxes are accounted for using the asset and liability method. Under this method, deferred income tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance would be provided for those deferred tax assets for which if it is more likely than not that the related benefit will not be realized. The Company classifies tax-related penalties and interest as a component of income tax expense for financial statement presentation.

Stock-Based Compensation: The Company from time to time grants restricted stock awards and options to employees and executives. Such awards are valued based on the grant date fair-value of the instruments, net of estimated forfeitures. The value of each award is amortized on a straight-line basis over the vesting period.

The Company accounts for stock awards issued to non-employees in accordance with the provisions of FASB Accounting Standards Codification (“ASC”) 718, “Compensation – Stock Compensation” and FASB ASC 505, “Equity”, and accordingly, stock awards to non-employees are accounted for at fair value at their respective measurement date.

Net Income (Loss) Per Share: Net income (loss) per share is calculated in accordance with FASB ASC 260, “Earnings Per Share”. Under ASC 260 basic net income (loss) per share is computed using the weighted average number of common shares outstanding during the period except that it does not include unvested restricted stock subject to cancellation. Diluted net income (loss) per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of warrants, restricted shares and convertible preferred stock. The dilutive effect of outstanding restricted shares and warrants is reflected in diluted earnings per share by application of the treasury stock method. Convertible preferred stock is reflected on an if-converted basis.

Internally Developed Software and Website Development Costs: The Company incurs internal and external costs to develop software and websites to support its core business functions. The Company capitalizes internally generated software and website development costs in accordance with the provisions of the FASB ASC 350, “Intangibles – Goodwill and Other”.

Impairment of Long-lived Assets: The Company assesses long-lived assets for impairment in accordance with the provisions of FASB ASC 360 “Property, Plant and Equipment”. A long-lived asset (asset group) shall be tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. The carrying amount of a long lived asset is not recoverable if it exceeds the sum of the undiscounted net cash flows expected to result from the use and eventual disposition of the asset. The amount of impairment loss, if any, is measured as the difference between the net book value of the asset and its estimated fair value. For purposes of these tests, long-lived assets must be grouped with other assets and liabilities for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. During the 2011 second fiscal quarter, $367,588 in net intangible assets were written off which were previously used in the discontinued Direct Sales business. An independent third party valuation company performed an analysis of Intangible Assets for impairment testing under Accounting Standards Codification Topic No. 360 (formerly SFAS 144 – Accounting for the Impairment or Disposal of Long-Lived Assets). The report concluded that the Intangible Assets were not impaired and a write down of the Intangible Assets was not required.

Effects of Stock Splits: Effective on September 7, 2010, the Company implemented a 1-for-10 reverse stock split with respect to issued and outstanding shares of its common stock. Additionally, the Company’s authorized shares of common stock were reduced to 10,000,000 shares.

Effective August 10, 2011, the Company implemented a 20-for-19 stock split with respect to issued and outstanding shares of its common stock. The stock split was in the form of a stock dividend, with one (1) share of the Company’s common stock issued in respect of every 19 shares of common stock issued and outstanding as of July 29, 2011, the record date for the stock split. Any fractional shares otherwise issuable as a result of the stock split were rounded up to the nearest whole share.

All share and per share amounts have been retroactively restated for the effects of the stock splits described above.

Recently Issued Accounting Pronouncements:

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

In December 2010, the FASB issued ASU 2010-28, When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts (Topic 350)—Intangibles—Goodwill and Other (ASU2010-28). ASU 2010-28 amends the criteria for performing Step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts and requires performing Step 2 if qualitative factors indicate that it is more likely than not that a goodwill impairment exists. The Company will adopt ASU 2010-28 in fiscal 2012 and management does not believe it will have a material impact on the Company’s consolidated financial statements.

In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements (“ASU 2011-04”) in GAAP and International Financial Reporting Standards (“IFRS”). Under ASU 2011-04, the guidance amends certain accounting and disclosure requirements related to fair value measurements to ensure that fair value has the same meaning in GAAP and in IFRS and that their respective fair value measurement and disclosure requirements are the same. ASU 2011-04 is effective for public entities during interim and annual periods beginning after December 15, 2011. Early adoption by public entities is not permitted. The Company does not believe that the adoption of this guidance will have a material impact on the financial statements.

In June 2011, the FASB issued ASU 2011-05, “Presentation of Comprehensive Income” (“ASU 2011-05”). ASU 2011-05 requires companies to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The provisions of ASU 2011-05 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Since ASU 2011-05 only amends the disclosure requirements concerning comprehensive income, the adoption of ASU 2011-05 will not affect the consolidated financial position, results of operations or cash flows of the Company.

In September 2011, the FASB issued ASU 2011-08, “Testing Goodwill for Impairment” (“ASU 2011-08”). ASU 2011-08 allows a company to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The more likely than not threshold is defined as having a likelihood of more than 50 percent. The provisions of ASU 2011-08 are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 with early adoption permitted. The adoption of the provisions of ASU 2011-08 is not expected to have a material effect on the consolidated financial position, results of operations or cash flows of the Company.

3.	DISCONTINUED OPERATIONS

As part of the Company’s strategy to evaluate each of its business segments as separate entities, management noted that the Direct Sales business segment had incurred operating losses and declining revenues and did not fit with the Company’s change in strategic direction. Accordingly, in March 2011, the Company made the strategic decision to discontinue its Direct Sales business and product offerings. Prior year financial statements have been restated to present the Direct Sales business segment as a discontinued operation.

The Company initiated shutdown activities in March 2011 and closed the Direct Sales business segment in May 2011. In conjunction with the discontinued operations, the Company recorded the following charges in the year ended September 30, 2011:

· Employee contract termination charges of $7,083 reflecting the reduction in force of 7 employees;

· Non cash impairment charges of $367,588 consisting of the write-off of net intangible assets;

The Direct Sales business segment accounted for $1,341,430 and $3,838,479 of net revenues for the years ended September 30, 2011 and 2010, respectively, which are now included as part of income (loss) from discontinued component, including disposal costs, in the accompanying consolidated statements of operations.

4.	BALANCE SHEET INFORMATION

Balance sheet information is as follows:

	September 30,			September 30,
	2011			2010
Receivables, current, net:
Accounts receivable, current	$	2,080,747		$	2,750,393
Less: Allowance for doubtful accounts		(1,425,891	)		(1,801,954	)
	$	654,856		$	948,439
Receivables, long term, net:
Accounts receivable, long term	$	569,178		$	680,108
Less: Allowance for doubtful accounts		(197,740	)		(349,874	)
	$	371,438		$	330,234
Total receivables, net:
Gross receivables	$	2,649,925		$	3,430,501
Less: Allowance for doubtful accounts		(1,623,631	)		(2,151,828	)
	$	1,026,294		$	1,278,673

Components of allowance for doubtful accounts are as follows:

	September 30,			September 30,
	2011			2010
Allowance for dilution and fees on amounts due from billing aggregators	$	1,477,769		$	2,104,826
Allowance for customer refunds		145,862			47,002
	$	1,623,631		$	2,151,828

	September 30,			September 30,
	2011			2010
Property and equipment, net:
Leasehold improvements	$	201,476		$	239,271
Furnishings and fixtures		233,577			319,004
Office, computer equipment and other		426,931			704,388
		861,984			1,262,663
Less: Accumulated depreciation		(690,783	)		(865,281	)
	$	171,201		$	397,382

	September 30,			September 30,
	2011			2010
Intangible assets, net:
Domain name and marketing related intangibles	$	1,509,600		$	1,509,600
Website and technology related intangibles		351,941			1,914,991
		1,861,541			3,424,591
Less: Accumulated amortization		(639,207	)		(1,485,639	)
	$	1,222,334		$	1,938,952

	September 30,			September 30,
	2011			2010
Accrued liabilities:
Deferred revenue	$	14,553		$	87,574
Accrued payroll and bonuses		63,043			124,544
Accruals under revenue sharing agreements		86,550			133,119
Accrued expenses - other		260,448			534,951
	$	424,594		$	880,188

5.	INTANGIBLE ASSETS

The Company’s intangible assets consist of licenses for the use of Internet domain names, Universal Resource Locators, or URLs, capitalized website development costs, other information technology licenses and marketing and technology related intangibles acquired through the acquisition of LiveDeal, Inc. All such assets are capitalized at their original cost and amortized over their estimated useful lives ranging from three to 20 years.

The Company performed its annual impairment analysis and determined that no impairment existed at September 30, 2011 and 2010. In connection with the discontinued operations related to the Direct Sales business, net intangible assets of $367,588 were written off in the second fiscal quarter of 2011.

The following summarizes estimated future amortization expense related to intangible assets that have net balances as of September 30, 2011:

Years ended September 30,
2012	$	108,828
2013		79,662
2014		77,422
2015		77,422
2016		77,422
Thereafter		801,578
Total	$	1,222,334

Total amortization expense related to intangible assets was $349,030 and non-cash impairment charges of $367,588 was associated with the write off of net intangible assets from discontinued operations for the year ended September 30, 2011. Total amortization expense related to intangible assets was $632,744 for the year ended September 30, 2010.

6.	CAPITAL LEASES

At September 30, 2011, the Company was a party to one capital lease for communications equipment acquired during the year ended September 30, 2008 with a cost basis of $255,603. This lease has a term of 48 months and an imputed interest rate of 3.6%. This capital lease is secured by the underlying equipment. Equipment acquired under this capital lease is being depreciated over their estimated lives of four years.

Future minimum lease payments due under the capital lease agreements are as follows for the years ended September 30:

2012	$	37,416
2013		-
2014
2015		-
Thereafter		-
Total minimum lease payments		37,416
Less imputed interest		(424	)
Present value of minimum lease payments		36,992
Less: current maturities of capital lease obligations		36,992
Noncurrent maturities of capital lease obligations	$	-

7.	LONG-TERM DEBT

On May 13, 2011, the Company, certain of the Company’s wholly owned subsidiaries (collectively with the Company, the “Borrowers”), and Everest Group LLC (“Lender”) entered into a Loan Agreement (the “Loan Agreement”), pursuant to which the Lender agreed to loan the Borrowers an aggregate amount not to exceed $1,000,000 (the “Loan”). The Loan was funded to the Borrowers on May 16, 2011. The Borrowers used the proceeds of the Loan for working capital and other general corporate purposes.

The Loan Agreement provides for a one-year term, unless terminated earlier pursuant to its terms or extended upon the mutual agreement of all parties. Subject to applicable law, the Borrowers will pay an annual interest rate equal to 18% on the unpaid principal balance of the Loan. Interest will be payable monthly in arrears on the first day of each calendar month (unless such day is not a business day, in which case interest will be payable on the next succeeding business day) commencing June 1, 2011. Commencing on November 1, 2011, and on the first day of each subsequent calendar month, the Borrowers will be required to make $50,000 monthly installment payments of principal on the Loan, with the unpaid principal balance to be due and payable on the termination date of the Loan.

Pursuant to a General Security Agreement (the “Security Agreement”) also entered into on May 13, 2011, and as a condition to closing the Loan and the other transactions contemplated by the Loan Agreement, the Borrowers granted to Lender a security interest in certain of their assets, including (without limitation) their accounts receivable, books, tort claims, deposit accounts, equipment, general intangibles, inventory, investment property, negotiable collateral, property and the proceeds thereof. Certain Borrowers, including the Company, also entered into agreements with Lender and their banking institutions to grant Lender certain rights and remedies with respect to their deposit accounts.

The Loan Agreement contains representations, warranties and covenants of the parties that are customary for transactions similar to the Loan. These include:

The Borrowers may not prepay the unpaid principal amount of the Loan, in full or in part, without Lender’s consent, during the first six months of the term.

Lender’s designated representative will have the right to observe meetings of any Borrower’s board of directors solely in a non-voting, non-contributing capacity (provided that such representative may be excluded from sensitive or confidential portions of such meetings).

The Borrowers are prohibited from creating, incurring or assuming additional indebtedness except for (among other things) (i) obligations to Lender, (ii) trade debt incurred in the ordinary course of business or (iii) purchase money financing and/or equipment leases for new equipment that do not exceed $25,000 in the aggregate during any single fiscal year.

The Borrowers are prohibited from (i) entering into any merger, consolidation, reorganization or recapitalization with another person or entity, or (ii) acquiring all of the assets, or a material portion of the assets or stock, of any other person or entity.

The Borrowers are prohibited from making or declaring any dividend or distribution in respect of their capital stock or other equity interests.

The Loan Agreement defines certain events of default, including (among other things) (i) the Borrowers’ failure to make any payment required under the Loan Agreement when due (subject to a five-business-day cure period), (ii) the Borrowers’ failure to comply with their covenants and agreements under the Loan Agreement and other Loan documents and (iii) the occurrence of a change of control with respect to the Company. Upon an event of default, Lender would be entitled to immediately accelerate all amounts due and payable in respect of the Loan and a cash default fee of $20,000. Prepayment may not occur in full or in part without the consent of Lender within the first six months of the term. After November 1, 2011, upon the payment to Lender of a prepayment fee equal to the present values of prospective payments of interest without the prepayment of the Loan, the Borrowers may prepay all or any portion of the unpaid principal amount of the Loan prior to the termination date.

In connection with closing the Loan, the Borrowers paid Lender a $20,000 cash origination fee and also reimbursed Lender for $20,000 in closing costs, including attorneys’ fees and other out-of-pocket expenses related to the negotiation of the Loan Agreement. Both the cash origination fee and the closing costs were expensed in the third fiscal quarter of 2011.

8.	STOCKHOLDERS’ EQUITY

Issuances of Common Stock

November 2010 Equity Issuance Agreement

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

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

$50,000 was wired to the Company on December 3, 2010 in exchange for the Company’s issuance of 8,421 shares of Common Stock (determined by using the $5.94 per share purchase price applicable to the first Tranche).

$50,000 was wired to the Company’s designated account on December 22, 2010 in exchange for the issuance of 7,383 shares (determined by using the $6.77 per share purchase price applicable to the second Tranche).

$50,000 was wired to the Company’s designated account on January 22, 2011 in exchange for the issuance of 7,057 shares (determined by using the $7.09 per share purchase price applicable to the third Tranche).

$50,000 was wired to the Company’s designated account on February 25, 2011 in exchange for the issuance of 7,620 shares (determined by using the $6.56 per share purchase price applicable to the fourth Tranche).

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

March 2011 Equity Issuance Agreement

On March 22, 2011, the Company and six new investors (the “March Purchasers”) entered into a Stock Purchase Agreement (the “March Agreement”), pursuant to which the March Purchasers committed to purchase an aggregate of $150,000 worth of the Company’s common stock, $0.001 par value per share, over a three month period.

Under the terms of the March Agreement, the Company agreed to sell, and each March Purchaser is obligated to purchase by a specified date, Common Stock for an aggregate purchase price of $25,000. The per share price is to be determined by adding (i) $0.50 and (ii) the average closing price for the Common Stock as reported by the NASDAQ Capital Market for the 90-day period immediately preceding (but not including) the closing date of the applicable purchase.

$50,000 was wired to the Company’s designated account on March 28, 2011 in exchange for the issuance of 9,061 shares (determined by using the $5.52 per share purchase price applicable).

$50,000 was wired to the Company’s designated account on April 26, 2011 in exchange for the issuance of 10,656 shares (determined by using the $4.69 per share purchase price applicable).

An additional $50,000 was due to be wired to the Company’s designated account on or before May 25, 2011, but such amount was never paid by the applicable March Purchasers. On or about July 7, 2011, the Company provided written notice to the applicable March Purchasers that it considered them to be in material breach of their agreements with the Company. Under the applicable March Agreements, the Company is entitled to, among other potential remedies; repurchase any and all shares previously issued to the March Purchasers and their affiliates for an amount equal to the applicable purchase price paid for such shares less $0.50 per share. The March Purchasers have not responded to the Company’s notice of breach. The Company has taken action to preserve its rights under the March Agreements while it considers the potential remedies that could be pursued.

Stock Purchase Agreements – August/September 2011

As previously disclosed, on August 29, 2011 and September 29, 2011, respectively, the Company entered into a series of Stock Purchase Agreements (the “Stock Purchase Agreements”) with four investors (the “Investors”). Pursuant to the Stock Purchase Agreements, the Investors agreed to purchase an aggregate of 816,327 shares of Common Stock in a private placement transaction for an aggregate purchase price of $2.0 million. Additional information regarding the Stock Purchase Agreements and the transactions contemplated thereby was set forth in a definitive proxy statement filed by the Company with the Securities and Exchange Commission on October 25, 2011. Stockholder approval of the Stock Purchase Agreements and the transactions contemplated thereby was obtained at a special meeting on November 24, 2011.

On November 30, 2011, the Investors failed to perform their obligations under the Stock Purchase Agreements by, among other things, failing to pay the purchase price described above. Accordingly, the transactions contemplated by the Stock Purchase Agreements were never consummated, and the Company sent the Investors a notice of termination of the Stock Purchase Agreements on December 12, 2011. The Company did not incur any penalties in connection with its termination of the Stock Purchase Agreements.

Series E Convertible Preferred Stock

During the year ended September 30, 2002, pursuant to an existing tender offer, holders of 13,184 shares of the Company’s common stock exchanged said shares for 131,840 shares of Series E Convertible Preferred Stock, at the then $0.85 market value of the common stock. The shares carry a $0.30 per share liquidation preference and accrue dividends at the rate of 5% per annum on the liquidation preference per share, payable quarterly from legally available funds. If such funds are not available, dividends shall continue to accumulate until they can be paid from legally available funds. Holders of the preferred shares are entitled, after two years from issuance, to convert them into common shares on a hundred-to-one basis together with payment of $0.45 per converted share.

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.

On May 25, 2007, the Company’s Board of Directors terminated its pre-existing stock repurchase plan and replaced it with a new plan authorizing repurchases of up to $1,000,000 of common stock from time to time on the open market or in privately negotiated transactions. The repurchase plan was increased by another $500,000 on October 23, 2008. During the year ended September 30, 2011 there were no stock repurchases. In 2010, the Company acquired an aggregate of 1,341 shares of common stock for an aggregate repurchase price of $25,882.

Dividends

During each of the years ended September 30, 2011 and 2010, the Company accrued dividends of $1,918 and $1,918, respectively, payable to holders of Series E preferred stock. No dividends were paid in 2011 or 2010.

9.	RESTRUCTURING ACTIVITIES

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

The Company incurred charges of $143,000 in connection with the reductions in force, consisting of one-time employee termination benefits. All amounts were paid as of September 30, 2010.

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

The Company incurred expenses of $99,319 in connection with the reduction in force, of which $37,500 was incurred for one-time employee termination benefits payable in cash. The remaining expenses relate to salaries and wages payable in cash to the affected employees which were paid in the first quarter of fiscal 2011.

In May 2011 the Company ceased the Direct Sales business and migrated the remaining customers to Reach Local in exchange for ten and five percent of gross revenues derived from such customers during the first and second year, respectively. The Company recorded $5,773 in revenues for this agreement during the year ended September 30, 2011. In connection with the discontinued Direct Sales business, seven employees were terminated. See Note 3.

10.	NET LOSS PER SHARE

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

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

	Year Ended September 30,
	2011			2010

Loss from continuing operations	$	(5,383,893	)	$	(8,578,009	)
Less: preferred stock dividends		(1,918	)		(1,918	)
Loss from continuing operations
applicable to common stock		(5,385,811	)		(8,579,927	)
Income (loss) from discontinued operations		(118,355	)		1,121,291
Net loss applicable to common stock	$	(5,504,166	)	$	(7,458,636	)

Weighted average common shares outstanding -
basic and diluted		664,167			631,503

Earnings per share - basic and diluted1:
Loss from continuing operations	$	(8.11	)	$	(13.59	)
Discontinued operations		(0.18	)		1.78
Net loss	$	(8.29	)	$	(11.81	)

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

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

	September 30,
	2011		2010

Options to purchase shares of common stock		24,013		5,263
Series E convertible preferred stock		127,840		127,840
Shares of non-vested restricted stock		1,342		4,903
		153,195		138,006

11.	COMMITMENTS AND CONTINGENCIES

Operating Leases and Service Contracts

The Company leases its office space and certain equipment under long-term operating leases expiring through fiscal year 2014. Rent expense under these leases was $465,811 and $519,716 for the years ended September 30, 2011 and 2010, respectively. The Company has also entered into several non-cancelable service contracts.

As of September 30, 2011, future minimum annual lease payments under operating lease agreements and non-cancelable service contracts for fiscal years ended September 30 are as follows:

2012	$	375,747
2013		114,965
2014		24,159
2015
2016		-
Thereafter		-
	$	514,871

The Company is also a party to certain capital leases – see Note 6.

Change in Officers and Employment Agreements

On November 23, 2009, the Company and Richard F. Sommer, the Company’s former Chief Executive Officer, entered into an amendment to Mr. Sommer’s Employment Agreement. The amendment, which was effective as of October 29, 2009, provided that Mr. Sommer was entitled to an option to purchase 26,316 shares of the Company’s common stock at an exercise price of $18.53 per share, which was equal to the closing price of the Company’s common stock on the date of grant. The option was granted pursuant to the Company’s 2003 Stock Plan and was 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 the Company’s stockholders in the form of a dividend, in the event of liquidation or upon a change of control.

On November 25, 2009, Rajeev Seshadri, the Company’s former Chief Financial Officer, entered into a Separation Agreement and Full Release of Claims with the Company in connection with his departure as Chief Financial Officer of the Company, which was agreed upon on November 19, 2009 and which took effect on January 2, 2010 (the “Resignation Date”). Under the terms of the Separation Agreement and in accordance with his employment agreement, the Company continued to pay Mr. Seshadri his base salary for three months following the Resignation Date (less applicable taxes and other withholdings). Mr. Seshadri could also elect to receive such payment (the gross amount of which is $53,750) in a lump sum on the Resignation Date. The $15,000 bonus to which Mr. Seshadri was entitled under his employment agreement for the Company’s fourth quarter of fiscal 2009 was paid in a lump sum on the Resignation Date. The Company paid Mr. Seshadri’s COBRA payments for three months and reimbursed his reasonable attorneys’ fees related to the negotiation of the Separation Agreement. The Separation Agreement also provided for Mr. Seshadri to serve as a consultant to the Company until January 31, 2010 for at least 16 hours per week at a rate of $230 per hour. Finally, Mr. Seshadri continued to be entitled to exercise his vested stock options in accordance with the terms of the applicable stock option agreements for a period of 180 days from the date of his resignation; his unvested options thereafter would be forfeited and cancelled.

In exchange for the payments described above, Mr. Seshadri provided a full release of claims arising out of, or relating to, his employment with the Company, his termination from the position of Chief Financial Officer of the Company, and/or his resignation. The Separation Agreement also contained customary provisions with respect to confidentiality and non-solicitation, as well as mutual covenants on the part of Mr. Seshadri and the Company regarding public statements and non-disparagement. As of September 30, 2010, all amounts pertaining to this separation have been paid.

Also on November 19, 2009, the Company appointed Lawrence W. Tomsic to replace Mr. Seshadri as its Chief Financial Officer, effective on the Resignation Date. In connection with Mr. Tomsic’s appointment as Chief Financial Officer, he and the Company were to enter into an employment agreement providing for a one-year employment term that could be extended upon the mutual agreement of the Company and Mr. Tomsic.

Pursuant to this agreement, Mr. Tomsic was to be paid an annual salary of $215,000 and was eligible to receive a bonus of up to $60,000 per year if the Company achieves certain performance targets established by the Company’s Board of Directors and/or its Compensation Committee. Mr. Tomsic was to be granted an option to purchase 10,526 shares of the Company’s common stock under the Company’s Amended and Restated 2003 Stock Plan. The Employment Agreement also provided that the Company would reimburse Mr. Tomsic for reasonable business expenses and allow him to participate in its regular benefit programs.

If the Company terminates Mr. Tomsic’s employment without Cause (as defined in the Employment Agreement) and certain other conditions are met (including that Mr. Tomsic provide a valid release of claims in favor of the Company), Mr. Tomsic will be entitled to receive a lump sum severance payment equal to his then current monthly salary for each full 12-month period following the date on which Mr. Tomsic first began providing services to the Company.

On January 4, 2010, Mr. Sommer resigned as Chief Executive Officer of the Company. As a result of his departure, Mr. Sommer also resigned as a member of our Board of Directors. Mr. Sommer did not receive any severance as part of his resignation. All 25,000 options granted on November 23, 2009 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. Following Mr. Sommer’s departure, Kevin A. Hall was appointed as our interim Chief Operating Officer (COO).

On May 20, 2010, the Board of Directors of LiveDeal appointed Kevin A. Hall as President and Chief Operating Officer of the Company. Mr. Hall’s compensation and benefits were not affected by his appointment as President of the Company.

On March 24, 2011 Mr. Hall was appointed Chief Executive Officer of the Company. In connection with his appointment, Mr. Hall entered into an employment agreement with the Company which provides for a two-year term of employment, which may be extended upon the parties’ mutual agreement, and an annual base salary of $225,000. Mr. Hall will be entitled to receive an annual performance bonus in the event that the Company reaches certain performance measures established by the Board of Directors or its Compensation Committee. The performance milestones will be weighted 75% financial and 25% personal, and Mr. Hall’s target bonus will be equal to 50% of his base salary.

The agreement further provides that Mr. Hall is entitled to an option to purchase 13,487 shares of the Company’s common stock at an exercise price of $3.53 per share, which was equal to the closing price of the Company’s common stock on the date of grant. The option was granted pursuant to the Company’s 2003 Stock Plan and will vest according to the following schedule: 25% on March 24, 2012 (the first anniversary of the grant date) and 1/36 of the remainder each month beginning on April 24, 2012. Notwithstanding the foregoing, all unvested shares will immediately vest and become exercisable upon a change in control.

If the Company terminates Mr. Hall’s employment during the first year of his term of employment without cause (as defined in the agreement) and certain other conditions are met (including that Mr. Hall provide a valid release of claims in favor of the Company), Mr. Hall will be entitled to receive a lump sum severance payment equal to his then current monthly salary for three months. After March 24, 2012 but prior to the end of his term of employment, if the Company terminates Mr. Hall’s employment without cause, Mr. Hall will be entitled to a severance payment equal to his then current monthly salary for six months. The agreement also provides that the Company will reimburse Mr. Hall for reasonable business expenses and allows him to participate in its regular benefit programs.

On May 20, 2011, in connection with the Company’s continued employment of Mr. Tomsic as its Chief Financial Officer, the Company entered into an employment agreement with Mr. Tomsic. This agreement provides for a one-year term of employment, which may be extended upon the parties’ mutual agreement, and an annual base salary of $220,000. Mr. Tomsic will be entitled to receive an annual performance bonus in the event that the Company reaches certain performance measures established by the Chief Executive Officer or the Board of Directors (or its Compensation Committee). Mr. Tomsic’s target bonus will be equal to $80,000.

Pursuant to the employment agreement, on May 20, 2011, Mr. Tomsic was granted an option to purchase 10,526 shares of the Company’s common stock at an exercise price of $3.77 per share, which was equal to the closing price of the Company’s common stock on the date of grant. The options will vest and be exercisable according to the following schedule: 3,728 options vesting immediately and the remainder shall vest 1/31 at the end of each month thereafter over the next 31 months so long as Mr. Tomsic continues to provide services to the Company. Notwithstanding the foregoing, all unvested shares will immediately vest and become exercisable upon a change of control.

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 as described below, as of September 30, 2011, the Company was not a party to any pending material legal proceedings other than claims that arise in the normal conduct of its business. While management currently believes that the ultimate outcome of these proceedings will not have a material adverse effect on its consolidated financial condition or results of operations, litigation is subject to inherent uncertainties. If an unfavorable ruling were to occur, there exists the possibility of a material adverse impact on the Company’s net income 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.

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

On June 6, 2008, Global Education Services, Inc. ("GES") filed a consumer class action lawsuit against the Company in King County (Washington) Superior Court alleging that the Company's use of activator checks violated the Washington Consumer Protection Act. GES seeks injunctive relief against the Company's use of the checks, as well as judgment in an amount equal to three times the alleged damages sustained by the members of the class. LiveDeal denied the allegations and is defending the litigation. Early in 2010, the Court denied both parties’ dispositive motions after oral argument. After settlement discussions failed to result in resolution, the parties resumed the litigation in the fall of 2011. GES’ motion for class certification is briefed and scheduled to be heard on January 27, 2012. The parties continue to discuss settlement pending hearing on the motion.

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

12.	PROVISION FOR INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A full valuation allowance is established against all net deferred tax assets as of September 30, 2011 and 2010 based on estimates of recoverability. While the Company has optimistic plans for its business strategy, it determined that such a valuation allowance was necessary given the current and expected near term losses and the uncertainty with respect to its ability to generate sufficient profits from its new business model.

Because of the impacts of the valuation allowance, there was no income tax expense or benefit for the year ended September 30, 2011. There was a current income tax benefit of $230,382 for the year ended September 30, 2010 reflecting an adjustment to income tax receivable for net operating loss carrybacks as a result of true-ups to our final 2009 tax return that was filed during fiscal 2010.

A reconciliation of the differences between the effective and statutory income tax rates for years ended September 30, is as follows:

	2011						2010
	Amount			Percent			Amount			Percent

Federal statutory rates	$	(1,870,764	)		34	%	$	(2,613,614	)		34	%
State income taxes		(184,942	)		3	%		(258,378	)		3	%
Write off of deferred tax asset
related to stock based compensation		184,050			(3	)%		50,905			(1	)%
Valuation allowance against net
deferred tax assets		1,920,862			(35	)%		2,786,003			(36	)%
Other		(49,206	)		1	%		(195,298	)		3	%
Effective rate	$	-			0	%	$	(230,382	)		3	%

At September 30, deferred income tax assets and liabilities were comprised of:

	2011			2010
Deferred income tax asset, current:
Book to tax differences in accounts receivable	$	738,671		$	643,209
Book to tax differences in prepaid assets and accrued expenses		(20,502	)		(43,011	)
Total deferred income tax asset, current		718,169			600,198
Less: valuation allowance		(718,169	)		(600,198	)
Deferred income tax asset, current, net		-			-

Deferred income tax asset, long-term:
Net operating loss carryforwards		9,060,073			7,084,995
Book to tax differences for stock based compensation		17,706			187,614
Book to tax differences in intangible assets		7,295,815			7,234,473
Book to tax differences in other assets		326			326
Book to tax differences in depreciation		(1,798,370	)		(1,734,750	)
Total deferred income tax asset, long-term		14,575,550			12,772,658
Less: valuation allowance		(14,575,550	)		(12,772,658	)
Deferred income tax asset, net		-			-

Total deferred income tax asset	$	-		$	-

The Company annually conducts an analysis of its tax positions and has concluded that it has no uncertain tax positions as of September 30, 2011.

As part of its deferred tax assets, the Company has net operating loss carryforwards resulting from its acquisition of LiveDeal, Inc. in fiscal 2007. Such amounts are subject to IRS code section 382 limitations and expire in 2027. The 2007 to 2010 tax years are still subject to audit.

13.	CONCENTRATION OF CREDIT RISK

The Company maintains cash balances at banks in California and Nevada. Accounts are insured by the Federal Deposit Insurance Corporation up to $250,000 per institution as of September 30, 2011. Financial instruments that potentially subject the Company to concentrations of credit risk are primarily trade accounts receivable. The trade accounts receivable are due primarily from business customers over widespread geographical locations within the LEC billing areas across the United States. The Company historically has experienced significant dilution and customer credits due to billing difficulties and uncollectible trade accounts receivable. The Company estimates and provides an allowance for uncollectible accounts receivable. The handling and processing of cash receipts pertaining to trade accounts receivable is maintained primarily by three third-party billing companies. The Company is dependent upon these billing companies for collection of its accounts receivable. The billing companies and LECs charge fees for their services, which are netted against the gross accounts receivable balance. The billing companies also apply holdbacks to the remittances for potentially uncollectible accounts. These amounts will vary due to numerous factors and the Company may not be certain as to the actual amounts on any specific billing submittal until several months after that submittal. The Company estimates the amount of these charges and holdbacks based on historical experience and subsequent information received from the billing companies. The Company also estimates uncollectible account balances and provides an allowance for such estimates. The billing companies retain certain holdbacks that may not be collected by the Company for a period extending beyond one year. Additionally, certain other billings’ channels consisting of billings submitted to LEC Processors through third parties were discontinued. As such, a significant portion of the receivables at September 30, 2011 and 2010 pertaining to LEC service providers represent the holdbacks described above.

The Company has concentrations of receivables with respect to certain wholesale accounts and remaining holdbacks with LEC service providers. Three such entities accounted for 31%, 25% and 20% of gross receivables at September 30, 2011. Three such entities accounted for 27%, 27% and 16% of gross receivables at September 30, 2010.

14.	STOCK-BASED COMPENSATION

Restricted Stock Awards

The Company maintains its 2003 Amended and Restated 2003 Stock Plan (“2003 Plan”) for the issuance of stock-based compensation awards. As amended, the Company is permitted to issue an aggregate of 50,000 shares of common stock under the plan. All Company personnel and contractors are eligible to participate in the plan.

In September 2011, in an effort to preserve cash, the Board, after consultation with the Compensation Committee, entered into an agreement to compensate the members of the Board for their monthly retainer and other services as directors and/or members of the Board’s various standing committees through the award of shares of the Company’s common stock under the 2003 Plan. Under the terms of this agreement, each non-employee director receives a monthly award of fully vested shares of common stock, with the number of shares determined by dividing $3,833 by the closing market price of the Company’s common stock on the grant date. The Company granted an aggregate of 9,184 shares of common stock and recognized expense of $15,333 related to this agreement for services rendered for the month of August 2011. For services rendered for the month of September 2011, the Company recorded $15,333 in accounts payable as of September 30, 2011, which will be paid through the issuance of shares in October 2011. No share issuances for service were made during the year ended September 30, 2010.

As of September 30, 2011, there were 60,332 shares authorized under the 2003 Plan that were granted and remain outstanding, of which 58,990 have vested and 1,342 are in the form of restricted stock. These shares of restricted stock were granted to the Company’s service providers, officers and directors. Of the 1,342 unvested restricted shares, 1,053 shares vest on a cliff basis three years from the date of grant and 289 shares vest on a cliff basis 10 years from the date of grant. Certain market performance criteria may accelerate the vesting of a portion of these awards if the stock price exceeds $50 per share.

Outstanding (unvested) at September 30, 2009	11,203
Granted	-
Forfeited	(3,895	)
Vested	(2,405	)

Outstanding (unvested) at September 30, 2010	4,903
Granted	-
Forfeited	(8	)
Vested	(3,553	)
Outstanding (unvested) at September 30, 2011	1,342

During the years ended September 30, 2011 and 2010 the Company recognized compensation expense of $38,231 and $100,980 respectively, under the 2003 Plan and other restricted stock issuances. Due to the immateriality of the remaining expense, all expense associated with nonvested awards (net of forfeitures of 70% for awards vesting in 2013 and 0% for awards vesting in October 2011) was recognized during the year ended September 30, 2011. No further expense associated with unvested awards is expected unless the Company’s actual forfeiture rate differs from its expected forfeiture rate, in which the Company could incur up to $38,917 of additional expense.

Stock Option Awards:

From time to time, the Company grants stock option awards to officers and employees. Such awards are valued based on the grant date fair value of the instruments, net of estimated forfeitures, using a Black-Scholes option pricing model with the following assumptions:

	Year Ended			Year Ended
	September 30, 2011			September 30, 2010
Volatility		107-108	%		97	%
Risk-free interest rate		1.8-2.8	%		2.2	%
Expected term	5.4-6.0 years			6.0 years
Forfeiture rate		0-50	%		40	%
Dividend yield rate		0	%		0	%

The volatility used was based on historical volatility of the Company’s common stock, which management considers to be the best indicator of expected future volatility. The risk free interest rate was determined based on treasury securities with maturities equal to the expected term of the underlying award. The expected term was determined based on the simplified method outlined in Staff Accounting Bulletin No. 110.

On November 23, 2009, the Company granted an aggregate of 26,316 options to Richard Sommer, the Company’s then-current Chief Executive Officer. In connection with Mr. Sommer’s resignation 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 year ended September 30, 2010.

As discussed in Note 11, on March 24, 2011, Mr. Hall was granted an option to purchase 13,487 shares of the Company’s common stock at an exercise price of $3.53 per share, which was equal to the closing price of the Company’s common stock on the date of grant. The option was granted pursuant to the Company’s 2003 Stock Plan and will vest according to the following schedule: 25% on March 24, 2012 (the first anniversary of the grant date) and 1/36 of the remainder each month beginning on April 24, 2012. The grant date fair value of this award was $19,833 based on a Black-Scholes option pricing model described above and is being expensed on a straight-line basis over the vesting period.

As discussed in Note 10, on May 20, 2011, Mr. Tomsic was granted an option to purchase 10,526 shares of the Company’s common stock at an exercise price of $3.77 per share, which was equal to the closing price of the Company’s common stock on the date of grant. The options will vest and be exercisable according to the following schedule: 3,728 options vesting immediately and the remainder shall vest 1/31 at the end of each month thereafter over the next 31 months so long as Mr. Tomsic continues to provide services to the Company. The grant date fair value of this award was $21,446 using a Black-Scholes option pricing model described above, with $11,218 expensed on grant date and the remaining amount being expensed on a straight-line basis over the vesting period.

Stock option awards are expensed on a straight-line basis over the requisite service period. During the years ended September 30, 2011 and 2010, the Company recognized expense of $38,231 and $38,448, respectively, associated with stock option awards. At September 30, 2011, future stock compensation expense (net of estimated forfeitures) not yet recognized was $26,401 and will be recognized over a weighted average remaining vesting period of 3.1 years.

The following summarizes stock option activity for the year ended September 30, 2011:

				Weighted		Weighted		Weighted
				Average		Average		Average		Aggregate
	Number of			Exercise		Fair		Remaining		Intrinsic
	Shares			Price		Value		Contractual Life		Value
Outstanding at September 30, 2010		5,263
Granted at market price		24,013					n/m
Exercised		-
Forfeited		(5,263	)	$	13.78
Outstanding at September 30, 2011		24,013		$	3.64				9.6	$	-
Exercisable		4,605		$	3.77				9.6	$	-

The following table summarizes information about exercise prices for outstanding options at September 30, 2011:

Exercisable

Unexercisable

Total

Weighted

Number

Average

Number

Average

Number

Average

Range of Exercise Prices

Outstanding

Exercise Price

Outstanding

Exercise Price

Outstanding

Exercise Price

Less than $4.00 per share

4,605

3.77

19,408

3.61

24,013

3.64

Upon the exercise of stock options, the Company may issue new shares or, if circumstances permit, issue shares held as treasury stock.

15.	EMPLOYEE BENEFIT PLAN

The Company maintains a 401(k) retirement plan for its employees who are eligible to participate in the plan. The Company made contributions of $0 and $34,336 to the plan for the years ended September 30, 2011 and 2010, respectively. The company eliminated matching contributions to the 401(k) retirement plan in March 2010.

16.	SEGMENT REPORTING

After discontinuing the Company’s Direct Sales business as described in Note 3, as of September 30, 2011, the Company only operated one business segment. All of the Company’s revenues are with external customers, are derived from operations in the United States, and no single customer accounts for more than 10% of the Company’s revenues.

17.	SUBSEQUENT EVENTS DISCLOSURE

NASDAQ Compliance Issues

On October 19, 2011, LiveDeal, Inc. (the “Company”) received notice that the NASDAQ Listing Qualifications Panel (the “Panel”) determined to grant the Company’s request for continued listing on The NASDAQ Capital Market subject to the Company’s demonstration of compliance with the applicable minimum stockholders’ equity requirement of $2.5 million by November 30, 2011.

On December 12, 2011, the Company completed an equity financing with five unaffiliated investors for an aggregate cash purchase price of $2.0 million, which is described in more detail below. The Company issued a total of 1,612,899 new shares of its common stock in connection with the transaction at a price of $1.24 per share, which was equal to the closing bid price of the common stock as reported on the NASDAQ Capital Market on the date of the transaction. As of December 12, 2011, the Company had 725,479 shares of common stock outstanding, which had a book value per share equal to approximately $1.04 based on the Company’s unaudited stockholders’ equity as of September 30, 2011. After giving pro forma effect to the transaction, the Company had 2,338,378 shares of common stock issued and outstanding on September 30, 2011, with a book value per share equal to approximately $1.18 based on the Company’s pro forma unaudited stockholders’ equity as of September 30, 2011 giving effect to the equity financing. As a result of the foregoing, the Company believes that, as of September 30, 2011, after giving pro forma effect to the equity financing, its stockholders’ equity exceeds the NASDAQ requirement of $2.5 million for continued listing on The NASDAQ Capital Market.

On December 21, 2011, the Company received written notification from NASDAQ indicating that the Company’s securities will continue to be listed on The NASDAQ Capital Market based upon the Company’s compliance with the terms of a Panel decision, which required the Company to evidence compliance with the applicable minimum stockholders’ equity requirement of $2.5 million by December 12, 2011. Accordingly, the NASDAQ hearing process is now closed.

On December 28, 2011, the Company received written notification from NASDAQ that, for the preceding 10 business days (from December 13, 2011 to December 27, 2011), the Company's market value of publicly held shares had been $1.0 million or greater. As a result, NASDAQ confirmed that the Company had regained compliance with NASDAQ Listing Rule 5550(a)(5). The Company was previously notified that it had fallen out of compliance with such rule on September 16, 2011.

Termination of Stock Purchase Agreements and Related Transactions

Completion of $2.0 Million Investment Transaction with Isaac Capital Group LLC and Other Investors

On December 12, 2011, the Board of Directors (the “Board”) of the Company approved, and the Company entered into, a Securities Purchase Agreement (the “Purchase Agreement”) with each of Isaac Capital Group LLC (“ICG”), John Kocmur (“Kocmur”), Kingston Diversified Holdings LLC (“Kingston”), Augustus Gardini, L.P. (“Augustus”) and Lausanne LLC (“Lausanne” and, collectively with ICG, Kocmur, Kingston and Augustus, the “Purchasers” and each a “Purchaser”) providing for the Company’s issuance and sale of an aggregate of 1,612,889 shares (the “Shares”) of the Company’s common stock, par value $0.001 per share (“Common Stock”), for an aggregate cash purchase price equal to $2.0 million. Each of ICG, Kocmur and Kingston (the “Lead Purchasers”) invested $500,000 in the Company and were issued 403,225 shares of Common Stock, and each of Augustus and Lausanne invested $250,000 in the Company and were issued 201,612 shares of Common Stock. The transactions contemplated by the Purchase Agreement were consummated on December 12, 2011.

Pursuant to the Purchase Agreement, among other things:

The per share purchase price ($1.24, which was the closing bid price of the Common Stock, as reported by the NASDAQ Capital Market, on December 12, 2011) for the Shares was equal to the greater of the book or market value of such shares, in accordance with applicable NASDAQ rules.

The cash proceeds from the transactions were deposited and will be maintained in a designated account (the “Proceeds Account”), which is subject to certain restrictions pursuant to the New Bylaws (as defined and described below).

Each Lead Purchaser was given the right, until the date such Lead Purchaser beneficially owns less than five percent (5%) of the issued and outstanding Common Stock, to (i) designate one director (a “New Director” and together, the “New Directors”) prior to the closing to serve on the Board on and after the closing, (ii) nominate one director for election by the Company’s stockholders at each meeting of the stockholders at which directors are to be elected, and (iii) designate a replacement director to fill any vacancy if the director previously designated or nominated by such Lead Purchaser ceases for any reason to be a director.

The Company agreed not to take certain Restricted Corporate Actions (as defined in the Purchase Agreement) prior to the completion of its next annual meeting without the approval of both (i) a majority of the Board and (ii) a majority of the New Directors.

The Company agreed to form the Restructuring Committee as defined and described below to evaluate a potential restructuring of the Company.

The Company made customary representations and warranties to the Purchasers, including (without limitation) with respect to the Company’s organization and qualification, no conflicts, capitalization matters, litigation, labor relations, regulatory permits, title to assets, intellectual property, affiliate transactions, insurance, listing requirements, tax matters, compliance with the Sarbanes-Oxley Act of 2002, filings with the Securities and Exchange Commission, independent accountants, internal controls and lack of undisclosed liabilities. Such representations and warranties were qualified in several respects by the Company’s disclosures in its filings with the Securities and Exchange Commission, so such representations and warranties should not be construed as statements of fact, nor do they speak as of any date subsequent to December 12, 2011.

The Purchasers made customary representations and warranties to the Company, including (without limitation) with respect to their status as accredited investors and investment intent pertaining to the Shares.

As previously disclosed, the Company consummated the transactions contemplated by the Purchase Agreement to regain compliance with the requirement that the Company have stockholders’ equity of at least $2.5 million for continued listing on the NASDAQ Capital Market. As of the date of this filing, the Company believes that its stockholders’ equity exceeds $2.5 million.

In connection with their execution and delivery of the Purchase Agreement, the parties also entered into a Registration Rights Agreement (the “Registration Rights Agreement”) on December 12, 2011, pursuant to which the Company agreed to provide the Purchasers with customary resale and piggy-back registration rights pertaining to the Shares.

The Company offered and sold the Shares without registration under the Securities Act of 1933, as amended (the “Securities Act”), to a limited number of accredited investors in reliance upon the exemption provided by Rule 506 of Regulation D promulgated by the Securities and Exchange Commission under the Securities Act. The Shares may not be offered or sold in the United States in the absence of an effective registration statement or exemption from the registration requirements under the Securities Act. An appropriate legend will be placed on the Shares unless registered under the Securities Act prior to issuance.

Appointment of Kevin A. Hall to Board of Directors

On December 8, 2011, the Board increased the number of authorized directors of the Company to five directors and appointed Kevin A. Hall, the Company’s President and Chief Executive Officer, to fill the vacancy created by such increase in the size of the full Board. Mr. Hall’s appointment took effect immediately, and he was appointed for a term lasting until the next annual meeting of the Company’s stockholders, or until his earlier resignation or removal in accordance with the Company’s Amended and Restated Bylaws. The Board does not anticipate that Mr. Hall will be appointed to any standing committees in light of his role as a member of the Company’s executive management team.

Appointment of Jon Isaac, Tony Isaac and John Kocmur to Board of Directors

On December 12, 2011, the Board increased the number of authorized directors of the Company to eight directors and appointed Jon Isaac, Tony Isaac and John Kocmur to fill the vacancies created by such increase in the size of the full Board. Such New Directors were designated for appointment to the Board by the Lead Purchasers in accordance with their rights under the Purchase Agreement, as described above. Such appointments took effect immediately upon the closing of the transactions contemplated by the Purchase Agreement, and each New Director was appointed for a term lasting until the next annual meeting of the Company’s stockholders, or until his earlier resignation or removal in accordance with the Company’s Amended and Restated Bylaws. The Board has not yet appointed any of the New Directors to serve on its standing committees, although it anticipates making certain appointments in the near future.

Formation of Restructuring Committee

In connection with the transactions described above, the Board also established an ad hoc special committee (the “Restructuring Committee”) to evaluate a potential restructuring of the Company. The Board appointed each of the New Directors, as well as existing directors Sheryle Bolton and Thomas Clarke, to serve on the Restructuring Committee.

Amendment of Bylaws

On December 12, 2011, the Board approved and adopted, effective immediately, Amended and Restated Bylaws of the Company (the “New Bylaws”). In addition to certain technical corrections, the amendments included the following:

Pursuant to the Purchase Agreement, the cash proceeds of the investment transaction contemplated thereby were deposited in the Proceeds Account. The New Bylaws provide that until the later of (i) the completion of the next annual meeting of the Company’s stockholders and (ii) February 16, 2012 (such later date, the “Termination Date”), no funds may be withdrawn from the Proceeds Account, and no authorized signatory for the Proceeds Account (currently Jon Isaac) may be added, replaced or removed, in either case without such action being approved by both (A) a majority of the Board and (B) a majority of the New Directors.

The New Bylaws provide that, until the Termination Date, the Corporation may not take or agree to take, and the Board may not authorize, approve or ratify, any Restricted Corporate Action (as defined in the Purchase Agreement) without such action being approved by both (A) a majority of the Board and (B) a majority of the New Directors.

The provisions of Sections 78.378 to 78.3793 of the Nevada Revised Statutes (pertaining to acquisitions of controlling interests in certain covered corporations) shall not apply to the Purchasers.

The New Bylaws also provide for certain matters pertaining to the creation of the Restructuring Committee and prevent further amendments or modifications (both to the New Bylaws and the related resolutions of the Board) without such action being approved by both (A) a majority of the Board and (B) a majority of the New Directors.

	Quarter Ended
	December 31,			March 31,			June 30,			September 30,
	2010			2011			2011			2011

Net revenues	$	994,622		$	1,118,165		$	1,124,976		$	845,649
Gross profit		100,045			(394,618	)		76,747			695,095
Loss from continuing operations		(1,884,554	)		(2,029,493	)		(1,150,938	)		(318,908	)
Income (loss) from discontinued operations		154,160			(285,207	)		7,561			5,131
Net loss	$	(1,730,394	)	$	(2,314,700	)	$	(1,143,377	)	$	(313,777	)

Earnings per share information - basic and diluted:

Loss from continuing operations	$	(2.96	)	$	(3.08	)	$	(1.69	)	$	(0.48	)
Discontinued operations		0.24			(0.43	)		0.01			0.01
Net loss	$	(2.72	)	$	(3.51	)	$	(1.68	)	$	(0.47	)

	Quarter Ended
	December 31,			March 31,			June 30,			September 30,
	2009			2010			2010			2010

Net revenues	$	1,107,524		$	1,101,816		$	992,260		$	1,037,355
Gross profit		1,009,175			919,219			817,562			365,029
Loss from continuing operations		(3,166,836	)		(1,997,617	)		(1,537,121	)		(1,876,435	)
Income (loss) from discontinued operations		641,183			224,095			197,187			58,826
Net loss	$	(2,525,653	)	$	(1,773,522	)	$	(1,339,934	)	$	(1,817,609	)

Earnings per share information - basic and diluted:

Loss from continuing operations	$	(5.02	)	$	(3.17	)	$	(2.43	)	$	(2.97	)
Discontinued operations		1.02			0.36			0.31			0.09
Net loss	$	(4.00	)	$	(2.81	)	$	(2.12	)	$	(2.88	)

ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

None.

ITEM 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures. We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were effective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting. There was no change in our internal control over financial reporting during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of our internal control over financial reporting as of September 30, 2011. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control — Integrated Framework. Based on our assessment using those criteria, our management concluded that our internal control over financial reporting was effective as of September 30, 2011.

This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to a permanent exemption of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report. Accordingly, our management's assessment of the effectiveness of our internal control over financial reporting as of September 30, 2011 has not been audited by our auditors, Mayer Hoffman McCann P.C. or any other independent registered accounting firm.

PART III

Certain information required by Part III is omitted from this Annual Report on Form 10-K because we will file our definitive Proxy Statement for our 2012 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A of the Exchange Act (the “Proxy Statement”) not later than 120 days after the end of the fiscal year covered by this Annual Report. Certain information included in the Proxy Statement is incorporated herein by reference.

ITEM 10. Directors, Executive Officers and Corporate Governance