For a description of our significant accounting policies and an understanding of the significant factors that influenced our performance during the fiscal year ended September 30, 2012, this "Management's Discussion and Analysis" should be read in conjunction with the Consolidated Financial Statements, including the related notes, appearing in Item 8 of this Annual Report.

Executive Overview

Our Company

LiveDeal, Inc., which, together with its subsidiaries, we refer to as the Company, LiveDeal, "we", "us" or "our", provides online customer acquisition services for small-to-medium sized local businesses, or SMBs. We offer affordable tools for SMBs to extend their marketing reach to relevant prospective customers via the internet. We also provide SMBs promotional marketing with the ability to offer special deals and activities through our online publishing partners.

Our principal offices are located at 6240 McLeod Drive, Suite 120, Las Vegas, Nevada 89120, our telephone number is (702) 939-0230, and our corporate website (which does not form part of this report) is located at www.livedeal.com. Our common stock trades on the NASDAQ Capital Market under the symbol "LIVE".

Summary Business Description

We provide marketing solutions that boost customer awareness and merchant visibility on the internet. We recently launched two new business lines under new management after a period of re-evaluating our sales program, products, distribution methods and vendor programs. In November 2012, we commenced the sale of marketing tools that help local businesses manage their online presence under our Velocity Local™ brand, which we refer to as online presence marketing. In August 2012, we commenced sourcing local deal and activities to strategic publishing partners under our LiveDeal® brand, which we refer to as promotional marketing. We continue to actively develop, revise and evaluate these products and services and our marketing strategies and procedures.

As these business lines were launched in August 2012 and November 2012, the results have at this juncture not had a material impact on our revenues for our fiscal year 2012. We continue to generate most of our revenue from servicing our existing customers under our legacy product offerings, primarily our InstantProfile® line of products and services. Because of the change in our business strategy and product lines, we no longer accept new customers under our legacy product offerings.

Changes in Business Strategies

We have been engaged in a significant re-evaluation of and adjustment to our business strategy over the last several years. The focus of these efforts has been twofold: first, to make our product offerings more appealing in the evolving market for assisting SMBs with their online marketing challenges; and second, to move ahead of our competitors in this market segment. In connection with this re-evaluation, we terminated all new sales under our direct sales business line on December 1, 2010, and on July 15, 2011, we discontinued all new sales of our InstantProfile® product. As a result of the cessation of our marketing efforts to acquire new customers, and the attrition of existing customers, our net revenues continued to decline, from $4.2 million in fiscal 2010 to $4.1 million in fiscal 2011 and $3.1 million in fiscal 2012.

At the same time, we have been actively engaged in efforts to reduce our ongoing costs and expenses. As a result, our total operating expenses declined from $12.0 million in fiscal 2010 to $5.8 million in fiscal 2011 and $3.3 million in fiscal 2012.

In March 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 SMBs, as well as declining revenues from our traditional business line (i.e. directory services). Additionally, current economic and regulatory forces, both general and specific to our industry, impacted our consideration of our existing business model and strategy.

As a result, we decided during the second quarter of fiscal 2010 to move our strategic focus towards our directory services business and to 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 our direct sales business line on December 1, 2010. In March 2011, we made the strategic decision to discontinue our direct sales business and product offerings, and in May 2011 we transferred 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.

Our strategic focus then switched to delivering a suite of internet-based, local search driven, customer acquisition services for SMBs, sold via telemarketing using LEC billing channels as well as other billing channels and targeting all segments of the SMB market through our Velocity Marketing Concepts, Inc. subsidiary. We paused new Velocity sales July 15, 2011 while we re-evaluated our current and future sales programs.

While continue to generate most of our revenue from servicing our existing customers under our legacy product offerings, primarily our InstantProfile®line of products and services, because of the changes in our business strategy and product lines, we no longer accept new customers for these products.

Restructuring Activities

On January 4, 2010, our Board of Directors approved a reduction in force that resulted in the termination of approximately 33% of our workforce, effective January 7, 2010. On February 23, 2010, 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 our company or certain of its assets and/or the acquisition of other entities or businesses.

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

In May 2011, we ceased the direct sales business and transferred the remaining customers to Reach. In connection therewith, we terminated seven employees and recorded non cash impairment charges of $367,588, consisting of the write-off of net intangible, in fiscal 2011. 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.

Changes in Principal Officers and Directors

On January 4, 2010, Richard Sommer resigned as our Chief Executive Officer, and our board appointed Kevin A. Hall as Chief Operating Officer on May 20, 2010 and as Chief Executive Officer on March 24, 2011. On January 2, 2010, Rajeev Seshadri resigned as our Chief Financial Officer and was replaced by Lawrence W. Tomsic.

On December 12, 2011, we entered into a Securities Purchase Agreement with each of Isaac Capital Group LLC, or ICG, John Kocmur, Kingston Diversified Holdings LLC, or Kingston, and two other investors, pursuant to which we issued and sold an aggregate of 1,612,899 shares of our common stock for an aggregate purchase price of $2.0 million. Each of ICG, Kocmur and Kingston, whom we refer to as the lead purchasers, invested $500,000 and were issued 403,225 shares of stock, and the investors each invested $250,000 and were issued 201,612 shares of stock.

Pursuant to the Purchase Agreement, on December 12, 2011, our Board increased the number of authorized directors of the Company to eight directors and appointed Jon Isaac, the owner of ICG, Tony Isaac, the father of Jon Isaac, and John Kocmur to fill the vacancies created by the increase in the size of the full Board. These directors were designated for appointment to our board by the lead purchasers in accordance with their rights under the securities purchase agreement described above.

On January 13, 2012, our board terminated Kevin Hall, our CEO, effective as of January 20, 2012, and on that date, our board appointed Jon Isaac to serve as our President and Chief Executive Officer.

Around January 20, 2012, Kevin Hall and Sheryle Bolton resigned as members of our Board, and on January 25, 2012, our Board appointed Dennis Gao as a director to fill the vacancy created by Ms. Bolton's resignation.

On May 20, 2012, the employment of Larry Tomsic, the Company's Chief Financial Officer terminated. We are in the process of evaluating and defining our needs for a Chief Financial Officer or Controller. Currently, Mr. Isaac is functioning as our principal financial officer.

Current Business Strategy

Under new management, we continued the process of evaluating our business strategy and to cut costs. In August 2012, we commenced sourcing local deal and activities to strategic publishing partners under our LiveDeal® brand, which we refer to as promotional marketing. In November 2012, we commenced the sale of marketing tools that help local businesses manage their online presence under our Velocity Local™ brand, which we refer to as online presence marketing. We continue to actively develop, revise and evaluate these products and services and our marketing strategies and procedures.

In connection with our new promotional marketing business line, on August 16, 2012, we completed our acquisition of substantially all of the assets of LiveOpenly, Inc., a California corporation, which we refer to as LiveOpenly. The acquired business sourced, published and sold discounted offers for goods and services through local retail merchants. Under the terms of the acquisition, we acquired LiveOpenly's sourcing contracts, software, customer lists, trademarks, domain names, and related assets in exchange for the issuance of 75,000 shares of our common stock. In connection with this acquisition, the Company recorded $420,000 of net assets, consisting entirely of intangible assets. No goodwill was recognized as the purchase price equaled the net assets received. In connection with this acquisition, we engaged Ejimofor Umenyiora, the former Director of Sales of LiveOpenly, as an independent contractor.

Because of the infancy of our new lines of business, we have yet to generate significant revenue from our online presence marketing or our promotional marketing lines of business. Given that we have not been accepting new customers for our legacy product offerings since July 2011 and that we did not launch our new product offerings until August 2012, our revenues have declined in fiscal 2012 as compared to fiscal 2011. However, we engaged in significant cost reduction and containment activities during this period, and have reduced our net loss to $1.6 million in fiscal 2012 as compared to $5.5 million in fiscal 2011.

Critical Accounting Estimates and Assumptions

The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires our management to make many estimates and assumptions that may materially affect both our consolidated financial statements and related disclosures, such as reported amounts of assets and liabilities and disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during the reporting period, and the comparability of the information presented over different reporting periods. Estimates and assumptions are based on management's experience and other information available prior to the issuance of our financial statements. Our actual realized results may differ materially from management's initial estimates as reported. Summaries of our significant accounting policies are detailed in the notes to the consolidated financial statements, which are an integral component of this filing.

The discussion in this section of "critical" accounting estimates and assumptions is according to the disclosure guidelines of the SEC, wherein:

· the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change; and

· the impact of the estimates and assumptions on our financial condition or operating performance is material.

Besides those meeting these "critical" criteria, we make many other accounting estimates and assumptions in preparing our financial statements and related disclosures. Although not associated with "highly uncertain matters," these estimates and assumptions are also subject to revision as circumstances warrant, and materially different results may sometimes occur.

The following summarizes "critical" estimates and assumptions made by management in the preparation of the consolidated financial statements and related disclosures.

Revenue Recognition

We recognize revenue for our services when all of the following criteria are satisfied:

· persuasive evidence of an arrangement exists;

· services have been performed;

· the selling price is fixed or determinable; and

· collectability is reasonably assured.

Through September 30, 2012, we have not generated significant revenue from our two new product offerings: online presence marketing and promotional marketing.

With respect to our legacy businesses, we generate revenue from customer subscriptions for directory and advertising services. We recognize revenues as services are rendered. In some instances, we receive payments in advance of rendering services, whereupon such revenues are deferred until the related services are rendered. Our billing and collection procedures include significant involvement of outside parties, referred to as aggregators for LEC billing and service providers for ACH billing. We provide allowances for customer refunds, non-paying customers and fees which are estimated at the time of billing.

Allowance for Doubtful Accounts

We estimate allowances for doubtful accounts for accounts that are billed directly by us as well as those serviced by third party aggregators and service providers (processors).

Included in accounts receivable are amounts held by LEC aggregators as reserves for future refunds, billing adjustments, service fees, etc. As we have ceased billing activities with many of these service providers, there is some uncertainty as to the collectability of such receivables and we have increased our allowance for doubtful accounts accordingly.

The aggregate of accounts receivable balances from the LEC operations that do not have billing activity was $956,524 and $1,241,097 as of September 30, 2012 and 2011, respectively, and the aggregate of corresponding allowances was $853,452 and $1,069,048, respectively. These aggregate amounts include the accounts receivable balances and allowances for the accounts held by the Chapter 11 bankruptcy filing of one of our LEC aggregators. At September 30, 2012 and 2011 we had $777,755 and $703,732 of accounts receivable and reserve allowance, respectively, associated with this LEC aggregator.

Carrying Value of Intangible Assets

Our intangible assets consist of licenses for the use of internet domain names or universal resource locators, or URLs, capitalized website development costs, other information technology licenses and marketing and technology related intangibles acquired through the acquisitions of LiveDeal, Inc. (California) and LiveOpenly. All these assets are capitalized at their original cost (or at fair value for assets acquired through business combinations) and amortized over their estimated useful lives. We capitalize internally generated software and website development costs in accordance with the provisions of the FASB Accounting Standards Codification ("ASC") ASC 350, "Intangibles - Goodwill and Other".

We evaluate the recoverability of the carrying amount of intangible assets whenever events or changes in circumstances indicate that the carrying amount of these assets may not be fully recoverable. In the event of such changes, impairment would be assessed if the expected undiscounted net cash flows derived for the asset are less than its carrying amount. 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. A further evaluation was conducted in the fourth quarter of fiscal 2011 due to continued operating losses; however, it was determined that no further impairment existed at that time. In 2012, due to improved financial results, there were no changes in events or circumstances which would indicate carrying amounts would not be recoverable.

Income Taxes

Income taxes are accounted for using the asset and liability method as prescribed by ASC 740 "Income Taxes". 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.

We have estimated net deferred income tax assets (net of valuation allowances) of $0 at September 30, 2012 and 2011. A full valuation allowance has been established against all net deferred tax assets as of September 30, 2012 and 2011 based on estimates of recoverability. While we have optimistic plans for our new business strategy, we determined that such a valuation allowance was necessary given the current and expected near term losses and the uncertainty with respect to our ability to generate sufficient profits from our new business lines. Therefore, we established a valuation allowance for all deferred tax assets in excess of those expected to be realizable through the application of operating loss carrybacks.

We performed an analysis of uncertain tax positions and we did not identify any significant uncertainties that would affect the carrying value of our deferred tax assets and liabilities as of September 30, 2012 and 2011.

Results of Operations

Net Revenues

Net revenues in fiscal 2012 decreased by approximately $1,000,000, as compared to fiscal 2011, primarily due to the fact that new sales of our legacy products were terminated on July 15, 2011. We continue to service existing customers under our legacy product and service lines, which accounted for substantially all of revenues for fiscal 2012. As our new product lines, online presence marketing and promotional marketing, are in their infancy, they have yet to generate significant revenues during fiscal 2012.

We have historically billed a significant amount of our legacy business revenues through LEC billing channels. The largest LEC billing companies have issued a notice to all clearinghouses that they will cease billing for third parties as of December 28, 2012. We anticipate that the three remaining LEC billing companies will also cease processing for third parties as of the end of 2012. If we are not able to obtain alternative billing methods for these customers, the number of legacy subscribers and our revenues attributable to our legacy business may materially decline.

Cost of Services

Cost of services decreased in fiscal 2012 as compared to fiscal 2011, primarily due to decreased costs associated with the decline in the number of our customers and the provisioning of fulfillment activities which are now done by us rather than outside vendors. We continue to service existing customers acquired under legacy product and service lines, which accounted for substantially all of our cost of services for fiscal 2012 and 2011.

Gross Profit 2012 2011 Change Percent

Gross profit increased approximately $1,878,000 in fiscal 2012 as compared to fiscal 2011 reflecting a decrease in cost of services, partially offset by a decrease in net revenues as described above.

General and Administrative Expenses

General and administrative expenses decreased in fiscal 2012 as compared to fiscal 2011 as outlined below:

· Decreased compensation costs of approximately $978,800 reflecting the impacts of our restructuring action;

· Decreased professional fees of approximately $1,004,700 related to:

§ Legal fees of $469,400, due to reduction of litigation,

§ Outside sales service costs of $205,600, due to the termination of third party sales consultants,

§ Other miscellaneous consultant costs of $109,200,

§ Investment banker fees of $88,300,

§ Reductions in IT consultant fees of $80,000 as we moved our IT function to virtual servers,

§ Accounting fees of $29,300, and

§ Marketing consultant fees of $22,900,

· Decreased depreciation and amortization expense of approximately $303,850 related to the reduction of direct sales related assets and intangibles;

· Decreased software costs of $189,300 reflecting a decrease in IT infrastructure and product development costs;

· Other expense decreases of approximately $100,000, including 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;

· Partially offset by an increase in litigation fees of $145,000 which is due to an accrual of $150,000 in the third quarter of fiscal 2012 in conjunction with a legal settlement.

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

                  Q4 2012        Q3 2012        Q2 2012        Q1 2012        Q4 2011        Q3 2011        Q2 2011        Q1 2011
Compensation
for employees,
leased
employees,
officers and
directors          (242,490 )     (378,700 )     (295,333 )     (341,325 )     (340,888 )     (422,901 )     (536,269 )     (936,426 )
Professional
fees               (254,549 )     (110,706 )     (226,403 )     (143,805 )     (360,221 )     (378,960 )     (539,950 )     (453,062 )
Depreciation
and
Amortization        (67,635 )      (55,669 )      (67,391 )      (69,281 )      (88,868 )      (79,227 )     (190,254 )     (205,477 )
Other general
and
administrative
costs              (244,740 )     (347,278 )     (232,301 )     (212,403 )     (174,887 )     (291,448 )     (344,909 )     (377,604 )

Sales and Marketing Expenses

Sales and marketing expenses decreased in fiscal 2012 as compared to fiscal 2011 primarily due to the reduction in spending for marketing materials. This reduction is in conjunction with the stopping of new sales effective July 2011.

Operating Loss

The decrease in our operating loss for fiscal 2012 as compared to fiscal 2011 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 is described above.

Total Other Income (Expense)

Other income (expense) in fiscal 2012 consisted of:

· ($613,000) of interest expense, including $489,594 of non-cash charges associated with a beneficial conversion feature associated with our convertible debt issued to ICG;

· ($30,000) loss on disposal of fixed assets; partially offset by

· $2,600 of interest income on cash balances.

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.

Income (Loss) from Discontinued Operations

In 2011, the Company decided to discontinue the direct sales business and, accordingly, results from that segment are reflected as discontinued operations in our consolidated financial statements for all periods presented. Our income from direct sales for the year ended September 30, 2012 consisted of the recovery of a bad debt from a previous period.

Net Loss

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