x
|
ANNUAL REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
o
|
TRANSITION REPORT UNDER SECTION
13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
Nevada
|
85-0206668
|
|||
(State
or Other Jurisdiction of Incorporation or Organization)
|
(IRS
Employer Identification No.)
|
2490
E. Sunset Road, Suite 100
Las
Vegas, Nevada
|
89120
|
|||
(Address
of principal executive offices)
|
(Zip
Code)
|
Large
accelerated filer o
|
Accelerated
filer o
|
Non-accelerated
filer x
|
Page
|
|||
Part
I
|
|||
Item
1.
|
2
|
||
Item
1A.
|
12
|
||
Item
1B.
|
22
|
||
Item
2.
|
22
|
||
Item
3.
|
22
|
||
Item
4.
|
23
|
||
Part
II
|
|||
Item
5.
|
23
|
||
Item
6.
|
25
|
||
Item
7.
|
27
|
||
Item
7A.
|
40
|
||
Item
8.
|
41
|
||
42
|
|||
44
|
|||
45
|
|||
46
|
|||
47
|
|||
48
|
|||
Item
9.
|
67
|
||
Item
9A.
|
67
|
||
Item
9B.
|
68
|
||
Part
III
|
|||
Item
10.
|
69
|
||
Item
11.
|
69
|
||
Item
12.
|
69
|
||
Item
13.
|
69
|
||
Item
14.
|
69
|
||
Part
IV
|
|||
Item
15.
|
69
|
||
74
|
|
·
|
Larger
font.
|
|
·
|
Bolded business
name.
|
|
·
|
A “tagline” whereby the
advertiser can differentiate itself from its
competitors.
|
|
·
|
An audio
advertisement.
|
|
·
|
Map
directions.
|
|
·
|
A Click2Call™ feature, whereby a
user of our website can place a telephone call to one of our advertising
customers by clicking the icon that is displayed on the
Mini-WebPage. This initiates a telephone call by the advertiser
to the user, in a conference call type format. Once both are connected, it
functions as a regular telephone call. Because we cover all
charges for this telephone call, it is free of charge to both the user and
the IAP advertiser. We have an agreement with WebDialogs, Inc.
to provide this service.
|
|
·
|
A link to the advertiser’s own
webpage and email address.
|
|
·
|
Additional distribution network
for preferred listings. This feature gives additional exposure to our IAP
advertisers by placing their preferred listing on several online directory
systems. There currently is no charge to the IAP advertiser for
these additional channels of
distribution.
|
|
·
|
Own source code that includes
cutting edge technology (J2EE, Struts, XML, Spring, Hybernate, JBoss,
Apache, etc):
|
|
·
|
Linear scaling architecture using
low cost commodity hardware:
|
|
·
|
An architecture based on
redundancy for scalable quick user
responses:
|
|
·
|
Proven search technology which
scales for large volumes:
|
|
·
|
Enhanced security using HTTPS,
Encryption, data obfuscation:
and
|
|
·
|
Internationalized Architecture
for quick localization.
|
|
·
|
More current and extensive
listing information.
|
|
·
|
Immediate access to business
listings across the nation from any
location.
|
|
·
|
Broad accessibility via computers
and hand-held devices, such as mobile phones and personal digital
assistants.
|
|
·
|
Features such as mapping, direct
calling to the advertiser, and e-mail at the click of a button also may be
available.
|
|
·
|
We have cross-marketing
arrangements with reciprocal linking of websites without any compensation
to either party. These arrangements increase the page views for our
advertisers’ listings by being listed on the linked websites. These
co-promotional arrangements typically are terminable with one month’s
notice.
|
|
·
|
We have a license agreement with
Palm, Inc. whereby we pay a fee to be a provider of Yellow Pages content
on hand-held devices using the Palm operating system. We
provide this content to Palm through a hypertext link from the Palm
operating system to our
website.
|
|
·
|
We have an agreement with Yahoo!
Search Services to provide visibility to our website so that we can
provide traffic to our advertisers. In exchange for monthly fees, Yahoo!
Search Services assists in helping us to be one of the highest placed
sites when Yellow Pages searches are done on major search engines, such as
MSN and Yahoo!.
|
|
·
|
We utilize WebDialogs in a
co-promotional effort to provide automatic dialing services to our website
users. These services allow these users to place a call to one of our IAP
advertisers by simply clicking a button. This function powers our
Click2Call feature.
|
|
·
|
We will begin featuring Yelp’s
1.8 million customer reviews on its online classifieds and Yellow Pages
platforms, giving LiveDeal users an enormous wealth of user-generated
content about local area
businesses.
|
|
·
|
some competitors have longer
operating histories and greater financial and other resources than we have
and are in better financial condition than we
are;
|
|
·
|
some competitors have better name
recognition, as well as larger, more established, and more extensive
marketing, customer service, and customer support capabilities than we
have;
|
|
·
|
some competitors may supply a
broader range of services, enabling them to serve more or all of their
customers’ needs. This could limit our sales and strengthen our
competitors’ existing relationships with their customers, including our
current and potential IAP
advertisers;
|
|
·
|
some competitors may be able to
better adapt to changing market conditions and customer demand;
and
|
|
·
|
barriers to entry are not
significant. As a result, other companies that are not
currently involved in the Internet-based Yellow Pages advertising business
may enter the market or develop technology that reduces the need for our
services.
|
|
·
|
fluctuating demand for our
services, which may depend on a number of factors
including
|
|
o
|
changes in economic conditions
and our IAP advertisers’
profitability,
|
|
o
|
varying IAP advertiser response
rates to our direct marketing
efforts,
|
|
o
|
our ability to complete direct
mailing solicitations on a timely basis each
month,
|
|
o
|
changes in our direct marketing
efforts,
|
|
o
|
IAP advertiser refunds or
cancellations, and
|
|
o
|
our ability to continue to bill
through LEC billing, ACH billing or credit card channels rather than
through direct invoicing;
|
|
·
|
market acceptance of new or
enhanced versions of our services or
products;
|
|
·
|
price competition or pricing
changes by us or our
competitors;
|
|
·
|
new product offerings or other
actions by our competitors;
|
|
·
|
the ability of our check
processing service providers to continue to process and provide billing
information regarding our solicitation
checks;
|
|
·
|
the amount and timing of
expenditures for expansion of our operations, including the hiring of new
employees, capital expenditures, and related
costs;
|
|
·
|
technical difficulties or
failures affecting our systems or the Internet in
general;
|
|
·
|
a decline in Internet traffic at
our website;
|
|
·
|
the cost of acquiring, and the
availability of, information for our database of potential advertisers;
and
|
|
·
|
the fixed nature of a significant
amount of our operating
expenses.
|
|
·
|
the pace of expansion of our
operations;
|
|
·
|
our need to respond to
competitive pressures; and
|
|
·
|
future acquisitions of
complementary products, technologies or
businesses.
|
|
·
|
We paid a settlement fee of
$2,000,000 to the state consortium, which was distributed among
themselves;
|
|
·
|
We discontinued the use of
activation checks as a promotional
incentive;
|
|
·
|
We temporarily suspended billing
of any active customer that was acquired in connection with the use of an
activation check while notifying the customer of their legal rights to
cancel the service and providing them a 60-day opportunity to receive a
refund equivalent to the customer’s last two payments;
and
|
|
·
|
We agreed not to employ any
collection efforts with respect to past-due accounts of customers that
were secured through the use of an activation
check.
|
|
·
|
cease selling or using any of our
products that incorporate the challenged intellectual property, which
would adversely affect our
revenue;
|
|
·
|
obtain a license from the holder
of the intellectual property right alleged to have been infringed, which
license may not be available on reasonable terms, if at all;
and
|
|
·
|
redesign or, in the case of
trademark claims, rename our products or services to avoid infringing the
intellectual property rights of third parties, which may not be possible
and in any event could be costly and
time-consuming.
|
|
·
|
changes that might result from
regulatory requirements, exchange rates, tariffs and/or other economic
barriers;
|
|
·
|
difficulties in staffing and
managing the operations of our Philippine
subsidiary;
|
|
·
|
differing technology and systems
standards;
|
|
·
|
conflicting laws and/or political
conditions; and
|
|
·
|
risks relating to accounting
practices and/or tax laws enforced in foreign
jurisdictions.
|
|
·
|
rapid technological
change;
|
|
·
|
changes in advertiser and user
requirements and
preferences;
|
|
·
|
frequent new product and service
introductions embodying new technologies;
and
|
|
·
|
the emergence of new industry
standards and practices that could render our existing service offerings,
technology, and hardware and software infrastructure
obsolete.
|
|
·
|
enhance our existing services and
develop new services and technology that address the increasingly
sophisticated and varied needs of our prospective or current IAP
advertisers;
|
|
·
|
license, develop or acquire
technologies useful in our business on a timely basis;
and
|
|
·
|
respond to technological advances
and emerging industry standards and practices on a cost-effective and
timely basis.
|
|
·
|
decreased demand in the Internet
services sector;
|
|
·
|
variations in our operating
results;
|
|
·
|
announcements of technological
innovations or new services by us or our
competitors;
|
|
·
|
changes in expectations of our
future financial performance, including financial estimates by securities
analysts and investors;
|
|
·
|
our failure to meet analysts’
expectations;
|
|
·
|
changes in operating and stock
price performance of other technology companies similar to
us;
|
|
·
|
conditions or trends in the
technology industry;
|
|
·
|
additions or departures of key
personnel; and
|
|
·
|
future sales of our common
stock.
|
|
·
|
the authority of our board to
issue up to 5,000,000 shares of serial preferred stock and to
determine the price, rights, preferences, and privileges of these shares,
without stockholder
approval;
|
|
·
|
all stockholder actions must be
effected at a duly called meeting of stockholders and not by written
consent unless such action or proposal is first approved by our board of
directors;
|
|
·
|
special
meetings of the stockholders may be called only by the Chairman of the
Board, the Chief Executive Officer, or the President of our company;
and
|
|
·
|
cumulative voting is not allowed
in the election of our
directors.
|
|
·
|
A proposal to give the Company’s
Board of Directors discretion to effect a reverse stock split with respect
to issued and outstanding shares of our common stock;
and
|
|
·
|
A proposal to amend and restate
the Company’s Restated Articles of Incorporation to change the Company’s
name from “YP Corp.” to “LiveDeal,
Inc.”
|
Votes
For
|
Votes
Against
|
Abstentions
and Broker Non-Votes
|
|
Proposal
to Give the Company’s Board of Directors Discretion to Effect a Reverse
Stock Split with Respect to Issued and Outstanding Shares of our Common
Stock
|
52,886,335
|
3,962,852
|
371,700
|
Votes
For
|
Votes
Against
|
Abstentions
and Broker Non-Votes
|
|
Proposal
to Amend and Restate the Company’s Restated Articles of Incorporation to
Change the Company’s Name from “YP Corp.” to “LiveDeal,
Inc.”
|
56,443,009
|
162,052
|
625,826
|
Fiscal Year
|
Quarter Ended
|
High
|
Low
|
|||||||
2006
|
December
31, 2005
|
$
|
9.40
|
$
|
4.00
|
|||||
March
31, 2006
|
$
|
10.30
|
$
|
5.10
|
||||||
June
30, 2006
|
$
|
13.00
|
$
|
9.50
|
||||||
September
30, 2006
|
$
|
10.80
|
$
|
7.90
|
||||||
2007
|
December
31, 2006
|
$
|
10.70
|
$
|
7.20
|
|||||
March
31, 2007
|
$
|
12.10
|
$
|
7.60
|
||||||
June
30, 2007
|
$
|
8.70
|
$
|
6.60
|
||||||
September
30, 2007
|
$
|
8.00
|
$
|
6.00
|
Period
|
(a)
Total Number of Shares (or Units) Purchased
|
(b)
Average Price Paid per Share (or Unit)
|
(c)
Total Number of Shares (or Units)
Purchased
as Part of Publicly Announced Plans or Programs2
|
(d)
Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May
Yet Be Purchased Under the Plans or Programs
|
||||||||||||
July
2007
|
-
|
N/A
|
-
|
$
|
1,000,000
|
|||||||||||
August
2007
|
44,224
|
1
|
$
|
6.95
|
-
|
$
|
1,000,000
|
|||||||||
September
2007
|
-
|
N/A
|
-
|
$
|
1,000,000
|
|||||||||||
Total
|
44,224
|
$
|
6.95
|
-
|
$
|
1,000,000
|
Year
Ended September 30,
|
||||||||||||||||||||
2007
|
2006
|
2005
(1)
|
2004
|
2003
|
||||||||||||||||
Statement
of Operations Data
|
(as
restated)
|
(as
restated)
|
(as
restated)
|
(as
restated)
|
||||||||||||||||
Net
revenues
|
$
|
26,340,361
|
$
|
31,957,947
|
$
|
24,361,995
|
38,954,823
|
$
|
26,396,093
|
|||||||||||
Cost
of services
|
4,204,276
|
4,030,280
|
3,137,756
|
6,544,598
|
4,102,395
|
|||||||||||||||
Gross
profit
|
22,136,085
|
27,927,667
|
21,224,239
|
32,410,225
|
22,293,698
|
|||||||||||||||
Operating
income (loss)
|
3,326,679
|
(1,562,357
|
)
|
985,256
|
11,465,946
|
7,281,886
|
||||||||||||||
Net
income (loss)
|
1,753,918
|
(1,050,920
|
)
|
725,146
|
8,184,930
|
6,472,705
|
||||||||||||||
Net
income (loss) per common share:
|
||||||||||||||||||||
Basic
|
$
|
0.34
|
$
|
(0.23
|
)
|
$
|
0.16
|
$
|
1.73
|
$
|
1.43
|
|||||||||
Diluted
|
$
|
0.33
|
$
|
(0.23
|
)
|
$
|
0.16
|
$
|
1.70
|
$
|
1.42
|
|||||||||
Weighted
average common shares outstanding:
|
||||||||||||||||||||
Basic
|
5,108,551
|
4,495,868
|
4,639,036
|
4,737,593
|
4,532,672
|
|||||||||||||||
Diluted
|
5,336,439
|
4,495,868
|
4,665,992
|
4,807,570
|
4,559,159
|
|||||||||||||||
Cash
dividends declared per common share
|
$
|
-
|
$
|
-
|
$
|
0.30
|
$
|
0.30
|
$
|
-
|
||||||||||
Statement
of Cash Flows Data
|
||||||||||||||||||||
Net
cash provided by operating activities
|
$
|
1,765,496
|
$
|
2,422,001
|
$
|
6,990,161
|
$
|
4,818,203
|
$
|
4,762,238
|
||||||||||
Net
cash used in investing activities
|
(2,175,802
|
)
|
(1,904,201
|
)
|
(2,440,792
|
)
|
(2,192,500
|
)
|
(2,798,500
|
)
|
||||||||||
Net
cash used in financing activities
|
(309,936
|
)
|
(237,336
|
)
|
(2,011,587
|
)
|
(1,428,022
|
)
|
(351,998
|
)
|
||||||||||
Balance
Sheet Data
|
||||||||||||||||||||
Cash
and cash equivalents
|
$
|
5,674,533
|
$
|
6,394,775
|
$
|
6,114,311
|
$
|
3,576,529
|
$
|
2,378,848
|
||||||||||
Working
capital
|
11,315,872
|
13,908,560
|
13,374,171
|
12,484,833
|
6,615,537
|
|||||||||||||||
Property
and equipment, net
|
423,563
|
178,883
|
396,862
|
725,936
|
731,142
|
|||||||||||||||
Intangible
assets, net
|
7,372,147
|
5,722,604
|
6,108,823
|
3,326,274
|
3,512,952
|
|||||||||||||||
Total
assets
|
40,042,466
|
27,977,227
|
23,632,916
|
26,289,604
|
20,356,163
|
|||||||||||||||
Total
long term liabilities
|
-
|
-
|
-
|
848,498
|
-
|
|||||||||||||||
Total
stockholders' equity
|
37,707,871
|
22,376,373
|
22,065,266
|
23,572,393
|
15,709,315
|
(1)
|
Includes an increase to income of
approximately $100,000 (net of income taxes of approximately $54,000)
resulting from the cumulative effect of an accounting change for
forfeitures of restricted stock granted to employees, executives and
consultants
|
Year
Ended September 30,
|
||||||||||||||||||||
2007
|
2006
|
2005
|
2004
|
2003
|
||||||||||||||||
Statement
of Operations Data
|
||||||||||||||||||||
Net
revenues(1)
|
$
|
-
|
$
|
(4,923,217
|
)
|
$
|
(842,863
|
)
|
(18,213,282
|
)
|
$
|
(4,371,351
|
)
|
|||||||
Cost
of services(2)
|
-
|
(4,038,959
|
)
|
(842,863
|
)
|
(18,213,282
|
)
|
(4,371,351
|
)
|
|||||||||||
Gross
profit(1)
(2)
|
-
|
(884,258
|
)
|
-
|
-
|
-
|
||||||||||||||
Operating
income (loss)
(3)
|
-
|
(3,686,807
|
)
|
(328,133
|
)
|
-
|
-
|
|||||||||||||
Other
income (expense)
(3)
|
-
|
3,686,807
|
328,133
|
-
|
-
|
|||||||||||||||
Net
income (loss)
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
Statement
of Cash Flows Data
|
||||||||||||||||||||
Net
cash provided by operating activities(4)
|
$
|
-
|
$
|
1,918
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||||
Net
cash used in investing activities(5)
|
-
|
(815,785
|
)
|
-
|
-
|
-
|
||||||||||||||
Net
cash used in financing activities(4)
|
-
|
(1,918
|
)
|
-
|
-
|
-
|
||||||||||||||
Balance
Sheet Data
|
||||||||||||||||||||
Cash
and cash equivalents(5)
|
$
|
-
|
$
|
(815,785
|
)
|
$
|
-
|
$
|
-
|
$
|
-
|
|||||||||
Total
assets(6)
|
-
|
1,250,000
|
-
|
-
|
-
|
Current
assets
|
$ | 962,877 | ||
Property,
plant and equipment
|
70,000 | |||
Goodwill
|
7,349,366 | |||
Intangible
assets
|
2,130,000 | |||
Deferred
tax assets
|
3,545,618 | |||
Other
non-current assets
|
10,846 | |||
Total
assets acquired
|
14,068,707 | |||
Current
liabilities
|
1,368,012 | |||
Total
liabilities assumed
|
1,368,012 | |||
Net
assets acquired
|
$ | 12,700,695 |
|
·
|
A proposal to give our Board of
Directors discretion to effect a reverse stock split with respect to
issued and outstanding shares of our common stock;
and
|
|
·
|
A proposal to amend and restate
our Restated Articles of Incorporation to change our name from “YP Corp.”
to “LiveDeal, Inc.”
|
|
●
|
Certain investment accounts
totaling $815,785 have been reclassified from cash and
cash equivalents to certificates of deposit and other
investments based on the maturity dates of the underlying
investments
|
|
●
|
Accrued refunds and fees of
$1,250,000 relating to the Attorneys’ General settlement described in Note
10 have been reclassified from accounts receivable, net to accrued
liabilities in the accompanying consolidated balance sheet as of September
30, 2006.
|
|
●
|
Certain miscellaneous receivables
totaling $23,819 at September 30, 2006 were reclassified from prepaid
expenses and other current assets to accounts receivable, net in the
accompanying consolidated balance
sheet.
|
|
●
|
Unbillable accounts and charge
backs have been reclassified from cost of services to a reduction in net
revenues in the consolidated statement of
operations.
|
|
●
|
Monitoring fees related to our
LEC billing channel have been reclassified from general and administrative
expenses to cost of
services.
|
|
●
|
Depreciation and amortization
expenses that were previously separately stated are now included in
general and administrative expenses in the consolidated statement of
operations.
|
|
●
|
Litigation and related expenses
that were previously included in other income and expense are now
separately stated as a component of operating expenses in the consolidated
statement of operations.
|
|
·
|
Preferred
stock dividends for the year ended September 30, 2006 totaling $1,918 were
reclassified from net cash provided by operating activities to net cash
used in financing activities.
|
|
·
|
Net
cash used in investing activities was affected by the reclassification of
certain investment accounts from cash and cash equivalents to
certificates of deposit and other investments as previously
described.
|
|
·
|
We paid a settlement fee of
$2,000,000 to the state consortium, which was distributed among
themselves;
|
|
·
|
We discontinued the use of
activation checks as a promotional
incentive;
|
|
·
|
We temporarily suspended billing
of any active customer that was acquired in connection with the use of an
activation check while notifying the customer of their legal rights to
cancel the service and providing them a 60-day opportunity to receive a
refund equivalent to the customer’s last two payments;
and
|
|
·
|
We agreed not to employ any
collection efforts with respect to past-due accounts of customers that
were secured through the use of an activation
check.
|
Q4
2007
|
Q3
2007
|
Q2
2007
|
Q1
2007
|
Q4
2006
|
Q3
2006
|
Q2
2006
|
Q1
2006
|
|||||||||||||||||||||||||
Net
Revenues
|
$
|
7,120,697
|
$
|
5,989,437
|
$
|
6,106,544
|
$
|
7,123,683
|
$
|
8,335,284
|
$
|
8,577,639
|
$
|
7,997,623
|
$
|
7,047,401
|
||||||||||||||||
Gross
margin
|
$
|
5,860,893
|
$
|
5,113,544
|
$
|
5,148,835
|
$
|
6,012,813
|
$
|
6,697,106
|
$
|
7,506,947
|
$
|
7,213,184
|
$
|
6,510,430
|
||||||||||||||||
Operating
expenses
|
$
|
4,956,356
|
$
|
4,537,182
|
$
|
4,043,109
|
$
|
5,272,759
|
$
|
9,053,783
|
$
|
6,276,713
|
$
|
7,081,323
|
$
|
7,078,205
|
||||||||||||||||
Operating
income (loss)
|
$
|
904,537
|
$
|
576,362
|
$
|
1,105,726
|
$
|
740,054
|
$
|
(2,356,677
|
)
|
$
|
1,230,234
|
$
|
131,861
|
$
|
(567,775
|
)
|
||||||||||||||
Net
income (loss)
|
$
|
376,053
|
$
|
266,405
|
$
|
626,262
|
$
|
485,198
|
$
|
(1,680,673
|
)
|
$
|
826,847
|
$
|
129,998
|
$
|
(327,092
|
)
|
|
§
|
Fourth quarter of fiscal 2007 –
includes an increased bad debt reserve of approximately $377,000 resulting
from the Chapter 11 Bankruptcy filing of one of our LEC aggregators,
representing our entire pre-petition outstanding receivable
balance. The aggregator continues to operate as
debtor-in-possession. We have since transitioned this portion
of our business to another
aggregator.
|
|
§
|
Second quarter of fiscal 2007 –
includes the reversal of approximately $200,000 of accrued expenses
related to the Attorneys’ General
settlement.
|
|
§
|
First quarter of fiscal 2007 –
includes approximately $1,000,000 of direct response advertising costs
incurred in October 2006 for which we derived no benefit based on the
Attorneys’ General settlement that was agreed to in December
2006.
|
|
§
|
Fourth quarter of fiscal 2006 –
includes the following charges associated with the Attorneys’ General
settlement:
|
|
o
|
$2,000,000 payment to cover
regulatory and related
expenses
|
|
o
|
$1,250,000 of accrued refunds and
processing fees for existing customers that wish to cancel their service
in response to the correspondence to be sent per the terms of the
agreement
|
|
o
|
$275,000 of legal and
professional fees
|
|
§
|
Second quarter of fiscal 2006 –
includes an increase of general and administrative expenses of
approximately $80,000 related to separation costs with our former Chief
Financial Officer and $39,000 related to separation costs with other
employees.
|
|
§
|
First quarter of fiscal 2006 –
includes an increase of general and administrative expenses totaling
approximately $338,000 related to separation costs with our former Chief
Executive Officer and an increase in other expenses associated with an
additional expense of $162,000 relating to an outstanding legal
matter.
|
|
·
|
Customer
refunds. We have a customer
refund policy that allows the customer to request a refund if they are not
satisfied with the service within the first 120 days of the
subscription. We accrue for refunds based on historical
experience of refunds as a percentage of new billings in that 120-day
period. Customer refunds are reserved and charged against gross
revenue.
|
|
·
|
Non-paying
customers. There are customers
who may not pay the fee for our services even though we believe they are
valid subscribers. Included in cost of services is an accrual
for estimated non-paying customers that are recorded at the time of
billing.
|
|
·
|
Dilution. We
recognize revenue during the month for which the service is provided based
on net billings accepted by the billing aggregators. We
recognize revenue only for accepted records. However,
subsequent to this acceptance, there are instances in the LEC billing
process where a customer cannot be billed due to changes in telephone
numbers, telephone carriers, data synchronization issues,
etc. These amounts that ultimately cannot be billed, as well as
certain minor billing adjustments by the LECs are commonly referred to as
“dilution.” Such unbillable accounts and chargebacks are
estimated at the time of billing and charged against net
revenues.
|
|
·
|
Fees. Both the aggregator
and the LEC charge processing fees. Additionally, the LEC
charges fees for responding to billing inquiries by its customers,
processing refunds, and other customer-related services. Such
fees are estimated at the time of billing and charged to cost of
services.
|
Year Ended
September 30,
|
Net
Revenues
|
Change from
Prior Year
|
Percent Change
from Prior Year
|
|||||||||
2007
|
$
|
26,340,361
|
$
|
(5,617,586
|
)
|
(17.6
|
)%
|
|||||
2006
(as restated)
|
$
|
31,957,947
|
$
|
7,595,952
|
31.2
|
%
|
||||||
2005
(as restated)
|
$
|
24,361,995
|
Year Ended
September 30,
|
Cost of
Services
|
Change from
Prior Year
|
Percent Change
from Prior Year
|
|||||||||
2007
|
$
|
4,204,276
|
$
|
173,996
|
4.3
|
%
|
||||||
2006
(as restated)
|
$
|
4,030,280
|
$
|
892,524
|
28.4
|
%
|
||||||
2005
(as restated)
|
$
|
3,137,756
|
2007
|
2006
|
2005
|
||||||||||
LEC
billing
|
63
|
%
|
48
|
%
|
30
|
%
|
||||||
ACH
billing
|
30
|
%
|
46
|
%
|
56
|
%
|
||||||
Direct
billing
|
4
|
%
|
6
|
%
|
14
|
%
|
||||||
Classified
|
3
|
%
|
0
|
%
|
0
|
%
|
Year Ended
September 30,
|
Gross
Profit
|
Change from
Prior Year
|
Percent Change
from Prior Year
|
|||||||||
2007
|
$
|
22,136,085
|
$
|
(5,791,582
|
)
|
(20.7
|
)%
|
|||||
2006
(as restated)
|
$
|
27,927,667
|
$
|
6,703,428
|
31.6
|
%
|
||||||
2005
|
$
|
21,224,239
|
Year Ended
September 30,
|
General &
Administrative
Expenses
|
Change from
Prior Year
|
Percent Change
from Prior Year
|
|||||||||
2007
|
$
|
12,518,620
|
$
|
(1,832,133
|
)
|
(12.8
|
)%
|
|||||
2006
(as restated)
|
$
|
14,350,753
|
$
|
(249,861
|
)
|
(1.7
|
)%
|
|||||
2005
(as restated)
|
$
|
14,600,614
|
|
·
|
A decrease in compensation
expense of approximately $1,887,000 resulting from (i) a fiscal 2007
reduction in workforce stemming from the discontinuance of our check
mailer program and other business changes which reduced our need for
administrative support and (ii) a decrease of severance costs of $352,000
that were incurred in fiscal
2006;
|
|
·
|
A reduction in customer related
expenses of approximately $1,093,000 resulting from charges of
approximately $924,000 in fiscal 2006 associated with reconfirming
customers acquired through our check activator program and $169,000 of
other decreased customer related and collection expenses as we reduced our
usage of direct billing methods in fiscal
2007;
|
|
·
|
An increase in our software and
data license expenses of approximately $360,000 primarily attributable to
license fees associated with a new customer relationship management system
acquired during fiscal 2007;
|
|
·
|
An increase in travel costs of
approximately $313,000 related to increased investor relations activities,
acquisitions in California and the Philippines, and increased travel
between our offices in Nevada and
Arizona;
|
|
·
|
An increase in amortization
expense of approximately $124,000 resulting from increased capitalized
intangible assets, the most significant of which were marketing and
technology-related intangible assets that were acquired through our
acquisition of LiveDeal,
Inc.;
|
|
·
|
An increase in investor relations
expenses of $124,000 as we seek to expand and attract new investors;
and
|
|
·
|
Other cost increases of
approximately $227,000.
|
|
·
|
A decrease in mailing and other
customer costs of approximately $662,000 associated with the reduction of
paper invoices and other methods of correspondence with customers for
which payment is unlikely to be
received;
|
|
·
|
A decrease in depreciation and
amortization expense of approximately $135,000 as a significant amount of
our fixed assets and intangible assets recently became fully depreciated;
and
|
|
·
|
An increase in consulting and
professional fees of approximately $233,000, primarily driven by $162,000
of executive search and placement services and other miscellaneous
activities;
|
|
·
|
An increase in compensation
expense of approximately $476,000 associated with the general increase in
revenues and business activity in fiscal 2006. This increase
was comprised of increases of approximately (i) $352,000 of severance
costs associated with the termination of former officers and other
personnel, (ii) non-cash compensation costs of $179,000 associated with
restricted stock awards, (iii) $307,000 for Directors’ compensation and
Executive bonuses, and (iv) increases in leased and contract employees and
other miscellaneous compensation expenses of $131,000. These
costs were partially offset by a decrease in executive consulting fees of
approximately $493,000;
|
|
·
|
General cost reductions of
approximately $162,000.
|
Q4 2007 | Q3 2007 | Q2 2007 | Q1 2007 | Q4 2006 | Q3 2006 | Q2 2006 | Q1 2006 | |||||||||||||||||||||||||
Compensation
for employees, leased employees, officers and
directors
|
$ | 1,535,115 | $ | 1,760,439 | $ | 1,877,103 | $ | 1,873,582 | $ | 2,073,646 | $ | 1,908,099 | $ | 2,475,244 | $ | 2,476,713 | ||||||||||||||||
Professional
fees
|
184,507 | 529,139 | 319,948 | 394,028 | 347,247 | 313,533 | 282,148 | 416,088 | ||||||||||||||||||||||||
Reconfirmation,
mailing, billing and other customer-related costs
|
33,662 | 24,269 | 34,042 | 23,715 | 39,180 | 245,597 | 396,883 | 491,947 | ||||||||||||||||||||||||
Depreciation
and amortization
|
460,554 | 396,759 | 364,724 | 336,887 | 316,688 | 351,342 | 369,519 | 397,005 | ||||||||||||||||||||||||
Other
general and administrative costs
|
757,136 | 522,583 | 531,915 | 558,513 | 390,093 | 325,405 | 360,276 | 374,100 |
Year Ended
September 30,
|
Sales &
Marketing
Expenses
|
Change from
Prior Year
|
Percent Change
from Prior Year
|
|||||||||
2007
|
$
|
6,491,504
|
$
|
(4,960,961
|
)
|
(43.3
|
)%
|
|||||
2006
|
$
|
11,452,465
|
$
|
6,142,229
|
115.7
|
%
|
||||||
2005
|
$
|
5,310,236
|
Year Ended
September 30,
|
Litigation and
Related Expenses
|
Change from
Prior Year
|
Percent Change
from Prior Year
|
|||||||||
2007
|
$
|
(200,718
|
)
|
$
|
(3,887,524
|
)
|
(105.4
|
)%
|
||||
2006
(as restated)
|
$
|
3,686,806
|
$
|
3,358,673
|
1023.6
|
%
|
||||||
2005
(as restated)
|
$
|
328,133
|
Year Ended
September 30,
|
Operating
Income (Loss)
|
Change from
Prior Year
|
Percent Change
from Prior Year
|
|||||||||
2007
|
$
|
3,326,679
|
$
|
4,889,036
|
312.9
|
%
|
||||||
2006
(as restated)
|
$
|
(1,562,357
|
)
|
$
|
(2,547,613
|
)
|
(258.6
|
)%
|
||||
2005
(as restated)
|
$
|
985,256
|
Year Ended
September 30,
|
Other Income
(Expense)
|
Change from
Prior Year
|
Percent Change
from Prior Year
|
|||||||||
2007
|
$
|
10,945
|
$
|
35,463
|
144.6
|
%
|
||||||
2006
(as restated)
|
$
|
(24,518
|
)
|
$
|
197,758
|
(89.0
|
)%
|
|||||
2005
(as restated)
|
$
|
(222,276
|
)
|
Year Ended
September 30,
|
Income Tax
Provision (Benefit)
|
Change from
Prior Year
|
Percent Change
from Prior Year
|
|||||||||
2007
|
$
|
1,855,675
|
$
|
2,167,454
|
695.2
|
%
|
||||||
2006
(as restated)
|
$
|
(311,779
|
)
|
$
|
(683,816
|
)
|
(183.8
|
)%
|
||||
2005
(as restated)
|
$
|
372,037
|
Year Ended
September 30,
|
Net Income
(Loss)
|
Change from
Prior Year
|
Percent Change
from Prior Year
|
|||||||||
2007
|
$
|
1,753,918
|
$
|
2,804,838
|
266.9
|
%
|
||||||
2006
|
$
|
(1,050,920
|
)
|
$
|
(1,776,066
|
)
|
(244.9
|
)%
|
||||
2005
|
$
|
725,146
|
Payments
Due by Fiscal Year
|
||||||||||||||||||||||||||||
Total
|
2008
|
2009
|
2010
|
2011
|
2012
|
Thereafter
|
||||||||||||||||||||||
Operating
lease commitments
|
$
|
2,942,292
|
$
|
830,833
|
$
|
800,639
|
$
|
509,923
|
$
|
407,523
|
$
|
314,789
|
$
|
78,585
|
||||||||||||||
Noncanceleable
service contracts
|
1,551,000
|
777,000
|
674,000
|
100,000
|
-
|
-
|
-
|
|||||||||||||||||||||
$
|
4,493,292
|
$
|
1,607,833
|
$
|
1,474,639
|
$
|
609,923
|
$
|
407,523
|
$
|
314,789
|
$
|
78,585
|
Page
|
||
Report
of Independent Registered Public Accounting Firm
|
42
|
|
Consolidated
Financial Statements:
|
||
Consolidated
Balance Sheets at September 30, 2007 and 2006
|
44
|
|
Consolidated
Statements of Operations for the years ended September 30, 2007, 2006, and
2005
|
45
|
|
Consolidated
Statements of Stockholders’ Equity for the years ended September 30, 2007,
2006, and 2005
|
46
|
|
Consolidated
Statements of Cash Flows for the years ended September 30, 2007, 2006, and
2005
|
47
|
|
Notes
to Consolidated Financial Statements
|
48
|
/s/
Mayer Hoffman McCann P.C.
|
MAYER
HOFFMAN MCCANN P.C.
|
Phoenix,
Arizona
|
December
18, 2007 (except for Note 19, as to which the date is May 12,
2008)
|
/s/
Epstein, Weber & Conover, PLC
|
Scottsdale,
Arizona
|
December
18, 2006, except as to Note 19 which
is as of May 12, 2008
|
September
30,
|
||||||||
Assets
|
2007
|
2006
|
||||||
(as
restated)
|
||||||||
Cash
and equivalents
|
$
|
5,674,533
|
$
|
6,394,775
|
||||
Certificates
of deposit and other investments
|
-
|
3,082,053
|
||||||
Accounts
receivable, net
|
6,919,180
|
8,015,600
|
||||||
Prepaid
expenses and other current assets
|
510,609
|
235,250
|
||||||
Deferred
tax asset
|
546,145
|
1,781,736
|
||||||
Total
current assets
|
13,650,467
|
19,509,414
|
||||||
Accounts
receivable, long term portion, net
|
1,941,996
|
1,140,179
|
||||||
Property
and equipment, net
|
423,563
|
178,883
|
||||||
Deposits
and other assets
|
103,057
|
91,360
|
||||||
Intangible
assets, net
|
7,372,147
|
5,722,604
|
||||||
Goodwill
|
11,683,163
|
-
|
||||||
Deferred
tax asset, long term
|
4,551,644
|
1,334,787
|
||||||
Income
taxes receivable
|
316,429
|
-
|
||||||
Total
assets
|
$
|
40,042,466
|
$
|
27,977,227
|
||||
Liabilities
and Stockholders' Equity
|
||||||||
Liabilities:
|
||||||||
Accounts
payable
|
$
|
1,138,265
|
$
|
773,653
|
||||
Accrued
liabilities
|
1,196,330
|
4,565,439
|
||||||
Income
taxes payable
|
-
|
261,762
|
||||||
Total
current liabilities
|
2,334,595
|
5,600,854
|
||||||
Total
liabilities
|
2,334,595
|
5,600,854
|
||||||
Commitments
and contingencies
|
||||||||
Stockholders'
Equity:
|
||||||||
Series
E convertible preferred stock, $.001 par value, 200,000 shares authorized,
127,840 issued and outstanding, liquidation preference
$38,202
|
10,866
|
10,866
|
||||||
Common
stock, $.001 par value, 100,000,000 shares authorized, 6,693,676 and
5,002,159 issued and outstanding
|
6,694
|
5,002
|
||||||
Treasury
stock (328,566 and 284,342 shares carried at cost)
|
(2,714,698
|
)
|
(2,407,158
|
)
|
||||
Paid
in capital
|
23,325,888
|
12,294,186
|
||||||
Deferred
stock compensation
|
-
|
(2,854,122
|
)
|
|||||
Retained
earnings
|
17,079,121
|
15,327,599
|
||||||
Total
stockholders' equity
|
37,707,871
|
22,376,373
|
||||||
Total
liabilities and stockholders' equity
|
$
|
40,042,466
|
$
|
27,977,227
|
Year
ended September 30,
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
(as
restated)
|
(as
restated)
|
|||||||||||
Net
revenues
|
$
|
26,340,361
|
$
|
31,957,947
|
$
|
24,361,995
|
||||||
Cost
of services
|
4,204,276
|
4,030,280
|
3,137,756
|
|||||||||
Gross
profit
|
22,136,085
|
27,927,667
|
21,224,239
|
|||||||||
Operating
expenses:
|
||||||||||||
General
and administrative expenses
|
12,518,620
|
14,350,753
|
14,600,614
|
|||||||||
Sales
and marketing expenses
|
6,491,504
|
11,452,465
|
5,310,236
|
|||||||||
Litigation
and related expenses
|
(200,718
|
)
|
3,686,806
|
328,133
|
||||||||
Total
operating expenses
|
18,809,406
|
29,490,024
|
20,238,983
|
|||||||||
Operating
income (loss)
|
3,326,679
|
(1,562,357
|
)
|
985,256
|
||||||||
Other
income (expense):
|
||||||||||||
Interest
expense and other financing costs
|
-
|
-
|
(8,610
|
)
|
||||||||
Interest
income
|
271,969
|
224,176
|
242,965
|
|||||||||
Other
income (expense)
|
10,945
|
(24,518
|
)
|
(222,276
|
)
|
|||||||
Total
other income (expense)
|
282,914
|
199,658
|
12,079
|
|||||||||
Income
(loss) before income taxes and cumulative effect of accounting
change
|
3,609,593
|
(1,362,699
|
)
|
997,335
|
||||||||
Income
tax provision (benefit)
|
1,855,675
|
(311,779
|
)
|
372,037
|
||||||||
Cumulative
effect of accounting change (net of income taxes of $53,764 in
2005)
|
-
|
-
|
(99,848
|
)
|
||||||||
Net
income (loss)
|
$
|
1,753,918
|
$
|
(1,050,920
|
)
|
$
|
725,146
|
|||||
Net
income (loss) per common share:
|
||||||||||||
Basic:
|
||||||||||||
Income
(loss) applicable to common stock before cumulative effect of accounting
change
|
$
|
0.34
|
$
|
(0.23
|
)
|
$
|
0.14
|
|||||
Cumulative
effect of accounting change
|
$
|
-
|
$
|
-
|
$
|
0.02
|
||||||
Net
income applicable to common stock
|
$
|
0.34
|
$
|
(0.23
|
)
|
$
|
0.16
|
|||||
Diluted:
|
||||||||||||
Income
(loss) applicable to common stock before cumulative effect of accounting
change
|
$
|
0.33
|
$
|
(0.23
|
)
|
$
|
0.14
|
|||||
Cumulative
effect of accounting change
|
$
|
-
|
$
|
-
|
$
|
0.02
|
||||||
Net
income (loss) applicable to common stock
|
$
|
0.33
|
$
|
(0.23
|
)
|
$
|
0.16
|
|||||
Weighted
average common shares outstanding:
|
||||||||||||
Basic
|
5,108,551
|
4,495,868
|
4,639,036
|
|||||||||
Diluted
|
5,336,439
|
4,495,868
|
4,665,992
|
Common
Stock
|
Preferred
Stock
|
Treasury
|
Paid-In
|
Deferred
|
Retained
|
|||||||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Stock
|
Capital
|
Compensation
|
Earnings
|
Total
|
||||||||||||||||||||||||||||
Balance,
October 1, 2004
|
5,085,879
|
$
|
5,086
|
128,340
|
$
|
10,909
|
$
|
-
|
$
|
12,197,719
|
$
|
(5,742,814
|
)
|
$
|
17,101,493
|
$
|
23,572,393
|
|||||||||||||||||||
Common
stock issued for services
|
10,000
|
10
|
-
|
-
|
-
|
119,490
|
-
|
-
|
119,500
|
|||||||||||||||||||||||||||
Treasury
stock received as partial settlement of amounts due from
affiliates
|
(188,957
|
)
|
(189
|
)
|
-
|
-
|
(1,606,131
|
)
|
189
|
-
|
-
|
(1,606,131
|
)
|
|||||||||||||||||||||||
Treasury
stock acquired as part of stock repurchase program
|
(60,125
|
)
|
(60
|
)
|
-
|
-
|
(565,609
|
)
|
60
|
-
|
-
|
(565,609
|
)
|
|||||||||||||||||||||||
Series
E preferred stock dividends
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(1,439
|
)
|
(1,439
|
)
|
|||||||||||||||||||||||||
Conversion
of Series E preferred stock
|
50
|
-
|
(500
|
)
|
(43
|
)
|
-
|
267
|
-
|
-
|
224
|
|||||||||||||||||||||||||
Common
stock issued in restricted stock plan
|
88,572
|
89
|
-
|
-
|
-
|
530,287
|
(530,376
|
)
|
-
|
-
|
||||||||||||||||||||||||||
Amortization
of deferred stock compensation
|
-
|
-
|
-
|
-
|
-
|
-
|
1,419,557
|
-
|
1,419,557
|
|||||||||||||||||||||||||||
Net
income
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
725,146
|
725,146
|
|||||||||||||||||||||||||||
Common
stock dividends
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(1,444,763
|
)
|
(1,444,763
|
)
|
|||||||||||||||||||||||||
Cumulative
effect of accounting change
|
-
|
-
|
-
|
-
|
-
|
(1,166,426
|
)
|
1,012,814
|
-
|
(153,612
|
)
|
|||||||||||||||||||||||||
Effect
of change in estimated forfeiture rate for restricted stock
plan
|
-
|
-
|
-
|
-
|
-
|
(593,284
|
)
|
593,284
|
-
|
-
|
||||||||||||||||||||||||||
Canceled
stock
|
(51,650
|
)
|
(52
|
)
|
-
|
-
|
-
|
52
|
-
|
-
|
-
|
|||||||||||||||||||||||||
Balance,
September 30, 2005
|
4,883,769
|
4,884
|
127,840
|
10,866
|
(2,171,740
|
)
|
11,088,354
|
(3,247,535
|
)
|
16,380,437
|
22,065,266
|
|||||||||||||||||||||||||
Treasury
stock acquired as part of stock repurchase program
|
(25,260
|
)
|
(26
|
)
|
-
|
-
|
(134,418
|
)
|
26
|
-
|
-
|
(134,418
|
)
|
|||||||||||||||||||||||
Treasury
stock acquired in connection with URL
purchase
|
(10,000
|
)
|
(10
|
)
|
-
|
-
|
(101,000
|
)
|
10
|
-
|
-
|
(101,000
|
)
|
|||||||||||||||||||||||
Series
E preferred stock dividends
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(1,918
|
)
|
(1,918
|
)
|
|||||||||||||||||||||||||
Common
stock issued in restricted stock plan
|
239,650
|
240
|
-
|
-
|
-
|
1,290,178
|
(1,290,418
|
)
|
-
|
-
|
||||||||||||||||||||||||||
Amortization
of deferred stock compensation
|
-
|
-
|
-
|
-
|
-
|
-
|
1,599,363
|
-
|
1,599,363
|
|||||||||||||||||||||||||||
Net
income
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(1,050,920
|
)
|
(1,050,920
|
)
|
|||||||||||||||||||||||||
Effect
of change in estimated forfeiture rate for restricted stock
plan
|
-
|
-
|
-
|
-
|
-
|
(84,468
|
)
|
84,468
|
-
|
-
|
||||||||||||||||||||||||||
Canceled
stock
|
(86,000
|
)
|
(86
|
)
|
-
|
-
|
-
|
86
|
-
|
-
|
-
|
|||||||||||||||||||||||||
Balance,
September 30, 2006
|
5,002,159
|
5,002
|
127,840
|
10,866
|
(2,407,158
|
)
|
12,294,186
|
(2,854,122
|
)
|
15,327,599
|
22,376,373
|
|||||||||||||||||||||||||
Reclass
of deferred compensation
|
-
|
-
|
-
|
-
|
-
|
(2,854,122
|
)
|
2,854,122
|
-
|
-
|
||||||||||||||||||||||||||
Series
E preferred stock dividends
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(2,396
|
)
|
(2,396
|
)
|
|||||||||||||||||||||||||
Common
stock issued in restricted stock plan
|
78,500
|
79
|
-
|
-
|
-
|
(79
|
)
|
-
|
-
|
|||||||||||||||||||||||||||
Common
stock issued in acquisition
|
1,675,016
|
1,675
|
-
|
-
|
-
|
12,326,370
|
-
|
-
|
12,328,045
|
|||||||||||||||||||||||||||
Shares
acquired from LiveDeal shareholders
|
(44,224
|
)
|
(44
|
)
|
(307,540
|
)
|
44
|
(307,540
|
)
|
|||||||||||||||||||||||||||
Issuance
of restricted stock in exchange for services
|
10,800
|
11
|
-
|
-
|
-
|
78,828
|
-
|
-
|
78,839
|
|||||||||||||||||||||||||||
Restricted
stock cancellations
|
(28,575
|
)
|
(29
|
)
|
-
|
-
|
-
|
29
|
-
|
-
|
-
|
|||||||||||||||||||||||||
Amortization
of deferred stock compensation
|
-
|
-
|
-
|
-
|
-
|
1,480,632
|
-
|
-
|
1,480,632
|
|||||||||||||||||||||||||||
Net
income
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
1,753,918
|
1,753,918
|
|||||||||||||||||||||||||||
Balance,
September 30, 2007
|
6,693,676
|
$
|
6,694
|
127,840
|
$
|
10,866
|
$
|
(2,714,698
|
)
|
$
|
23,325,888
|
$
|
-
|
$
|
17,079,121
|
$
|
37,707,871
|
Year
ended September 30,
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
(as
restated)
|
(as
restated)
|
|||||||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||
Net
income (loss)
|
$
|
1,753,918
|
$
|
(1,050,920
|
)
|
$
|
725,146
|
|||||
Adjustments
to reconcile net income (loss) to net cash provided by operating
activities:
|
||||||||||||
Depreciation
and amortization
|
1,575,488
|
1,434,554
|
1,569,999
|
|||||||||
Amortization
of deferred stock compensation
|
1,480,632
|
1,599,363
|
1,419,557
|
|||||||||
Issuance
of common stock as compensation for services
|
78,839
|
-
|
119,500
|
|||||||||
Non-cash
interest income on advances to affiliates
|
-
|
-
|
(110,019
|
)
|
||||||||
Non-cash
loss on transaction with affiliates
|
-
|
-
|
281,884
|
|||||||||
Cumulative
effect of accounting change
|
-
|
-
|
(99,848
|
)
|
||||||||
Non-cash
compensation expense to Chief Executive Officer
|
88,680
|
-
|
-
|
|||||||||
Deferred
income taxes
|
1,564,352
|
(1,484,554
|
)
|
(507,259
|
)
|
|||||||
(Gain)
loss on disposal of equipment
|
4,128
|
(3,221
|
)
|
-
|
||||||||
Provision
for uncollectible accounts
|
660,963
|
429,614
|
631,277
|
|||||||||
Changes
in assets and liabilities:
|
||||||||||||
Restricted
cash
|
-
|
500,000
|
(500,000
|
)
|
||||||||
Accounts
receivable
|
(237,771
|
)
|
(3,300,144
|
)
|
3,594,508
|
|||||||
Prepaid
and other current assets
|
(252,182
|
)
|
293,437
|
(1,365,853
|
)
|
|||||||
Deposits
and other assets
|
(851
|
)
|
(29,331
|
)
|
177,031
|
|||||||
Accounts
payable
|
(718,151
|
)
|
118,127
|
(554,838
|
)
|
|||||||
Accrued
liabilities
|
(3,654,358
|
)
|
3,762,169
|
260,786
|
||||||||
Income
taxes payable
|
(578,191
|
)
|
152,907
|
1,348,290
|
||||||||
Net
cash provided by operating activities
|
1,765,496
|
2,422,001
|
6,990,161
|
|||||||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||
Acquisition
of businesses, net of cash acquired
|
(4,114,139
|
)
|
-
|
-
|
||||||||
Expenditures
for intangible assets
|
(939,102
|
)
|
(801,416
|
)
|
(391,077
|
)
|
||||||
Net
purchases/redemptions of certificates of deposits and other
investments
|
3,082,053
|
(1,077,066
|
)
|
(2,004,987
|
)
|
|||||||
Purchases
of equipment
|
(204,614
|
)
|
(25,719
|
)
|
(44,728
|
)
|
||||||
Net
cash used in investing activities
|
(2,175,802
|
)
|
(1,904,201
|
)
|
(2,440,792
|
)
|
||||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||
Series
E preferred stock dividends
|
(2,396
|
)
|
(1,918
|
)
|
(1,439
|
)
|
||||||
Common
stock dividends
|
-
|
-
|
(1,444,763
|
)
|
||||||||
Proceeds
from conversion of preferred stock
|
-
|
-
|
224
|
|||||||||
Purchase
of treasury stock
|
(307,540
|
)
|
(235,418
|
)
|
(565,609
|
)
|
||||||
Net
cash used in financing activities
|
(309,936
|
)
|
(237,336
|
)
|
(2,011,587
|
)
|
||||||
(DECREASE)
INCREASE IN CASH AND CASH EQUIVALENTS
|
(720,242
|
)
|
280,464
|
2,537,782
|
||||||||
CASH
AND CASH EQUIVALENTS, beginning of year
|
6,394,775
|
6,114,311
|
3,576,529
|
|||||||||
CASH
AND CASH EQUIVALENTS, end of year
|
$
|
5,674,533
|
$
|
6,394,775
|
$
|
6,114,311
|
1.
|
ORGANIZATION
AND BASIS OF
PRESENTATION
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
|
|
·
|
direct ACH withdrawals;
and
|
|
·
|
inclusion on the customer’s local
telephone bill provided by their Local Exchange Carriers, or
LECs.
|
3.
|
ACCOUNTING
CHANGES
|
4.
|
ACQUISITIONS
|
Current
assets
|
$
|
962,877
|
||
Property,
plant and equipment
|
70,000
|
|||
Goodwill
|
7,349,366
|
|||
Intangible
assets
|
2,130,000
|
|||
Deferred
tax assets
|
3,545,618
|
|||
Other
non-current assets
|
10,846
|
|||
Total
assets acquired
|
14,068,707
|
|||
Current
liabilities
|
1,368,012
|
|||
Total
liabilities assumed
|
1,368,012
|
|||
Net
assets acquired
|
$
|
12,700,695
|
Estimated
Fair
Value
|
Average
Remaining
Useful
Life
|
||||
Asset
class:
|
|||||
Marketing-based
intangible assets
|
$
|
1,500,000
|
20
years
|
||
Technology-based
intangible assets
|
630,000
|
5
years
|
|||
$
|
2,130,000
|
Year
ended September 30,
|
||||||||
2007
|
2006
|
|||||||
(unaudited)
|
(unaudited)
|
|||||||
Net
revenues
|
$
|
28,057,074
|
$
|
34,159,380
|
||||
Net
loss
|
$
|
(1,834,830
|
)
|
$
|
(4,089,392
|
)
|
||
Diluted
net loss per share
|
$
|
(0.28
|
)
|
$
|
(0.66
|
)
|
5.
|
BALANCE SHEET
INFORMATION
|
September
30,
|
||||||||
2007
|
2006
|
|||||||
Receivables,
current, net
|
||||||||
Accounts
receivable, current
|
$
|
9,221,903
|
$
|
11,050,104
|
||||
Less:
Allowance for doubtful accounts
|
(2,302,723
|
)
|
(3,034,504
|
)
|
||||
$
|
6,919,180
|
$
|
8,015,600
|
|||||
Receivables,
long term, net
|
||||||||
Accounts
receivable, long term
|
$
|
2,101,071
|
$
|
1,374,624
|
||||
Less:
Allowance for doubtful accounts
|
(159,075
|
)
|
(234,445
|
)
|
||||
$
|
1,941,996
|
$
|
1,140,179
|
|||||
Total
receivables, net
|
||||||||
Gross
receivables
|
$
|
11,322,974
|
$
|
12,424,728
|
||||
Gross
allowance for doubtful accounts
|
(2,461,798
|
)
|
(3,268,949
|
)
|
||||
$
|
8,861,176
|
$
|
9,155,779
|
|||||
Components
of allowance for doubtful accounts are as follows:
|
||||||||
Allowance
for dilution and fees on amounts due from billing
aggregators
|
$
|
1,888,730
|
$
|
2,465,423
|
||||
Allowance
for customer refunds
|
573,068
|
803,526
|
||||||
$
|
2,461,798
|
$
|
3,268,949
|
|||||
Property
and equipment, net
|
||||||||
Leasehold
improvements
|
$
|
455,286
|
$
|
447,681
|
||||
Furnishings
and fixtures
|
310,499
|
296,074
|
||||||
Office,
computer equipment and other
|
1,423,989
|
1,055,545
|
||||||
2,189,774
|
1,799,300
|
|||||||
Less:
Accumulated depreciation
|
(1,766,211
|
)
|
(1,620,417
|
)
|
||||
$
|
423,563
|
$
|
178,883
|
|||||
Intangible
assets, net
|
||||||||
Domain
name and marketing related intangibles
|
$
|
7,208,600
|
$
|
5,708,600
|
||||
Non-compete
agreement
|
3,465,000
|
3,465,000
|
||||||
Website
and technology related intangibles
|
3,006,093
|
1,436,991
|
||||||
13,679,693
|
10,610,591
|
|||||||
Less: Accumulated
amortization of intangible
|
(6,307,546
|
)
|
(4,887,987
|
)
|
||||
$
|
7,372,147
|
$
|
5,722,604
|
|||||
Accrued
liabilities
|
||||||||
Litigation
accrual
|
$
|
-
|
$
|
3,525,000
|
||||
Deferred
revenue
|
323,596
|
188,399
|
||||||
Accrued
payroll and bonuses
|
339,305
|
187,973
|
||||||
Accrued
expenses - other
|
533,428
|
664,067
|
||||||
$
|
1,196,330
|
$
|
4,565,439
|
6.
|
ACCOUNTS
RECEIVABLE
|
7.
|
INTANGIBLE
ASSETS
|
Years ended September 30,
|
||||
2008
|
$
|
1,698,721
|
||
2009
|
1,587,565
|
|||
2010
|
1,012,902
|
|||
2011
|
391,289
|
|||
2012
|
345,387
|
|||
Thereafter
|
2,336,283
|
|||
Total
|
$
|
7,372,147
|
8.
|
STOCKHOLDERS’
EQUITY
|
9.
|
NET (LOSS)/INCOME PER
SHARE
|
Year Ended
September 30, 2007
|
Year Ended
September 30, 2006
|
Year Ended
September 30, 2005
|
||||||||||
Income
(loss) before cumulative effect of accounting change
|
$
|
1,753,918
|
$
|
(1,050,920
|
)
|
$
|
625,298
|
|||||
Less:
preferred stock dividends
|
(2,396
|
)
|
(1,918
|
)
|
(1,439
|
)
|
||||||
Income
(loss) applicable to common stock before cumulative effect of accounting
change
|
1,751,522
|
(1,052,838
|
)
|
623,859
|
||||||||
Cumulative
effect of accounting change
|
-
|
-
|
99,848
|
|||||||||
Net
income (loss) applicable to common stock
|
$
|
1,751,522
|
$
|
(1,052,838
|
)
|
$
|
723,707
|
|||||
Basic
weighted average common shares outstanding:
|
5,108,551
|
4,495,868
|
4,639,036
|
|||||||||
Add
incremental shares for:
|
||||||||||||
Unvested
restricted stock
|
222,359
|
-
|
18,647
|
|||||||||
Series
E convertible preferred stock
|
5,529
|
-
|
7,358
|
|||||||||
Outstanding
warrants
|
-
|
-
|
952
|
|||||||||
Diluted
weighted average common shares outstanding:
|
5,336,439
|
4,495,868
|
4,665,992
|
|||||||||
Net
income (loss) per share:
|
||||||||||||
Basic:
|
||||||||||||
Income
(loss) applicable to common stock before cumulative effect of accounting
change
|
$
|
0.34
|
$
|
(0.23
|
)
|
$
|
0.14
|
|||||
Cumulative
effect of accounting change
|
$
|
-
|
$
|
-
|
$
|
0.02
|
||||||
Net
income (loss) applicable to common stock
|
$
|
0.34
|
$
|
(0.23
|
)
|
$
|
0.16
|
|||||
Diluted:
|
||||||||||||
Income
(loss) applicable to common stock before cumulative effect of accounting
change
|
$
|
0.33
|
$
|
(0.23
|
)
|
$
|
0.14
|
|||||
Cumulative
effect of accounting change
|
$
|
-
|
$
|
-
|
$
|
0.02
|
||||||
Net
income (loss) applicable to common stock
|
$
|
0.33
|
$
|
(0.23
|
)
|
$
|
0.16
|
September
30,
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
Warrants
to purchase shares of common stock
|
-
|
-
|
43,750
|
|||||||||
Series
E convertible preferred stock
|
-
|
12,784
|
-
|
|||||||||
Shares
of non-vested restricted stock
|
63,406
|
371,858
|
161,404
|
|||||||||
63,406
|
384,642
|
205,154
|
10.
|
COMMITMENTS AND
CONTINGENCIES
|
2008
|
$
|
830,833
|
||
2009
|
800,639
|
|||
2010
|
509,923
|
|||
2011
|
407,523
|
|||
2012
|
314,789
|
|||
Thereafter
|
78,585
|
|||
$
|
2,942,292
|
|
·
|
The Company paid a settlement fee
of $2,000,000 to the state consortium, which they distributed among
themselves;
|
|
·
|
The Company discontinued the use
of activation checks as a promotional
incentive;
|
|
·
|
The Company temporarily suspended
billing of any active customer that was acquired in connection with the
use of an activation check while notifying the customer of their legal
rights to cancel the service and providing them a 60-day opportunity to
receive a refund equivalent to the customer’s last two payments;
and
|
|
·
|
The Company agreed not to employ
any collection efforts with respect to past-due accounts of customers that
were secured through the use of an activation
check.
|
11.
|
PROVISION FOR INCOME
TAXES
|
2007
|
2006
|
2005
|
||||||||||
Current
provision
|
$
|
291,273
|
$
|
1,172,823
|
$
|
879,805
|
||||||
Deferred
(benefit) provision
|
1,564,402
|
(1,484,602
|
)
|
(507,768
|
)
|
|||||||
Net
income tax (benefit) provision
|
$
|
1,855,675
|
$
|
(311,779
|
)
|
$
|
372,037
|
2007
|
2006
|
2005
|
||||||||||||||||||||||
Amount
|
Percent
|
Amount
|
Percent
|
Amount
|
Percent
|
|||||||||||||||||||
Federal
statutory rates
|
$
|
1,227,262
|
34
|
%
|
$
|
(463,318
|
)
|
34
|
%
|
$
|
339,094
|
34
|
%
|
|||||||||||
State
income taxes
|
121,282
|
3
|
%
|
(45,787
|
)
|
3
|
%
|
33,510
|
3
|
%
|
||||||||||||||
Write
off of deferred tax asset related to vested restricted
stock
|
499,885
|
14
|
%
|
217,131
|
(16
|
)%
|
-
|
0
|
%
|
|||||||||||||||
Other
|
7,246
|
0
|
%
|
(19,805
|
)
|
1
|
%
|
(567
|
)
|
(0
|
)%
|
|||||||||||||
Effective
rate
|
$
|
1,855,675
|
51
|
%
|
$
|
(311,779
|
)
|
22
|
%
|
$
|
372,037
|
37
|
%
|
2007
|
2006
|
|||||||
Deferred
income tax assets:
|
||||||||
Book
to tax differences in accounts receivable
|
$
|
546,145
|
$
|
1,314,721
|
||||
Net
operating loss carryforwards
|
3,545,618
|
|||||||
Book
to tax differences in accrued expenses
|
-
|
467,065
|
||||||
Book
to tax differences for stock based compensation
|
951,246
|
1,280,007
|
||||||
Book
to tax differences in intangible assets
|
121,613
|
121,613
|
||||||
Total
deferred income tax asset
|
5,164,622
|
3,183,406
|
||||||
Deferred
income tax liabilities:
|
||||||||
Book
to tax differences in depreciation
|
66,833
|
66,883
|
||||||
Total
deferred income tax liability
|
66,833
|
66,883
|
||||||
Net
deferred income tax asset (liability)
|
$
|
5,097,789
|
$
|
3,116,523
|
12.
|
RELATED PARTY
TRANSACTIONS
|
13.
|
CONCENTRATION OF CREDIT
RISK
|
14.
|
STOCK-BASED
COMPENSATION
|
Outstanding
(unvested) at September 30, 2004
|
446,260
|
|||
Granted
|
88,572
|
|||
Forfeited
|
(51,650
|
)
|
||
Vested
|
-
|
|||
Outstanding
(unvested) at September 30, 2005
|
483,182
|
|||
Granted
|
239,650
|
|||
Forfeited
|
(86,000
|
)
|
||
Vested
|
(101,225
|
)
|
||
Outstanding
(unvested) at September 30, 2006
|
535,607
|
|||
Granted
|
78,500
|
|||
Forfeited
|
(28,575
|
)
|
||
Vested
|
(143,625
|
)
|
||
Outstanding
(unvested) at September 30, 2007
|
441,907
|
2007
|
2006
|
2005
|
||||||||||||||||||||||
Number of
|
Weighted Average
|
Number of
|
Weighted Average
|
Number of
|
Weighted Average
|
|||||||||||||||||||
Warrants
|
Exercise Price
|
Warrants
|
Exercise Price
|
Warrants
|
Exercise Price
|
|||||||||||||||||||
Warrants
outstanding at beginning of year
|
-
|
$
|
-
|
500,000
|
$
|
2.12
|
500,000
|
$
|
2.12
|
|||||||||||||||
Granted
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||
Expired
|
-
|
-
|
(500,000
|
)
|
2.12
|
-
|
-
|
|||||||||||||||||
Exercised
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||
Warrants
outstanding at September 30,
|
-
|
$
|
-
|
-
|
$
|
-
|
500,000
|
$
|
2.12
|
15.
|
EMPLOYEE BENEFIT
PLAN
|
16.
|
OTHER INCOME
(EXPENSE)
|
|
a.
|
A loss of $3,525,000 consisting
of a settlement accrual of $2,000,000, a reserve for refunds of $1,250,000
and legal fees of $275,000 related to the attorneys general settlement
described in Note 10; and
|
|
b.
|
A loss of $162,000 consisting of
an additional accrual for the settlement of a matter with a former public
relations vendor;
|
|
·
|
A loss of $282,000 from a
Transfer and Repayment Agreement with two of the Company’s shareholders,
equal to the difference between the carrying value of Advances to
Affiliates and the value of the consideration
received;
|
17.
|
SEGMENT
REPORTING
|
18.
|
SELECTED QUARTERLY FINANCIAL DATA
(UNAUDITED)
|
Quarter
Ended
|
||||||||||||||||
December
31,
|
March
31,
|
June
30,
|
September
30,
|
|||||||||||||
2006
|
2007
|
2007
|
2007
|
|||||||||||||
(as
restated)
|
(as
restated)
|
(as
restated)
|
||||||||||||||
Net
revenues
|
$
|
7,123,683
|
$
|
6,106,544
|
$
|
5,989,437
|
$
|
7,120,697
|
||||||||
Gross
profit
|
6,012,813
|
5,148,835
|
5,113,544
|
5,860,893
|
||||||||||||
Net
income
|
485,198
|
626,262
|
266,405
|
376,053
|
||||||||||||
Earnings
per share information:
|
||||||||||||||||
Basic
income per share
|
$
|
0.11
|
$
|
0.14
|
$
|
0.05
|
$
|
0.06
|
||||||||
Diluted
income per share
|
$
|
0.11
|
$
|
0.13
|
$
|
0.05
|
$
|
0.06
|
Quarter Ended
|
||||||||||||||||
December 31,
|
March 31,
|
June 30,
|
September 30,
|
|||||||||||||
2005
|
2006
|
2006
|
2006
|
|||||||||||||
(as
restated)
|
(as
restated)
|
(as
restated)
|
||||||||||||||
Net
revenues
|
$
|
7,047,401
|
$
|
7,997,623
|
$
|
8,577,639
|
$
|
8,335,284
|
||||||||
Gross
profit
|
6,510,430
|
7,213,184
|
7,506,947
|
6,697,106
|
||||||||||||
Net
income (loss)
|
(327,092
|
)
|
129,998
|
826,847
|
(1,680,673
|
)
|
||||||||||
Earnings
(loss) per share information:
|
||||||||||||||||
Basic
income (loss) per share
|
$
|
(0.07
|
)
|
$
|
0.03
|
$
|
0.19
|
$
|
(0.37
|
)
|
||||||
Diluted
income (loss) per share
|
$
|
(0.07
|
)
|
$
|
0.03
|
$
|
0.18
|
$
|
(0.37
|
)
|
Three
Months Ended
|
||||||||||||||||||||||||
June
30, 2007
|
March
31, 2007
|
December
31, 2006
|
June
30, 2006
|
March
31, 2006
|
December
31, 2005
|
|||||||||||||||||||
Net
revenues
|
$ | - | $ | - | $ | (671,722 | ) | $ | - | $ | - | $ | (579,376 | ) | ||||||||||
Cost
of services
|
164,636 | 175,511 | (387,661 | ) | 336,173 | 197,549 | (579,376 | ) | ||||||||||||||||
Gross
profit
|
(164,636 | ) | (175,511 | ) | (284,061 | ) | (336,173 | ) | (197,549 | ) | - | |||||||||||||
General
and administrative expenses
|
(164,636 | ) | (175,511 | ) | 52,826 | (336,173 | ) | (197,549 | ) | 397,004 | ||||||||||||||
Depreciation
and amortization
|
- | - | (336,887 | ) | - | - | - | |||||||||||||||||
Litigation
and related expenses
|
- | - | - | - | - | (225,137 | ) | |||||||||||||||||
Total
operating expenses
|
(164,636 | ) | (175,511 | ) | (284,061 | ) | (336,173 | ) | (197,549 | ) | 171,867 | |||||||||||||
Operating
income (loss)
|
- | - | - | - | - | (171,867 | ) | |||||||||||||||||
Total
other income (expense)
|
- | - | - | - | - | 171,867 | ||||||||||||||||||
Net
income (loss)
|
$ | - | $ | - | $ | - | $ | - | $ | - | $ | - |
19.
|
RESTATEMENTS
|
|
·
|
Certain investment accounts
totaling $815,785 have been reclassified from cash and
cash equivalents to certificates of deposit and other
investments based on the maturity dates of the underlying investments in
the accompanying consolidated balance sheet as of September 30,
2006.
|
|
·
|
Accrued refunds and fees of
$1,250,000 relating to the Attorneys’ General settlement described in Note
10 have been reclassified from accounts receivable, net to accrued
liabilities in the accompanying consolidated balance sheet as of September
30, 2006.
|
|
·
|
Certain miscellaneous receivables
totaling $23,819 at September 30, 2006 were reclassified from prepaid
expenses and other current assets to accounts receivable, net in the
accompanying consolidated balance
sheet.
|
|
·
|
Unbillable accounts and
chargebacks have been reclassified from cost of services to a reduction in
net revenues in the consolidated statement of
operations.
|
|
·
|
Monitoring fees related to our
LEC billing channel have been reclassified from general and administrative
expenses to cost of
services.
|
|
·
|
Depreciation and amortization
expenses that were previously separately stated are now included in
general and administrative expenses in the consolidated statement of
operations.
|
|
·
|
Litigation and related expenses
that were previously included in other income and expense are now
separately stated as a component of operating expenses in the consolidated
statement of operations.
|
|
·
|
Preferred
stock dividends for the year ended September 30, 2006 totaling $1,918 were
reclassified from net cash provided by operating activities to net cash
used in financing activities.
|
|
·
|
Net
cash used in investing activities was affected by the reclassification of
certain investment accounts from cash and cash equivalents to
certificates of deposit and other investments as previously
described.
|
Balance
Sheet
|
September
30, 2006
|
|||||||||||
As
Originally
Reported
|
As
Adjusted
|
Effect
of change
|
||||||||||
Cash
and cash equivalents
|
$
|
7,210,560
|
$
|
6,394,775
|
$
|
(815,785
|
)
|
|||||
Certificates
of deposit and other investments
|
$
|
2,266,268
|
$
|
3,082,053
|
$
|
815,785
|
||||||
Accounts
receivable, net (current)
|
$
|
6,741,781
|
$
|
8,015,600
|
$
|
1,273,819
|
||||||
Prepaid
expenses and other current assets
|
$
|
259,069
|
$
|
235,250
|
$
|
(23,819
|
)
|
|||||
Accrued
expenses
|
$
|
3,315,439
|
$
|
4,565,439
|
$
|
1,250,000
|
Income
Statement
|
Year
ended September 30, 2006
|
Year
ended September 30, 2005
|
||||||||||||||||||||||
As
Originally Reported
|
As
Adjusted
|
Effect
of Change
|
As
Originally Reported
|
As
Adjusted
|
Effect
of Change
|
|||||||||||||||||||
Net
revenues
|
$ | 36,881,164 | $ | 31,957,947 | $ | (4,923,217 | ) | $ | 25,204,858 | $ | 24,361,995 | $ | (842,863 | ) | ||||||||||
Cost
of services
|
8,069,239 | 4,030,280 | (4,038,959 | ) | 3,980,619 | 3,137,756 | (842,863 | ) | ||||||||||||||||
Gross
profit
|
28,811,925 | 27,927,667 | (884,258 | ) | 21,224,239 | 21,224,239 | - | |||||||||||||||||
Operating
expenses:
|
||||||||||||||||||||||||
General
and administrative expenses
|
13,800,456 | 14,350,753 | 550,297 | 13,030,614 | 14,600,614 | 1,570,000 | ||||||||||||||||||
Sales
and marketing expenses
|
11,452,465 | 11,452,465 | - | 5,310,236 | 5,310,236 | - | ||||||||||||||||||
Depreciation
and amortization
|
1,434,554 | - | (1,434,554 | ) | 1,570,000 | - | (1,570,000 | ) | ||||||||||||||||
Litigation
and related expenses
|
- | 3,686,806 | 3,686,806 | - | 328,133 | 328,133 | ||||||||||||||||||
Total
operating expenses
|
26,687,475 | 29,490,024 | 2,802,549 | 19,910,850 | 20,238,983 | 328,133 | ||||||||||||||||||
Operating
income (loss)
|
2,124,450 | (1,562,357 | ) | (3,686,807 | ) | 1,313,389 | 985,256 | (328,133 | ) | |||||||||||||||
Other
income (expense):
|
||||||||||||||||||||||||
Interest
expense and other financing costs
|
- | - | - | (8,610 | ) | (8,610 | ) | - | ||||||||||||||||
Interest
income
|
224,176 | 224,176 | - | 242,965 | 242,965 | - | ||||||||||||||||||
Loss
on attorneys' general settlement
|
(3,525,000 | ) | - | 3,525,000 | - | - | - | |||||||||||||||||
Other
income (expense)
|
(186,325 | ) | (24,518 | ) | 161,807 | (550,409 | ) | (222,276 | ) | 328,133 | ||||||||||||||
Total
other income (expense)
|
(3,487,149 | ) | 199,658 | 3,686,807 | (316,054 | ) | 12,079 | 328,133 | ||||||||||||||||
Income
(loss) before income taxes and cumulative effect of accounting
change
|
(1,362,699 | ) | (1,362,699 | ) | - | 997,335 | 997,335 | - | ||||||||||||||||
Income
tax provision (benefit)
|
(311,779 | ) | (311,779 | ) | - | 372,037 | 372,037 | - | ||||||||||||||||
Cumulative
effect of accounting change (net of income taxes of $53,764 in
2005)
|
- | - | - | (99,848 | ) | (99,848 | ) | - | ||||||||||||||||
Net
income (loss)
|
$ | (1,050,920 | ) | $ | (1,050,920 | ) | $ | - | $ | 725,146 | $ | 725,146 | $ | - |
Statement
of Cash Flows
|
Year
Ended September 30, 2006
|
|||||||||||
As
Originally
Reported
|
As
Adjusted
|
Effect
of change
|
||||||||||
Net
cash provided by operating activities
|
$
|
2,420,083
|
$
|
2,422,001
|
$
|
1,918
|
||||||
Net
cash used in investing activities
|
$
|
(1,088,416
|
)
|
$
|
(1,904,201
|
)
|
$
|
(815,785
|
)
|
|||
Net
cash used in financing activities
|
$
|
(235,418
|
)
|
$
|
(237,336
|
)
|
$
|
(1,918
|
)
|
Directors, Executive Officers and
Corporate Governance
|
ITEM
11.
|
Executive
Compensation
|
ITEM
12.
|
Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder
Matters
|
ITEM
13.
|
Certain Relationships and Related
Transactions, and Director Independence
|
ITEM
14.
|
Principal Accountant Fees and
Services
|
ITEM
15.
|
Exhibits and Financial Statement
Schedule
|
(1)
|
Financial Statements are listed
on the Index to Consolidated Financial Statements on page 40 of this
Annual Report.
|
(2)
|
The following represents
financial statement schedules required to be filed with this Annual
Report:
|
/s/ Mayer Hoffman
McCann P.C.
|
|
Phoenix,
Arizona
|
|
May
12, 2008
|
Description
|
Balance at
Beginning
of
Period
|
Charged to
Costs
and
Expenses
|
Charged to
Other
Accounts
|
Deductions/
Writeoffs
|
Balance at
End
of
Period
|
|||||||||||||||
Allowance
for dilution and fees on amounts due from billing
aggregators
|
||||||||||||||||||||
Year
ended September 30, 2005
|
$
|
3,400,575
|
$
|
4,405,481
|
$
|
$
|
(6,883,056
|
)
|
$
|
923,000
|
||||||||||
Year
ended September 30, 2006
|
$
|
923,000
|
$
|
5,274,762
|
$
|
$
|
(3,732,339
|
)
|
$
|
2,465,423
|
||||||||||
Year
ended September 30, 2007
|
$
|
2,465,423
|
$
|
5,183,515
|
$
|
$
|
(5,760,208
|
)
|
$
|
1,888,730
|
||||||||||
Allowance
for customer refunds
|
||||||||||||||||||||
Year
ended September 30, 2005
|
$
|
269,662
|
$
|
4,177,741
|
$
|
$
|
(4,149,403
|
)
|
$
|
298,000
|
||||||||||
Year
ended September 30, 2006
|
$
|
298,000
|
$
|
2,307,141
|
$
|
$
|
(1,801,615
|
)
|
$
|
803,526
|
||||||||||
Year
ended September 30, 2007
|
$
|
803,526
|
$
|
2,281,995
|
$
|
$
|
(2,512,453
|
)
|
$
|
573,068
|
Exhibit
Number
|
Description
|
Previously
Filed as Exhibit
|
File
Number
|
Date
Previously Filed
|
|||
2.1
|
Agreement
and Plan of Merger dated June 6, 2007, relating to the Registrant’s merger
with LiveDeal, Inc.
|
Exhibit
2.1 to the Registrant’s Current Report on Form 8-K filed on June 6,
2007
|
000-24217
|
6/6/07
|
|||
3.1
|
Amended
and Restated Articles of Incorporation
|
Exhibit
3.1 to the Registrant’s Current Report on Form 8-K filed on August 15,
2007
|
000-24217
|
8/15/07
|
|||
3.2
|
Amended
and Restated Bylaws
|
Previously
filed
|
|||||
10.1
|
LiveDeal,
Inc. Amended and Restated 2003 Stock Plan*
|
Previously
filed
|
|||||
10.2
|
Form
of 2003 Stock Plan Restricted Stock Agreement*
|
Exhibit
10 to the Registrant’s Quarterly Report on Form 10-QSB for the fiscal
quarter ending March 31, 2005
|
000-24217
|
5/16/05
|
|||
10.3
|
Standard
Industrial/Commercial Multi-Tenant Lease for Mesa facility, dated June 1,
1998, between the Registrant and Art Grandlich, d/b/a McKellips Corporate
Square
|
Exhibit
10.5 to the Registrant’s Annual Report on Form 10-KSB for the fiscal year
ended September 30, 1999
|
000-24217
|
9/19/00
|
|||
10.4
|
Amendment
No. 1 to Standard Industrial/Commercial Multi-Tenant Lease for Mesa
facility, dated August 17, 1998, between the Registrant and Arthur
Grandlich, d/b/a McKellips Corporate Square
|
Exhibit
10.4 to the Registrant’s Annual Report on Form 10-K for the fiscal year
ended September 30, 2006
|
000-24217
|
12/29/06
|
|||
10.4.1
|
Amendment
No. 2 to Standard Industrial/Commercial Multi-Tenant Lease for Mesa
facility, dated January 7, 2003, between the Registrant and Arthur
Grandlich, d/b/a McKellips Corporate Square
|
Exhibit
10.14 to Amendment No. 2 to the Registrant’s Annual Report on Form
10-KSB/A for the fiscal year ended September 30,
2002
|
000-24217
|
7/8/03
|
|||
10.4.2
|
Amendment
No. 3 to Standard Industrial/Commercial Multi-Tenant Lease for Mesa
facility, dated March 23, 2006, between the Registrant and J3 Harmon,
LLC, successor in interest to The Estate of Arthur
Grandlich
|
Exhibit
10.4.2 to the Registrant’s Annual Report on Form 10-K for the fiscal year
ended September 30, 2006
|
000-24217
|
12/29/06
|
|||
10.4.3
|
Amendment
No. 4 to Standard Industrial/Commercial Multi-Tenant Lease for Mesa
facility, dated April 12, 2006, between the Registrant and J3 Harmon,
LLC, successor in interest to The Estate of Arthur
Grandlich
|
Exhibit
10.4.3 to the Registrant’s Annual Report on Form 10-K for the fiscal year
ended September 30, 2006
|
000-24217
|
12/29/06
|
10.5
|
Standard
Industrial Lease for Nevada facility, dated September 3, 2003, between the
Registrant and Tomorrow 33 Convention, LP
|
Exhibit
10.4 to the Registrant’s Annual Report on Form 10-KSB for the fiscal year
ended September 30, 2003
|
000-24217
|
12/31/03
|
|||
10.6
|
Amendment
No. 1 to Standard Industrial Lease for Nevada facility, dated October 4,
2006, between the Registrant and Tomorrow 33 Convention,
LP
|
Exhibit
10.6 to the Registrant’s Annual Report on Form 10-K for the fiscal year
ended September 30, 2006
|
000-24217
|
12/29/06
|
|||
10.7
|
Loan
and Security Agreement, dated April 13, 2004, between the Registrant and
Merrill Lynch Business Financial Services, Inc.
|
Exhibit
10.1 to Amendment No. 1 to the Registrant’s Quarterly Report on Form
10-QSB for the fiscal quarter ended June 30, 2004
|
000-24217
|
12/29/04
|
|||
10.9
|
Employment
Agreement, dated September 19, 2006, between the Registrant and Daniel L.
Coury, Sr.*
|
Exhibit
10.9 to the Registrant’s Annual Report on Form 10-K for the fiscal year
ended September 30, 2006
|
000-24217
|
12/29/06
|
|||
10.10
|
Employment
Agreement, dated September 19, 2006, between the Registrant and Gary L.
Perschbacher*
|
Exhibit
10.10 to the Registrant’s Annual Report on Form 10-K for the fiscal year
ended September 30, 2006
|
000-24217
|
12/29/06
|
|||
10.11
|
Wholesale
Fulfillment Agreement, dated March 1, 2005, between Registrant and
Fulfillment House and Company
|
Exhibit
10.1 to the Registrant’s Current Report on Form 8-K filed on May 4,
2006
|
000-2417
|
5/4/06
|
|||
10.12
|
Separation
Agreement, dated November 3, 2005, between the Registrant and Peter J.
Bergmann*
|
Exhibit
10.1 to the Registrant’s Quarterly Report on Form 10-Q for the fiscal
quarter ending December 31, 2005
|
000-24217
|
2/14/06
|
|||
10.13
|
Employment
Agreement, dated February 6, 2006, between the Registrant and John
Raven*
|
Exhibit
10.1 to the Registrant’s Current Report on Form 8-K
|
000-24217
|
2/21/06
|
|||
10.13.1
|
First
Amendment to Employment Agreement, dated September 19, 2006, between the
Registrant and John Raven*
|
Exhibit
10.13.1 to the Registrant’s Annual Report on Form 10-K for the fiscal year
ended September 30, 2006
|
000-24217
|
12/29/06
|
|||
10.14
|
Exclusive
Domain Name Licensing Agreement, dated July 8, 2003, between the
Registrant and Onramp Access, Inc.
|
Exhibit
10.1 to the Registrant’s Current Report on Form 8-K filed on July 22,
2003
|
000-24217
|
7/22/03
|
|||
10.15
|
Stock
Repurchase and Domain Name Transfer Agreement, dated July 21, 2006,
between Registrant and Onramp Access, Inc.
|
Exhibit
10.15 to the Registrant’s Annual Report on Form 10-K for the fiscal year
ended September 30, 2006
|
000-24217
|
12/29/06
|
|||
10.16
|
Processing
Agreement, dated August 26, 2003, between the Registrant and Integrated
Payment Systems Inc., d/b/a First Data
|
Exhibit
10.2 to the Registrant’s Current Report on Form 8-K filed on October 24,
2003
|
000-24217
|
10/24/03
|
10.17
|
Master
Services Agreement, dated August 1, 2002, between the Registrant and
eBillit, Inc.
|
Exhibit
10.24 to Amendment No. 1 to the Registrant’s Quarterly Report on Form
10-QSB/A for the fiscal quarter ended March 31, 2003
|
000-24217
|
7/8/03
|
|||
10.18
|
Billings
and Related Services Agreement, dated September 1, 2001, between the
Registrant and ACI Communications, Inc.
|
Exhibit
10.33 to Amendment No. 2 to the Registrant’s Annual Report on Form
10-KSB/A for the fiscal year ended September 30,
2002
|
000-24217
|
7/8/03
|
|||
10.19
|
Escrow
Agreement dated June 6, 2007, relating to the Registrant’s merger with
LiveDeal, Inc.
|
Exhibit
10.1 to the Registrant’s Current Report on Form 8-K filed on June 6,
2007
|
000-24217
|
6/6/07
|
|||
10.20
|
Employment
Agreement dated June 6, 2007, by and between the Registrant and Rajesh
Navar*
|
Exhibit
10.2 to the Registrant’s Current Report on Form 8-K filed on June 6,
2007
|
000-24217
|
6/6/07
|
|||
10.21
|
Noncompetition,
Nondisclosure and Nonsolicitation Agreement dated June 6, 2007, by and
between the Registrant and Rajesh Navar*
|
Exhibit
10.3 to the Registrant’s Current Report on Form 8-K filed on June 6,
2007
|
000-24217
|
6/6/07
|
|||
10.22
|
Asset
Purchase Agreement dated as of July 10, 2007, relating to the Registrant’s
acquisition of the assets of Oncall Subscriber Management
Inc.
|
Exhibit
10.1 to the Registrant’s Current Report on Form 8-K filed on July 16,
2007
|
000-24217
|
7/16/07
|
|||
10.23
|
Escrow
Agreement dated as of July 10, 2007, relating to the Registrant’s
acquisition of the assets of Oncall Subscriber Management
Inc.
|
Exhibit
10.2 to the Registrant’s Current Report on Form 8-K filed on July 16,
2007
|
000-24217
|
7/16/07
|
|||
14
|
Code
of Business Conduct and Ethics, Adopted December 31,
2003
|
Exhibit
14 to the Registrant’s Quarterly Report on Form 10-QSB for the period
ended March 31, 2004
|
000-24217
|
5/13/04
|
|||
21
|
Company
Subsidiaries
|
Previously
filed
|
|||||
Consent
of Mayer Hoffman McCann P.C.
|
Attached
hereto
|
||||||
Consent
of Epstein Weber and Conover
|
Attached
hereto
|
||||||
Certifications
pursuant to SEC Release No. 33-8238, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
|
Attached
hereto
|
||||||
Certifications
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
|
Attached
hereto
|
Dated: May
12, 2008
|
/s/Daniel
L. Coury, Sr.
|
Daniel
L. Coury, Sr.
|
|
Chief
Executive Officer
|
Signature
|
Title
|
Date
|
||
/s/
Daniel L. Coury, Sr.
|
Chief
Executive Officer (Principal
Executive
|
May
12, 2008
|
||
Daniel
L. Coury, Sr.
|
Officer)
|
|||
/s/
Gary L. Perschbacher
|
Chief
Financial Officer (Principal
Financial
|
May
12, 2008
|
||
Gary
L. Perschbacher
|
Officer
and Principal Accounting Officer)
|
|||
/s/
Richard D. Butler.
|
Director
|
May
12, 2008
|
||
Richard
D. Butler
|
||||
/s/
Thomas Clarke, Jr.
|
Director
|
May
12, 2008
|
||
Thomas
Clark, Jr
|
||||
/s/
Joseph F. Cunningham, Jr.
|
Chairman
of the Board
|
May
12, 2008
|
||
Joseph
F. Cunningham, Jr.
|
||||
/s/
John Evans.
|
Director
|
May
12, 2008
|
||
John
Evans
|
||||
/s/
Benjamin Milk.
|
Director
|
May
12, 2008
|
||
Benjamin
Milk
|
||||
/s/
Rajesh Navar
|
President
and Director
|
May
12, 2008
|
||
Rajesh
Navar
|