Yellow Pages directory advertising is often the primary form of paid advertising used by local businesses. The Kelsey Group, an independent Yellow Pages market research firm, estimates that 3.5 million small- and medium-sized businesses in the United States advertise in the Yellow Pages. According to The Kelsey Group, the print Yellow Pages industry was a $14.3 billion advertising market in the United States, and a $26.3 billion advertising market worldwide, in 2005. According to The Pelorus Group, an independent market research firm, total directory assistance revenues in the United States will grow from $6.2 billion during 2004 to over $9.7 billion in 2009.

The Kelsey Group estimates that the worldwide market for local search, which consists of Internet Yellow Pages, local commercial Internet searches and wireless directory searches, will grow from $3.3 billion in 2005 to approximately $12.9 billion in 2010, a 31% compound annual growth rate. Despite the industry transition toward Internet-based local search and advertising, many current local online alternatives do not adequately meet the needs of consumers or local business advertisers. Industry trends and the shortcomings of existing alternatives create a new growth opportunity for Yellow Pages publishers and 411 service providers.

According to The Kelsey Group, less than 30% of small- and medium-sized businesses in the United States had websites in 2005. To the extent they do, these websites are often incomplete or out of date, are difficult to find and rarely provide the deep content that consumers require to make informed comparative decisions. In addition, traditional Internet search portals typically use implied popularity technology, which generates search results based on the extent of relevant links directed to a particular site. Thus, even if local business content is available on the Internet, consumers using traditional Internet search portals may have difficulty accessing the most relevant information if it is not widely linked.

The Company’s Internet Yellow Pages directory platform is comprised of its Boss family of modular software components: List Boss, Page Boss and City Boss. The clients can purchase these components individually or together as a combined Internet Yellow Pages directory solution.

For clients that desire an expanded Internet presence, the Company offers its Destination Search platform, which assists Yellow Pages publishers in establishing technologically advanced, content- and feature-rich local search and shopping directories. The Company’s Destination Search platform consists of components that can be purchased individually or combined to create a comprehensive private-label local search portal. Traditional Internet search portals, such as Google or Yahoo! Search, direct a consumer to another site for information. Destination sites, such as Travelocity.com or Weather.com, provide content directly to the consumer. A Destination Search portal is a hybrid of a traditional Internet search portal and a destination site.

The Company operates a network of websites, under the brand name AreaGuides.net, which provide local content for thousands of cities and towns in the United States and Canada and an increasing number of international locations. AreaGuides.net websites provide consumers with local reference content specifically tailored to the city or town of interest. AreaGuides.net websites can display multiple sources of content, typically integrating Yellow Pages content with a large base of local information targeted to travelers and new residents, two key segments of the local search market.

411-based local search solutions are based on the Company’s proprietary FlexiQ platform, a search infrastructure that enables 411 service providers to provide voice- and SMS-based 411 services. The Company intends to develop a range of enhanced content and transaction services that build on its platform for 411 service providers.

Total cost of revenues increased $2.8 million, from $0.5 million for the year ended December 31, 2004 to $3.3 million for the year ended December 31, 2005.

Total sales and marketing expenses increased $2.2 million, from $1.5 million for the year ended December 31, 2004 to $3.7 million for the year ended December 31, 2005.

Total product development and support expenses increased $2.2 million, from $1.2 million for the year ended December 31, 2004 to $3.4 million for the year ended December 31, 2005.

Total interest expense decreased $0.2 million, from $0.8 million for the year ended December 31, 2004 to $0.6 million for the year ended December 31, 2005.