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Document and Entity Information (USD $)
12 Months Ended
Sep. 30, 2012
Dec. 31, 2012
Mar. 31, 2012
Document And Entity Information
Entity Registrant Name LIVEDEAL INC
Entity Central Index Key 0001045742
Document Type 10-K
Document Period End Date Sep 30, 2012
Amendment Flag false
Current Fiscal Year End Date --09-30
Is Entity a Well-known Seasoned Issuer? No
Is Entity a Voluntary Filer? No
Is Entity's Reporting Status Current? Yes
Entity Filer Category Smaller Reporting Company
Entity Public Float $ 4,738,678
Entity Common Stock, Shares Outstanding 2,753,270
Document Fiscal Period Focus FY
Document Fiscal Year Focus 2012
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CONSOLIDATED BALANCE SHEETS (USD $)
Sep. 30, 2012
Sep. 30, 2011
Assets
Cash and cash equivalents $ 1,305,785 $ 244,470
Accounts receivable, net 439,848 654,856
Prepaid expenses and other current assets 52,614 113,323
Total current assets 1,798,247 1,012,649
Accounts receivable, long term portion, net 374,570 371,438
Property and equipment, net 50,526 171,201
Deposits and other assets 35,707 31,007
Intangible assets, net 1,997,671 1,222,334
Total assets 4,256,721 2,808,629
Liabilities and Stockholders' Equity
Accounts payable 1,017,363 600,908
Accrued liabilities 410,104 424,595
Notes payable 0 1,000,000
Current portion of capital lease obligation 0 36,992
Total current liabilities 1,427,467 2,062,495
Total liabilities 1,427,467 2,062,495
Commitments and contingencies      
Stockholders' equity:
Series E convertible preferred stock, $0.001 par value, 200,000 shares authorized, 127,840 issued and outstanding, liquidation preference $38,202 10,866 10,866
Common stock, $0.001 par value, 10,000,000 shares authorized, 2,433,442 and 698,491 shares issued, 2,433,442 and 694,239 shares outstanding at September 30, 2012 and September 30, 2011, respectively 2,620 698
Treasury stock (0 and 4,252 shares, at September 30, 2012 and 2011, respectively, carried at cost) 0 (70,923)
Paid in capital 24,400,483 20,813,082
Accumulated deficit (21,584,715) (20,007,589)
Total stockholders' equity 2,829,254 746,134
Total liabilities and stockholders' equity $ 4,256,721 $ 2,808,629
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CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
Sep. 30, 2012
Sep. 30, 2011
Stockholders' equity:
Series E convertible preferred stock, par value $ 0.001 $ 0.001
Series E convertible preferred stock, shares authorized 200,000 200,000
Series E convertible preferred stock, issued 127,840 127,840
Series E convertible preferred stock, outstanding 127,840 127,840
Series E convertible preferred stock, liquidation preference $ 38,202 $ 38,202
Common stock, par value $ 0.001 $ 0.001
Common stock, shares authorized 10,000,000 10,000,000
Common stock, shares issued 2,620,486 698,491
Common stock, shares outstanding 2,620,486 694,239
Treasury stock, shares 0 4,252
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CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)
12 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Consolidated Statements Of Operations
Net revenues $ 3,070,503 $ 4,083,412
Cost of services 715,457 3,606,143
Gross profit 2,355,046 477,269
Operating expenses:
General and administrative expenses 3,290,002 5,721,351
Sales and marketing expenses 12,310 57,652
Total operating expenses 3,302,312 5,779,003
Operating loss (947,266) (5,301,734)
Other income (expense):
Interest income (expense), net (610,485) (69,223)
Other expense (29,890) (12,936)
Total other expense, net (640,375) (82,159)
Loss before income taxes (1,587,641) (5,383,893)
Income tax provision (benefit) 0 0
Loss from continuing operations (1,587,641) (5,383,893)
Discontinued operations
Income (loss) from discontinued component, including disposal costs 12,433 (118,355)
Income tax provision (benefit) 0 0
Income (loss) from discontinued operations 12,433 (118,355)
Net loss $ (1,575,208) $ (5,502,248)
Earnings per share - basic and diluted:
Loss from continuing operations $ (0.77) $ (8.11)
Discontinued operations $ 0.01 $ (0.18)
Net loss $ (0.76) $ (8.29)
Weighted average common shares outstanding:
Basic & diluted 2,068,828 664,167
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CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (USD $)
Common Stock
Preferred Stock
Treasury Stock
Additional Paid-In Capital
Retained Earnings / Accumulated Deficit
Total
Beginning balance, Amount at Sep. 30, 2010 $ 639 $ 10,866 $ (70,923) $ 20,441,692 $ (14,503,423) $ 5,878,851
Beginning balance, Shares at Sep. 30, 2010 639,117 127,840
Series E preferred stock dividends (1,918) (1,918)
Stock based compensation 38,231 38,231
Issuance of common stock for cash, Amount 50 299,950 300,000
Issuance of common stock for cash, Shares 50,198
Restricted stock cancellations, Shares (8)
Amortization of deferred stock compensation 17,885 17,885
Issuance of common stock for services, Amount 9 15,324 15,333
Issuance of common stock for services, Shares 9,184
Beneficial conversion feature on convertible debt and warrants 0
Net loss (5,502,248) (5,502,248)
Ending balance, Amount at Sep. 30, 2011 698 10,866 (70,923) 20,813,082 (20,007,589) 746,134
Ending balance, Shares at Sep. 30, 2011 698,491 127,840
Series E preferred stock dividends (1,918) (1,918)
Stock based compensation 16,942 16,942
Issuance of common stock for cash, Amount 1,694 2,348,306 2,350,000
Issuance of common stock for cash, Shares 1,694,529
Restricted stock cancellations, Shares (25)
Issuance of common stock for services, Amount 48 124,718 124,766
Issuance of common stock for services, Shares 47,827
Issuance of common stock for intangibles, Amount 75 419,925 420,000
Issuance of common stock for intangibles, Shares 75,000
Beneficial conversion feature on convertible debt and warrants 489,594 489,594
Conversion of note payable, Amount 109 258,835 258,944
Conversion of note payable, Shares 109,139
Treasury stock retired, Amount (4) 70,923 (70,919) 0
Treasury stock retired, Shares (4,475)
Net loss (1,575,208) (1,575,208)
Ending balance, Amount at Sep. 30, 2012 $ 2,620 $ 10,866 $ 0 $ 24,400,483 $ (21,584,715) $ 2,829,254
Ending balance, Shares at Sep. 30, 2012 2,620,486 127,840
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CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
12 Months Ended
Sep. 30, 2012
Sep. 30, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,575,208) $ (5,502,248)
Depreciation and amortization 259,975 563,826
Non-cash interest expense associated with convertible debt and warrants 489,594 0
Non-cash stock compensation expenes 16,942 38,231
Non-cash issuance of common stock for services 124,766 15,333
Amortization of deferred stock compensation 0 17,885
Provision for uncollectible accounts (81,026) 336,929
Non-cash impairment of goodwill and intangibles 0 367,588
Loss on disposal of property and equipment 36,040 12,936
Changes in assets and liabilities:
Accounts receivable 292,902 (84,550)
Prepaid expenses and other current assets 60,709 105,798
Deposits and other assets (4,700) 18,287
Accounts payable 416,455 246,468
Accrued liabilities (7,465) (457,511)
Net cash provided by (used in) operating activities 28,984 (4,321,028)
CASH FLOWS FROM INVESTING ACTIVITIES:
Redemption of certificates of deposits 0 101,293
Expenditures for intangible assets (482,413) 0
Purchases of property and equipment (48,264) (1,551)
Net cash provided by/(used in) investing activities (530,677) 99,742
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 0 1,000,000
Payments on notes payable (1,000,000) 0
Principal repayments on capital lease obligations (36,992) (61,618)
Issuance of common stock for cash 2,350,000 300,000
Proceeds from issuance of convertible debt and warrants 250,000 0
Net cash provided by financing activities 1,563,008 1,238,382
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 1,061,315 (2,982,904)
CASH AND CASH EQUIVALENTS, beginning of period 244,470 3,227,374
CASH AND CASH EQUIVALENTS, end of period 1,305,785 244,470
Noncash financing and investing activities:
Conversion of notes payable and accrued interest into common stock 258,944 0
Issuance of common stock in connection with the acquisition of LiveOpenly 420,000 0
Accrued and unpaid dividends 1,918 1,918
Cash paid for income taxes    1,600
Cash paid for interest $ 97,895 $ 57,266
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Note 1: Organization and Basis of Presentation
12 Months Ended
Sep. 30, 2012
Note 1 Organization And Basis Of Presentation
Note 1: Organization and Basis of Presentation

The accompanying consolidated financial statements include the accounts of LiveDeal, Inc. (formerly YP Corp.), a Nevada corporation, and its wholly owned subsidiaries (collectively the “Company”). The Company delivers local customer acquisition services for small and medium-sized businesses combined with online listing services to deliver an affordable way for businesses to extend their marketing reach to local, relevant customers via the Internet.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

  o Impairment charges of $16,111,494 were recorded related to the write-down of the Company’s goodwill and other intangible assets;
  o The Company commenced a plan to discontinue its classifieds business and initiated shutdown activities and has reflected the operating results of this line of business as discontinued operations in the accompanying consolidated statements of operations;

 

  o The Company sold a portion of its customer list associated with its directory services business and recorded a gain of $3,040,952; and
  o The Company established a valuation allowance of $10,586,854 related to its deferred tax assets, as described in Note 12.

 

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

 

  · During 2011, as part of the Company’s strategy to evaluate each of the Company’s business segments as separate entities, management noted that the Direct Sales business segment had incurred operating losses and declining revenues and did not fit with the Company’s change in strategic direction. Accordingly, in March 2011, the Company made the strategic decision to discontinue our Direct Sales business and product offerings. Prior year financial statements have been restated to present the Direct Sales business segment as a discontinued operation.
     
  · During 2012, the Company launched two new business lines under new management after a period of re-evaluating our sales program, products, distribution methods and vendor programs. First, we commenced the sale of marketing tools that help local businesses manage their online presence under our Velocity Localbrand, which we refer to as online presence marketing, in November 2012. Second, we commenced sourcing local deal and activities to strategic publishing partners under our LiveDeal® brand, which we refer to as promotional marketing, in August 2012. We continue to actively develop, revise and evaluate these products and services.

 

The Company had a net loss of $1.3 million for the year ended September 30, 2012, and $5.5 million for the year ended September 30, 2011. The Company had an operating cash flow of $29,000 for the year ended September 30, 2012, and $4.3 million for the year ended September 30, 2011. The Company had cash of $1,305,735 as of September 30, 2012. The Company has significantly reduced operating expenses by reviewing all expenses and improving operating efficiencies. Management believes the Company’s cash on hand and additional cash generated from operations together with potential sources of cash such through the issuance of debt or equity will provide the Company with sufficient liquidity for the next 12 months.

 

Effects of Stock Split

 

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

 

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

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Note 2: Summary of Significant Accounting Policies
12 Months Ended
Sep. 30, 2012
Accounting Policies [Abstract]
Note 2: Summary of Significant Accounting Policies

Principles of Consolidation

 

The accompanying consolidated financial statements represent the consolidated financial position and results of operations of the Company and include the accounts and results of operations of the Company, LiveDeal, Local Marketing Experts, Inc., Velocity Marketing Concepts, Inc., 247 Marketing Inc., Telco Billing, Inc. and Telco of Canada, Inc., the Company’s wholly owned subsidiaries, for the years ended September 30, 2012 and 2011, as applicable. All intercompany transactions and balances have been eliminated in consolidation.

 

Use of Estimates

 

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

 

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

 

Financial Instruments

 

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

 

Cash and Cash Equivalents

 

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

 

Property and Equipment

 

Property and equipment is stated at cost less accumulated depreciation. Depreciation is recorded on a straight-line basis over the estimated useful lives of the assets ranging from three to five years. Depreciation expense was $132,899 and $214,796 for the years ended September 30, 2012 and 2011, respectively.

 

Revenue Recognition

 

Directory Services

 

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

 

  · direct ACH withdrawals; and
     
  · inclusion on the customer’s local telephone bill provided by their Local Exchange Carriers, or LECs.

 

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

 

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

 

Direct Sales

 

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

 

Deals Revenue

 

The Company recognizes revenue from its sales through its strategic publishing partners of discounted goods and services offered by its merchant clients (“Deals”) when the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred; the selling price is fixed or determinable; and collectability is reasonably assured. These criteria are met when the number of customers who purchase the daily deal exceeds the predetermined threshold, where, if applicable, the Deal has been electronically delivered to the purchaser and a listing of Deals sold has been made available to the merchant. At that time, the Company's obligations to the merchant, for which it is serving as an agent, are substantially complete. The Company's remaining obligations, which are limited to remitting payment to the merchant, are inconsequential or perfunctory. The Company records as revenue an amount equal to the net amount it retains from the sale of Deals after paying an agreed upon percentage of the purchase price to the featured merchant excluding any applicable taxes. Revenue is recorded on a net basis because the Company is acting as an agent of the merchant in the transaction. 

 

Deferred Revenue

 

In some instances, the Company receives payments in advance of rendering services, whereupon such revenues are deferred until the related services are rendered. Deferred revenue was $2,310 and $14,553 at September 30, 2012 and 2011, respectively.

 

Allowance for Doubtful Accounts

 

The Company maintains an allowance for doubtful accounts, which includes allowances for customer refunds, dilution and fees from LEC billing aggregators and other uncollectible accounts. The Company has increased its allowances for doubtful accounts to 65.7% of gross accounts receivable at September 30, 2012 as compared to 61.3% of gross accounts receivable at September 30, 2011. The determination of the allowance for doubtful accounts is dependent on many factors, including regulatory activity, changes in fee schedules by LEC service providers and recent historical trends.

 

Approximately 93% of the Company’s allowance for doubtful accounts is an allowance against accounts receivable balances and reserves held by a LEC that is in bankruptcy and an allowance against an outstanding receivable balance that is in dispute. After excluding these reserves from the related accounts receivable balances, the allowance for doubtful accounts as a percentage of gross accounts receivable decreases to 12.6%. See note 12 for Concentration of Credit Risk.

 

Legal Costs

 

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

 

Income Taxes

 

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

 

Stock-Based Compensation

 

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

 

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

 

Net Loss Per Share

 

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

 

Internally Developed Software and Website Development Costs

 

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

 

Impairment of Long-lived Assets

 

The Company assesses long-lived assets for impairment in accordance with the provisions of FASB ASC 360 “Property, Plant and Equipment”. A long-lived asset (asset group) shall be tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. The carrying amount of a long lived asset is not recoverable if it exceeds the sum of the undiscounted net cash flows expected to result from the use and eventual disposition of the asset. The amount of impairment loss, if any, is measured as the difference between the net book value of the asset and its estimated fair value. For purposes of these tests, long-lived assets must be grouped with other assets and liabilities for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. During the 2011 second fiscal quarter, $367,588 in net intangible assets were written off which were previously used in the discontinued Direct Sales business. 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.

 

Recently Issued Accounting Pronouncements

 

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

 

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

 

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

 

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

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Note 3: Discontinued Operations
12 Months Ended
Sep. 30, 2012
Note 3 Discontinued Operations
Note 3: Discontinued Operations

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

 

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

  

  · Employee contract termination charges of $7,083 reflecting the reduction in force of 7 employees;
     
  · Non cash impairment charges of $367,588 consisting of the write-off of net intangible assets;

  

The direct sales business segment accounted for $0 and $1,341,430 net revenues for the years ended September 30, 2012 and 2011, respectively. Net revenues from this business segment are now included as part of income from discontinued operations in the accompanying consolidated statements of operations. Net income for the year ended September 30, 2012 consisted of a recovery on a bad debt from a previous period.

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Note 4: Balance Sheet Information
12 Months Ended
Sep. 30, 2012
Note 4 Balance Sheet Information
Note 4: Balance Sheet Information

Balance sheet information is as follows:

 

   September 30, 
   2012   2011 
         
Receivables, current, net:          
Accounts receivable, current  $1,863,067   $2,080,747 
Less: Allowance for doubtful accounts   (1,423,219)   (1,425,891)
   $439,848   $654,856 
Receivables, long term, net:          
Accounts receivable, long term  $510,587   $569,178 
Less: Allowance for doubtful accounts   (136,017)   (197,740)
   $374,570   $371,438 
Total receivables, net:          
Gross receivables  $2,373,654   $2,649,925 
Less: Allowance for doubtful accounts   (1,559,236)   (1,623,631)
   $814,418   $1,026,294 

 

Long term receivables consist of reserves held by LEC processors that are not expected to be settled within 12 months.

 

Approximately 93% of the Company’s allowance for doubtful accounts is an allowance against accounts receivable balances and reserves held by a LEC that is in bankruptcy and an allowance against an outstanding receivable balance that is in dispute. After excluding these reserves from the related accounts receivable balances, the allowance for doubtful accounts as a percentage of gross accounts receivable decreases to 12.6%. See note 12 for Concentration of Credit Risk.

 

Components of allowance for doubtful accounts are as follows:

 

   September 30, 
   2012   2011 
         
Allowance for dilution and fees on amounts due from billing aggregators  $1,525,126   $1,477,769 
Allowance for customer refunds   34,111   145,862 
   $1,559,237   $1,623,631 

 

   September 30, 
   2012   2011 
         
Property and equipment, net:          
Leasehold improvements  $   $201,476 
Furnishings and fixtures   94,511    233,577 
Office, computer equipment and other   361,685    426,931 
    456,196    861,984 
Less: Accumulated depreciation   (405,670)   (690,783)
   $50,526   $171,201 

 

   September 30, 
   2012   2011 
         
Intangible assets, net:          
Domain name and marketing related intangibles  $1,511,650   $1,509,600 
Website and technology related intangibles   1,252,304    351,941 
    2,763,954    1,861,541 
Less:  Accumulated amortization   (766,283)   (639,207)
   $1,997,671   $1,222,334 

 

The change in intangibles is attributable to $420,000 of intangibles acquired in the LiveOpenly acquisition and $482,413 of website development costs.

  

   September 30, 
   2012   2011 
         
Accrued liabilities:          
Deferred revenue  $2,310   $14,553 
Accrued payroll and bonuses   28,968    63,043 
Accruals under revenue sharing agreements   67,601    86,550 
Accrued expenses - other   311,225    260,449 
   $410,104   $424,595 

   

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Note 5: Intangible Assets
12 Months Ended
Sep. 30, 2012
Note 5 Intangible Assets
Note 5: Intangible Assets

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

 

The Company performed its annual impairment analysis and determined that no impairment existed at September 30, 2012 and 2011. In connection with the discontinued operations related to the Direct Sales business, net intangible assets of $367,588 were written off in the second fiscal quarter of 2011.

 

The following summarizes estimated future amortization expense related to intangible assets that have net balances as of September 30, 2012:

  

2013    240,598 
2014    251,105 
2015    254,396 
2016    201,877 
2017    199,382 
Thereafter    850,314 
     $1,997,671 

 

Total amortization expense related to intangible assets was $140,667 and $349,030 for the years ended September 30, 2012 and 2011, respectively.

   

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Note 6: Long-Term Debt
12 Months Ended
Sep. 30, 2012
Long-term Debt, Unclassified [Abstract]
Note 6: Long-Term Debt

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

In connection with closing the Loan, the Borrowers paid Lender a $20,000 cash origination fee and also reimbursed Lender for $20,000 in closing costs, including attorneys’ fees and other out-of-pocket expenses related to the negotiation of the Loan Agreement. Both the cash origination fee and the closing costs were expensed in the third fiscal quarter of 2011. The loan was paid off in May of 2012.

 

On April 3, 2012 (“Closing Date”), the Company entered into a Note and Warrant Purchase Agreement (“Purchase Agreement”) with Isaac Capital Group, LLC (“ICG”) pursuant to which ICG agreed to purchase for cash up to $2,000,000 in aggregate principal amount of the Company’s unsecured Subordinated Convertible Notes (“Notes”). ICG is owned by Jon Isaac, the Company’s President and Chief Executive Officer and a director on the Company’s Board. Prior to this transaction, Mr. Isaac owned 403,225 shares, or 16.8% of the Company’s outstanding common stock. The Purchase Agreement and the Notes, which are unsecured, provide that all amounts payable by the Company to ICG under the Notes will be due and payable on April 3, 2013 (“Maturity Date”), provided that the Company has the option in its discretion to extend the Maturity Date by up to one (1) year if no Event of Default (as defined in the Purchase Agreement) has occurred and is continuing, and the Company is in material compliance with its agreements and covenants under the Purchase Agreement and the Notes, as of the Maturity Date.

 

On January 14, 2013, the Company and ICG amended the Purchase Agreement to clarify ambiguities and correct inadvertent mistakes related to the warrant issuance timing and the conversion price of a Note, and to amend various anti-dilution features. These changes were consistent with the intent of the parties at the time they entered into the Purchase Agreement and are consistent with the Company’s past practices related to the Notes and warrants. In particular, the amendment clarifies that the warrants will be issued upon conversion (rather than upon issuance) of the Notes and provides that the conversion price of a Note shall be based upon a floor price of $1.00 per share, regardless if the Company’s stock is trading below that amount at the time ICG elects to convert a Note.

  

The Purchase Agreement and the Notes, as amended, provide that:

  

  · The Notes will accrue interest at an annual interest rate equal to 8%. All interest will be payable on the Maturity Date or upon the conversion of the applicable Note.

 

  · The Company has the option to prepay each Note, in whole or in part, at any time without premium or penalty.

 

  · If ICG elects to convert all or any portion of any Note, the Company must issue to ICG on the date of the conversion a warrant (“Contingent Warrant”) to purchase a number of shares of the Company’s common stock equal to the number of shares issuable upon conversion. This number of shares is subject to adjustment in the event of stock splits or combinations, stock dividends, certain pro rata distributions, and certain fundamental transactions. Each Contingent Warrant will be exercisable for a period of five (5) years following the date of its issuance at an exercise price equal to 120% of the conversion price of the applicable Note (with the exercise price being subject to adjustment under the same conditions as the number of shares for which the warrant is exercisable.) The Contingent Warrants provide that they may be exercised in whole or in part and include a cashless exercise feature.

 

  · The Notes provide that, upon the occurrence of any Event of Default, all amounts payable to ICG will become immediately due and payable without any demand or notice.

 

  · The Company may issue additional Notes in an aggregate principal amount of up to $1,750,000 to ICG from time to time upon notice to ICG prior to April 3, 2013, provided that each Note must be in a principal amount of at least $100,000.

 

  · The Company (i) is required to provide certain financial and other information to ICG from time to time, (ii) must maintain its corporate existence, business, assets, properties, insurance and records in accordance with the requirements set forth in the Purchase Agreement, (iii) with certain exceptions, must not incur or suffer to exist any liens or other encumbrances with respect to the Company’s property or assets, (iv) must not make certain loans or investments except in compliance with the terms of the Purchase Agreement, and (v) must not enter into certain types of transactions, including dispositions of its assets or business.

 

The events of default (“Events of Default”) which trigger the acceleration of the Notes include (among other things): (i) the Company’s failure to make any payment required under the Notes when due (subject to a three-day cure period), (ii) the Company’s failure to comply with its covenants and agreements under the Purchase Agreement, the Notes and any other transaction documents, and (iii) the occurrence of a change of control with respect to the Company.

 

The Company issued an initial Note in the principal amount of $250,000 to ICG on the Closing Date. Because the conversion price of $2.53 was less than the stock price, this gave rise to a beneficial conversion feature valued at $166,667. The Company recognized this beneficial conversion feature as a debt discount and additional paid in capital. The discount to the Note is being amortized to interest expense until maturity or its earlier repayment or conversion.

 

As mentioned above, the Purchase Agreement, as amended, contains contingent provisions for the adjustment of the conversion ratio and conversion price, and the issuance of Contingent Warrants upon conversion.

 

On September 10, 2012, ICG elected to convert a Note with a conversion price of $2.38 per share, resulting in the issuance of 109,139 shares. In accordance with the terms of the agreement, warrants to acquire 109,139 shares were issued upon conversion with an exercise price of ($2.38 x 120%) $2.85 per share. Upon conversion of the convertible debt instrument, the remaining debt discount of $97,222 was immediately recognized as interest expense.

 

The fair value of the warrants issued in connection with the debt conversion was $322,927 and was immediately recognized as interest expense.

 

On December 11, 2012, the Company issued a second Note to ICG in the principal amount of $250,000, pursuant to the Purchase Agreement. On December 17, 2012, ICG elected to convert that Note with a conversion price of $2.02 per share, resulting in the issuance of 123,829 shares of the Company’s common stock and a warrant to acquire 123,829 additional shares of the Company’s common stock at an exercise price of $2.43 per share.

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Note 7: Stockholders' Equity
12 Months Ended
Sep. 30, 2012
Equity [Abstract]
Note 7: Stockholders' Equity

Issuances of Common Stock

 

November 2010 Equity Issuance Agreement

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

March 2011 Equity Issuance Agreement

 

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

 

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

 

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

 

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

 

  · An additional $50,000 was due to be wired to the Company’s designated account on or before May 25, 2011, but such amount was never paid by the applicable March Purchasers. On or about July 7, 2011, the Company provided written notice to the applicable March Purchasers that it considered them to be in material breach of their agreements with the Company. As of September 30, 2012 the March Purchasers have not responded to the Company’s notice of breach. As the Company did not issue shares related to this scheduled payment, the Company has deemed this to be a cancelled order.

 

December 2011 Equity Issuance

On December 12, 2011, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with each of Isaac Capital Group LLC (“ICG”), John Kocmur (“Kocmur”), Kingston Diversified Holdings LLC (“Kingston”), Augustus Gardini, L.P. (“Augustus”) and Lausanne LLC (“Lausanne” and collectively with ICG, Kocmur, Kingston and Augustus, the “Purchasers”) pursuant to which the Company’s issued and sold an aggregate of 1,612,899 shares (the “Shares”) of the Company’s common stock for an aggregate purchase price equal to $2.0 million. Each of ICG, Kocmur and Kingston (the “Lead Purchasers”) invested $500,000 and were issued 403,225 shares of the Company’s Common Stock, and each of Augustus and Lausanne invested $250,000 and were issued 201,612 shares of the Company’s Common Stock.

Pursuant to the Purchase Agreement:

  · The per share purchase price was $1.24, which was the closing bid price of the Company’s common stock, as reported by the NASDAQ Capital Market, on December 12, 2011, the date of the closing of the purchase and sale.

 

  · Each Lead Purchaser was given the right, until the date that purchaser beneficially owns less than five percent (5%) of the Company’s issued and outstanding common stock, to nominate one director for election by the Company’s stockholders at each meeting of the stockholders at which directors are to be elected, and to designate a replacement director to fill any vacancy if the director previously designated or nominated by that purchaser ceases for any reason to be a director.

 

March 2012 Equity Issuance

 

In March 2012, the Company issued 45,180 shares of its common stock in exchange for the received payment of $150,000.

 

June 2012 Equity Issuance

 

In June 2012, the Company issued 36,364 shares of its common stock in exchange for the received payment of $200,000.

 

Increase in Shares Under Amended and Restated 2003 Stock Plan

 

At the 2012 annual meeting of the Company’s Stockholders, the stockholders approved a proposal to increase the number of shares of the Company’s common stock available for issuance under the Company’s Amended and Restated 2003 Stock Plan from 140,000 to 340,000.

 

Series E Convertible Preferred Stock

 

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

 

Treasury Stock

 

The Company’s treasury stock consists of shares repurchased on the open market or shares received through various agreements with third parties. The value of such shares is determined based on cash paid or quoted market prices.

 

On May 25, 2007, the Company’s Board of Directors terminated its pre-existing stock repurchase plan and replaced it with a new plan authorizing repurchases of up to $1,000,000 of common stock from time to time on the open market or in privately negotiated transactions. The repurchase plan was increased by another $500,000 on October 23, 2008. During the years ended September 30, 2012 and 2011, there were no stock repurchases.

 

Dividends

 

During each of the years ended September 30, 2012 and 2011, the Company accrued dividends of $1,918, payable to holders of Series E preferred stock. No dividends were paid in 2012 or 2011.

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Note 8: Restructuring Activities
12 Months Ended
Sep. 30, 2012
Restructuring and Related Activities [Abstract]
Note 8: Restructuring Activities

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

 

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

 

In May 2011 the Company ceased the Direct Sales business and migrated the remaining customers to Reach Local in exchange for ten and five percent of gross revenues derived from such customers during the first and second year, respectively. The Company recorded $6,053 and $5,773 in revenues for this agreement during the year ended September 30, 2011. In connection with the discontinued Direct Sales business, seven employees were terminated. See Note 3.

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Note 9: Net Loss Per Share
12 Months Ended
Sep. 30, 2012
Earnings Per Share [Abstract]
Note 9: Net Loss Per Share

Net loss per share is calculated using the weighted average number of shares of common stock outstanding during the year. Basic weighted average common shares outstanding do not include shares of restricted stock that have not yet vested, although such shares are included as outstanding shares in the Company’s consolidated balance sheet. Diluted loss per share is computed using the weighted average number of common shares outstanding and if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable from restricted shares, stock options, convertible debt and convertible preferred stock. Preferred stock dividends are subtracted from net loss to determine the amount available to common stockholders.

 

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

 

   Year Ended September 30, 
   2012   2011 
         
Loss from continuing operations  $(1,587,641)  $(5,383,893)
Less: preferred stock dividends   (1,918)   (1,918)
Loss from continuing operations applicable to common stock   (1,589,559)   (5,385,811)
Income (loss) from discontinued operations   12,433    (118,355)
Net loss applicable to common stock  $(1,577,126)  $(5,504,166)
           
Weighted average common shares outstanding - basic and diluted   2,068,828    664,167 
           
Earnings per share - basic and diluted:          
Loss from continuing operations  $(0.77)  $(8.11)
Discontinued operations   0.01    (0.18)
Net loss  $(0.76)  $(8.29)

 

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

 

   Year Ended September 30, 
   2012   2011 
         
Options to purchase shares of common stock       24,013 
Warrants to purchase shares of common stock   109,139     
Series E convertible preferred stock   127,840    127,840 
Shares of non-vested restricted stock   263    1,342 
    237,242    153,195 

 

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Note 10: Commitments and Contingencies
12 Months Ended
Sep. 30, 2012
Commitments and Contingencies Disclosure [Abstract]
Note 10: Commitments and Contingencies

Operating Leases and Service Contracts

 

The Company leases its office space and certain equipment under long-term operating leases expiring through fiscal year 2016. Rent expense under these leases was $350,822 and $465,811 for the years ended September 30, 2012 and 2011, respectively. The Company has also entered into several non-cancelable service contracts.

 

As of September 30, 2012, future minimum annual lease payments under operating lease agreements and non-cancelable service contracts for fiscal years ended September 30 are as follows:

 

2013    133,911 
2014    55,190 
2015    3,531 
2016    773 
2017     
Thereafter     
     $193,405 

 

Litigation

 

The Company is party to certain legal proceedings incidental to the conduct of its business. Management believes that the outcome of pending legal proceedings will not, either individually or in the aggregate, have a material adverse effect on its business, financial position, and results of operations, cash flows or liquidity.

 

Except as described below, as of September 30, 2012, the Company was not a party to any pending material legal proceedings other than claims that arise in the normal conduct of its business. While management currently believes that the ultimate outcome of these routine proceedings will not have a material adverse effect on its consolidated financial condition or results of operations, litigation is subject to inherent uncertainties. If an unfavorable ruling were to occur, there exists the possibility of a material adverse impact on the Company’s net income in the period in which a ruling occurs. The Company’s estimate of the potential impact of the following legal proceedings on its financial position and its results of operation could change in the future.

 

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

 

On June 6, 2008, Global Education Services, Inc., which we refer to as GES, filed a consumer fraud lawsuit against us in the King County Superior Court in the State of Washington, alleging that our use of activator checks violated the Washington Consumer Protection Act and seeking class certification pursuant to Washington law. GES sought injunctive relief against our use of activator checks, damages in an amount equal to three times the damages allegedly sustained by the members of the putative class, exemplary damages for the alleged violation of law, and its fees and costs. We denied the allegations and commenced defending the litigation.

 

Early in 2010, the Court denied both parties’ dispositive motions, at which time they commenced settlement discussions. The parties reached a settlement and entered into a settlement agreement on or about November 5, 2012. Subject in each case to preliminary and final approval by the Court, the settlement agreement provides for $150,000 to be paid to plaintiff’s counsel, $10,000 to be paid to GES as the “representative plaintiff”, and $70 to be paid to each eligible tentative class member who properly submits a claims form and does not opt out of the settlement. On January 11, 2013, pursuant to a motion for preliminary approval filed by plaintiff’s counsel and not opposed by us (as agreed in the settlement agreement), the court granted preliminary approval to the proposed settlement and scheduled the final approval hearing for April 26, 2013. The settlement agreement and court order obligate us to send notices of the proposed settlement to the tentative class members and, thereafter, we expect that plaintiff’s counsel will seek final approval of the settlement by the Court. While as part of the settlement agreement we denied any wrongdoing, any liability and the appropriateness of class certification, we did agree not to oppose plaintiff’s motions for preliminary and final approval of the proposed settlement. We anticipate that the Court will grant final approval in our second quarter and that the required payments will be made during that quarter. As of September 30, 2012, the Company maintains an accrual of $150,000 related to this matter.

 

Sunpark 2000 LLC vs. Telco Billing, Inc.

 

On September 26, 2012, Sunpark 2000 LLC, which we refer to as Sunpark, filed a lawsuit against Telco Billing Inc., a subsidiary of LiveDeal, Inc., before the Eighth Judicial District Court (Clark County) of the State of Nevada. The complaint alleged we breached a lease agreement dated August 15, 2007 with Sunpark, which by its terms leased approximately 12,635 square feet of commercial real property in Las Vegas, Nevada to Telco Billing from November 1, 2007 until December 31, 2012. Sunpark is seeking lost rent damages of approximately $357,503 and repair expenses in excess of $2,500. Telco Billing denied the key allegations and asserted numerous affirmative defenses. The parties are in settlement discussions and have not yet commenced discovery. As of September 30, 2012, the Company maintains an accrual of $266,000 related to this matter.

 

LEC Billings

 

The Company has 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. The Company anticipates 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 will decline, which could materially and adversely affect our operating results and financial condition. The Company had approximately $877,000 of revenues billed through LEC billing channels for the year ended September 30, 2012. LEC billing channel costs related to those revenues equaled approximately $533,000 for the year ended September 30, 2012.

 

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

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Note 11: Provision for Income Taxes
12 Months Ended
Sep. 30, 2012
Income Tax Disclosure [Abstract]
Note 11: Provision for Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A full valuation allowance is established against all net deferred tax assets as of September 30, 2012 and 2011 based on estimates of recoverability. While the Company has optimistic plans for its business strategy, it determined that such a valuation allowance was necessary given the current and expected near term losses and the uncertainty with respect to its ability to generate sufficient profits from its new business model.

 

Because of the impacts of the valuation allowance, there was no income tax expense or benefit for the year ended September 30, 2012.

 

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

 

   2012   2011 
   Amount   Percent   Amount   Percent 
                     
Federal statutory rates  $(535,573)   34%  $(1,870,764)   34%
State income taxes   (52,946)   3%   (184,942)   3%
Write off of deferred tax asset related to vested restricted stock   10,670    (1)%   184,050    (3)%
Permanent differences   3,411    (0)%        
Valuation allowance against net deferred tax assets   574,438    (36)%     1,920,862    (35)%  
Other        0%   (49,206)   1%
Effective rate  $    0%  $    0%

  

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

 

   2012   2011 
Deferred income tax asset, current:          
 Book to tax differences in accounts receivable  $582,549   $738,671 
 Book to tax differences in prepaid assets and accrued expenses   (7,774)   (20,502)
Total deferred income tax asset, current   574,775    718,169 
Less: valuation allowance   (574,775)   (718,169)
Deferred income tax asset, current, net        
           
Deferred income tax asset, long-term:          
 Net operating loss carryforwards   10,012,906    9,060,073 
 Book to tax differences for stock based compensation   6,407    17,706 
 Book to tax differences in intangible assets   6,961,861    7,295,815 
 Book to tax differences in other   326    326 
 Book to tax differences in depreciation   (2,072,674)   (1,798,370)
Total deferred income tax asset, long-term   14,908,825    14,575,550 
Less: valuation allowance   (14,908,825)   (14,575,550)
Deferred income tax asset, net        
           
Total deferred income tax asset  $   $ 

 

The Company has recorded as of September 30, 2012 a valuation allowance of $14,908,825, as it believes that it is more likely than not that the deferred tax assets will not be realize in future years. Management has based its assessment on available historical and projected operating results.

 

The Company annually conducts an analysis of its tax positions and has concluded that it has no uncertain tax positions as of September 30, 2012.

 

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

 

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Note 12: Concentration of Credit Risk
12 Months Ended
Sep. 30, 2012
Risks and Uncertainties [Abstract]
Note 12: Concentration of Credit Risk

The Company maintains cash balances at banks in California and Nevada. Accounts are insured by the Federal Deposit Insurance Corporation up to $250,000 per institution as of September 30, 2012. At times, balances may exceed federally insured limits.

 

Financial instruments that potentially subject the Company to concentrations of credit risk are primarily trade accounts receivable. The trade accounts receivable are due primarily from business customers over widespread geographical locations within the LEC billing areas across the United States. The Company historically has experienced significant dilution and customer credits due to billing difficulties and uncollectible trade accounts receivable. The Company estimates and provides an allowance for uncollectible accounts receivable. The handling and processing of cash receipts pertaining to trade accounts receivable is maintained primarily by three third-party billing companies. The Company is dependent upon these billing companies for collection of its accounts receivable. The billing companies and LECs charge fees for their services, which are netted against the gross accounts receivable balance. The billing companies also apply holdbacks to the remittances for potentially uncollectible accounts. These amounts will vary due to numerous factors and the Company may not be certain as to the actual amounts on any specific billing submittal until several months after that submittal. The Company estimates the amount of these charges and holdbacks based on historical experience and subsequent information received from the billing companies. The Company also estimates uncollectible account balances and provides an allowance for such estimates. The billing companies retain certain holdbacks that may not be collected by the Company for a period extending beyond one year. Additionally, certain other billings’ channels consisting of billings submitted to LEC Processors through third parties were discontinued. As such, a significant portion of the receivables at September 30, 2012 and 2011 pertaining to LEC service providers represent the holdbacks described above.

 

The Company has concentrations of receivables with respect to certain wholesale accounts and remaining holdbacks with LEC service providers. Three such entities accounted for 35%, 27% and 15% of gross receivables at September 30, 2012 as compared to 31%, 25% and 20% of gross receivables at September 30, 2011.

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Note 13: Stock-based Compensation
12 Months Ended
Sep. 30, 2012
Share-based Compensation [Abstract]
Note 13: Stock-based Compensation

Restricted Stock Awards

 

The Company maintains its 2003 Amended and Restated 2003 Stock Plan (“2003 Plan”), which has been approved by the Company’s stockholders, for the issuance of stock-based compensation awards. As amended, the Company is permitted to issue an aggregate of 340,000 shares of common stock under the plan. All Company personnel and contractors are eligible to participate in the plan.

 

In September 2011, in an effort to preserve cash, the Board, after consultation with the Compensation Committee, entered into an agreement to compensate the members of the Board for their monthly retainer and other services as directors and/or members of the Board’s various standing committees through the award of shares of the Company’s common stock under the 2003 Plan. Since inception an aggregate of 57,011 shares were issued to members of the Board of Directors. No restricted shares were issued during the year ended September 30, 2012.

 

As of September 30, 2012, there were 108,134 shares authorized under the 2003 Plan that were granted and remain outstanding, of which 107,871 have vested and 263 are in the form of restricted stock. These shares of restricted stock were granted to the Company’s service providers, officers and directors. All unvested restricted shares vest on a cliff basis 10 years from the date of grant. Certain market performance criteria may accelerate the vesting of a portion of these awards if the stock price exceeds $50 per share.

 

The following table sets forth the activity with respect to unvested restricted stock grants (results reported in post-split amounts):

 

Outstanding (unvested) at September 30, 2010 4,903
Granted       -  
Forfeited    (8)
Vested    (3,553)
Outstanding (unvested) at September 30, 2011    1,342
Granted        -  
Forfeited      (26)
Vested      (1,053)
Outstanding (unvested) at September 30, 2012     263

 

During the years ended September 30, 2012 and 2011 the Company recognized compensation expense of $16,942 and $38,231 respectively, under the 2003 Plan and other restricted stock issuances. Due to the immateriality of the remaining expense, all expense associated with nonvested awards (net of forfeitures of 70% for awards vesting in 2013 and 0% for awards vesting in October 2011) was recognized during the year ended September 30, 2011. No further expense associated with unvested awards is expected unless the Company’s actual forfeiture rate differs from its expected forfeiture rate, in which the Company could incur up to $35,417 of additional expense.

 

Stock Option Awards

 

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

 

    Year Ended   Year Ended
    September 30, 2012   September 30, 2011
         
Volatility   -   107-108%
Risk-free interest rate   -   1.8-2.8%
Expected term   -   5.4-6.0 years
Forfeiture rate   -   0-50%
Dividend yield rate   -   0%

 

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

 

As discussed in Note 10, on March 24, 2011, Mr. Hall was granted an option to purchase 13,487 shares of the Company’s common stock at an exercise price of $3.53 per share, which was equal to the closing price of the Company’s common stock on the date of grant. The option was granted pursuant to the Company’s 2003 Stock Plan and vested according to the following schedule: 25% on March 24, 2012 (the first anniversary of the grant date) and 1/36 of the remainder each month beginning on April 24, 2012. The grant date fair value of this award was $19,833 based on a Black-Scholes option pricing model described above and was expensed on a straight-line basis over the vesting period. On January 13, 2012, the employment of Mr. Hall was terminated. Pursuant to the terms of his employment with the Company, the termination resulted in the forfeiture of all 13,487 of his unvested stock options.

 

On May 20, 2011, Mr. Tomsic was granted an option to purchase 10,526 shares of the Company’s common stock at an exercise price of $3.77 per share, which was equal to the closing price of the Company’s common stock on the date of grant. The options vested and became exercisable according to the following schedule: 3,728 options vested immediately and the remainder vested 1/31 at the end of each month thereafter over the next 31 months so long as Mr. Tomsic continues to provide services to the Company. The grant date fair value of this award was $21,446 using a Black-Scholes option pricing model described above, with $11,218 expensed on grant date and the remaining amount being expensed on a straight-line basis over the vesting period. On May 20, 2012, the employment of Larry Tomsic terminated. The Company agreed to accelerate the vesting of Mr. Tomsic’s existing options. In accordance with provisions of the option agreements, all of his options lapsed due to not being exercised within 90 days of the termination date.

 

Stock option awards are expensed on a straight-line basis over the requisite service period. During the years ended September 30, 2012 and 2011, the Company recognized expense of $16,942 and $38,231, respectively, associated with stock option awards. At September 30, 2012, all stock compensation expense associated with issued awards has been recognized.

 

The following summarizes stock option activity for the year ended September 30, 2012:

 

       Weighted   Weighted     
       Average   Average   Aggregate 
   Number of   Exercise   Remaining   Intrinsic 
   Shares   Price   Contractual Life   Value 
Outstanding at September 30, 2011   24,013   $3.64    9.6      
Granted at market price                   
Exercised                   
Forfeited   (24,013)  $3.64           
Outstanding at September 30, 2012              $ 
Exercisable      $       $ 

  

As of September 30, 2012, 231,866 shares remained available for issuance under the 2003 Plan.

 

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Note 14: Segment Reporting
12 Months Ended
Sep. 30, 2012
Segment Reporting [Abstract]
Note 14: Segment Reporting

After discontinuing the Company’s Direct Sales business as described in Note 3, as of September 30, 2012, the Company only operated one business segment. All of the Company’s revenues are with external customers, are derived from operations in the United States, and no single customer accounts for more than 10% of the Company’s revenues.

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Note 15: Subsequent Events
12 Months Ended
Sep. 30, 2012
Subsequent Events [Abstract]
Note 15: Subsequent Events Disclosure

The Company issued a Note in the principal amount of $250,000 to ICG on the December 11, 2012. The Note is part of the Purchase Agreement entered into on April 3, 2012 discussed in Note 5. On December 17, 2012, the holder elected to convert the note with a conversion price of $2.02 per share, resulting in the issuance of 123,829 shares of the Company’s common stock. In accordance with the terms of the note, warrants to acquire 123,829 shares with an exercise price of ($2.021 × 120%) $2.43 per share were also issued upon conversion.

 

In the case regarding GES (described in Note 10) the parties reached a settlement and entered into a settlement agreement on or about November 5, 2012. Subject in each case to preliminary and final approval by the Court, the settlement agreement provides for $150,000 to be paid to plaintiff’s counsel, $10,000 to be paid to GES as the “representative plaintiff”, and $70 to be paid to each eligible tentative class member who properly submits a claims form and does not opt out of the settlement. On January 11, 2013, pursuant to a motion for preliminary approval filed by plaintiff’s counsel and not opposed by the Company (as agreed in the settlement agreement), the court granted preliminary approval to the proposed settlement and scheduled the final approval hearing for April 26, 2013. The settlement agreement and court order obligate us to send notices of the proposed settlement to the tentative class members and, thereafter, we expect that plaintiff’s counsel will seek final approval of the settlement by the Court. While as part of the settlement agreement we denied any wrongdoing, any liability and the appropriateness of class certification, we did agree not to oppose plaintiff’s motions for preliminary and final approval of the proposed settlement. We anticipate that the Court will grant final approval early in our second quarter and that the required payments will be made during that quarter.

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Note 16: Selected Quarterly Financial Data (Unaudited)
12 Months Ended
Sep. 30, 2012
Selected Quarterly Financial Information [Abstract]
Note 16: Selected Quarterly Financial Data (Unaudited)

Quarterly financial information for 2012 and 2011 follows:

 

   Quarter Ended 
   December 31,   March 31,   June 30,   September 30, 
   2010   2011   2011   2011 
                 
Net revenues  $994,622   $1,118,165   $1,124,976   $845,649 
Gross profit   100,045    (394,618)   76,747    695,095 
Loss from continuing operations   (1,884,554)   (2,029,493)   (1,150,938)   (318,908)
Income (loss) from discontinued operations   154,160    (285,207)   7,561    5,131 
Net loss  $(1,730,394)  $(2,314,700)  $(1,143,377)  $(313,777)
Earnings per share information- basic and diluted:                    
Loss from continuing operations  $(2.96)  $(3.08)  $(1.69)  $(0.48)
Discontinued operations   0.24    (0.43)   0.01    0.01 
Net loss  $(2.72)  $(3.51)  $(1.68)  $(0.47)

 

   Quarter Ended 
   December 31,   March 31,   June 30,   September 30, 
   2011   2012   2012   2012 
                 
Net revenues  $851,413   $821,701   $777,857   $619,532 
Gross profit   615,594    595,093    669,196    475,163 
Loss from continuing operations   (195,218)   (259,222)   (289,714)   (843,487)
Income (loss) from discontinued operations   3,580    229    7,944    680 
Net loss  $(191,638)  $(258,993)  $(281,770)  $(842,807)
Earnings per share information- basic and diluted:                    
Loss from continuing operations  $(0.18)  $(0.11)  $(0.12)  $(0.36)
Discontinued operations                
Net loss  $(0.18)   (0.11)  $(0.12)  $(0.35)

 

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Note 17: Business Combination
12 Months Ended
Sep. 30, 2012
Business Combination, Description [Abstract]
Note 17: Business Combination

On August 16, 2012 (the “Acquisition Date”), the Company completed its acquisition of substantially all of the assets of LiveOpenly, Inc., a California corporation (“LiveOpenly”), which sourced, published and sold discounted offers for goods and services through local retail merchants. The Company acquired the assets of LiveOpenly to assist in the implementation its new business line. Under the terms of the acquisition, the Company 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. The purchase price for the assets of LiveOpenly was determined by using the value of the stock on the Acquisition Date, which was $420,000. The purchase price was allocated to a customer list and marketing related intangibles of $252,000 and $168,000, respectively. The intangibles will be amortized over their estimated useful life of seven years. No goodwill was recognized as the purchase price equaled the fair value of the net assets received.

 

In connection with the purchased business from LiveOpenly, the Company engaged Ejimofor Umenyiora, the former Director of Sales of LiveOpenly, and Akeem Adeteju, the former Chief Technology Officer of LiveOpenly, as independent contractors.

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Note 2: Summary of Significant Accounting Policies (Policies)
12 Months Ended
Sep. 30, 2012
Accounting Policies [Abstract]
Principles of Consolidation

The accompanying consolidated financial statements represent the consolidated financial position and results of operations of the Company and include the accounts and results of operations of the Company, LiveDeal, Local Marketing Experts, Inc., Velocity Marketing Concepts, Inc., 247 Marketing Inc., Telco Billing, Inc. and Telco of Canada, Inc., the Company’s wholly owned subsidiaries, for the years ended September 30, 2012 and 2011, as applicable. All intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

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

 
 

 

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

Financial Instruments

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

Cash and Cash Equivalents

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

Property and Equipment

Property and equipment is stated at cost less accumulated depreciation. Depreciation is recorded on a straight-line basis over the estimated useful lives of the assets ranging from three to five years. Depreciation expense was $132,899 and $214,796 for the years ended September 30, 2012 and 2011, respectively.

Revenue Recognition

Directory Services

 

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

 

  · direct ACH withdrawals; and
     
  · inclusion on the customer’s local telephone bill provided by their Local Exchange Carriers, or LECs.

 

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

 

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

 

Direct Sales

 

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

 

Deals Revenue

 

The Company recognizes revenue from its sales through its strategic publishing partners of discounted goods and services offered by its merchant clients (“Deals”) when the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred; the selling price is fixed or determinable; and collectability is reasonably assured. These criteria are met when the number of customers who purchase the daily deal exceeds the predetermined threshold, where, if applicable, the Deal has been electronically delivered to the purchaser and a listing of Deals sold has been made available to the merchant. At that time, the Company's obligations to the merchant, for which it is serving as an agent, are substantially complete. The Company's remaining obligations, which are limited to remitting payment to the merchant, are inconsequential or perfunctory. The Company records as revenue an amount equal to the net amount it retains from the sale of Deals after paying an agreed upon percentage of the purchase price to the featured merchant excluding any applicable taxes. Revenue is recorded on a net basis because the Company is acting as an agent of the merchant in the transaction.

 

Deferred Revenue

 

In some instances, the Company receives payments in advance of rendering services, whereupon such revenues are deferred until the related services are rendered. Deferred revenue was $2,310 and $14,553 at September 30, 2012 and 2011, respectively.

 

Allowance for Doubtful Accounts

The Company maintains an allowance for doubtful accounts, which includes allowances for customer refunds, dilution and fees from LEC billing aggregators and other uncollectible accounts. The Company has increased its allowances for doubtful accounts to 65.7% of gross accounts receivable at September 30, 2012 as compared to 61.3% of gross accounts receivable at September 30, 2011. The determination of the allowance for doubtful accounts is dependent on many factors, including regulatory activity, changes in fee schedules by LEC service providers and recent historical trends.

 

Approximately 93% of the Company’s allowance for doubtful accounts is an allowance against accounts receivable balances and reserves held by a LEC that is in bankruptcy and an allowance against an outstanding receivable balance that is in dispute. After excluding these reserves from the related accounts receivable balances, the allowance for doubtful accounts as a percentage of gross accounts receivable decreases to 12.6%. See note 12 for Concentration of Credit Risk.

Legal Costs

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

Income Taxes

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

Stock-Based Compensation

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

 
 

 

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

Net Loss Per Share

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

Internally Developed Software and Website Development Costs

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

Impairment of Long-lived Assets

The Company assesses long-lived assets for impairment in accordance with the provisions of FASB ASC 360 “Property, Plant and Equipment”. A long-lived asset (asset group) shall be tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. The carrying amount of a long lived asset is not recoverable if it exceeds the sum of the undiscounted net cash flows expected to result from the use and eventual disposition of the asset. The amount of impairment loss, if any, is measured as the difference between the net book value of the asset and its estimated fair value. For purposes of these tests, long-lived assets must be grouped with other assets and liabilities for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. During the 2011 second fiscal quarter, $367,588 in net intangible assets were written off which were previously used in the discontinued Direct Sales business. 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.

Recently Issued Accounting Pronouncements

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

 
 

 

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

 

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

 

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

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Note 4: Balance Sheet Information (Tables)
12 Months Ended
Sep. 30, 2012
Note 4 Balance Sheet Information Tables
Balance sheet information

Balance sheet information is as follows:

 

    September 30,  
    2012     2011  
             
Receivables, current, net:                
Accounts receivable, current   $ 1,863,067     $ 2,080,747  
Less: Allowance for doubtful accounts     (1,423,219)     (1,425,891)
    $ 439,848     $ 654,856  
Receivables, long term, net:                
Accounts receivable, long term   $ 510,587     $ 569,178  
Less: Allowance for doubtful accounts     (136,017)     (197,740)
    $ 374,570     $ 371,438  
Total receivables, net:                
Gross receivables   $ 2,373,654     $ 2,649,925  
Less: Allowance for doubtful accounts     (1,559,236)     (1,623,631)
    $ 814,418     $ 1,026,294  

 

Components of allowance for doubtful accounts

Components of allowance for doubtful accounts are as follows:

 

   September 30, 
   2012   2011 
         
Allowance for dilution and fees on amounts due from billing aggregators  $1,525,126   $1,477,769 
Allowance for customer refunds   34,111   145,862 
   $1,559,237   $1,623,631 

 

Property and equipment, net

   September 30, 
   2012   2011 
         
Property and equipment, net:          
Leasehold improvements  $   $201,476 
Furnishings and fixtures   94,511    233,577 
Office, computer equipment and other   361,685    426,931 
    456,196    861,984 
Less: Accumulated depreciation   (405,670)   (690,783)
   $50,526   $171,201 

 

Intangible assets, net

   September 30, 
   2012   2011 
         
Intangible assets, net:          
Domain name and marketing related intangibles  $1,511,650   $1,509,600 
Website and technology related intangibles   1,252,304    351,941 
    2,763,954    1,861,541 
Less:  Accumulated amortization   (766,283)   (639,207)
   $1,997,671   $1,222,334 

 

Accrued liabilities

   September 30, 
   2012   2011 
         
Accrued liabilities:          
Deferred revenue  $2,310   $14,553 
Accrued payroll and bonuses   28,968    63,043 
Accruals under revenue sharing agreements   67,601    86,550 
Accrued expenses - other   311,225    260,449 
   $410,104   $424,595 

 

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Note 5: Intangible Assets (Tables)
12 Months Ended
Sep. 30, 2012
Note 5 Intangible Assets Tables
Estimated future amortization expense

 

The following summarizes estimated future amortization expense related to intangible assets that have net balances as of September 30, 2012:

  

2013    240,598 
2014    251,105 
2015    254,396 
2016    201,877 
2017    199,382 
Thereafter    850,314 
     $1,997,671 

 

   

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Note 9: Net Loss Per Share (Tables)
12 Months Ended
Sep. 30, 2012
Note 9 Net Loss Per Share Tables
Basic and diluted net loss per share

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

 

   Year Ended September 30, 
   2012   2011 
         
Loss from continuing operations  $(1,587,641)  $(5,383,893)
Less: preferred stock dividends   (1,918)   (1,918)
Loss from continuing operations applicable to common stock   (1,589,559)   (5,385,811)
Income (loss) from discontinued operations   12,433    (118,355)
Net loss applicable to common stock  $(1,577,126)  $(5,504,166)
           
Weighted average common shares outstanding - basic and diluted   2,068,828    664,167 
           
Earnings per share - basic and diluted:          
Loss from continuing operations  $(0.77)  $(8.11)
Discontinued operations   0.01    (0.18)
Net loss  $(0.76)  $(8.29)

 

Potentially dilutive securities

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

 

   Year Ended September 30, 
   2012   2011 
         
Options to purchase shares of common stock       24,013 
Warrants to purchase shares of common stock   109,139     
Series E convertible preferred stock   127,840    127,840 
Shares of non-vested restricted stock   263    1,342 
    237,242    153,195 

 

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Note 10: Commitments and Contingencies (Tables)
12 Months Ended
Sep. 30, 2012
One-time employee termination benefits
Operating Leases and Service Contracts

As of September 30, 2012, future minimum annual lease payments under operating lease agreements and non-cancelable service contracts for fiscal years ended September 30 are as follows:

 

2013       133,911  
2014       55,190  
2015       3,531  
2016       773  
2017        
Thereafter        
        $ 193,405  
             

 

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Note 11: Provision for Income Taxes (Tables)
12 Months Ended
Sep. 30, 2012
Note 11 Provision For Income Taxes Tables
Reconciliation of the differences between the effective and statutory income tax rates

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

 

   2012   2011 
   Amount   Percent   Amount   Percent 
                     
Federal statutory rates  $(535,573)   34%  $(1,870,764)   34%
State income taxes   (52,946)   3%   (184,942)   3%
Write off of deferred tax asset related to vested restricted stock   10,670    (1)%   184,050    (3)%
Permanent differences   3,411    (0)%        
Valuation allowance against net deferred tax assets   574,438    (36)%     1,920,862    (35)%  
Other        0%   (49,206)   1%
Effective rate  $    0%  $    0%

 

  

Deferred income tax assets and liabilities

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

 

   2012   2011 
Deferred income tax asset, current:          
 Book to tax differences in accounts receivable  $582,549   $738,671 
 Book to tax differences in prepaid assets and accrued expenses   (7,774)   (20,502)
Total deferred income tax asset, current   574,775    718,169 
Less: valuation allowance   (574,775)   (718,169)
Deferred income tax asset, current, net        
           
Deferred income tax asset, long-term:          
 Net operating loss carryforwards   10,012,906    9,060,073 
 Book to tax differences for stock based compensation   6,407    17,706 
 Book to tax differences in intangible assets   6,961,861    7,295,815 
 Book to tax differences in other   326    326 
 Book to tax differences in depreciation   (2,072,674)   (1,798,370)
Total deferred income tax asset, long-term   14,908,825    14,575,550 
Less: valuation allowance   (14,908,825)   (14,575,550)
Deferred income tax asset, net        
           
Total deferred income tax asset  $   $ 

 

 

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Note 13: Stock-based Compensation (Tables)
12 Months Ended
Sep. 30, 2012
Note 13 Stock-Based Compensation Tables
Stock Options

The following table sets forth the activity with respect to unvested restricted stock grants (results reported in post-split amounts):

 

Outstanding (unvested) at September 30, 2010 4,903
Granted       -  
Forfeited    (8)
Vested    (3,553)
Outstanding (unvested) at September 30, 2011    1,342
Granted        -  
Forfeited      (26)
Vested      (1,053)
Outstanding (unvested) at September 30, 2012     263
Restricted Stock Awards

F

 

    Year Ended   Year Ended
    September 30, 2012   September 30, 2011
         
Volatility   -   107-108%
Risk-free interest rate   -   1.8-2.8%
Expected term   -   5.4-6.0 years
Forfeiture rate   -   0-50%
Dividend yield rate   -   0%

 

 

The following summarizes stock option activity for the year ended September 30, 2012:

 

       Weighted   Weighted     
       Average   Average   Aggregate 
   Number of   Exercise   Remaining   Intrinsic 
   Shares   Price   Contractual Life   Value 
Outstanding at September 30, 2011   24,013   $3.64    9.6      
Granted at market price                   
Exercised                   
Forfeited   (24,013)  $3.64           
Outstanding at September 30, 2012              $ 
Exercisable      $       $ 

  

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Note 16: Selected Quarterly Financial Data (Tables)
12 Months Ended
Sep. 30, 2012
Note 16 Selected Quarterly Financial Data Tables
Quarterly financial information

Quarterly financial information for 2012 and 2011 follows:

 

   Quarter Ended 
   December 31,   March 31,   June 30,   September 30, 
   2010   2011   2011   2011 
                 
Net revenues  $994,622   $1,118,165   $1,124,976   $845,649 
Gross profit   100,045    (394,618)   76,747    695,095 
Loss from continuing operations   (1,884,554)   (2,029,493)   (1,150,938)   (318,908)
Income (loss) from discontinued operations   154,160    (285,207)   7,561    5,131 
Net loss  $(1,730,394)  $(2,314,700)  $(1,143,377)  $(313,777)
Earnings per share information- basic and diluted:                    
Loss from continuing operations  $(2.96)  $(3.08)  $(1.69)  $(0.48)
Discontinued operations   0.24    (0.43)   0.01    0.01 
Net loss  $(2.72)  $(3.51)  $(1.68)  $(0.47)

 

   Quarter Ended 
   December 31,   March 31,   June 30,   September 30, 
   2011   2012   2012   2012 
                 
Net revenues  $851,413   $821,701   $777,857   $619,532 
Gross profit   615,594    595,093    669,196    475,163 
Loss from continuing operations   (195,218)   (259,222)   (289,714)   (843,487)
Income (loss) from discontinued operations   3,580    229    7,944    680 
Net loss  $(191,638)  $(258,993)  $(281,770)  $(842,807)
Earnings per share information- basic and diluted:                    
Loss from continuing operations  $(0.18)  $(0.11)  $(0.12)  $(0.36)
Discontinued operations                
Net loss  $(0.18)   (0.11)  $(0.12)  $(0.35)

 

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Note 1. Organization and Basis of Presentation (Details Narrative) (USD $)
3 Months Ended 12 Months Ended
Sep. 30, 2012
Jun. 30, 2012
Mar. 31, 2012
Dec. 31, 2011
Sep. 30, 2011
Jun. 30, 2011
Mar. 31, 2011
Dec. 31, 2010
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2010
Note 1 Organization And Basis Of Presentation
Net loss $ (842,807) $ (281,770) $ (258,993) $ (191,638) $ (313,777) $ (1,143,377) $ (2,314,700) $ (1,730,394) $ (1,575,208) $ (5,502,248)
Operating cash flow 28,984 (4,321,028)
Cash $ 1,305,785 $ 244,470 $ 1,305,785 $ 244,470 $ 3,227,374
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Note 2. Summary of Significant Accounting Policies (Details Narrative) (USD $)
12 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Note 2. Summary Of Significant Accounting Policies Details Narrative
Depreciation expense $ 132,899 $ 214,796
Deferred revenue $ 2,310 $ 14,553
Increase in percentage of allowances for doubtful accounts 65.70% 61.30%
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Note 3. Discontinued Operations (Details Narrative) (USD $)
12 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Kingston Member [Default Label]
Net Revenue from Discontinued Operations $ 0 $ 1,341,430
Employee contract termination charges 7,083
Non cash impairment charges $ 367,588
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Note 4. Balance Sheet Information (Details) (USD $)
Sep. 30, 2012
Sep. 30, 2011
Receivables, current, net:
Accounts receivable, current $ 1,863,067 $ 2,080,747
Less: Allowance for doubtful accounts (1,423,219) (1,425,891)
Receivables, current, net 439,848 654,856
Receivables, long term, net:
Accounts receivable, long term 510,587 569,178
Less: Allowance for doubtful accounts (136,017) (197,740)
Receivables, long term, net 374,570 371,438
Total receivables, net:
Gross receivables 2,373,654 2,649,925
Less: Allowance for doubtful accounts (1,559,236) (1,623,631)
Total receivables, net 814,418 1,026,294
Allowance for dilution and fees on amounts due from billing aggregators 1,525,126 1,477,769
Allowance for customer refunds 34,111 145,862
Total allowances 1,559,236 1,623,631
Property and equipment, net:
Leasehold improvements    201,476
Furnishings and fixtures 94,511 233,577
Office, computer equipment and other 361,685 426,931
Plant Property and Equipment,Gross 456,196 861,984
Less: Accumulated depreciation (405,670) (690,783)
Property and equipment, net 50,526 171,201
Intangible assets, net:
Domain name and marketing related intangibles 1,511,650 1,509,600
Website and technology related intangibles 1,252,304 351,941
Intangible assets,Gross 2,763,954 1,861,541
Less: Accumulated amortization (766,283) (639,207)
Intangible assets, net 1,997,671 1,222,334
Accrued liabilities:
Deferred revenue 2,310 14,553
Accrued payroll and bonuses 28,968 63,043
Accruals for service contracts 67,601 86,550
Accruals under revenue sharing agreements 311,225 260,449
Accrued expenses - other $ 410,104 $ 424,595
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Note 5. Intangible Assets (Details) (USD $)
Sep. 30, 2012
Sep. 30, 2011
Note 5. Intangible Assets Details
2013 $ 240,598
2014 251,105
2015 254,396
2016 201,877
2017 199,382
Thereafter 850,314
Future amortization expense related to intangible assets $ 1,997,671 $ 1,222,334
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Note 5. Intangible Assets (Details Narrative) (USD $)
12 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Note 5. Intangible Assets Details Narrative
Amortization expense related to intangible assets $ 140,667 $ 349,030
Intangible Assets impairment $ 0 $ 0
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Note 6. Long-Term Debt (Details Narrative) (USD $)
12 Months Ended
Sep. 30, 2012
Purchase Agreement with ICG
Maturity date Apr 3, 2013
Interest rate 8.00%
Initial principal amount $ 250,000
Beneficial conversion feature/debt discount 166,667
Note converted - conversion price $ 2.38
Note converted - shares issued 109,139
Warrants issued upon conversion 109,139
Interest expense recognized on transaction 97,222
Fair value of warrants issued charged as interest expense 322,927
2nd Note ICG
Initial principal amount $ 250,000
Note converted - conversion price $ 2.02
Note converted - shares issued 123,829
Warrants issued upon conversion 123,829
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Note 7. Stockholder's Equity (Details Narrative) (USD $)
12 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Note 7. Stockholders Equity Details Narrative
Stock repurchases $ 0 $ 0
Accrued dividends 1,918 1,918
Dividend Paid $ 0 $ 0
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Note 8. Restructuring Acivities (Details Narrative) (USD $)
12 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Note 8. Restructuring Acivities Details Narrative
Costs associated with restructuring $ 99,319
One-time employee termination benefits 37,500
Revenues for the agreement during first year 6,053
Revenues for the agreement during second year $ 5,773
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Note 9. Net Loss Per Share (Details) (USD $)
3 Months Ended 12 Months Ended
Sep. 30, 2012
Jun. 30, 2012
Mar. 31, 2012
Dec. 31, 2011
Sep. 30, 2011
Jun. 30, 2011
Mar. 31, 2011
Dec. 31, 2010
Sep. 30, 2012
Sep. 30, 2011
Net Loss Per Share
Loss from continuing operations $ (843,487) $ (289,714) $ (259,222) $ (195,218) $ (318,908) $ (1,150,938) $ (2,029,493) $ (1,884,554) $ (1,587,641) $ (5,383,893)
Less: preferred stock dividends (1,918) (1,918)
Loss from continuing operations applicable to common stock (1,589,559) (5,385,811)
Income (loss) from discontinued operations 12,433 (118,355)
Net loss applicable to common stock $ (1,577,126) $ (5,504,166)
Weighted average common shares outstanding - basic and diluted 2,068,828 664,167
Earnings per share - basic and diluted:
Loss from continuing operations $ (0.36) $ (0.12) $ (0.11) $ (0.18) $ (0.48) $ (1.69) $ (3.08) $ (2.96) $ (0.77) $ (8.11)
Discontinued operations             $ 0.01 $ 0.01 $ (0.43) $ 0.24 $ 0.01 $ (0.18)
Net loss $ (0.35) $ (0.12) $ (0.11) $ (0.18) $ (0.47) $ (1.68) $ (3.51) $ (2.72) $ (0.76) $ (8.29)
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Note 9. Net Loss Per Share (Details 1)
12 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Net Loss Per Share
Antidilutive Securities Excluded From Computation Of Earnings Per Share Amount 237,242 153,195
OptionsToPurchaseSharesOfCommonStockMember
Net Loss Per Share
Antidilutive Securities Excluded From Computation Of Earnings Per Share Amount    24,013
WarrantsToPurchaseSharesOfCommonStockMember
Net Loss Per Share
Antidilutive Securities Excluded From Computation Of Earnings Per Share Amount 109,139   
SeriesEConvertiblePreferredStockMember
Net Loss Per Share
Antidilutive Securities Excluded From Computation Of Earnings Per Share Amount 127,840 127,840
SharesOfNonvestedRestrictedStockMember
Net Loss Per Share
Antidilutive Securities Excluded From Computation Of Earnings Per Share Amount 263 1,342
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Note 10. Commitments and Contingencies (Details) (USD $)
Sep. 30, 2012
OperatingLeasesAndServiceContractsLineItems [Line Items]
Total $ 193,405
Operating lease commitments
OperatingLeasesAndServiceContractsLineItems [Line Items]
2013 133,911
2014 55,190
2015 3,531
2016 773
2017   
Thereafter   
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Note 10. Commitments and Contingencies (Details Narrative) (USD $)
12 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Rent expense $ 350,822 $ 465,811
Revenues billed LEC billing channels 877,000
Costs related to revenues 533,000
GlobalEducationServicesIncvsLiveDealIncMember
Accrued Expenses 150,000
SunparkTwoThousandLlcvsTelcoBillingIncMember
Accrued Expenses $ 266,000
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Note 11: Provision for Income Taxes (Details) (USD $)
12 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Note 11 Provision For Income Taxes Details
Federal statutory rates $ (535,573) $ (1,870,764)
State income taxes (52,946) (184,942)
Write off of deferred tax asset related to vested restricted stock 10,670 184,050
Permanent differences 3,411   
Valuation allowance against net deferred tax assets 574,438 1,920,862
Other (49,206)
Effective rate      
Federal statutory rates 34.00% 34.00%
State income taxes 3.00% 3.00%
Write off of deferred tax asset related to vested restricted stock (1.00%) (3.00%)
Permanent differences 0.00%   
Valuation allowance against net deferred tax assets (36.00%) (35.00%)
Other 0.00% 1.00%
Effective rate 0.00% 0.00%
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Note 11: Provision for Income Taxes (Details 1) (USD $)
Sep. 30, 2012
Sep. 30, 2011
Deferred income tax asset, current:
Book to tax differences in accounts receivable $ 582,549 $ 738,671
Book to tax differences in prepaid assets and accrued expenses (7,774) (20,502)
Total deferred income tax asset, current 574,775 718,169
Less: valuation allowance (574,775) (718,169)
Deferred income tax asset, current, net      
Deferred income tax asset, long-term:
Net operating loss carryforwards 10,012,906 9,060,073
Book to tax differences for stock based compensation 6,407 17,706
Book to tax differences in intangible assets 6,961,861 7,295,815
Book to tax differences in other 326 326
Book to tax differences in depreciation (2,072,674) (1,798,370)
Total deferred income tax asset, long-term 14,908,825 14,575,550
Less: valuation allowance (14,908,825) (14,575,550)
Deferred income tax asset, net      
Total deferred income tax asset      
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Note 12: Concentration of Credit Risk (Details Narrative) (USD $)
Sep. 30, 2012
Sep. 30, 2011
Concentration Risk [Line Items]
Federal Deposit Cash limit 250,000
EntiyOneMember
Concentration Risk [Line Items]
Gross Receivables 35.00% 31.00%
EntiyTwoMember
Concentration Risk [Line Items]
Gross Receivables 27.00% 25.00%
EntiyThreeMember
Concentration Risk [Line Items]
Gross Receivables 15.00% 20.00%
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Note 13: Stock-based Compensation (Details)
12 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Compensation-related restricted stock awards
Outstanding (unvested) 1,342 4,903
Granted      
Forfeited (26) (8)
Vested (1,053) (3,553)
Outstanding (unvested) 263 1,342
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Note 13: Stock-based Compensation (Details 1) (USD $)
12 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Volatility   
Risk-free interest rate   
Expected term 0 years
Forfeiture rate   
Dividend yield rate    $ 0
Minimum
Volatility 107.00%
Risk-free interest rate 1.80%
Expected term 5 years
Forfeiture rate 0.00%
Maximum
Volatility 108.00%
Risk-free interest rate 2.80%
Expected term 6 years 4 months 24 days
Forfeiture rate 50.00%
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Note 13: Stock-based Compensation (Details 2) (USD $)
12 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Stock option activity
Beginning Balance 24,013
Exercised   
Ending Balance   
Exercisable   
Weighted Average Exercise Price
Beginning Balance $ 3.64
Ending Balance   
Exercisable   
Weighted Average Remaining Contractual Life
Beginning Balance 9 years 7 months 6 days
Ending Balance 0 years
Exercisable 0 years
Aggregate instrinsic Value
Outstanding   
Exercisable   
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Note 13: Stock-based Compensation (Details Narrative) (USD $)
12 Months Ended
Sep. 30, 2012
Sep. 30, 2011
RestrictedStockAwards
Deferred Compensation Arrangement with Individual, Excluding Share-based Payments and Postretirement Benefits [Line Items]
Stock Options compensation expense $ 16,942 $ 38,231
Share option Expiration period 10 years
Common stock issued to directors 57,011
Common stock issued 50,000
Shares authorised under the plan 108,134
Additional expense 35,417
StockOptionAwards
Deferred Compensation Arrangement with Individual, Excluding Share-based Payments and Postretirement Benefits [Line Items]
Stock Options compensation expense $ 16,942 $ 38,231
Shares remained available for issuance under the 2003 Plan 231,866
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Note 14: Segment Reporting (Details Narrative) (CustomerMember)
12 Months Ended
Sep. 30, 2012
CustomerMember
Revenue, Major Customer [Line Items]
Revenue Contribution 10.00%
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Note 16: Selected Quarterly Financial Data (Unaudited) (Details) (USD $)
3 Months Ended 12 Months Ended
Sep. 30, 2012
Jun. 30, 2012
Mar. 31, 2012
Dec. 31, 2011
Sep. 30, 2011
Jun. 30, 2011
Mar. 31, 2011
Dec. 31, 2010
Sep. 30, 2012
Sep. 30, 2011
Note 16 Selected Quarterly Financial Data Details
Net revenues $ 619,532 $ 777,857 $ 821,701 $ 851,413 $ 845,649 $ 1,124,976 $ 1,118,165 $ 994,622 $ 3,070,503 $ 4,083,412
Gross profit 475,163 669,196 595,093 615,594 695,095 76,747 (394,618) 100,045 2,355,046 477,269
Loss from continuing operations (843,487) (289,714) (259,222) (195,218) (318,908) (1,150,938) (2,029,493) (1,884,554) (1,587,641) (5,383,893)
Income (loss) from discontinued operations 680 7,944 229 3,580 5,131 7,561 (285,207) 154,160 12,433 (118,355)
Net loss $ (842,807) $ (281,770) $ (258,993) $ (191,638) $ (313,777) $ (1,143,377) $ (2,314,700) $ (1,730,394) $ (1,575,208) $ (5,502,248)
Loss from continuing operations $ (0.36) $ (0.12) $ (0.11) $ (0.18) $ (0.48) $ (1.69) $ (3.08) $ (2.96) $ (0.77) $ (8.11)
Discontinued operations             $ 0.01 $ 0.01 $ (0.43) $ 0.24 $ 0.01 $ (0.18)
Net loss $ (0.35) $ (0.12) $ (0.11) $ (0.18) $ (0.47) $ (1.68) $ (3.51) $ (2.72) $ (0.76) $ (8.29)
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