Quarterly report pursuant to sections 13 or 15(d)

Commitments and Contingencies

v2.3.0.11
Commitments and Contingencies
 9 Months Ended
Jun. 30, 2011
Commitments and Contingencies
Note 10:  Commitments and Contingencies

Operating Leases and Service Contracts

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

   
Payments Due by Fiscal Year
        
   
Total
    
2011
    
2012
    
2013
    
2014
    
2015
    
Thereafter
  
Operating lease commitments
   $ 522,104     $ 83,333     $ 348,871     $ 89,900     $ -     $ -     $ -  
Non-canceleable service contracts
     291,583       153,583       138,000       -       -       -       -  
    $ 813,687     $ 236,916     $ 486,871     $ 89,900     $ -     $ -     $ -  

This table excludes minimum payment obligations under capital leases, which are set forth below.
 
Capital leases

As of June 30, 2011, future obligations under non-cancelable capital leases are as follows for the fiscal years ended September 30:

2011      
   $ 16,035  
2012      
     37,417  
2013      
     -  
2014      
     -  
2015      
     -  
Thereafter      
     -  
Total minimum lease payments  
     53,452  
Less imputed interest    
     (845 )
Present value of minimum lease payments  
     52,607  
Less: current maturities of capital lease obligations
     52,607  
Noncurrent maturities of capital lease obligations
   $ -  

Litigation

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

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.

Joe Cunningham v. LiveDeal, Inc. et al.

On July 16, 2008, Joseph Cunningham, who was at the time a member of LiveDeal’s Board of Directors, filed a complaint with the U.S. Department of Labor's Occupational Safety and Health Administration (“OSHA”) alleging that the Company and certain members of its Board of Directors had engaged in discriminatory employment practices in violation of the Sarbanes-Oxley Act of 2002’s statutory protections for corporate whistleblowers when the Board of Directors removed him as Chairman on May 22, 2008.  In his complaint, Mr. Cunningham asked OSHA to order his appointment as Chief Executive Officer of the Company or, in the alternative, to order his reinstatement as Chairman of the Board.  Mr. Cunningham also sought back pay, special damages and litigation costs.
 
On July 16, 2010, Mr. Cunningham attempted to amend his OSHA complaint to include an additional adverse action allegation.  On September 20, 2010, OSHA issued a letter informing Mr. Cunningham that, as a former board member and alleged prospective interim CEO, he is not considered an “employee” under the relevant statute, which is a required element for his claims.  Accordingly, OSHA dismissed Mr. Cunningham’s complaint.

On October 20, 2010, Mr. Cunningham filed objections to OSHA’s findings.  On April 1, 2011, an administrative law judge for the U.S. Department of Labor issued an Order of Dismissal confirming OSHA’s findings.  Mr. Cunningham has elected not to appeal the Order of Dismissal, concluding the substantive proceedings.  On April 15, 2011, the Company filed a petition for review for the limited purpose of seeking an award of attorneys’ fees.

On June 13, 2011, Mr. Cunningham entered into a Settlement Agreement and Mutual Release with the Company and the members of the Company’s board of directors who had been named as defendants in the lawsuit.  The parties to the Settlement Agreement and Mutual Release agreed to, among other things, bear their own attorneys’ fees and costs and  release, discharge and covenant not to sue one another, and/or any of their current, past or future subsidiaries, parents, affiliates, owners, officers, directors, employees, agents or representatives on any and all claims, actions . . . contracts, [and] agreements . . . whether known or unknown . . . as of [June 13, 2011], arising out of or relating to the Litigation and/or Cunningham's position as a member of the LiveDeal Board of Directors."  As a result of the Settlement Agreement and Mutual Release, this matter has been resolved and the Company has filed a notice to dismiss its limited petition for review.

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

On June 6, 2008, Plaintiff Global Education Services, Inc. (“GES“) filed a consumer fraud class action lawsuit against the Company in King County (Washington) Superior Court. GES has alleged in its complaint that the Company’s use of activator checks violated the Washington Consumer Protection Act. GES sought injunctive relief against the Company’s use of the checks, as well as judgment in an amount equal to three times the alleged damages sustained by GES and the members of the class. LiveDeal has denied the allegations. Early in 2010, the Court denied both parties’ dispositive motions after oral argument. Active litigation is temporarily suspended, but Plaintiff sought to restart the litigation through arbitration.
 
On August 1, 2011, the parties participated in an arbitration hearing regarding the status of a settlement agreement previously considered in their attempts to resolve the matter. GES argued that the settlement agreement should be reformed to provide for a higher settlement amount (or, in the alternative, rescinded), and the Company argued that the agreement should be enforced as written (or, in the alternative, rescinded). The arbitrator rescinded the settlement agreement and awarded fees and costs to the plaintiffs.   It is estimated that the request for fees and costs will be about $40,000.

Nasdaq Compliance Issues

On February 2, 2011, the Company received a letter from Nasdaq’s Listing Qualifications Department informing the Company of its failure to comply with Nasdaq Listing Rule 5550(a)(4), which requires that the Company have at least 500,000 publicly held shares for continued listing on the Nasdaq Capital Market.  In accordance with Listing Rule 5810(c)(2)(C), the Company was given a 45-day period (until March 19, 2011) to provide the Nasdaq staff with a specific plan to achieve and sustain compliance with all of the Nasdaq Capital Market listing requirements, including a time frame for the completion of the plan.  In accordance with the requirements set forth in Nasdaq’s letter, the Company submitted its compliance plan on March 18, 2011.  The plan included several alternative strategies for regaining compliance with Listing Rule 5550(a)(4), including the issuance of additional shares of common stock in one or more private placement transactions, assuming a suitable investor could be identified.

On April 14, 2011, Nasdaq notified the Company that its compliance plan had been accepted, and that the Company had been granted an extension to regain compliance with Listing Rule 5550(a)(4).  Pursuant to the terms of the extension, on or before August 1, 2011, the Company was required to file with the SEC and Nasdaq a public document containing its current total shares outstanding and a beneficial ownership table prepared in accordance with SEC rules.

On May 18, 2011, the Company received a letter from Nasdaq’s Listing Qualifications Department informing the Company of its failure to comply with Nasdaq Listing Rule 5550(b)(1), which requires the Company to maintain a minimum of $2,500,000 in stockholders’ equity for continued listing on the Nasdaq Capital Market.  As of March 31, 2011, the Company had stockholders’ equity of $2,124,183, as reported in the Quarterly Report on Form 10-Q filed by the Company on May 16, 2011.

In accordance with Listing Rule 5810(c)(2)(C), the Company was given a 45-day period (until July 5, 2011) to provide the Nasdaq staff with a specific plan to achieve and sustain compliance with all of the Nasdaq Capital Market listing requirements, including a time frame for the completion of the plan. On July 5, 2011, the Company submitted its compliance plan and supporting documentation.

On July 19, 2011, the Company’s board of directors authorized and approved a 20:19 forward stock split with respect to the Company’s issued and outstanding common stock to enable the Company to regain compliance with Listing Rule 5550(a)(4).  The forward stock split was implemented 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 forward stock split.  Any fractional shares otherwise issuable as a result of the forward stock split were rounded up to the nearest whole share.  The forward stock split was completed on August 10, 2011.

On August 2, 2011, the Company received a letter from Nasdaq’s Listing Qualifications Department informing the Company of its failure to comply with the terms of an extension previously granted by the Nasdaq staff for the Company to regain compliance with Nasdaq Listing Rule 5550(a)(4), which requires that the Company have at least 500,000 publicly held shares for continued listing on the Nasdaq Capital Market.

As noted above, the Company was first notified of its failure to comply with Nasdaq Listing Rule 5550(a)(4) on February 2, 2011 and was subsequently granted an extension (until August 1, 2011) to regain compliance. Due to procedural requirements, the Company was unable to complete the forward stock split by Nasdaq’s August 1, 2011 deadline, which resulted in the August 2, 2011 letter described above.

According to the letter, as a result of the Company’s failure to meet the terms of its extension, the Company’s common stock was to be delisted from the Nasdaq Capital Market on August 11, 2011 unless the Company appealed the staff’s delisting determination to a Nasdaq hearings panel by August 9, 2011. In the letter, the Nasdaq staff also noted the Company’s failure to comply with Nasdaq Listing Rule 5550(b), which requires that the Company maintain stockholders’ equity of at least $2,500,000, as an additional basis for delisting the Company’s common stock.

The Company appealed the Nasdaq staff’s delisting determination on August 9, 2011 and requested an oral hearing, at which the Company will present its comprehensive plan to regain and sustain compliance with Nasdaq Listing Rules 5550(a)(4) and 5550(b). While the appeal is pending, the Company’s common stock will continue to be traded on the Nasdaq Capital Market.