Operating Leases and Service Contracts

As of December 31, 2012, future minimum annual payments under operating lease agreements and non-cancelable service contracts for fiscal years ending September 30 are as follows:

Litigation

The Company is party to certain legal proceedings from time to time incidental to the conduct of its business. These proceedings could result in fines, penalties, compensatory or treble damages or non-monetary relief. The nature of legal proceedings is such that we cannot assure the outcome of any particular matter, and an unfavorable ruling or development could have a materially adverse effect on our consolidated financial position, results of operations and cash flows in the period in which a ruling or settlement occurs. However, based on information available to the Company’s management to date and other than as noted below, the Company’s management does not expect that the outcome of any matter pending against us is likely to have a materially adverse effect on our consolidated financial position as of December 31, 2012, our annual results of operations or cash flows, or our liquidity.

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. The court granted preliminary approval of the settlement on January 11, 2013, the terms of which are as follows:  $150,000 to be paid to plaintiffs’ 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. Notice to class members commenced on January 31, 2013, consistent with the court approved notice plan.  The final approval hearing is scheduled for April 26, 2013.  Class members must submit claim forms by April 1, 2013 to receive payment.   Opt-outs and objections must be mailed by April 26 to be valid.  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 the second quarter and that the required payments will be made during that quarter.  As of December 31, 2012, the Company maintains an accrual of $160,000 related to this matter.

Sunpark 2000 LLC vs. Telco Billing, Inc.

On September 26, 2012, Sunpark 2000 LLC (“Sunpark”) filed a lawsuit against Telco Billing Inc., a subsidiary of LiveDeal, Inc. (“LiveDeal”), before the Eighth Judicial District Court (Clark County) of the State of Nevada. The complaint alleged that Telco Billing, Inc. 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, Inc. from November 1, 2007 until December 31, 2012.  Sunpark sought lost rent damages of approximately $357,503 and repair expenses in excess of $2,500. Telco Billing, Inc. denied the pertinent allegations and asserted numerous affirmative defenses. The parties settled this matter for a payment by LiveDeal, Inc. to Sunpark in the amount of $112,500 and Sunpark’s retention of a $24,000 security deposit under the lease agreement.  The settlement payment has been made and an Order for Dismissal with prejudice was entered by the Court on January 31, 2013.