Quarterly report pursuant to sections 13 or 15(d)

Note 10: Commitments and Contingencies

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Note 10: Commitments and Contingencies
 6 Months Ended
Mar. 31, 2013
Commitments and Contingencies Disclosure [Abstract]  
Note 10: Commitments and Contingencies

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 the Company 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 March 31, 2013, our annual results of operations, cash flows or liquidity of the Company.

 

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

 

On June 6, 2008, Global Education Services, Inc., which the Company refers 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. The Company denied the allegations of the complaint 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 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 putative class member who properly submits a claims form and does not opt out of the settlement. The Court granted final approval of the settlement on April 26, 2013. The Court’s order will become final when the time to appeal expires on May 27, 2013. Notice to class members has been sent and the time for the submission of claims has expired. We anticipate that the required payments will be made during the third quarter of the Company’s fiscal year. As of March 31, 2013, 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 the Company (“TBI”), before the Eighth Judicial District Court (Clark County) of the State of Nevada. The complaint alleged that TBI breached a lease agreement with Sunpark dated August 15, 2007, which by its terms leased approximately 12,635 square feet of commercial real property in Las Vegas, Nevada to TBI 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. TBI denied the pertinent allegations of the complaint and asserted numerous affirmative defenses. On January 14, 2013, the parties settled this matter for a payment by the Company 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.

 

Employment Agreements

 

On February 14, 2013, the Company entered into an employment agreement with Jon Isaac, pursuant to which he will continue serving as its President and Chief Executive Officer for the period from January 1, 2013 to January 1, 2016. The material terms of the employment agreement are as follows:

 

· 200,000 annual base salary throughout the term of the agreement
· Eligibility to receive performance-based bonuses in the sole discretion of the Company’s Compensation Committee.
· A one-time discretionary bonus of $150,000 for services performed as President and Chief Executive Officer for the previous 12 months, to be paid in cash on or before March 31, 2013. This bonus was approved by the Company’s Compensation Committee.
· Reimbursement for reasonable housing expenses.
· Grant of options to purchase 150,000 shares of the Company’s common stock, subject to continued employment on the applicable vesting dates and the other terms and conditions summarized below:
o 50,000 shares will vest on the first anniversary of the date of grant and be exercisable for five years after vesting at an exercise price of $5.00 per share.
o 50,000 shares will vest in 12 equal monthly installments, beginning on the date that is 13 months after the date of grant and ending on the second anniversary of the date of grant, and be exercisable for five years after vesting at an exercise price of $7.50 per share.
o 50,000 shares will vest in 12 equal monthly installments, beginning on the date that is 25 months after the date of grant and ending on the third anniversary of the date of grant, and be exercisable for five years after vesting at an exercise price of $10.00 per share.

 

See Note 4 for stock option details.

 

Operating Leases and Service Contracts

 

As of March 31, 2013, future minimum annual payments under operating lease agreements for fiscal years ending September 30 are as follows:

 

2013     87,535  
2014     180,065  
2015     140,616  
2016     51,833  
2017     –  
Thereafter     –  
    $ 460,050