Note 9: Commitments and Contingencies

 

Operating Leases and Service Contracts

 

As of December 31, 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				2012				2013				2014				2015				2016				Thereafter
Operating lease commitments		$	420,710			$	281,586			$	114,965			$	24,159			$	—			$	—			$	—
Noncanceleable service contracts			—				—				—				—				—				—				—
		$	420,710			$	281,586			$	114,965			$	24,159			$	—			$	—			$	—

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

Capital leases

 

As of December 31, 2011, future obligations under non-cancelable capital leases are as follows for the fiscal years ended September 30:

 

2012		$	21,381
2013			—
2014			—
2015			—
2016			—
Thereafter			—
Total minimum lease payments			21,381
Less imputed interest			(157	)
Present value of minimum lease payments			21,224
Less: current maturities of capital lease obligations			21,224
Noncurrent maturities of capital lease obligations		$	—

 

Litigation

 

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

 

Except as described below, as of December 31, 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 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.

 

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 alleging that the Company’s use of activator checks violated the Washington Consumer Protection Act.  GES seeks 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 the members of the class. LiveDeal denied the allegations and is defending the litigation.  Early in 2010, the Court denied both parties’ dispositive motions after oral argument.   After settlement discussions failed to result in resolution, the parties resumed the litigation in the fall of 2011. GES’ motion for class certification is briefed and scheduled to be heard on April 27, 2012. The parties continue to discuss settlement pending hearing on the motion.

 

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.

  

 

Nasdaq Compliance Issues

 

During fiscal 2011, the Company fell out of compliance with certain requirements for the continued listing of its common stock on the NASDAQ Capital Market, including the requirements that the Company maintain (i) at least 500,000 “publicly held” shares of common stock (i.e., shares not held by directors, officers or 10% stockholders), (ii) at least $2.5 million of stockholders’ equity and (iii) a market value of its “publicly held” shares of at least $1.0 million. The Company has addressed all of those compliance issues, and on December 21, 2011, the Company received written notification from NASDAQ indicating that the Company’s securities will continue to be listed on the NASDAQ Capital Market based upon the Company’s compliance with the terms of a NASDAQ Listing Qualifications Panel decision, which required the Company to evidence compliance with the applicable minimum stockholders’ equity requirement of $2.5 million by December 12, 2011. The Company is subject to further compliance monitoring by NASDAQ until November 30, 2012.