Operating Leases and Service Contracts

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

Capital leases

As of June 30, 2012, the Company had no future obligations under non-cancelable capital leases.

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 June 30, 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. (“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 sought injunctive relief against the Company’s use of activator checks, as well as damages in an amount equal to three times the damages allegedly sustained by the putative members of the class. LiveDeal denied the allegations and defended the litigation.  The parties reached a tentative settlement in the third quarter of fiscal 2012 and expects to file motions with the court jointly with the class representative and class counsel for preliminary and final approval once the settlement documents have been completed. The Company accrued $150,000 in the third quarter of fiscal 2012 in conjunction with this tentative settlement which is reflected as part of other income (expense) in the accompanying unaudited interim condensed consolidated statements of operations.