Business Acquisition

12 Months Ended

Dec. 31, 2013

Business Acquisition [Abstract]

Business Acquisition

NOTE 4: BUSINESS COMBINATIONS

On August 5, 2011, a wholly-owned subsidiary of the Company purchased substantially all of the assets and assumed certain of the liabilities (including certain of its contracts, debt owed under specified capital leases and certain accounts payable) of Alteva, LLC, a cloud-based UC solutions provider and enterprise hosted VoIP provider, in exchange for cash and stock valued at $17.8 million pursuant to the terms of the asset purchase agreement between the Company and Alteva, LLC (the "Alteva Agreement"). The issuance of the Company's common stock contemplated under the Alteva Agreement was subject to regulatory approval by the New York State Public Service Commission ("NYPSC") and the New Jersey Board of Public Utilities ("NJBPU"), both of which approved the transaction in October 2011. The assets acquired included Alteva, LLC's VoIP line of business, which provides communication services for commercial customers and unified communication lines of business. This acquisition extended the Company's VoIP services to New Jersey, Pennsylvania and various other states and continues the Company's corporate strategy to expand its UC business.

The results of Alteva LLC's operations have been included in the Company's consolidated financial statements since August 5, 2011. The Company incurred $0.8 million of acquisition-related costs as general and administrative expenses in the consolidated statement of operations for the year ended December 31, 2011. The revenue from the Alteva business included in the Company's statement of operations for the five months (since August 2011) ended December 31, 2011 was $3.1 million and the net loss before income taxes was $0.7 million.

The purchase price was allocated to the assets acquired and liabilities assumed based on their fair values on the acquisition date. The excess of the purchase consideration over the fair value of the net assets acquired has been allocated to goodwill. The Company engaged a third-party valuation group to assist them in the valuation of the assets acquired and liabilities assumed.

In connection with the Company's acquisition of substantially all of the assets and assumption of certain liabilities of Alteva, LLC, the members of Alteva, LLC were granted shares of the Company's common stock as partial consideration in the acquisition (the "Alteva Shares"). All the members of Avetla, LLC, except for David Cuthbert (the "Selling Holders") agreed to shares containing price protection in which if they sold their shares in one or more blocks prior to October 22, 2012 the Company would pay the difference between the price at exercise and $14.68. The Selling Holders sold all of their Alteva Shares in a block trade on September 21, 2012 for $12.55 per share, resulting in a payment by the Company to the selling shareholders of $0.5 million in October 2012. The expense recorded in connection with this liability was included in other income (expense), net in the statement of operations for the year ended December 31, 2012. Mr. Cuthbert entered into a separate agreement in which he could sell his Alteva Shares at $14.68 from October 21, 2012 to December 20, 2012. Mr. Cuthbert sold his Alteva Shares on October 21, 2012, in which the Company paid Mr. Cuthbert $0.4 million.

The customer relationships intangible asset has a weighted-average useful life of eight years and the trade name intangible asset has an estimated useful life of 15 years. In addition, the Company recorded goodwill in the amount of $9.1 million as of August 5, 2011. For tax purposes goodwill will be amortized over 15 years.