Affinity Acquisition

12 Months Ended

Dec. 31, 2013

Business Combinations [Abstract]

Affinity Acquisition

Affinity Acquisition

On October 1, 2012, the Company completed the acquisition of 100% of the stock of Affinity, accounted for as a business combination, and paid an aggregate purchase price of $15,901,000. The purchase price consisted of (i) approximately $8.0 million in cash (obtained through debt financing as discussed in Note 7), (ii) a $2.33 million promissory note payable to the Affinity shareholders (as discussed in Note 7), subject to adjustment, and (iii), 2,650,000 shares of the Company's common stock valued at approximately $5,512,000 based on the closing price of the Company's stock on October 1, 2012, subject to adjustment.

On October 1, 2012, the Company issued 100,000 shares of unregistered common stock and paid $250,000 cash to Burnham Hill Partners, LLC ("BHP") in consideration of services rendered under the Consulting Agreement dated as of September 28, 2012 between the Company and BHP. The cash and stock was divided equally between financing costs (which were included in Other Assets in the accompanying consolidated balance sheet as of December 31, 2012) and acquisition costs (recorded in General and Administrative expenses in the accompanying consolidated statement of operations for the year ended December 31, 2012). A total of $259,000 and $857,000 of acquisition related costs were expensed and included in General and Administrative expenses in the accompanying Statement of Operations for the years ended December 31, 2013 and 2012, respectively.

The fair value of the assets acquired and liabilities assumed were based on management estimates and values derived from an outside independent appraisal. Based on the purchase price allocation, the following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition (in thousands):

Cash and cash equivalents, including escrow	$	504
Accounts receivable	1,201
Property, plant, and equipment	410
Other assets and liabilities, net	320
Customer relationships	5,100
Affiliate network	1,710
Trademarks	760
Total assets acquired at fair value	10,005
Accounts payable	(972		)
Accrued expenses	(811		)
Deferred tax liability	(2,221		)
Total liabilities assumed	(4,004		)
Net assets acquired	$	6,001

The purchase price exceeded the fair value of the net assets acquired by $9,900,000, which was recorded as goodwill. The Company recorded measurement period adjustments during the year ended December 31, 2013 which reduced goodwill by $75,000. Below is a summary of goodwill activity for the year ended December 31, 2013 (in thousands):

Goodwill, December 31, 2012	$	9,900
Reduction of SRS Note (see Note 7)	(240		)
Working capital adjustments	165
Goodwill, December 31, 2013	$	9,825

The accompanying consolidated financial statements do not include any revenues or expenses related to the Affinity business on or prior to October 1, 2012, the closing date of the acquisition. The consolidated statement of operations for the year ended December 31, 2012 includes revenue of $2,244,000 and net income of $119,000 related to Affinity for the period from October 2, 2012 through December 31, 2012. The Company's unaudited pro forma results for the year ended December 31, 2012 are summarized in the following table, assuming the acquisition occurred on January 1, 2012 (in thousands):

	Year Ended December 31, 2012
Revenue	$	37,096
Net loss	(2,312		)
Loss per share:
Basic	$	(0.08	)
Diluted	$	(0.08	)
Weighted average number of common shares:
Basic	28,295
Diluted	28,295

These unaudited pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the results of operations which would have actually resulted had the acquisition occurred on January 1, 2012, nor to be indicative of future results of operations.