Sinotop Contingent Consideration

3 Months Ended

Mar. 31, 2012

Sinotop Contingent Consideration [Abstract]

Sinotop Contingent Consideration

3.             Sinotop Contingent Consideration

In connection with the acquisition of Sinotop Hong Kong on July 30, 2010, if specified performance milestones are achieved, Weicheng Liu ("Mr. Liu" or "the Seller") will be entitled to earn up to (i) an additional 403,820 shares of common stock of the Company, (ii) three-year warrants to purchase 571,275 shares of the Company's common stock, equivalent to 5.0% of the total number of shares of the Company's common stock underlying all outstanding warrants as of immediately following the closing of the July 2010 financing and (iii) a four-year option to purchase a number of shares of the Company's common stock that is equal to 5% of the total number of shares of the Company's common stock underlying all outstanding options of the Company granted to individuals employed by the Company as of September 1, 2010 (collectively, the securities referred to in clauses (i), (ii) and (iii) are referred to herein as the "Earn-Out Securities"). The milestones are as follows: Sinotop Hong Kong will ensure that (i) at the end of the first earn-out year (July 1, 2012), at least 3 million homes will have access to the Company's PPV services, (ii) at the end of the second earn-out year (July 1, 2013), at least 11 million homes will have access to the Company's PPV services, and (iii) at the end of the third earn-out year (July 1, 2014), at least 30 million homes will have access to the Company's PPV services

Subsequent to the acquisition of Sinotop, the Company underwent a warrant exchange that converted the three-year warrants to be potentially earned under clause (ii) above to 332,002 shares of common stock. As such, the Earn-Out Securities subject to the achievement of the specified performance milestones are 735,822 shares of common stock and a four-year option to purchase a number of shares of the Company's common stock that is equal to 5% of the total number of shares of the Company's common stock underlying all options of the Company granted simultaneous with the adoption of the Stock Incentive Plan to individuals employed by the Company as of September 1, 2010.

The Company recorded a contingent consideration obligation related to the Earn-Out Securities at the time of acquisition which totaled $2,750,966, representing the fair value of the estimated payment of the full earn-out. The contingent consideration is classified as a liability because the earn-out securities do not meet the fixed-for-fixed criteria under ASC 815-40-15 for equity classification. Further ASC 815-40-15 requires us to re-measure the contingent consideration obligation at the end of every reporting period with the change in value reported in the consolidated statements of operations and, accordingly, we reported a loss of $712,065 for the three months ended March 31, 2012.

The following is a summary of the estimated fair value of contingent consideration obligation for the acquisition of Sinotop Hong Kong at March 31, 2012 and December 31, 2011.

			December 31,				March 31,
	Number of		2011		Change in		2012
Class of consideration	Instruments		Fair Value		Fair Value		Fair Value
Common shares		735,822	$	3,147,109	$	658,342	$	3,805,451
Stock options		80,000		211,980		53,723		265,703
Total contingent consideration			$	3,359,089	$	712,065	$	4,071,154

The following table represents the estimated fair value of the current and the noncurrent portion of the contingent consideration liability for the acquisition of Sinotop Hong Kong at March 31, 2012.

	As of March 31,2012
	Number of		Current		Noncurrent		Total
	Instruments		Liability		Liability		Liability
Shares July 2012		245,274	$	1,243,083	$	-	$	1,243,083
Shares July 2013		245,274		-		1,290,805		1,290,805
Shares July 2014		245,274		-		1,271,563		1,271,563
Total Common Shares		735,822	$	1,243,083	$	2,562,368	$	3,805,451
Options July 2012		26,667	$	81,055	$	-	$	81,055
Options July 2013		26,667		-		89,772		89,772
Options July 2014		26,667		-		94,876		94,876
Total Options		80,000	$	81,055	$	184,648	$	265,703
Total Shares and Options		815,822	$	1,324,138	$	2,747,016	$	4,071,154