Business Combinations

12 Months Ended

Dec. 31, 2014

Business Combinations [Abstract]

5. Business Combinations

SMS Acquisition

On February 11, 2014, the Company, through its wholly-owned subsidiary, SpendSmart Networks, Inc., acquired substantially all of the assets of Intellectual Capital Management, Inc., d/b/a SMS Masterminds (“SMS Masterminds”) a Nevada corporation, including but not limited to certain intellectual property and accounts receivable, pursuant to the terms of an Asset Purchase Agreement (the “Asset Purchase Agreement”).

Pursuant to the Asset Purchase Agreement, the Company acquired substantially all of the assets of SMS Masterminds. In consideration of the purchased assets, the Company agreed to issue to SMS Masterminds five million two hundred and fifty thousand shares of the Company’s common stock and a cash payment of $1.4 million, of which $400,000 has been deferred.  The Company paid $380,000 during the year ended December 31, 2014 to the sellers related to this deferment.  $20,000 of this deferment remains outstanding as of December 31, 2014 and will be paid out at $5,000 per quarter over the next four quarters.

The Company also agreed to pay the sellers an earn-out payment relating to fifteen percent of the earnings generated by SMS Masterminds after the acquisition and an additional earn-out payment tied to the EBITDA of the Company after the acquisition of SMS Masterminds, of up to $2,000,000 in aggregate.  The Company paid $0 during the year ended December 31, 2014 related to this earn-out payment.

The fair value of the total consideration at the date of acquisition is as follows:

Consideration Paid
Cash Paid and to be paid - to sellers	$	1,400,000
5,250,000 Common Stock issued to SMS		3,313,598
Fair value of earn-out payment		607,798
Total Consideration Paid	$	5,321,396

The transaction was accounted for using the acquisition method required by Topic 805, Business Combinations. Accordingly, goodwill has been measured as the excess of the total consideration including the fair value of any non-controlling interest on acquisition date over the amounts assigned to the identifiable assets acquired and liabilities assumed.

On the acquisition date, the fair value of net assets acquired was $5,321,396. The fair value of stock issued to the seller as part of the consideration was based on reference to quoted market values of SSPC stock as of the date of acquisition. We had originally estimated the fair value of the earn-out liability to be $846,785 and then revised the amount to $607,798 upon review of additional information during the measurement period.  The final allocation of the total consideration to the fair value of the assets acquired and liabilities assumed as of the date of the acquisition is as follows:

Accounts receivable, net	$	318,708
Identifiable intangible assets		3,242,900
Goodwill		2,458,375
Total assets		6,019,983
Accounts payable and accrued expenses		222,268
Deferred Revenue		249,797
Long-term liabilities (SBA loan)		226,522
Total liabilities		698,587
Net assets acquired	$	5,321,396

Fair valuation methods used for the identifiable net assets acquired in that acquisition make use of projected and discounted cash flows using company specific interest rates. IP/Technology, Customer Base, and Trademarks are being amortized over ten years using the straight-line method. Amortization expense related to intangible assets was $283,754 for the year ended December 31, 2014 and will  be $324,290 for each of the years ended December 31, 2015 through 2023 and $40,536 in the year ended December 31, 2024.

TechXpress Web Acquisition 

On September 18, 2014, the Company through its wholly-owned subsidiary SpendSmart Networks, CA, purchased substantially all of the web related assets of TechXpress, Inc. (“TechXpress”), a California corporation, pursuant to the terms of an Asset Purchase Agreement (the “Asset Purchase Agreement”). In consideration of the purchased assets, the Company agreed to pay a purchase price consisting of $454,641 in cash and shares of the Company’s common stock, $0.001 par value per share, equal to $438,518, or an aggregate of 596,315 shares of the Company’s common stock (the “Stock Consideration”).

The preliminary fair value assigned to the total consideration is as follows:

Consideration Paid:
Cash consideration	$	454,641
596,315 common stock issued to TechXpress		438,518
Total consideration paid	$	893,159

The transaction was accounted for using the acquisition method required by Topic 805, Business Combinations. Accordingly, goodwill has been measured as the excess of the total consideration including the fair value of any non-controlling interest on acquisition date over the amounts assigned to the identifiable assets acquired and liabilities assumed.

On the acquisition date, the fair value of net assets acquired was $893,159. The fair value of stock issued to the seller as part of the consideration was based on reference to quoted market values of SSPC stock as of the date of acquisition.  The final allocation of the total consideration to the fair value of the assets acquired as of the date of the acquisition is as follows:

Accounts receivable, net	$	5,758
Identifiable intangible assets		143,500
Goodwill		743,901
Net assets acquired	$	893,159

Fair valuation methods used for the identifiable net assets acquired in that acquisition make use of projected and discounted cash flows using company specific interest rates.  Amortization expense related to intangible assets was $4,947 for the year ended December 31, 2014 and will be $14,350 for each of the years ended December 31, 2015 through 2023 and $10,165 in the year ended December 31, 2024.

Pro forma

The following unaudited pro forma financial information presents results as if the acquisition of SMS Masterminds and the TechXpress Web business had occurred on January 1, 2013 (in thousands):

	Year Ended December 31,
(Unaudited)	2014		2013
Total revenue	$	5,862	$	4,964
Net income (loss)	$	(12,107)	$	(13,164)

For purposes of the pro forma disclosures above, the primary adjustments for the years ended December 31, 2014 and 2013 include the amortization of the intangible assets purchased in the acquisition.