Sinotop Contingent Consideration

6 Months Ended

Jun. 30, 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 $463,433 for the six months ended June 30, 2012 and a gain of $248,632 for the three months ended June 30, 2012.

As of July 1, 2012, the first milestone has been achieved with over 3 million homes having access to our PPV Services.

As of June 30, 2012, we have recorded a purchase consideration liability in the amount of $1,299,907 related to shares and options Mr. Liu has earned as of July 1, 2012.

The following is a summary of the earned purchase price consideration and the estimated fair value of contingent consideration obligation for the acquisition of Sinotop Hong Kong at June 30, 2012 and December 31, 2011.

The following table represents the earned purchase price consideration and the estimated fair value of the current and the noncurrent portion of the contingent consideration liability for the acquisition of Sinotop Hong Kong at June 30, 2012.