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Acquisition

9 Months Ended

Sep. 30, 2012

(15) Acquisition

On April 7, 2011, the Company acquired 100% of the stock of Jingle Networks, Inc. (“Jingle”), a provider of mobile voice search performance advertising and technology solutions in North America for the following consideration:

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Approximately $15.8 million in cash, net of cash acquired, and 1,019,103 shares of the Company’s Class B common stock paid at closing; and

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Future consideration of (i) $17.6 million, net of certain working capital adjustments, on the first annual anniversary of the closing, and (ii) $18.0 million on the 18th month anniversary of closing, with the future consideration payable in either cash or shares of the Company’s Class B common stock or some combination to be determined by the Company. Any shares issued in payment of the future consideration will be increased by 5%. The future consideration is recorded as current deferred acquisition payments in the balance sheet. In April 2012, the Company paid approximately $16.9 million in cash, net of certain working capital and other adjustments, on the first anniversary of closing. In October 2012, the Company paid approximately $17.9 million in cash, net of adjustments, on the 18^th month anniversary of closing.

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Following the closing, the Company issued 462,247 shares of restricted stock at an aggregate value of approximately $3.3 million to employees of Jingle, subject to vesting for up to four years.

The Company accounted for the Jingle acquisition as a business combination. As a result of the acquisition, the Company added additional sources of mobile distribution to its digital call advertising network. The Company has integrated Jingle’s operations, including sales activities, and accordingly, revenues and earnings of the acquired operations are not readily separable.

The fair value of the shares of Class B common stock issued as part of the consideration paid was valued at $7.6 million using the Company’s closing stock price of $7.46 per share at the acquisition date. The fair value of the future consideration payments of $34.7 million was discounted using a rate of approximately 2% based on the Company’s incremental borrowing rate and is recorded on the balance sheet as deferred acquisition payments.

During the three months ended December 31, 2011, the Company recorded approximately $372,000 for the future obligations of a non-cancelable lease and other costs related to the Jingle office in acquisition related costs. The portion related to the non-cancelable lease was based on estimates of vacancy period and sublease income. In March 2012, the Company arranged for the future sublease of the Jingle office space and revised its original estimates which resulted in a $132,000 benefit recorded in acquisition related costs in the condensed consolidated statement of operations. The actual vacancy periods may differ from these estimates, and sublease income, if any, may not materialize. Accordingly, these estimates may be adjusted in future periods.

In connection with the acquisition, the Company acquired federal net operating loss (“NOL”) carryforwards. Where there is a “change in ownership” within the meaning of Section 382 of the Internal Revenue Code, the acquired federal NOL carryforwards are subject to an annual limitation. The Company believes that such an ownership change had occurred at Jingle, and that the utilization of the carryforwards is limited such that the majority of the NOL carryforwards will never be utilized. Accordingly, the Company has not recorded those amounts the Company believes it will not be able to utilize and has not included those NOL carryforwards and research and development credit carryforwards in its deferred tax assets. The Company’s estimate of NOL carryforwards that may be utilized was approximately $7.0 million. A deferred tax asset relating to these NOL carryforwards was recorded during the three months ended December 31, 2011 with a corresponding adjustment to goodwill of approximately $2.4 million.

A summary of the consideration for the acquisition is as follows (in thousands):


Cash	$	16,563
Stock issued		7,603
Future consideration		34,695

Total	$	58,861

The following summarizes the allocation of the fair value of the assets acquired and the liabilities assumed (in thousands):


Cash acquired	$	761
Accounts receivable		4,740
Current assets		2,538
Deferred tax assets		62
Property and equipment		206
Other non-current assets		148
Intangible assets		11,966
Goodwill		47,290

Total assets acquired		67,711
Current liabilities		(5,512	)
Non-current deferred tax liabilities		(3,246	)
Other non-current liabilities		(92	)

Total liabilities assumed		(8,850	)

Net assets acquired	$	58,861

The acquired intangible assets of approximately $12.0 million consist primarily of customer and partner relationships, technology, trademarks and patents which will be amortized over 12 to 36 months (weighted average of 2.4 years) using the straight line method. The goodwill and acquired intangible assets will not be deductible for federal tax purposes.

The following unaudited pro forma financial information summarizes the combined results of operations of the Company and Jingle and is based on the historical results of operations of the Company and Jingle. The pro forma information reflects the results of operations of the Company as if the acquisition of Jingle had taken place on January 1, 2010. The unaudited pro forma financial information for the three and nine months ended September 30, 2011 includes the combined historical results of operations for the Company for the three and nine months ended September 30, 2011 and Jingle’s historical results of operations during the pre-acquisition period from January 1, 2011 through April 7, 2011. The unaudited pro forma financial information for the three and nine months ended September 30, 2012 includes the historical results of operations for the Company for the three and nine months ended September 30, 2012. The pro forma information includes adjustments for amortization of intangible assets, intercompany activity and accretion of interest expense related to the future consideration. The unaudited pro forma financial information is provided for information purposes only and is not necessarily indicative of the combined results that would have occurred had the acquisition taken place on the dates indicated, nor is it necessarily indicative of results that may occur in the future.


	Nine months ended September 30,				Three months ended September 30,
(in thousands)	2011		2012		2011		2012
Revenue	$	113,494	$	104,316	$	39,862	$	34,822
Net income (loss)		509		495		1,569		(52	)
Net income (loss) applicable to common stockholders		318		233		1,502		(175	)