Business Combination

9 Months Ended

Sep. 30, 2014

Business Combinations [Abstract]

Business Combination

Business Combination

On August 1, 2014, the Company completed its acquisition of substantially all of the assets and certain liabilities of Treehouse. Treehouse was formed in 2009 and distributes a wide variety of video game themed merchandise to its customer base through internet stores built for the gaming community. The acquisition enables the Company to establish official web-stores under exclusive licenses to increase the Company's customer base.  Under the terms of the asset purchase agreement, the Company agreed to pay $1.5 million in cash, less Treehouse's cash and deferred wages at the date of acquisition, with additional earn-out payments of up to $2.0 million based on the achievement of certain specified performance metrics through 2015. The Company determined the fair value of the liability for the contingent consideration based on a probability-weighted discounted cash flow analysis. The fair value measurement is based on significant inputs not observable in the market and represents a Level 3 measurement as defined in the fair value hierarchy. In each period, the Company will reassess its current estimates of performance relative to the targets and adjust the liability to fair value through earnings.

The acquisition was accounted for using the purchase method of accounting. Accordingly, the results of Treehouse have been included in the accompanying consolidated financial statements from the date of acquisition, and are included in the Website segment. Treehouse contributed net revenues of approximately $1.0 million and approximately $0.4 million net loss for the period from its acquisition date to September 30, 2014. In addition, approximately $0.1 million of acquisition-related costs incurred during the three months ended September 30, 2014 are included in general and administrative expenses. The purchase price has been allocated to the assets acquired and liabilities assumed based upon the respective preliminary estimates of fair value as of the date of the acquisition, which remain preliminary as of September 30, 2014 due to the recent timing of the acquisition, using assumptions that the Company's management believes are reasonable based on the information currently available. The excess of the purchase price over the estimated amounts of net assets was recorded as goodwill. Differences between the preliminary allocation and any changes thereto could be material. The preliminary allocation of the purchase price to the estimated fair value of the assets acquired and liabilities assumed at the acquisition date is as follows (in thousands):

Accounts receivable	$	40
Inventories	839
Prepaid expenses and other current assets	175
Property and equipment	58
Goodwill	1,953
Other intangible assets	1,303
Total assets acquired	4,368
Accounts payable	(702		)
Deferred revenue	(297		)
Accrued and other liabilities	(689		)
Total liabilities assumed	(1,688		)
Short-term contingent liabilities	(250		)
Other long-term contingent liabilities	(1,009		)
Cash paid at acquisition date	$	1,421

The following are the identifiable intangible assets acquired and their respective estimated lives, as determined based on preliminary valuations (in thousands):

	Fair Value		Estimated Useful Life (Years)
Acquired license agreements	$	1,040	5
Developed technology	138		5
Non-competition agreement	82		3
Customer lists	43		3
Total identifiable intangible assets	$	1,303

The following unaudited pro forma consolidated financial information reflects the results of operations of the Company as if the acquisition had been completed as of January 1, 2013, after giving effect to certain pro forma accounting adjustments. The pro forma adjustments were recorded principally for the purpose of eliminating intercompany transactions between the Company and Treehouse, adjusting for depreciation and amortization expense based on the fair values of the assets acquired, and adjusting for stock based compensation expense related to a senior management award. These pro forma results are not necessarily indicative of what the Company's operating results would have been had the acquisition actually taken place at the beginning of the period.

	Three Months Ended   September 30,						Nine Months Ended   September 30,
	2014			2013			2014			2013
($ in thousands, except per share amounts)
Net revenue	$	22,833		$	24,708		$	73,145		$	69,885
Net loss	(3,000		)	(1,476		)	(10,141		)	(5,677		)
Basic and diluted earnings per share	$	(0.45	)	$	(0.22	)	$	(1.52	)	$	(0.86	)