3. Business Combinations

Unicorn Media, Inc.

On January 31, 2014, pursuant to the Asset Purchase Agreement and Plan of Reorganization (the Purchase Agreement) dated as of January 6, 2014, by and among the Company, Cacti Acquisition LLC, a Delaware limited liability company and wholly-owned subsidiary of the Company, Unicorn Media, Inc. (“Unicorn Media”), Unicorn Media of Arizona, Inc., an Arizona corporation (“Unicorn Arizona Sub”), U Media Limited, a private limited company registered in England and Wales (“Unicorn UK Sub” and, together with Unicorn Media and Unicorn Arizona Sub, “Unicorn”), and the Securityholders' Representative named therein, the Company completed its acquisition of substantially all of Unicorn's assets in exchange for common stock of the Company and the assumption by the Company of certain liabilities of Unicorn (the “Acquisition”). The Company issued 2,850,547 unregistered shares of common stock of the Company and paid approximately $9,100 in cash to cover transaction-related expenses of Unicorn, bonus expenses payable by Unicorn, the assumption of Unicorn's liability to cash out all vested non-qualified stock options and compensatory warrants to purchase the common stock of Unicorn outstanding immediately prior to the closing (including all Unicorn withholding obligations in connection therewith) and certain other liabilities of Unicorn. Based on a $10.74 price per share of the Company's common stock at the date of closing, the transaction is valued at approximately $39,728. Pursuant to the Purchase Agreement, 1,285,715 shares were placed into an escrow account to settle certain claims for indemnification for breaches or inaccuracies in Unicorn's representations and warranties, covenants and agreements. The Company recorded revenue from the acquisition of Unicorn of approximately $6,478 in the consolidated statements of operations from the acquisition date through December 31, 2014. It is impracticable for the Company to determine the amount of net loss from the acquisition of Unicorn included in the Company's consolidated statements of operations from the acquisition date through December 31, 2014 due to operating costs of Unicorn being included in the Company's historical departments subsequent to the acquisition. The Company acquired substantially all of Unicorn's assets to enhance and extend the Company's existing offerings with Unicorn's cloud video ad insertion technology. The Acquisition did not result in the addition of any reportable segments.

The Acquisition was accounted for using the purchase method of accounting in accordance with ASC 805 — Business Combinations. Accordingly, the results of operations of Unicorn have been included in the accompanying consolidated financial statements since the date of acquisition. The purchase price has been allocated to the tangible and intangible assets acquired and liabilities assumed based upon the respective estimates of fair value as of the date of the Acquisition and using assumptions that the Company's management believes are reasonable given the information currently available.

The process for estimating the fair values of identifiable intangible assets and certain tangible assets requires the use of significant estimates and assumptions, including estimating future cash flows and developing appropriate discount rates.

During the year ended December 31, 2014, the Company incurred merger-related costs related to the Acquisition of $2,999. Included in merger-related expenses are costs incurred in connection with closing the Acquisition in addition to costs associated with the retention of certain key employees. In addition to the $39,728 purchase price, pursuant to the Purchase Agreement, approximately $1,600 will be paid to retain certain key employees over periods ranging from one to two years as services are performed. Given that the retention amount is related to a future service requirement, the related expense is being recorded as compensation expense in the consolidated statements of operations over the expected service period, and was $1,251 during the year ended December 31, 2014.

All of the assets acquired and the liabilities assumed in the Acquisition have been recognized at their acquisition date fair values, which was finalized at December 31, 2014. The total purchase price for Unicorn has been allocated as follows:

Cash and cash equivalents	$	13
Other tangible assets		4,173
Identifiable intangible assets		11,429
Goodwill		28,758
Liabilities assumed		(4,645	)
Total estimated purchase price	$	39,728

The following are the identifiable intangible assets acquired and their respective estimated useful lives:

	Amount		Useful Life (in years)
Developed technology	$	8,149		8
Customer relationships		1,964		7
Non-compete agreements		1,316		3
Total	$	11,429

The fair value of the intangible assets has been estimated using the income approach in which the after-tax cash flows are discounted to present value. The cash flows are based on estimates used to price the transaction, and the discount rates applied were benchmarked with reference to the implied rate of return from the transaction model as well as the weighted-average cost of capital.

In performing the purchase price allocation, the Company considered, among other factors, its intention for future use of the acquired assets, analyses of historical financial performance, and estimates of future cash flows from Unicorn's products and services. The allocation resulted in acquired intangible assets of $11,429.

The acquired intangible assets consisted of developed technology, customer relationships and non-compete agreements and were valued using the income approach in which the after-tax cash flows are discounted to present value. The cash flows are based on estimates used to price the transaction, and the discount rates applied were benchmarked with reference to the implied rate of return from the transaction model as well as the weighted average cost of capital.

The Company assumed certain deferred tax assets and liabilities as part of the acquisition. The deferred tax assets relate to the net operating losses and other tax benefits acquired from Unicorn as part of the transaction. The deferred tax liabilities primarily relate to the tax impact of future amortization or impairments associated with the identified intangible assets acquired, which are not deductible for tax purposes. The Company has provided a valuation allowance against the resulting net deferred tax assets from the transaction as management believes it is more likely than not that the Company will not realize the benefits of these deductions.

The excess of the purchase price over the estimated amount of net assets as of the effective date of the Acquisition was allocated to goodwill in accordance with the accounting guidance. The factors contributing to the recognition of the amount of goodwill are based on several strategic and synergistic benefits that are expected to be realized from the Acquisition. These benefits include the expectation that the combined company's complementary products will significantly broaden the Company's offerings in cloud video ad insertion. The combined company will benefit from a broader global presence, and with the Company's direct sales force and larger channel coverage, the combined company anticipates significant cross-selling opportunities. None of the goodwill is expected to be currently deductible for tax purposes.

Pro Forma Financial Information

The unaudited financial information in the table below summarizes the combined results of operations of the Company and Unicorn, on a pro forma basis, as though the Company had acquired Unicorn on January 1, 2013. The pro forma information for all periods presented also includes the effects of business combination accounting resulting from the acquisition, including amortization charges from acquired intangibles assets and the compensation expense recorded to retain certain key employees.

	Year Ended December 31,
	2014			2013
Total revenue	$	125,558		$	115,612
Net loss	$	(15,226	)	$	(22,624	)
Net loss per share – basic and diluted	$	(0.47	)	$	(0.73	)

Zencoder

On August 14, 2012, the Company acquired Zencoder, a cloud-based media processing service and HTML5 video player technology provider, for total consideration of approximately $27.4 million. This transaction was accounted for under the purchase method of accounting. Accordingly, the results of operations of Zencoder have been included in the Company's consolidated financial statements since the date of acquisition. All of the assets acquired and liabilities assumed in the transaction have been recognized at their acquisition date fair values, which were finalized at December 31, 2012. The acquisition did not result in the addition of any reportable segments.