Summary of Significant Accounting Policies | 12 Months Ended |
Dec. 31, 2013 |
Accounting Policies [Abstract] | ' |
Summary of Significant Accounting Policies | ' |
Summary of Significant Accounting Policies |
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Basis of Presentation |
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The Company has prepared the accompanying consolidated financial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The results of the Company's Media business, which was sold on September 17, 2012, are classified as discontinued operations for the years ended December 31, 2013, 2012, and 2011 in the Company's Consolidated Statement of Operations. The cash flows from the Media business' operating and investing activities are shown separately in cash flows from discontinued operations, with the exception of proceeds from the sale of the Media business and related transaction costs. See Note 9. Discontinued Operations for additional information. |
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Certain prior period amounts have been reclassified to conform to the current period's presentation. In the Consolidated Balance Sheet at December 31, 2012, there was $1.4 million of accrued royalties included in Accounts payable that has been reclassified to Accrued liabilities and other. In the Consolidated Statements of Cash Flows at December 31, 2012 and 2011, there were $1.0 million and $0.5 million of accrued royalties included in Accounts payable that have been reclassified to Accrued liabilities and other. |
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Use of Estimates in Preparation of Consolidated Financial Statements |
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The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of such financial statements, as well as the reported amounts of revenue and expenses during the periods indicated. Estimates include, but are not limited to, orders in transit at the end of the reporting period, provision for returns, inventory valuation, Geek Point accruals, stock-based compensation, allowance for doubtful accounts and income taxes. Actual results could differ from those estimates. |
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Recently Adopted Accounting Pronouncements |
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The Company has not recently adopted any new accounting pronouncements. |
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Recent Accounting Pronouncements |
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In July 2013, the Financial Accounting Standards Board issued authoritative guidance to amend previous guidance for income taxes and requires that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, with certain exceptions. This update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013, with early adoption permitted. The adoption of this standard update is not expected to have a material impact on our results of operations or our financial position. |
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Principles of Consolidation |
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These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. |
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Segment and Geographic Information |
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Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker, or decision-making group, in making decisions about how to allocate resources and assess performance. The Company’s chief decision-making group is the Chief Executive Officer and the Chief Financial Officer. Due to the growth in the Company's wholesale business during 2013, the Company changed its management reporting and reportable business segments into two operating segments: Website and Wholesale. The Website segment sells geek-themed retail products to technology enthusiasts and general consumers through the website. The Wholesale segment sells primarily exclusive GeekLabs products through retailers and brick-and-mortar stores. |
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Cash and Cash Equivalents |
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The Company considers all highly-liquid investments with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents consist principally of cash deposited in money market and checking accounts. |
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Credit Line |
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On December 12, 2011, the Company entered into a secured credit agreement with Wells Fargo Bank, N.A. ("Wells Fargo"), that provided us with a $5 million revolving line of credit including a $2 million sub-facility for the issuance of standby letters of credit. The revolving credit facility has the option of an applicable interest rate of 2.5% above one or three month LIBOR. The revolving credit facility was renewed during the fourth quarter of 2013, and now expires October 15, 2014. To date, we have not drawn down on our line of credit and have no plans to do so at this time. As part of our agreement we must keep a minimum of $5 million in bank accounts at Wells Fargo Bank at all times. This credit line is collateralized by substantially all of the assets of the Company. As of December 31, 2013, the borrowing capacity of our line of credit was reduced by a letter of credit outstanding with one of our vendors for less than $0.1 million. |
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Fair Value Measurements |
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The Company holds certain of its cash and cash equivalents in money market funds which are measured and recorded at fair value on a recurring basis at each reporting period using Level 1 inputs, which are considered the most reliable such as quoted prices in active markets for identical assets or liabilities. The following tables show the fair value of the amounts held in money market funds at each reporting period (in thousands): |
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| December 31, 2013 |
| Level 1 | | Level 2 | | Level 3 | | Total |
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Money market fund deposits | $ | 18,275 | | | $ | — | | | $ | — | | | $ | 18,275 | |
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| December 31, 2012 |
| Level 1 | | Level 2 | | Level 3 | | Total |
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Money market fund deposits | $ | 18,265 | | | $ | — | | | $ | — | | | $ | 18,265 | |
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Trade Accounts Receivable |
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Trade accounts receivable are primarily amounts related to customer receivables and are not interest bearing. The Company will record an allowance for doubtful accounts to reserve for potentially uncollectible trade receivables. The Company also reviews its trade receivables by aging category to identify specific customers with known disputes or collectibility issues. The Company exercises judgment when determining the adequacy of these reserves and evaluates historical bad debt trends, general economic conditions in the United States and internationally, and changes in customer financial conditions. |
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Inventories, net |
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Inventories consist primarily of finished goods that are valued at the lower of cost, using the weighted average cost method, or market. Inventories are presented net of an allowance for excess and/or obsolete inventory, which reduces inventories to their estimated net realizable values. At December 31, 2013 and 2012, the allowance for excess and/or obsolete inventory was $0.3 million, respectively. |
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Minimum Royalty and Content License Commitments |
Royalty-based obligations are either paid in advance and capitalized as prepaid royalties or accrued as incurred and subsequently paid. Royalty-based obligations paid in advance are generally non-refundable. Royalty-based obligations are expensed to cost of revenues at the contractual royalty rate for the relevant product sales on a per transaction basis. Contracts with some licensors include minimum guaranteed royalty payments, which are payable regardless of the ultimate volume of sales. Prepaid royalties were $0.1 million for each of the years ended December 31, 2013 and 2012. Royalty-based obligations were $4.0 million and $1.4 million as of December 31, 2013 and 2012, respectively. Accrued royalty obligations are classified as accrued liabilities and other in the consolidated balance sheets. |
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Property and Equipment |
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Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the lesser of the estimated useful lives or the corresponding lease term. |
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Net Revenue |
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The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sale price is fixed or determinable, and collectibility is reasonably assured. Net revenue for the Website segment is derived from the online sale of consumer goods. Website net revenue includes shipping and is presented net of returns and allowances, discounts and sales taxes. Net revenue for the Wholesale segment is derived from the sale of certain exclusive products through the wholesale channel. Wholesale net revenue is presented net of discounts or allowances. |
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Website revenue is deferred for orders shipped but not delivered before the end of the period. The amount recorded as deferred revenue is estimated because of the Company's high volume of transactions and the use of multiple shipping carriers. These estimates are used to determine what orders that shipped at the end of the reporting period were delivered and should be recognized as revenue. When calculating these estimates, the Company considers historical experience of shipping transit times for domestic and international orders using different carriers. On average, shipping transit times are approximately one to eight business days. As of December 31, 2013 and December 31, 2012, $1.6 million and $1.3 million, respectively, was recognized as deferred revenue for orders shipped by the end of the reporting period but not yet delivered to the customer. |
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The Company also engages in the sale of gift certificates. When a gift certificate is sold, Website revenue is deferred until the certificate is redeemed and the products are delivered. Deferred revenue at December 31, 2013 and December 31, 2012 relating to gift certificates was $1.2 million and $1.0 million, respectively. |
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The Company reserves an amount for estimated returns on website orders at the end of each reporting period. The Company gives website customers a 90-day right to return purchased products purchased. These estimates are based on historical patterns and trends of customer returns. Reserves for returns at December 31, 2013 and December 31, 2012 were $0.5 million each respectively, and are recorded as accrued liabilities and other in the consolidated balance sheets. |
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Geek Points Loyalty Program |
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The Company maintains a customer loyalty program by issuing Geek Points to participating customers for certain purchases of products. Customers can redeem their Geek Points toward future purchases in accordance with program rules and promotions. Geek Points expire three years from the date they are earned. The Company accrues the cost of anticipated redemptions using an estimated redemption rate calculated based on historical experiences and trends. The cost of the redemptions is included in cost of revenues on the Company's consolidated statements of operations. During the first half of 2013, the Company evaluated the program and revised certain terms and conditions that took effect on August 1, 2013. |
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Income Taxes |
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The Company has recognized a deferred tax asset associated with previously reported net operating losses, which can result in a future tax benefit. A valuation allowance is recognized if it is more-likely-than-not that some portion or all of the deferred tax asset will not be realized. The Company has recognized a valuation allowance for the full amount of the deferred tax asset as there is insufficient evidence to support that it is more-likely-than-not that the assets will be realized. The Company reviews its valuation allowance at each reporting period, using, but not limited to, forecasted financial information to determine if the deferred tax assets could more-likely-than-not be realized and after considering the impact of limits on the use of net operating loss carryforwards in accordance with Internal Revenue Code Section 382. |
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The Company provides for uncertain tax positions and the related interest and penalties based upon management's assessment of whether a tax benefit is more-likely-than-not to be sustained upon examination by taxing authorities. |
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The Company performs Section 382 studies on an as needed basis to analyze if there was a change in control of ownership as defined by Section 382 of the Internal Revenue Code that could limit the amount of net operating loss carry-forwards available to offset future federal taxable income. The Company completed a Section 382 study in the first quarter of 2013 of which the results are explained in Note 8. Income Taxes. |
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Computation of Per Share Amounts |
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Basic earnings per common share is computed using the weighted-average number of common shares outstanding during the period. Diluted earnings per common share is computed using the weighted-average number of common and dilutive common equivalent shares outstanding during the period. Common equivalent shares are anti-dilutive when their conversion would reduce the loss per share. For the years ended December 31, 2013 and December 31, 2011, respectively, the Company excluded all stock options and restricted stock awards from the calculation of diluted net loss per common share because all such securities were anti-dilutive. |
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Employee stock options, nonvested shares, and similar equity instruments granted by the Company are treated as potential common shares outstanding in computing diluted earnings per share. Diluted shares outstanding include the dilutive effect of in-the-money options, calculated based on the average share price for each period using the treasury stock method. Under the treasury stock method, the amount the employee must pay for exercising stock options, the amount of compensation cost for future service that the Company has not yet recognized, and the amount of tax benefits that would be recorded in additional paid-in capital when the award becomes deductible are assumed to be used to repurchase shares. |
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Foreign Currency Translation and Comprehensive Income (Loss) |
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Prior to the sale of the Media business on September 17, 2012, the Company had a wholly-owned subsidiary in the United Kingdom, of which the functional currency was the local currency. Balance sheet accounts were translated into U.S. dollars at exchange rates prevailing at balance sheet dates. Revenue and expenses were translated into U.S. dollars at average rates for the period and are included in discontinued operations for each of the years ended December 31, 2012 and 2011. The Company also has a wholly-owned subsidiary in Belgium of which there has been minimal activity in the periods presented in the Company's consolidated financial statements. Adjustments resulting from translation were recorded in other comprehensive income as a component of stockholders' equity. Comprehensive income (loss) is comprised of net income (loss) and foreign currency translation gains or losses. |
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Supplier Concentration |
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While no supplier concentration exists in the Company’s business, certain suppliers that the Company's GeekLabs uses to manufacture its unique products are located outside of the United States, most of which are located in China. ThinkGeek's ability to receive inbound inventory and ship completed orders to its customers is substantially dependent on a single third-party fulfillment and warehouse provider. |
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Concentrations of Credit Risk and Significant Customers |
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The Company’s investments are held with two reputable financial institutions; both institutions are headquartered in the United States. The Company’s investment policy limits the amount of risk exposure. The Company has cash in financial institutions that is insured by the Federal Deposit Insurance Corporation ("FDIC") up to $0.25 million per institution. At December 31, 2013 and December 31, 2012, the Company had cash and cash equivalents in excess of the FDIC limits. |
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Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of trade receivables in our Wholesale segment due from a limited number of large retailers. The Company provides credit, in the normal course of business, to a number of companies and performs ongoing credit evaluations of its customers. The credit risk in the Company’s trade receivables is substantially mitigated by its credit evaluation process and reasonably short collection terms. The Company maintains reserves for potential credit losses, if any, and such losses have been within management’s expectations. |
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For the years ended December 31, 2013, December 31, 2012 and December 31, 2011, respectively, no one customer represented 10% or greater of net revenue. |