Summary of Significant Accounting Policies | 12 Months Ended |
Dec. 31, 2014 |
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 and 2012 in the Company's Consolidated Statements 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 10. Discontinued Operations for additional information. |
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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, the fair values of certain assets acquired and liabilities assumed in a business combination, and income taxes. Actual results could differ from those estimates. |
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Recently Adopted Accounting Pronouncements |
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In July 2013, the Financial Accounting Standards Board issued Accounting Standards Update No. 2013-11, Income Taxes, 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 standard is effective for fiscal years beginning on or after December 15, 2013 and subsequent interim periods. The standard shall be applied prospectively to all unrecognized tax benefits that exist at the effective date. The adoption of this standard, which became effective January 1, 2014, did not have an impact on the Company's results of operations or its financial position. |
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Recent Accounting Pronouncements |
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In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The updated guidance will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for the Company on January 1, 2017. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that the guidance will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting. |
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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. The Company has three operating segments: Website, Wholesale, and ThinkGeek Solutions, and two reportable segments: Website and Wholesale. The ThinkGeek Solutions operating segment has been aggregated into the Website reportable segment. The Website segment sells geek-themed retail products and video game-themed merchandise through the ThinkGeek website and through the ThinkGeek Solutions web-stores. The Wholesale segment sells primarily exclusive GeekLabs products to brick-and-mortar retailers. |
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Business Combinations |
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Business combinations are accounted for using the purchase method of accounting. The purchase price of an acquisition is allocated to the assets acquired, including intangible assets and liabilities assumed, based on their respective fair values at the acquisition date. Significant estimates and assumptions are required to value assets acquired and liabilities assumed at the acquisition date, including contingent consideration. Liabilities related to contingent consideration are remeasured at fair value in each subsequent reporting period. These estimates are inherently uncertain and subject to refinement and typically include the calculation of an appropriate discount rate and projection of cash flows associated with each acquired asset or assumed liability. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with corresponding adjustments to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded in the Consolidated Statements of Operations. |
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Goodwill and Other Intangible Assets |
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Identifiable intangible assets were recorded based on their estimated fair values in connection with the acquisition of Treehouse. The identifiable intangible assets are amortized on a straight-line basis over their respective useful lives ranging from three to five years. Amortization expense for identifiable intangible assets was $0.1 million for the year ended December 31, 2014. Identifiable intangible assets with finite lives are reviewed for impairment when events and circumstances indicate that the carrying value may not be recoverable. The changes in the carrying amount of the intangible assets for the year ended December 31, 2014 are as follows (in thousands): |
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| | Gross Asset | | Accumulated Amortization | | Net Asset |
Other intangible assets: | | | | | | |
Acquired license agreements | | $ | 1,040 | | | $ | (87 | ) | | $ | 953 | |
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Developed technology | | 138 | | | (11 | ) | | 127 | |
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Non-competition agreement | | 82 | | | (11 | ) | | 71 | |
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Customer lists | | 43 | | | (6 | ) | | 37 | |
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Total identifiable intangible assets | | $ | 1,303 | | | $ | (115 | ) | | $ | 1,188 | |
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Estimated amounts that will be amortized related to purchased intangibles are as follows as of December 31, 2014 (in thousands): |
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Year Ending December 31: | | Amortization of Intangible Assets | | | | | | | | |
2015 | | $ | 277 | | | | | | | | | |
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2016 | | 277 | | | | | | | | | |
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2017 | | 260 | | | | | | | | | |
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2018 | | 236 | | | | | | | | | |
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2019 | | 138 | | | | | | | | | |
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Total | | $ | 1,188 | | | | | | | | | |
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Goodwill was recorded as the excess of the purchase price over the net assets acquired. Goodwill was assigned to the Company's reporting units, which are its operating segments. As of December 31, 2014, the goodwill was assigned to the ThinkGeek Solutions operating segment, which is aggregated into the Website reportable segment. As of December 31, 2014, approximately $1.1 million of goodwill is expected to be deductible for tax purposes. The changes in the carrying amount of goodwill for the year ended December 31, 2014 is as follows (in thousands): |
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| | Carrying Amount | | | | | | | | |
Goodwill - January 1, 2014 | | $ | — | | | | | | | | | |
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Acquisition of business - Treehouse | | 1,973 | | | | | | | | | |
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Goodwill - December 31, 2014 | | $ | 1,973 | | | | | | | | | |
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The Company evaluates goodwill for impairment annually as of December 31, and when an event occurs or circumstances change that indicates that the carrying amount may not be recoverable. The Company performs the annual goodwill impairment assessment first by using a qualitative approach to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the results of the qualitative assessment conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, additional quantitative impairment testing is performed. The quantitative assessment of goodwill impairment is tested at the reporting unit level by comparing the carrying amount of the reporting unit's net assets, including goodwill, to the fair value of the reporting unit. If the carrying amount of the reporting unit exceeds its fair value, a second step is performed to measure the amount of the impairment loss, if any. The preparation of the goodwill impairment analysis requires the Company to make significant estimates and assumptions with respect to the determination of fair values of tangible and intangible assets. These estimates and assumptions, which include future values, are often subjective and may differ significantly from period to period based on changes in the overall economic environment, changes in its business and changes in its strategy or its internal forecasts. The Company performed its annual goodwill impairment assessment as of December 31, 2014 using the qualitative approach, and determined that it was not more likely than not that the goodwill was impaired. |
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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 and other highly-liquid short term investments. |
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 it with a $5 million revolving line of credit including a $2 million sub-facility for the issuance of standby letters of credit. If utilized, the applicable interest rate for the credit facility would be 2.5% above one or three month LIBOR. The revolving credit facility was renewed during the fourth quarter of 2014, and now expires October 15, 2015. To date, the Company has not drawn down on our line of credit and has no plans to do so at this time. As part of the agreement, the Company 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, 2014, the borrowing capacity of the line of credit was reduced by a letter of credit outstanding with one of the Company's vendors for less than $0.1 million. |
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Fair Value Measurements |
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The Company records its financial assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability, an exit price, in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value: |
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Level 1 - Quoted prices in active markets for identical assets or liabilities. |
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Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
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Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
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The following table summarizes the Company's financial assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy (in thousands): |
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| December 31, | | December 31, | | | | | |
2014 | 2013 | | | | | |
Cash equivalents: | | | | | | | | |
Level 1: | | | | | | | | |
Money market fund deposits | $ | 11,510 | | | $ | 18,275 | | | | | | |
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Level 2: | | | | | | | | |
Asset-backed securities | 6,569 | | | — | | | | | | |
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Commercial paper | 200 | | | — | | | | | | |
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Total cash equivalents | $ | 18,279 | | | $ | 18,275 | | | | | | |
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Liabilities: | | | | | | | | |
Level 3: | | | | | | | | |
Acquisition-related contingent consideration | 1,115 | | | — | | | | | | |
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Total acquisition-related contingent liability | $ | 1,115 | | | $ | — | | | | | | |
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On August 1, 2014, the Company completed the acquisition of Treehouse, which the Company accounted for under the purchase method of accounting. The terms of the asset purchase agreement relating to the acquisition provides for contingent consideration up to $2.0 million in cash earn-out payments based on the achievement of certain specified performance metrics through 2015. The estimated fair value of the performance-based contingent consideration was $1.1 million at December 31, 2014. This contingent liability has been reflected as a current liability of approximately $0.2 million and a non-current liability of approximately $0.9 million. The Company determined the estimated fair value of the liability for the contingent consideration based on a probability-weighted discounted cash flow analysis. In each period, the Company will reassess its current estimates of performance relative to the stated targets and will adjust the liability to the estimated fair value through earnings. |
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The change in the contingent consideration liability is summarized as follows for the year ended December 31 , 2014 (in thousands): |
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| Year Ended December 31, 2014 | | | | | | | | | |
Balance, at acquisition | $ | 1,259 | | | | | | | | | | |
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Contingent consideration paid during the period | (250 | ) | | | | | | | | | |
Change in fair value, including accretion | 106 | | | | | | | | | | |
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Balance, end of period | $ | 1,115 | | | | | | | | | | |
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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 |
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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. The Company values its inventory at the lower of cost or market based on analyzing current retail prices as well as the age of its inventory. If demand for the Company's products deteriorates, then additional write-downs may be required. |
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Minimum Royalty and Content License Commitments |
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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 $0.8 million and $0.1 million for the years ended December 31, 2014 and 2013, respectively. Royalty-based obligations were $4.0 million at December 31, 2014 and 2013, respectively. Accrued royalty obligations are classified as accrued and other liabilities 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 revenue and is presented net of returns and allowances, discounts and sales taxes. Net revenue for the Wholesale segment is derived primarily from the sale of certain exclusive products through the wholesale channel. Wholesale net revenue is presented net of discounts and 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. Estimates are used to determine which 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 its 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, 2014 and December 31, 2013, $1.2 million and $1.6 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, 2014 and December 31, 2013 relating to gift certificates was $1.6 million and $1.2 million, respectively. In addition, subsequent to the acquisition of Treehouse, the Company now records deferred revenue when it receives payments in advance of the delivery of products. Deferred revenue at December 31, 2014 relating to payments received in advance of the delivery of products was $0.5 million. |
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The Company reserves an amount for estimated returns on Website orders at the end of each reporting period. The Company provides ThinkGeek website customers a 90-day right to return purchased products. These estimates are based on historical patterns and recent trends of customer returns. Reserves for returns at December 31, 2014 and December 31, 2013 were $0.8 million and $0.5 million respectively, and are recorded as accrued and other liabilities 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 estimated cost of the redemptions for the Geek Points earned is included in Cost of revenue on the Company's Consolidated Statements of Operations. |
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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 be used to offset future taxable income. 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. 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 carryforwards available to offset future federal taxable income. |
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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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Stock-Based Compensation |
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The Company measures compensation cost for stock awards at grant date fair value and recognizes the expense net of estimated forfeitures for shares expected to vest over the service period of the award. |
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Calculating compensation expense for stock options requires the input of subjective assumptions, including the expected term of the stock option grant, stock price volatility, interest rates and the forfeiture rate. The fair value of the option grants are calculated on the date of grant using the Black-Scholes option pricing model. The expected life is based on historical settlement patterns. Expected volatility is based on the historical implied volatility of the Company's stock. The interest rate for periods within the contractual life of the award is based on the U.S. Treasury yield curve in effect at the time of grant. The Company estimates the forfeiture rate based on historical trends of the stock-based awards that cancel. |
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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, 2014 and 2013, 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 the year ended December 31, 2012. The Company also has a wholly-owned subsidiary in Belgium of which there has been no 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. Additionally, 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, 2014 and December 31, 2013, 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, 2014, December 31, 2013 and December 31, 2012, respectively, no one customer represented 10% or greater of net revenue. |