8-K/A

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 8-K/A

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of report (Date of earliest event reported): July 1, 2016

B. Riley Financial, Inc.

(Exact Name of Registrant as Specified in Charter)

Delaware	000-54010	27-0223495
(State or Other Jurisdiction	(Commission File	(IRS Employer
of Incorporation)	Number)	Identification No.)

21860 Burbank Boulevard, Suite 300 South
Woodland Hills, California 91367
(Address of Principal Executive Offices) (Zip Code)

Telephone: (818) 884-3737
(Registrant’s telephone number, including area code)

N/A
(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Explanatory Note

On July 1, 2016, B. Riley Financial, Inc. (the “Company”) filed a Current Report on Form 8-K (the “Initial 8-K”) with the Securities and Exchange Commission regarding the closing of its acquisition of all of the outstanding common stock of United Online, Inc. (“UOL”) on July 1, 2016 pursuant to that certain Agreement and Plan of Merger, dated as of May 4, 2016, by and among the Company, Unify Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company (“Merger Sub”), and UOL.

This Current Report on Form 8-K/A (“Amendment No. 1”) amends and supplements the Initial 8-K and is being filed to provide the financial statements described under Item 9.01 below, in accordance with the requirements of Item 9.01 of Form 8-K.

Item 9.01. Financial Statements and Exhibits.

(a) Financial statements of business acquired

The audited financial statements of UOL at December 31, 2015 and 2014, and the results of its operations for each of the three years in the period ended December 31, 2015 and the unaudited condensed consolidated interim financial statements of UOL as of June 30, 2016 and for the six month periods ended June 30, 2016 and 2015 are attached as Exhibits 99.1 and 99.2, respectively, to this Amendment No. 1 and are incorporated herein by reference.

(b) Pro forma financial information

The unaudited pro forma consolidated financial statements and explanatory notes relating to the acquisition and related transactions as of June 30, 2016, for the six month period ended June 30, 2016 and for the year ended December 31, 2015 are attached as Exhibit 99.3 to this Amendment No. 1 and are incorporated herein by reference.

(d) Exhibits

Exhibit No.	Description
23.1	Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm of United Online, Inc.
99.1	Audited financial statements of United Online, Inc as of December 31, 2015 and 2014 and for the three years in the period ended December 31, 2015.
99.2	Unaudited condensed financial statements of United Online, Inc. as of June 30, 2016 and for the six month periods ended June 30, 2016 and 2015.
99.3	Unaudited pro forma consolidated financial statements and explanatory notes relating to the acquisition and related transactions as of and for the six month period ended June 30, 2016 and for the year ended December 31, 2015.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: August 25, 2016	B. RILEY FINANCIAL, INC.
	By:	/s/ Phillip J. Ahn
		Name: Phillip J. Ahn
		Title:   Chief Financial Officer and Chief Operating Officer

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (No. 333-203534) and Form S-8 (No. 333-202876) of B. Riley Financial, Inc. of our report dated March 3, 2016, except with respect to our opinion on the consolidated financial statements insofar as it relates to the effects of discontinued operations in Note 15, as to which the date is May 26, 2016, relating to the consolidated financial statements of United Online, Inc., which appears in this Current Report on Form 8-K/A of B. Riley Financial, Inc.

/s/ PricewaterhouseCoopers LLP

Los Angeles, California

August 25, 2016

EX-99.1

Exhibit 99.1

UNITED ONLINE, INC.

CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2015 AND 2014 AND FOR THE YEARS ENDED DECEMBER 31, 2015, 2014 AND 2013

1

UNITED ONLINE, INC.

CONSOLIDATED FINANCIAL STATEMENTS

TABLE OF CONTENTS

	Page(s)
Report of Independent Registered Public Accounting Firm	3
Consolidated Balance Sheets as of December 31, 2015 and 2014	4
Consolidated Statements of Operations for the Years Ended December 31, 2015, 2014 and 2013	5
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2015, 2014 and 2013	6
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2015, 2014 and 2013	7
Consolidated Statements of Cash Flows for the Years Ended December 31, 2015, 2014 and 2013	8
Notes to Consolidated Financial Statements	9 - 33

2

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of United Online, Inc.:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows present fairly, in all material respects, the financial position of United Online, Inc.and its subsidiaries at December 31, 2015and 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2015in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ PRICEWATERHOUSECOOPERS LLP

March 3, 2016, except with respect to our opinion on the consolidated financial statements insofar as it relates to the effects of discontinued operations in Note 15, as to which the date is May 26, 2016

3

UNITED ONLINE, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

	December 31,
	2015			2014
Assets
Current assets:
Cash and cash equivalents	$	90,834		$	67,470
Accounts receivable, net of allowance of $448 and $486 at December 31, 2015 and 2014, respectively		5,127			5,534
Inventories, net		1,632			2,482
Deferred tax assets, net		—			192
Other current assets		7,093			4,221
Assets of discontinued operations		30,690			28,118
Total current assets		135,376			108,017
Property and equipment, net		6,418			8,818
Deferred tax assets, net		176			73
Goodwill		7,489			7,489
Other assets		840			916
Assets of discontinued operations		47,911			80,835
Total assets	$	198,210		$	206,148
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	6,550		$	6,677
Accrued liabilities		7,250			10,486
Deferred revenue		3,926			4,605
Deferred tax liabilities, net		—			481
Liabilities of discontinued operations		21,199			61,600
Total current liabilities		38,925			83,849
Deferred tax liabilities, net		2,132			324
Other liabilities		5,313			5,467
Liabilities of discontinued operations		14,220			14,795
Total liabilities		60,590			104,435
Commitments and contingencies (see Note 12)
Stockholders’ equity:
Preferred stock, $0.0001 par value; 5,000 shares authorized; no shares issued or outstanding at December 31, 2015 and 2014
Common stock, $0.0001 par value; 42,857 shares authorized; 14,850 and 14,289 shares issued and outstanding at December 31, 2015 and 2014, respectively		1			1
Additional paid-in capital		222,164			215,302
Accumulated other comprehensive loss		(4,086	)		(3,158	)
Accumulated deficit		(80,459	)		(110,432	)
Total stockholders’ equity		137,620			101,713
Total liabilities and stockholders’ equity	$	198,210		$	206,148

The accompanying notes are an integral part of these consolidated financial statements.

4

UNITED ONLINE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

	Year Ended December 31,
	2015			2014			2013
Revenues	$	90,227		$	103,266		$	101,003
Operating expenses:
Cost of revenues		36,541			41,566			35,116
Sales and marketing		12,348			14,468			16,761
Technology and development		10,010			11,191			11,005
General and administrative		31,168			41,618			51,228
Restructuring and other exit costs		1,469			1,597			—
Total operating expenses		91,536			110,440			114,110
Operating loss		(1,309	)		(7,174	)		(13,107	)
Interest income		442			369			221
Interest expense		—			—			(11	)
Other income, net		877			163			182
Income (loss) before income taxes		10			(6,642	)		(12,715	)
Provision for (benefit from) income taxes		799			(3,807	)		36,431
Loss from continuing operations		(789	)		(2,835	)		(49,146	)
Income (loss) from discontinued operations, net of tax		30,762			(2,594	)		(39,129	)
Net income (loss)	$	29,973		$	(5,429	)	$	(88,275	)
Income allocated to participating securities		—			—			(1,195	)
Net income (loss) attributable to common stockholders	$	29,973		$	(5,429	)	$	(89,470	)
Basic net income (loss) per common share:
Continuing operations	$	(0.05	)	$	(0.20	)	$	(3.80	)
Discontinued operations		2.09			(0.18	)		(2.95	)
Basic net income (loss) per common share	$	2.04		$	(0.38	)	$	(6.75	)
Shares used to calculate basic net income (loss) per common share		14,673			14,115			13,261
Diluted net income (loss) per common share:
Continuing operations	$	(0.05	)	$	(0.20	)	$	(3.80	)
Discontinued operations		2.09			(0.18	)		(2.95	)
Diluted net income (loss) per common share	$	2.04		$	(0.38	)	$	(6.75	)
Shares used to calculate diluted net income (loss) per common share		14,673			14,115			13,261
Dividends paid per common share	$	—		$	—		$	2.25

The accompanying notes are an integral part of these consolidated financial statements.

5

UNITED ONLINE, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

	Year Ended December 31,
	2015			2014			2013
Net income (loss)	$	29,973		$	(5,429	)	$	(88,275	)
Other comprehensive income (loss):
Cash flow hedges:
Changes in net gains (losses) on derivatives, net of tax provision of $—, $— and $8 for the years ended December 31, 2015, 2014 and 2013, respectively		4			(33	)		13
Derivative settlement (gains) losses reclassified into earnings, net of tax benefit of $—, $— and $126 for the years ended December 31, 2015, 2014 and 2013, respectively		45			(23	)		205
Other hedges:
Changes in net gains on derivatives, net of tax provision of $—, $— and $39 for the years ended December 31, 2015, 2014 and 2013, respectively		45			168			62
Foreign currency translation		(1,022	)		(995	)		(2,402	)
Other comprehensive loss		(928	)		(883	)		(2,122	)
Comprehensive income (loss)	$	29,045		$	(6,312	)	$	(90,397	)

The accompanying notes are an integral part of these consolidated financial statements.

6

UNITED ONLINE, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

	Common Stock				Additional Paid-In			Accumulated Other Comprehensive			Retained Earnings (Accumulated			Total Stockholders’
	Shares		Amount		Capital			Loss			Deficit)			Equity
Balance at December 31, 2012		13,013	$	1	$	500,777		$	(22,968	)	$	2,996		$	480,806
Exercises of stock options		271		—		5,124			—			—			5,124
Issuance of common stock through employee stock purchase plan		229		—		2,997			—			—			2,997
Vesting of restricted stock units		233		—		—			—			—			—
Repurchases of common stock		—		—		(4,290	)		—			—			(4,290	)
Dividends and dividend equivalents paid on shares outstanding and restricted stock units		—		—		(11,258	)		—			(19,724	)		(30,982	)
Stock-based compensation		—		—		13,569			—			—			13,569
Tax benefits from equity awards		—		—		1,526			—			—			1,526
Other comprehensive loss		—		—		—			(2,122	)		—			(2,122	)
Spin off of FTD Companies, Inc.		—		—		(300,146	)		22,815			—			(277,331	)
Net loss		—		—		—			—			(88,275	)		(88,275	)
Balance at December 31, 2013		13,746		1		208,299			(2,275	)		(105,003	)		101,022
Issuance of common stock through employee stock purchase plan		142		—		1,397			—			—			1,397
Vesting of restricted stock units		401		—		—			—			—			—
Repurchases of common stock		—		—		(2,796	)		—			—			(2,796	)
Stock-based compensation		—		—		8,557			—			—			8,557
Tax shortfalls from equity awards		—		—		(155	)		—			—			(155	)
Other comprehensive loss		—		—		—			(883	)		—			(883	)
Net loss		—		—		—			—			(5,429	)		(5,429	)
Balance at December 31, 2014		14,289		1		215,302			(3,158	)		(110,432	)		101,713
Exercises of stock options		144		—		1,699			—			—			1,699
Issuance of common stock through employee stock purchase plan		132		—		1,308			—			—			1,308
Vesting of restricted stock units		285		—		—			—			—			—
Repurchases of common stock		—		—		(1,695	)		—			—			(1,695	)
Stock-based compensation		—		—		5,550			—			—			5,550
Other comprehensive loss		—		—		—			(928	)		—			(928	)
Net income		—		—		—			—			29,973			29,973
Balance at December 31, 2015		14,850	$	1	$	222,164		$	(4,086	)	$	(80,459	)	$	137,620

The accompanying notes are an integral part of these consolidated financial statements.

7

UNITED ONLINE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Year Ended December 31,
	2015			2014			2013
Cash flows from operating activities:
Net income (loss)	$	29,973		$	(5,429	)	$	(88,275	)
Less: Income (loss) from discontinued operations, net of tax		30,762			(2,594	)		(39,129	)
Loss from continuing operations		(789	)		(2,835	)		(49,146	)
Adjustments to reconcile loss from continuing operations to net cash provided by operating activities:
Depreciation		3,660			3,479			3,668
Stock-based compensation		4,630			6,821			8,062
Provision for doubtful accounts receivable		2			4			27
Deferred taxes, net		1,407			(1,510	)		41,001
Tax benefits (shortfalls) from equity awards		—			(71	)		1,372
Excess tax benefits from equity awards		—			(33	)		(1,108	)
Other, net		497			1,134			525
Changes in operating assets and liabilities, net of discontinued operations:
Accounts receivable, net		406			1,461			(1,860	)
Inventories, net		388			928			(2,222	)
Other assets		(1,775	)		3,883			1,725
Accounts payable and accrued liabilities		(3,466	)		(317	)		2,894
Deferred revenue		(679	)		(243	)		(629	)
Other liabilities		(154	)		(947	)		456
Net cash provided by operating activities from continuing operations		4,127			11,754			4,765
Cash flows from investing activities:
Purchases of property and equipment		(1,224	)		(4,724	)		(2,976	)
Proceeds from sales of assets, net		—			30			67
Net cash used for investing activities from continuing operations		(1,224	)		(4,694	)		(2,909	)
Cash flows from financing activities:
Proceeds from exercises of stock options		1,699			—			5,124
Proceeds from employee stock purchase plans		1,308			1,397			2,997
Repurchases of common stock		(1,695	)		(2,796	)		(4,290	)
Dividends and dividend equivalents paid on outstanding shares and restricted stock units		—			—			(30,982	)
Excess tax benefits from equity awards		—			33			1,108
Net cash provided by (used for) financing activities from continuing operations		1,312			(1,366	)		(26,043	)
Effect of foreign currency exchange rate changes on cash and cash equivalents		(1,421	)		(1,922	)		(290	)
Net cash provided by (used for) discontinued operations:
Operating activities		1,672			14,754			32,081
Investing activities		21,572			(8,048	)		(18,785	)
Financing activities		—			4			(33,457	)
Effect of a change in cash and cash equivalents of discontinued operations		(2,674	)		3,440			44,784
Net cash from discontinued operations		20,570			10,150			24,623
Change in cash and cash equivalents		23,364			13,922			146
Cash and cash equivalents, beginning of period		67,470			53,548			53,402
Cash and cash equivalents, end of period	$	90,834		$	67,470		$	53,548

The accompanying notes are an integral part of these consolidated financial statements.

8

UNITED ONLINE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION, ACCOUNTING POLICIES, AND RECENT ACCOUNTING PRONOUNCEMENTS

Description of Business

United Online, Inc. (together with its subsidiaries, “United Online” or the “Company”), through its operating subsidiaries, provides consumer subscription services and products, consisting of internet access services and devices, including dial-up, mobile broadband, DSL, email, internet security, and web hosting, under the NetZero and Juno brands.

On November 1, 2013, United Online, Inc. consummated the separation of FTD Companies, Inc. (together with its subsidiaries, including FTD Group, Inc., “FTD”) from United Online, Inc. through a tax-free distribution of all FTD Companies, Inc. common stock held by United Online, Inc. to United Online, Inc.’s stockholders (the “FTD Spin-Off Transaction”). As a result, FTD’s financial results are presented as discontinued operations in the Company’s consolidated financial statements.

In August 2015, the Company consummated the sale of its Classmates domestic business unit to Intelius Holdings, Inc. The purchase price received for Classmates domestic business unit was $30.6 million in cash. The Stock Purchase Agreement for the sale included customary representations, warranties and covenants of each party, some of which survive the closing of the transaction for a period of time. Accordingly, the results of operations, the financial condition and the cash flows of the domestic social networking business have been presented as discontinued operations for all periods presented.

In March 2016, the Company entered into a Share Purchase Agreement for the sale of its StayFriends GmbH, Trombi Acquisition SARL, Klassträffen Sweden AB, and Klassenfreunde.ch GmbH entities to Ströer Content Group GmbH. The purchase price for the international social networking businesses is approximately 16 million Euros in cash, which includes cash of 6.5 million Euros on the balance sheets of the international social networking businesses, subject to a post-signing purchase price adjustment. The Share Purchase Agreement includes customary representations, warranties and covenants of each party, some of which survive the closing of the transaction for a period of time. The transaction was completed on May 24, 2016. The results of operations, the financial condition and the cash flows of the international social networking businesses have been presented as discontinued operations for all periods presented.

In April 2016, the Company consummated the sale of its MyPoints business unit to Prodege, LLC. The purchase price received for the MyPoints business unit was approximately $13 million in cash, subject to a post-closing working capital adjustment. The Stock Purchase Agreement for the sale included customary representations, warranties and covenants of each party, some of which survive the closing of the transaction for a period of time. The results of operations, the financial condition and the cash flows of the MyPoints business unit have been presented as discontinued operations for all periods presented.

The Company’s corporate headquarters are located in Woodland Hills, California, and the Company also maintains offices in Fort Lee, New Jersey and Hyderabad, India.

Basis of Presentation

The Company’s consolidated financial statements for the years ended December 31, 2015, 2014 and 2013 have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations for such periods are not necessarily indicative of the results expected for any future periods.

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent liabilities and the reported amounts of revenues and expenses. Actual results could differ from these estimates and assumptions.

The most significant areas of the consolidated financial statements that require management judgment include the Company’s revenue recognition, goodwill, other long-lived assets, income taxes, and legal contingencies.

The Company believes that its existing cash and cash equivalents and cash generated from operations will be sufficient to fund its working capital requirements, capital expenditures, and other obligations through at least the next 12 months.

9

Accounting Policies

Segments—The Company complies with the reporting requirements of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 280, Segment Reporting, and operates as a single operating and reportable segment.

Cash and Cash Equivalents—The Company considers cash equivalents to be only those investments which are highly liquid, readily convertible to cash and which have a maturity date within three months from the date of purchase.

At December 31, 2015 and 2014, the Company’s cash and cash equivalents were maintained primarily with major financial institutions and brokerage firms in the United States (“U.S.”) and India. Deposits with these institutions and firms generally exceed the amount of insurance provided on such deposits.

Accounts Receivable—The Company’s accounts receivable are derived primarily from revenues earned from advertising customers located in the U.S. and pay accounts. The Company extends credit based upon an evaluation of the customer’s financial condition and, generally, collateral is not required. The Company maintains an allowance for doubtful accounts receivable based upon the expected collectibility of accounts receivable and, to date, such losses have been within management’s expectations.

The Company evaluates specific accounts receivable where information exists that the customer may have an inability to meet its financial obligations. In these cases, based on the best available facts and circumstances, a specific allowance is recorded for that customer against amounts due to reduce the receivable to the amount that is expected to be collected. These specific allowances are re-evaluated and adjusted as additional information is received that impacts the amount of the allowance. Also, an allowance is established for all customers based on the aging of the receivables. If circumstances change (i.e., higher than expected delinquencies or an unexpected material adverse change in a customer’s ability to meet its financial obligations), the estimates of the recoverability of amounts due to the Company are adjusted.

At December 31, 2015 and 2014, one customer comprised approximately 50% and 39%, respectively, of the Company’s consolidated accounts receivable balance. For the year ended December 31, 2015, one customer comprised approximately 12% of the Company’s consolidated revenues. For the years ended December 31, 2014 and 2013, the Company did not have any individual customers that comprised more than 10% of total revenues.

Inventories—Inventories consist of finished goods and include mobile broadband service devices, and modems. Inventories are stated at the lower of cost or market value. Inventories are valued using the first-in-first-out (“FIFO”) method. Inventories also consist of work-in-process mobile broadband service devices, which have not yet been loaded with Company firmware required for functionality. The Company’s management regularly assesses the valuation of inventory and reviews inventory quantities on hand and, if necessary, records a provision for excess and obsolete inventory based primarily on the age of the inventory and forecasts of product demand, as well as markdowns for the excess of cost over the amount the Company expects to realize from the sale of certain inventory. The Company recorded charges totaling $0.5 million, $1.1 million and a $0.6 million for the markdown of mobile broadband service inventory-related balances during the years ended December 31, 2015, 2014, and 2013, respectively.

Property and Equipment—Property and equipment are stated at historical cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which is generally three to five years for computer software and equipment and three to seven years for furniture and fixtures. Leasehold improvements, which are included in furniture and fixtures, are amortized using the straight-line method over the shorter of the lease term or seven years. Upon the sale or retirement of property or equipment, the cost and related accumulated depreciation or amortization is removed from the Company’s consolidated financial statements with the resulting gain or loss reflected in the Company’s consolidated statements of operations. Repairs and maintenance costs are expensed as incurred.

Derivative Instruments—The Company applies the provisions of ASC 815, Derivatives and Hedging. The Company enters into forward foreign currency exchange contracts to reduce the risk that its cash flows and earnings will be adversely affected by foreign currency exchange rate fluctuations. The Company records derivative instruments in other current assets or accrued liabilities in the consolidated balance sheets at fair value. The Company records changes in the fair value (i.e., gains or losses) of derivatives as other income, net, or technology and development expenses in the consolidated statements of operations or in accumulated other comprehensive loss in the consolidated balance sheets. The forward foreign currency exchange contracts do not contain any credit risk-related contingent features. The Company’s hedging program is not designed for trading or speculative purposes.

10

Cash Flow Hedges—The Company enters into forward foreign currency exchange contracts designated as cash flow hedges to hedge certain forecasted expense transactions occurring up to 12 months in the future and denominated in currencies other than the U.S. Dollar. The Company initially reports the gains or losses related to the effective portion of the hedges as a component of accumulated other comprehensive loss in the consolidated balance sheets and subsequently reclassifies the forward foreign currency exchange contracts’ gains or losses to technology and development expenses when the hedged transactions are recorded in earnings. The Company excludes the change in the time value of the forward foreign currency exchange contracts from its assessment of their hedge effectiveness. Gains or losses related to the change in time value of the forward foreign currency exchange contracts are immediately recognized in other income, net, along with any ineffectiveness. The Company presents the cash flows from cash flow hedges in the same category in the consolidated statements of cash flows as the category for the cash flows from the hedged items.

For additional information related to derivative instruments, see Note 5—“Derivative Instruments”.

Fair Value of Financial Instruments—ASC 820, Fair Value Measurements and Disclosures, establishes a three-tiered hierarchy that draws a distinction between market participant assumptions based on (i) quoted prices (unadjusted) in active markets for identical assets and liabilities (Level 1); (ii) inputs other than quoted prices in active markets that are observable either directly or indirectly (Level 2); and (iii) unobservable inputs that require the Company to use present value and other valuation techniques in the determination of fair value (Level 3). In accordance with ASC 820, the Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when developing fair value measurements. When available, the Company uses quoted market prices to measure fair value. If market prices are not available, fair value measurement is based upon models that use primarily market-based or independently-sourced market parameters. If market observable inputs for model-based valuation techniques are not available, the Company will be required to make judgments about assumptions market participants would use in estimating the fair value of the financial instrument. Fair values of cash and cash equivalents, short-term accounts receivable, accounts payable, and accrued liabilities approximate their carrying amounts because of their short-term nature. Time deposits, which are included in cash equivalents, are valued at amortized cost, which approximates fair value. Derivative instruments are recognized in the consolidated balance sheets at their fair values based on third-party inputs. The fair values of the forward foreign currency exchange contracts are calculated based on income approach observable market inputs adjusted for counterparty risk of nonperformance. The key assumptions used in calculating the fair value of these derivative instruments are the forward foreign currency exchange rates and discount rate.

Goodwill—Goodwill represents the excess of the purchase price of an acquired entity over the fair value of the net tangible and intangible assets acquired. The Company accounts for goodwill in accordance with ASC 350, Intangibles—Goodwill and Other, which among other things, addresses financial accounting and reporting requirements for acquired goodwill. ASC 350 prohibits the amortization of goodwill and requires the Company to test goodwill at the reporting unit level for impairment at least annually.

The Company tests the goodwill of its reporting units for impairment annually during the fourth quarter of its fiscal year and whenever events occur or circumstances change that would more likely than not indicate that the goodwill might be impaired. Events or circumstances which could trigger an impairment review include, but are not limited to, a significant adverse change in legal factors or in the business climate, an adverse action or assessment by a regulator, unanticipated competition, a loss of key management or other personnel, significant changes in the manner of the Company’s use of the acquired assets or the strategy for the acquired business or the Company’s overall business, significant negative industry or economic trends, or significant underperformance relative to expected historical or projected future results of operations.

Testing goodwill for impairment involves a two-step quantitative process. However, prior to performing the two-step quantitative goodwill impairment test, the Company has the option to first assess qualitative factors to determine whether or not it is necessary to perform the two-step quantitative goodwill impairment test for selected reporting units. If the Company chooses the qualitative option, the Company is not required to perform the two-step quantitative goodwill impairment test unless it has determined, based on the qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the two-step quantitative impairment test is required or chosen, the first step of the impairment test involves comparing the estimated fair value of a reporting unit with its carrying amount, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying amount, including goodwill, goodwill is considered not to be impaired and no additional steps are necessary. If, however, the estimated fair value of a reporting unit is less than its carrying amount, including goodwill, then the carrying amount of the goodwill is compared with its implied fair value, which is determined by deducting the aggregate fair value of the reporting unit’s identifiable assets and liabilities from the fair value of the reporting unit, and an impairment loss is recognized in an amount equal to the excess.

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The process of estimating the fair value of goodwill is subjective and requires the Company to make estimates that may significantly impact the outcome of the analyses. The estimated fair value for each reporting unit is determined using a combination of the income approach and the market approach. The income approach is weighted at 75%, unless a meaningful base of market data is unavailable, in which case, the market approach is not used. Under the income approach, each reporting unit’s fair value is estimated based on the discounted cash flow method. The discounted cash flow method is dependent upon a number of factors, including projections of the amounts and timing of future revenues and cash flows, assumed discount rates and other assumptions. Under the market approach, using the guideline company method, each reporting unit’s fair value was estimated by multiplying the reporting unit’s assessed sustainable level of revenues and normalized earnings before interest, taxes, depreciation, and amortization (“EBITDA”) by selected revenue and EBITDA multiples based on market statistics of identified public companies comparable to the respective reporting unit.

Finite-Lived Intangible Assets and Other Long-Lived Assets—The Company accounts for identifiable intangible assets and other long-lived assets in accordance with ASC 360, Property, Plant and Equipment, which addresses financial accounting and reporting for the impairment and disposition of identifiable intangible assets and other long-lived assets. Intangible assets acquired in a business combination are initially recorded at management’s estimate of their fair values. The Company evaluates the recoverability of identifiable intangible assets and other long-lived assets for impairment when events occur or circumstances change that would indicate that the carrying amount of an asset may not be recoverable. Events or circumstances that may indicate that an asset is impaired include, but are not limited to, significant decreases in the market value of an asset, significant underperformance relative to expected historical or projected future operating results, a change in the extent or manner in which an asset is used, shifts in technology, loss of key management or other personnel, significant negative industry or economic trends, changes in the Company’s operating model or strategy, and competitive forces. In determining if an impairment exists, the Company estimates the undiscounted cash flows to be generated from the use and ultimate disposition of these assets. If an impairment is indicated based on a comparison of the assets’ carrying amounts and the undiscounted cash flows, the impairment loss is measured as the amount by which the carrying amounts of the assets exceed the respective fair values of the assets. Definite-lived intangible assets are amortized on either a straight-line basis or an accelerated basis over their estimated useful lives, ranging from one to seven years.

Revenue Recognition—The Company applies the provisions of ASC 605, Revenue Recognition, which provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the Securities and Exchange Commission (“SEC”). ASC 605 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosure related to revenue recognition policies. The Company recognizes revenues when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the fee is fixed or determinable, no significant Company obligations remain, and collectibility is reasonably assured. Revenues exclude sales taxes collected.

Revenues are comprised of services revenues, which are derived primarily from fees charged to pay accounts; advertising and other revenues; and products revenues, which are derived primarily from the sale mobile broadband service devices and mobile phones, including the related shipping and handling fees.

Service revenues are derived primarily from fees charged to pay accounts and are recognized in the period in which fees are fixed or determinable and the related services are provided to the customer. The Company’s pay accounts generally pay in advance for their services by credit card, PayPal, automated clearinghouse or check, and revenues are then recognized ratably over the service period. Advance payments from pay accounts are recorded on the consolidated balance sheets as deferred revenue. The Company offers alternative payment methods to credit cards for certain pay service plans. These alternative payment methods currently include payment by money order or payment through a local telephone company. In circumstances where payment is not received in advance, revenues are only recognized if collectibility is reasonably assured.

Advertising revenues consist primarily of amounts from its internet search partner that are generated as a result of users utilizing the partner’s internet search services and amounts generated from display advertisements. The Company recognizes such advertising revenues in the period in which the advertisement is displayed or, for performance-based arrangements, when the related performance criteria are met. In determining whether an arrangement exists, the Company ensures that a written contract is in place, such as a standard insertion order or a customer-specific agreement. The Company assesses whether performance criteria have been met and whether the fees are fixed or determinable based on a reconciliation of the performance criteria and the payment terms associated with the transaction. The reconciliation of the performance criteria generally includes a comparison of the Company’s internally-tracked performance data to the contractual performance obligation and, when available, to third-party or customer-provided performance data.

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The Company’s products revenues are generated from the sale of mobile broadband service devices and mobile phones, as well as the related activation fees and shipping and handling fees and are recognized upon delivery of such devices as this is considered a separate earnings process from the sale of services. Sales of mobile broadband service devices bundled with free service plans and paid service plans, and activation fees, are allocated using the relative selling price method in accordance with the multiple-element arrangement provisions of ASC 605. The selling prices of the Company’s mobile broadband paid service plans are determined by vendor specific objective evidence, which is based upon the monthly stand-alone selling price of each plan. The selling prices of the mobile broadband service devices and free service plans are determined by management’s best estimate of selling price, which considers market and economic conditions, internal costs, pricing, and discounting practices. The revenues allocated to the free service plans are recognized ratably over the service period. Activation fees received up front in excess of the amount allocated to the mobile broadband devices are deferred and recognized as service revenues over the estimated service period.

Probability of collection is assessed based on a number of factors, including past transaction history with the customer and the creditworthiness of the customer. If it is determined that collectibility is not reasonably assured, revenue is not recognized until collectibility becomes reasonably assured, which is generally upon receipt of cash.

Cost of Revenues—Cost of revenues primarily includes product costs; shipping and delivery costs; telecommunications and data center costs; depreciation of network computers and equipment; license fees; costs related to providing customer support; costs related to customer billing and billing support for the Company’s pay accounts; domain name registration fees; and personnel and overhead-related costs associated with operating the Company’s networks and data centers.

Sales and Marketing—Sales and marketing expenses include expenses associated with promoting the Company’s brands, services and products and with generating advertising revenues. Expenses associated with promoting the Company’s brands, services and products include advertising and promotion expenses; fees paid to distribution partners, internet search providers and third-party advertising networks to acquire new pay accounts; personnel and overhead-related expenses for marketing, merchandising, customer service, and sales personnel; and telemarketing costs incurred to acquire and retain pay accounts and up-sell pay accounts to additional services. Expenses associated with generating advertising revenues include sales commissions and personnel-related expenses. The Company has expended significant amounts on sales and marketing, including branding and customer acquisition campaigns consisting of television, internet, public relations, sponsorships, print, and outdoor advertising, and on retail and other performance-based distribution relationships. Marketing and advertising costs to promote the Company’s services and products are expensed in the period incurred. Advertising and promotion expenses include media, agency and promotion expenses. Media production costs are expensed the first time the advertisement is run. Media and agency costs are expensed over the period the advertising runs. Advertising and promotion expenses for the years ended December 31, 2015, 2014 and 2013 were $5.4 million, $6.5 million and $9.1 million, respectively. At December 31, 2015, and 2014, the Company did not have any prepaid advertising and promotion expenses.

Technology and Development—Technology and development expenses include expenses for product development, maintenance of existing software, technology and websites, and development of new or improved software and technology, including personnel-related expenses for the Company’s technology group in various office locations. Costs incurred by the Company to manage and monitor the Company’s technology and development activities are expensed as incurred.

Software Development Costs—The Company accounts for costs incurred to develop software for internal use in accordance with ASC 350, which requires such costs be capitalized and amortized over the estimated useful life of the software. The Company capitalizes costs associated with customized internal-use software systems that have reached the application development stage. Such capitalized costs include external direct costs utilized in developing or obtaining the applications and payroll and payroll-related expenses for employees who are directly associated with the applications. Capitalization of such costs begins when the preliminary project stage is complete and ceases at the point in which the project is substantially complete and ready for its intended purpose. The Company capitalized costs associated with internal-use software totaling $0.5 million and $1.5 million in the years ended December 31, 2015 and 2014, respectively, which are being depreciated on a straight-line basis over each project’s estimated useful life, which is generally three years. Capitalized internal-use software is included in the computer software and equipment category within property and equipment, net, in the consolidated balance sheets.

General and Administrative—General and administrative expenses, which include unallocated corporate expenses, consist of personnel-related expenses for executive, finance, legal, human resources, facilities, internal audit, investor relations, internal customer support personnel, and personnel associated with operating the Company’s corporate network systems. In addition, general and administrative expenses include, among other costs, professional fees for legal, accounting and financial services; insurance; occupancy and other overhead-related costs; office relocation costs; non-income taxes; gains and losses on sales of assets; bad debt expense; and reserves or expenses incurred as a result of settlements, judgments, fines, penalties, assessments, or other resolutions related to litigation, arbitration, investigations, disputes, or similar matters. General and administrative expenses also include expenses resulting from actual or potential transactions such as business combinations, mergers, acquisitions, dispositions, spin offs, financing transactions, and other strategic transactions, including, without limitation, expenses for advisors and representatives such as investment bankers, consultants, attorneys, and accounting firms.

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Restructuring and Other Exit Costs—Restructuring and other exit costs consist of costs associated with the realignment and reorganization of the Company’s operations and other employee termination events. Restructuring and other exit costs include employee termination costs, facility closure and relocation costs, and contract termination costs. The timing of associated cash payments is dependent upon the type of exit cost and can extend over a 12-month period. The Company records restructuring and other exit costs liabilities in accrued liabilities in the consolidated balance sheets.

Stock-Based Compensation—The Company follows the provisions of ASC 718, Compensation—Stock Compensation, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including restricted stock units, stock awards, stock options, and employee stock purchases. ASC 718 requires companies to estimate the fair value of share-based payment awards on the grant date using an option-pricing model. The Company values its restricted stock units based on the grant-date closing price of the Company’s common stock. The Company uses the Black-Scholes option-pricing model for valuing stock options. The Company’s assumptions about stock price volatility are based on the Company’s historical volatility for periods approximating the expected life of options granted. The expected term was estimated using the simplified method because the Company does not have adequate historical data to estimate expected term. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods on a straight-line basis in the Company’s consolidated statements of operations. ASC 718 also requires forfeitures to be estimated at the time of grant in order to calculate the amount of share-based payment awards ultimately expected to vest. The Company uses the “with and without” approach in determining the order in which tax attributes are utilized. As a result, the Company only recognizes a tax benefit from share-based payment awards in additional paid-in capital in the consolidated balance sheets if an incremental tax benefit is realized after all other tax attributes currently available to the Company have been utilized. In addition, the Company accounts for the indirect effects of share-based payment awards on other tax attributes in the consolidated statements of operations.

Comprehensive Income—The Company follows the provisions of ASC 220, Comprehensive Income, which establishes standards for reporting comprehensive income and its components in financial statements. Comprehensive income, as defined, includes all changes in equity during a period from non-owner sources. For the Company, comprehensive income primarily consists of its reported net income, changes in unrealized gains or losses on derivatives, net of tax, and foreign currency translation.

Foreign Currency Translation—The Company accounts for foreign currency translation in accordance with ASC 830, Foreign Currency Matters. The functional currency of each of the Company’s international subsidiaries is its respective local currency. The financial statements of these subsidiaries are translated to U.S. Dollars using period-end rates of exchange for assets and liabilities, historical rates of exchange for equity, and average rates of exchange for the period for revenues and expenses. Translation gains and losses are recorded in accumulated other comprehensive loss as a component of stockholders’ equity in the consolidated balance sheets.

Income Taxes—The Company applies the provisions of ASC 740, Income Taxes. Under ASC 740, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. In evaluating the Company’s ability to recover its deferred tax assets, the Company considers all available positive and negative evidence, including its operating results, ongoing tax planning and forecasts of future taxable income on a jurisdiction-by-jurisdiction basis. In accordance with ASC 740, the Company recognizes, in its consolidated financial statements, the impact of the Company’s tax positions that are more likely than not to be sustained upon examination based on the technical merits of the positions. The Company recognizes interest and penalties for uncertain tax positions in income tax expense.

In connection with the FTD Spin-Off Transaction, the Company entered into a Tax Sharing Agreement with FTD. The Tax Sharing Agreement generally will govern the Company’s and FTD’s respective rights, responsibilities, and obligations after the consummation of the FTD Spin-Off Transaction with respect to taxes, including ordinary course of business taxes and taxes, if any, incurred as a result of any failure of the distribution to qualify as tax-free for U.S. federal income tax purposes within the meaning of Section 355 of the Internal Revenue Code of 1986, as amended (the “Code”), including as a result of Section 355(e) of the Code. Under the Tax Sharing Agreement, with certain exceptions, FTD generally will be responsible for the payment of all income and non-income taxes attributable to its operations or the operations of its subsidiaries, and FTD will indemnify the Company for these taxes. With certain exceptions, the Company generally will be responsible for the payment of all other income and non-income taxes, including consolidated U.S. federal income taxes of the United Online tax reporting group for which FTD is severally liable, and the Company will indemnify FTD for these taxes. The Company and FTD generally will be jointly responsible for any taxes that arise from the failure of the FTD Spin-Off Transaction to qualify as tax-free for U.S. federal income tax purposes within the meaning of Section 355 of the Code, if such failure is for any reason for which neither the Company nor FTD is responsible.

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Earnings Per Share—The Company computes earnings per share in accordance with ASC 260, Earnings Per Share. ASC 260 provides that unvested share-based payment awards that contain non-forfeitable rights to dividends are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. The two-class method of computing earnings per share is an earnings allocation formula that determines earnings per share for common stock and any participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. Certain of the Company’s restricted stock units are considered participating securities because they contain non-forfeitable rights to dividends irrespective of whether the awards ultimately vest.

Legal Contingencies—The Company is currently involved in certain legal proceedings and investigations. The Company records liabilities related to pending matters when an unfavorable outcome is deemed probable and management can reasonably estimate the amount or range of loss. As additional information becomes available, the Company continually assesses the potential liability related to such pending matters.

Operating Leases—The Company leases office space, data centers, and certain office equipment under operating lease agreements with original lease periods of up to six years. Certain of the lease agreements contain rent holidays and rent escalation provisions. Rent holidays and rent escalation provisions are considered in determining straight-line rent expense to be recorded over the lease term. The lease term begins on the date of initial possession of the leased property for purposes of recognizing lease expense on a straight-line basis over the term of the lease.

Recent Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-08, Presentation of Financial Statements and Property, Plant and Equipment: Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The core principle of the guidance raises the threshold for a disposal to qualify as a discontinued operation and requires new disclosures of both discontinued operations and certain other disposals that do not meet the new definition of a discontinued operation. The amendments in this ASU are effective prospectively for disposals (or classifications as held for sale) of components of an entity that occur within annual periods beginning on or after December 15, 2014, and interim periods within those years. Early adoption is permitted but only for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued or available for issuance. The Company adopted the standard with no material impact on its consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in this ASU will be effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. The amendments should be applied retrospectively. In July 2015, the FASB approved a one-year deferral of the effective date with early adoption permitted. The Company intends to adopt the standard effective January 1, 2018 and is currently assessing the impact of this update on its consolidated financial statements.

In June 2014, the FASB issued ASU No. 2014-12, Compensation—Stock Compensation: Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. The core principle of the guidance requires that a performance target that affects vesting and that could be achieved after the requisite service period should be treated as a performance condition. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Early adoption is permitted. Entities may apply the amendments in ASU No. 2014-12 either: (a) prospectively to all awards granted or modified after the effective date; or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. The Company does not expect this update to have a material impact on its consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The update provides GAAP guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and about related footnote disclosures. The amendments in this update are effective for annual periods ending after December 15, 2016, and for annual periods and interim periods thereafter. Early adoption is permitted. The Company does not expect this update to have a material impact on its consolidated financial statements.

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In April 2015, the FASB issued ASU No. 2015-05, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. The update provides GAAP guidance on evaluating the accounting for fees paid by a customer in a cloud computing arrangement. The amendments in this update also provide a basis for evaluating whether a cloud computing arrangement includes a software license. The amendments in this update are effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. Early adoption is permitted. The Company is currently assessing the impact of this update on its consolidated financial statements.

In June 2015, the FASB issued ASU No. 2015-10, Technical Corrections and Improvements. The update contains amendments that will affect a wide variety of topics in the Codification. The amendments in this update represent changes to clarify the Codification, correct unintended application of guidance, or make minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. The Company does not expect this update to have a material impact on its consolidated financial statements.

In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. The amendments in this update more closely align the measurement of inventory in GAAP with the measurement of inventory in International Financial Reporting Standards (IFRS). The amendments in this update are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The amendments in this update should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is currently assessing the impact of this update on its consolidated financial statements.

In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. The amendments in this update require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The amendments in this update are effective for fiscal years beginning after December 15, 2016, including interim periods within those annual periods. The amendments in this Update may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The Company early adopted the standard for the year ended December 31, 2015 and applied it prospectively. As such, no adjustment was made to prior periods.

2. SEGMENT INFORMATION

As a result of the presentation of the Company’s former Commerce & Loyalty and Social Media segments as discontinued operations, the Company now operates as a single operating and reportable segment.

Revenues were as follows (in thousands):

	Year Ended December 31,
	2015		2014		2013
Services revenues	$	62,196	$	68,727	$	68,599
Products revenues		4,832		6,254		3,537
Advertising and other revenues		23,199		28,285		28,867
Total revenues	$	90,227	$	103,266	$	101,003

Geographic revenues are attributed to countries based on the principal location of the Company’s entities from which those revenues were generated. The Company’s only principal location from which revenues were generated was the United States.

Geographic information for long-lived assets, which consist of property and equipment and other assets, was as follows (in thousands):

	December 31,
	2015		2014
United States	$	7,031	$	9,506
India		227		228
Total long-lived assets	$	7,258	$	9,734

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3. BALANCE SHEET COMPONENTS

Inventories, Net

Inventories, net, consisted of the following (in thousands):

	December 31,
	2015		2014
Work-in-process	$	—	$	411
Finished goods		1,632		2,071
Total	$	1,632	$	2,482

Other Current Assets

Other current assets consisted of the following (in thousands):

	December 31,
	2015		2014
Income taxes receivable	$	1,651	$	220
Prepaid expenses		1,393		1,805
Prepaid insurance		1,287		1,319
Other		2,762		877
Total	$	7,093	$	4,221

Property and Equipment, Net

Property and equipment, net, consisted of the following (in thousands):

	December 31,
	2015			2014
Computer software and equipment	$	55,321		$	62,176
Furniture and fixtures		5,042			5,367
		60,363			67,543
Less: accumulated depreciation and leasehold improvements amortization		(53,945	)		(58,725	)
Total	$	6,418		$	8,818

Depreciation expense for the years ended December 31, 2015, 2014 and 2013 was $3.7 million, $3.5 million and $3.7 million, respectively.

Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

	December 31,
	2015		2014
Employee compensation and related liabilities	$	5,270	$	8,591
Income taxes payable		710		—
Non-income taxes payable		200		238
Accrued restructuring and other exit costs		121		195
Reserves for legal settlements		100		30
Separation payments for an executive officer		—		859
Other		849		573
Total	$	7,250	$	10,486

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Other Liabilities

Other liabilities consisted of the following (in thousands):

	December 31,
	2015		2014
Income taxes payable	$	3,528	$	3,571
Other		1,785		1,896
Total	$	5,313	$	5,467

4. GOODWILL

The changes in goodwill related to continuing operations were as follows (in thousands):

Balance at December 31, 2013:
Goodwill (excluding impairment charges)	$	13,227
Accumulated impairment charges		(5,738	)
Goodwill at December 31, 2013		7,489
Balance at December 31, 2014:
Goodwill (excluding impairment charges)		13,227
Accumulated impairment charges		(5,738	)
Goodwill at December 31, 2014		7,489
Balance at December 31, 2015:
Goodwill (excluding impairment charges)		13,227
Accumulated impairment charges		(5,738	)
Goodwill at December 31, 2015	$	7,489

2014 Goodwill Impairment Assessment

The Company performed its annual goodwill impairment assessment for all of its reporting units during the quarter ended December 31, 2014. The Company did not perform a qualitative assessment to determine whether it is more likely than not that goodwill is impaired. The first step of the quantitative goodwill impairment test resulted in the determination that the estimated fair values of the Company’s reporting units substantially exceeded their respective carrying amounts, including goodwill. Accordingly, the second step was not required.

2015 Goodwill Impairment Assessment

The Company performed a goodwill impairment assessment for the Social Media reporting unit during the quarter ended September 30, 2015 as a result of the sale of Classmates, Inc. The first step of the quantitative goodwill impairment test resulted in the determination that the estimated fair values of the Company’s reporting units substantially exceeded their respective carrying amounts, including goodwill. Accordingly, the second step was not required.

The Company performed the annual quantitative goodwill impairment assessment for all of its reporting units in the fourth quarter of 2015. The first step of the quantitative goodwill impairment test resulted in the determination that the fair values of the Company’s Communications and Social Media reporting units substantially exceeded their carrying amounts, including goodwill. The fair value of the Company’s MyPoints reporting unit exceeded its carrying amount, including goodwill, by approximately 22%. Accordingly, the second step was not required for any of the Company’s reporting units.

5. DERIVATIVE INSTRUMENTS

The fair and notional values of outstanding derivative instruments were as follows (in thousands):

		Fair Value of Derivative Instruments				Notional Value of Derivative Instruments
		December 31,				December 31,
	Balance Sheet Location	2015		2014		2015		2014
Derivative assets	Other current assets	$	—	$	1	$	—	$	233
Derivative liabilities	Accrued liabilities	$	—	$	18	$	—	$	867

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The effect of derivatives designated as cash flow hedging instruments on accumulated other comprehensive loss, other income, net, and technology and development expenses was as follows (in thousands):

	Change in Gains (Losses) Recognized in Accumulated Other Comprehensive Loss on Derivatives Before Tax
	Year Ended December 31,
Derivatives Designated as Cash Flow Hedging Instruments	2015		2014			2013
Forward foreign currency exchange contracts	$	52	$	(56	)	$	130

At December 31, 2015, the effective portion, before tax effect, of the Company’s forward foreign currency exchange contracts designated as cash flow hedging instruments was $0.

		Gains Recognized in Earnings on Derivatives (Amount Excluded from Effectiveness Testing)
		Year Ended December 31,
Derivatives Designated as Cash Flow Hedging Instruments	Location	2015		2014		2013
Forward foreign currency exchange contracts	Other income, net	$	23	$	118	$	100

There was no ineffectiveness related to the Company’s cash flow hedging instruments in the year ended December 31, 2015 and 2014. The ineffectiveness related to the Company’s cash flow hedging instruments was $(8,000) in the year ended December 31, 2013.

		(Gains) Losses Reclassified from Accumulated Other Comprehensive Loss into Earnings (Effective Portion)
		Year Ended December 31,
Derivatives Designated as Cash Flow Hedging Instruments	Location	2015		2014			2013
Forward foreign currency exchange contracts	Technology and development expenses	$	45	$	(23	)	$	323

For additional information related to derivative instruments, see Note 1, “Description of Business, Basis of Presentation, Accounting Policies, and Recent Accounting Pronouncements, Accounting Policies—Derivative Instruments”.

6. FAIR VALUE MEASUREMENTS

The following table presents information about financial assets that were required to be measured at fair value on a recurring basis (in thousands):

	Estimated Fair Value
	December 31, 2015
Description	Level 1		Level 2		Total
Assets:
Money market funds	$	65,809	$	—	$	65,809
Total	$	65,809	$	—	$	65,809

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	Estimated Fair Value
	December 31, 2014
Description	Level 1		Level 2		Total
Assets:
Money market funds	$	42,741	$	—	$	42,741
Time deposits		—		5,053		5,053
Derivative assets		—		1		1
Total	$	42,741	$	5,054	$	47,795
Liabilities:
Derivative liabilities	$	—	$	18	$	18
Total	$	—	$	18	$	18

7. STOCKHOLDERS’ EQUITY

Preferred Stock

United Online, Inc. has 5.0 million shares of preferred stock authorized with a par value of $0.0001. At December 31, 2015 and 2014, United Online, Inc. had no preferred shares issued or outstanding.

Reverse Stock Split

On October 31, 2013, United Online, Inc. effected a one-for-seven reverse stock split of shares of United Online, Inc. common stock. United Online, Inc. common stock share information and related per share amounts prior to October 31, 2013 have been adjusted to reflect the one-for-seven reverse stock split of shares of United Online, Inc.

Dividends

Dividends are paid on shares of common stock outstanding as of the record date. In addition, dividend equivalents are generally paid on nonvested restricted stock units outstanding as of the record date.

In January, April, and July 2013, United Online, Inc.’s Board of Directors declared quarterly cash dividends of $0.70 per share of common stock, as adjusted to reflect the one-for-seven reverse stock split. The dividends were paid on February 28, 2013, May 31, 2013, and August 30, 2013 and totaled $9.4 million, $9.7 million, and $9.7 million, respectively, including dividend equivalents paid on nonvested restricted stock units. In November 2013, United Online, Inc.’s Board of Directors declared a quarterly cash dividend of $0.15 per share of common stock. The dividend was paid on November 29, 2013 and totaled $2.2 million, including dividend equivalents paid on nonvested restricted stock units.

In January 2014, the Company announced that United Online, Inc.’s Board of Directors determined to discontinue cash dividend payments in order to provide financial flexibility to support anticipated long-term growth initiatives. The Company currently intends to retain any future earnings for use in the operation of our business and, as a result, does not intend to declare or pay any cash dividends in the foreseeable future. Any further determination to pay dividends on the Company’s capital stock will be at the discretion of the Company’s Board of Directors, subject to applicable laws, and will depend on the Company’s financial condition, results of operations, capital requirements, general business conditions and other factors that the Company’s Board of Directors considers relevant.

Common Stock Repurchases

In May 2001, the Company’s Board of Directors authorized a common stock repurchase program (the “Program”) that allows the Company to repurchase shares of its common stock through open market or privately negotiated transactions based on prevailing market conditions and other factors. From time to time since then, the Board of Directors has increased the amount authorized for repurchase under this Program and has extended the Program, which was recently extended by the Board of Directors (in December 2015) through December 31, 2018. From August 2001 through December 2014, the Company had repurchased $150.2 million of its common stock under the Program. There were no repurchases under the Program during the year ended December 31, 2015 and, at December 31, 2015, the authorization remaining under the Program was $80.0 million.

20

Shares withheld upon the vesting of restricted stock units and upon the issuance of stock awards to pay minimum statutory employee withholding taxes are considered common stock repurchases, but are not counted as purchases against the Program. Upon vesting of most restricted stock units or issuance of stock awards, the Company currently does not collect the minimum statutory withholding taxes from employees. Instead, the Company automatically withholds, from the restricted stock units that vest and from the stock awards that are issued, the portion of those shares with a fair market value equal to the amount of the minimum statutory employee withholding taxes due, which is accounted for as a repurchase of common stock. The Company then pays the minimum statutory employee withholding taxes in cash. The amounts remitted in the year ended December 31, 2015, 2014 and 2013 were $1.7 million, $2.8 million and $4.3 million respectively, for which the Company withheld 0.1 million, 0.3 million and 0.3 million shares of common stock, respectively, that were underlying the restricted stock units that vested.

Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss were as follows (in thousands):

	Gains (Losses) on Cash Flow Hedging Instruments, Net of Tax			Gains on Other Hedging Instruments, Net of Tax		Foreign Currency Translation			Accumulated Other Comprehensive Loss
Balance at December 31, 2013	$	7		$	—	$	(2,282	)	$	(2,275	)
Other comprehensive loss before reclassifications		(33	)		168		(995	)		(860	)
Amounts reclassified from accumulated other comprehensive loss		(23	)		—		—			(23	)
Other comprehensive loss		(56	)		168		(995	)		(883	)
Balance at December 31, 2014		(49	)		168		(3,277	)		(3,158	)
Other comprehensive loss before reclassifications		4			45		(1,022	)		(973	)
Amounts reclassified from accumulated other comprehensive loss		45			—		—			45
Other comprehensive loss		49			45		(1,022	)		(928	)
Balance at December 31, 2015	$	—		$	213	$	(4,299	)	$	(4,086	)

All amounts reclassified from accumulated other comprehensive loss were related to losses on derivatives classified as cash flow hedges. These reclassifications impacted technology and development expenses in the consolidated statements of operations.

8. STOCK-BASED COMPENSATION PLANS

The Company has one active equity plan, the 2010 Incentive Compensation Plan, as amended and restated as of June 13, 2013 and amended as of April 23, 2015 (the “Plan”), under which, in general, the Company is authorized to grant restricted stock units, stock awards and stock options.

Restricted stock units granted to employees generally vest over a one-to four-year period under a variety of vesting schedules and are canceled upon termination of employment. Restricted stock units granted to non-employee members of United Online, Inc.’s Board of Directors generally vest annually over a one-year period.

Stock options granted to employees generally vest over a three-or four-year period under a variety of vesting schedules and are canceled upon termination of employment. Stock option grants expire after ten years unless canceled earlier due to termination of employment.

Upon the exercise of a stock option award, the vesting of a restricted stock unit or the award of common stock or restricted stock, shares of common stock are issued from authorized but unissued shares. Pursuant to the Plan, each restricted stock unit and stock award granted decreases shares available for grant by three shares and cancelations of such shares increase the shares available for grant by three shares.

At December 31, 2015, there were 16.1 million aggregate shares reserved for issuance and 11.7 million shares available for grant under the Plan.

21

Stock-Based Compensation

The following table summarizes the stock-based compensation that has been included in the following line items within the consolidated statements of operations (in thousands):

	Year Ended December 31,
	2015		2014		2013
Operating expenses:
Cost of revenues	$	127	$	172	$	105
Sales and marketing		127		264		291
Technology and development		581		703		825
General and administrative		3,795		5,682		6,841
Total stock-based compensation	$	4,630	$	6,821	$	8,062
Tax benefit recognized(a)	$	1,574	$	2,387	$	2,741

(a) Income tax benefit is presented prior to consideration of the Company’s deferred tax asset valuation allowance. See Note 9, “Income Taxes”.

Restricted Stock Units

The following table summarizes activity for restricted stock units:

	Restricted Stock Units			Weighted-Average Grant Date Fair Value
	(in thousands)
Nonvested at December 31, 2014		805		$	11.34
Granted		272		$	15.19
Vested		(412	)	$	11.57
Forfeited/canceled		(263	)	$	12.20
Nonvested at December 31, 2015		402		$	13.15

The weighted-average grant date fair value of restricted stock units granted during the years ended December 31, 2015, 2014 and 2013 was $15.19, $11.26 and $11.71, respectively. The fair value of restricted stock units that vested during the years ended December 31, 2015, 2014 and 2013 was $5.6 million, $7.7 million and $10.8 million, respectively. At December 31, 2015, the intrinsic value of nonvested restricted stock units was $4.7 million. At December 31, 2015, nonvested restricted stock units expected to vest totaled 0.4 million with an intrinsic value totaling $4.4 million. At December 31, 2015, total unrecognized compensation cost related to nonvested restricted stock units, net of expected forfeitures, was $3.3 million and was expected to be recognized over a weighted-average period of 0.9 years.

Stock Options

The following table summarizes stock option activity:

	Options Outstanding			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life		Aggregate Intrinsic Value
	(in thousands)					(in years)		(in thousands)
Outstanding at December 31, 2014		947		$	12.28
Granted		548		$	14.74
Exercised		(144	)	$	11.77
Forfeited/canceled		(508	)	$	14.53
Outstanding at December 31, 2015		843		$	12.61		7.2	$	355
Exercisable at December 31, 2015		328		$	11.41		4.3	$	212
Expected to vest at December 31, 2015		485		$	13.35		9.0	$	137

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The weighted-average grant date fair value of stock options granted during the year ended December 31, 2015 and 2014 was $14.74 and $5.39, respectively. The Company did not grant any stock options during the year ended December 31, 2013. The total intrinsic value of stock options exercised during the years ended December 31, 2015, 2014 and 2013 was $0.6 million, $0 and $1.5 million, respectively. Cash received from the exercise of stock options for the years ended December 31, 2015, 2014 and 2013 was $1.7 million, $0 and $5.1 million, respectively. Tax benefits realized from stock options exercised in the years ended December 31, 2015, 2014 and 2013 were $0.2 million, $0 and $0.4 million, respectively, prior to consideration of the Company’s deferred tax asset valuation allowance. At December 31, 2015, total unrecognized compensation cost related to unvested stock options, net of expected forfeitures, was $2.6 million and was expected to be recognized over a weighted-average period of 1.0 years.

The fair value of stock options granted during the year ended December 31, 2015 was estimated using the Black-Scholes option pricing model with the following weighted-average assumptions:

	Year Ended December 31,
	2015			2014
Risk-free interest rate		1.71	%		1.87	%
Expected term (in years)		5.83			5.96
Dividend yield		0	%		0	%
Volatility		45.65	%		48.93	%

Employee Stock Purchase Plans

In 2010, the Company adopted the 2010 Employee Stock Purchase Plan to replace the 2001 Employee Stock Purchase Plan. The Company’s 2001 Employee Stock Purchase Plan expired in 2011 following the completion of the final purchase thereunder. In November 2013, the Company adopted a revised 2010 Employee Stock Purchase Plan, which was amended in April 2015. This plan had 1.0 million shares of common stock reserved and available for issuance at December 31, 2015.

Under the employee stock purchase plans, each eligible employee may authorize payroll deductions of up to 15% of his or her compensation to purchase shares of United Online, Inc.’s common stock on two purchase dates each year at a purchase price per share equal to 85% of the lower of (i) the closing market price per share of United Online, Inc.’s common stock on the employee’s entry date into the two-year offering period in which the purchase date occurs or (ii) the closing market price per share of United Online, Inc.’s common stock on the purchase date. Each offering period has a 24-month duration and purchase intervals of six months.

The fair value of employee stock purchase plan shares was estimated using the Black-Scholes option pricing model with the following weighted-average assumptions:

	Year Ended December 31,
	2015			2014			2013
Risk-free interest rate		0.3	%		0.2	%		0.2	%
Expected term (in years)		0.5 – 2.0			0.5 – 2.0			0.5 – 2.0
Dividend yield		0	%		1.0	%		8.1	%
Volatility		48.8	%		43.7	%		40.4	%

The assumptions presented in the table above represent the weighted average of the applicable assumptions used to value employee stock purchase plan shares. The Company calculates expected volatility based on historical volatility of United Online, Inc.’s common stock. The expected term represents the amount of time remaining in the 24-month offering period. The risk-free interest rate assumed in valuing the employee stock purchase plan shares is based on the U.S. Treasury yield curve in effect at the time of grant for the expected term. The Company determines the expected dividend yield percentage by dividing the expected annual dividend by the closing market price of United Online, Inc.’s common stock at the date of grant. At December 31, 2015, total unrecognized compensation cost related to the 2010 Employee Stock Purchase Plan was $0.5 million and was expected to be recognized over a weighted-average period of 0.7 years.

9. INCOME TAXES

Income (loss) from continuing operations before income taxes was comprised of the following (in thousands):

	Year Ended December 31,
	2015			2014			2013
Domestic	$	(812	)	$	(7,340	)	$	(13,646	)
Foreign		822			698			931
Income (loss) before income taxes	$	10		$	(6,642	)	$	(12,715	)

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The provision for (benefit from) income taxes from continuing operations was comprised of the following (in thousands):

	Year Ended December 31,
	2015			2014			2013
Current:
Federal	$	883		$	(2,835	)	$	(8,967	)
State		977			(121	)		1,738
Foreign		392			663			412
		2,252			(2,293	)		(6,817	)
Deferred:
Federal		(1,155	)		(1,518	)		45,761
State		(397	)		12			365
Foreign		99			(8	)		(2,878	)
		(1,453	)		(1,514	)		43,248
Provision for (benefit from) income taxes from continuing operations	$	799		$	(3,807	)	$	36,431

For the year ended December 31, 2015, the Company generated a domestic net operating loss. The Company recorded a federal income tax receivable of $1.5 million as the benefit is expected to be realized through a net operating loss carryback. The benefit related to this net operating loss carryback was recognized in the year ended December 31, 2014.

The provision for (benefit from) income taxes from continuing operations reconciled to the amount computed by applying the statutory federal rate to income (loss) from continuing operations before taxes was as follows:

	Year Ended December 31,
	2015			2014			2013
Federal statutory rate		34.0	%		35.0	%		34.0	%
State taxes, net		2,562.5			(5.6	)		1.6
Nondeductible compensation		673.4			(11.3	)		(1.5	)
Deferred tax adjustment—U.K. statutory rate reduction		—			—			11.4
Effects of foreign income		(76.8	)		0.5			—
Foreign distribution		1,385.2			—			—
Changes in uncertain tax positions		3,845.8			6.8			(3.9	)
Capital loss		(22,230.4	)		—			—
Tax effect of goodwill impairment		—			—			(1.1	)
Transaction expense		993.0			—			—
Reallocation of 2014 net operating loss carryback benefit		—			38.4			—
Indefinite-lived asset		1,833.5			(2.6	)		—
Tax settlements		(2,423.0	)		(4.0	)		—
Valuation allowance		22,648.5			(1.6	)		(330.7	)
Benefit from discontinued operations		(967.3	)		—			—
Other differences, net		(288.4	)		1.7			3.7
Effective tax rate		7,990.0	%		57.3	%		(286.5	)%

The significant components of net deferred tax balances were as follows (in thousands):

	December 31,
	2015			2014
Deferred tax assets:
Net operating loss and tax credit carryforwards	$	32,787		$	32,828
Capital loss		2,223			—
Stock-based compensation		1,214			1,386
Other, net		2,565			4,404
Total gross deferred tax assets		38,789			38,618
Less: valuation allowance		(38,526	)		(37,286	)
Total deferred tax assets after valuation allowance		263			1,332

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	December 31,
	2015			2014
Deferred tax liabilities:
Depreciation and amortization		(1,561	)		(2,188	)
Amortization of acquired intangible assets		(658	)		316
Total deferred tax liabilities		(2,219	)		(1,872	)
Net deferred tax assets (liabilities)	$	(1,956	)	$	(540	)

	December 31,
	2015			2014
Current deferred tax assets	$	—		$	192
Non-current deferred tax assets		176			73
Current deferred tax liabilities		—			(481	)
Non-current deferred tax liabilities		(2,132	)		(324	)
Net deferred liabilities	$	(1,956	)	$	(540	)

Realization of the net deferred tax assets is primarily dependent upon the Company having sufficient taxable income within the carryback and carryforward periods to obtain a benefit from the reversal of net deductible temporary differences, utilization of tax credit carryforwards, and utilization of net operating loss carrybacks and carryforwards for federal and state income tax purposes. The determination of whether the deferred tax assets will actually be realized is subjective and requires management’s judgment and evaluation of both positive and negative evidence, including taxable income in prior carryback years, future reversals of existing taxable temporary differences, applicable tax planning strategies, and forecasts of future income, including the consideration of carryback availability as a source of taxable income to realize deferred tax assets.

In assessing the realization of net deferred tax assets at December 31, 2015, based on the carryback availability, the Company believes that it was more likely than not that the Company will not realize benefits related to its domestic deductible differences. All of the remaining domestic net deferred tax assets, excluding indefinite-lived assets, will be subject to a valuation allowance as they are not expected to be realized. Therefore, a valuation allowance totaling $38.5 million for net unrealizable deferred tax assets, excluding indefinite-lived assets, was recorded at December 31, 2015.

Subsequent to the FTD Spin-Off Transaction in the quarter ended December 31, 2013, the Company performed an extensive evaluation for a valuation allowance against its net deferred tax assets, excluding indefinite-lived assets. In its evaluation of positive and negative evidence, the Company determined that the negative evidence was more persuasive, which led the Company to record a full valuation allowance against its domestic net deferred tax assets, excluding indefinite-lived assets and net operating loss carryback. The Company had a valuation allowance totaling $38.5 million and $37.3 million at December 31, 2015 and 2014, respectively, to reduce domestic net deferred tax assets to an amount that is more likely than not to be realized in future periods. The valuation allowance relates to domestic net deferred tax assets, including federal and state net operating loss carryforwards, member redemption liability and foreign tax credit carryforwards.

At December 31, 2015 and 2014, the Company had gross unrecognized tax benefits totaling $2.8 million and $3.2 million, respectively, all of which would have an impact on the Company’s effective income tax rate, if recognized. The effective income tax rate impact is inclusive of changes in valuation allowance resulting from recognition of previously unrecognized tax benefits. A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits (before federal impact of state items), excluding interest and penalties, was as follows (in thousands):

	Year Ended December 31,
	2015			2014			2013
Beginning balance	$	3,164		$	3,779		$	4,351
Additions for current year tax positions		116			119			193
Reductions for current year tax positions		—			(17	)		(104	)
Additions for prior year tax positions		—			240			(126	)
Reductions for prior year tax positions		(74	)		(893	)		(172	)
Reductions related to settlements with taxing authorities		(356	)		(64	)		(363	)
Ending balance	$	2,850		$	3,164		$	3,779

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The Company files income tax returns in the U.S., various state and local jurisdictions and India. The Company is currently under audit by certain state and local tax authorities and the Indian tax authorities. The audits are in varying stages of completion. The Company evaluates its tax positions and establishes liabilities for uncertain tax positions that may be challenged by tax authorities. Uncertain tax positions are reviewed on an ongoing basis and are adjusted in light of changing facts and circumstances, including progress of tax audits, case law developments and closing of statutes of limitations. Such adjustments are reflected in the provision for income taxes, as appropriate. Tax years prior to 2010 are generally not subject to examination by the IRS and state and local jurisdictions, except for items involving tax attributes that have been carried forward to tax years whose statute of limitations remains open. Tax years prior to 2005 are not subject to examination by the Indian tax authorities.

At December 31, 2015, the Company believes it is reasonably possible that its gross liabilities for unrecognized tax benefits may decrease by approximately $1.3 million within the next 12 months due to audit settlements and expiration of statute of limitations.

The Company had accrued $1.9 million and $1.7 million for interest and penalties relating to uncertain tax positions at December 31, 2015 and 2014, respectively, all of which was included in income taxes payable. The Company recorded $0.2 million, $0.2 million and $0.6 million of interest and penalty expenses related to uncertain tax positions, which was included in provision for (benefit from) income taxes, for the years ended December 31, 2015, 2014 and 2013, respectively.

At December 31, 2015 and 2014, U.S. income taxes were not provided on $6.4 million and $4.0 million, respectively, of undistributed earnings of the Company’s foreign subsidiaries because such earnings have been permanently reinvested in foreign operations. If these earnings were repatriated to the U.S., the Company would not expect to owe additional U.S. income taxes due to the utilization of net operating loss and foreign tax credit carryovers.

For the years ended December 31, 2015, 2014 and 2013, net income tax benefits (shortfalls) attributable to stock-based compensation from continuing operations that were allocated to stockholders’ equity totaled $0, $(0.2) million and $0.4 million, respectively.

At December 31, 2015, the Company had federal and state net operating loss carryforwards totaling $87.5 million and $50.1 million, respectively. The federal net operating loss carryforwards will begin to expire in 2019, the state net operating loss carryforwards begin to expire in 2016. These carryforwards have been adjusted to reflect the Company’s estimate of limitations under Section 382 of the Internal Revenue Code of 1986, as amended. Due to the ownership change provisions under Section 382, use of a portion of the Company’s domestic net operating loss and tax credit carryforwards may be limited in future periods in the event of an ownership change. At December 31, 2015, the Company had federal and state capital loss carryover of approximately $6.1 million and $3.5 million, respectively, which will expire in 2020.

On October 31, 2013, the Company entered into a Tax Sharing Agreement with FTD. The Tax Sharing Agreement specifies the portion of tax liabilities for which the Company and FTD will each bear responsibility, and the Company and FTD have agreed to indemnify each other against amounts for which the other is not responsible. Although the Tax Sharing Agreement was entered into by the Company and FTD, the Tax Sharing Agreement is not binding on the IRS or any other taxing authority.

10. NET INCOME (LOSS) PER COMMON SHARE

The following table sets forth the computation of basic and diluted net income (loss) per common share (in thousands, except per share amounts):

	Year Ended December 31,
	2015			2014			2013
Numerator:
Loss from continuing operations	$	(789	)	$	(2,835	)	$	(49,146	)
Income allocated to participating securities		—			—			(1,195	)
Income (loss) from continuing operations available to common stockholders		(789	)		(2,835	)		(50,341	)
Income (loss) from discontinued operations, net of tax available to common stockholders		30,762			(2,594	)		(39,129	)
Net income (loss) attributable to common stockholders	$	29,973		$	(5,429	)	$	(89,470	)
Denominator:
Weighted-average common shares		14,673			14,115			13,261
Add: Dilutive effect of non-participating securities		—			—			—
Shares used to calculate diluted net income (loss) per common share		14,673			14,115			13,261

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	Year Ended December 31,
	2015			2014			2013
Basic net income (loss) per common share:
Continuing operations	$	(0.05	)	$	(0.20	)	$	(3.80	)
Discontinued operations		2.09			(0.18	)		(2.95	)
Basic net income (loss) per common share	$	2.04		$	(0.38	)	$	(6.75	)
Diluted net income (loss) per common share:
Continuing operations	$	(0.05	)	$	(0.20	)	$	(3.80	)
Discontinued operations		2.09			(0.18	)		(2.95	)
Diluted net income (loss) per common share	$	2.04		$	(0.38	)	$	(6.75	)

The diluted net income (loss) per common share computations exclude stock options and restricted stock units which are antidilutive. Weighted-average antidilutive shares for the years ended December 31, 2015, 2014 and 2013 were 1.0 million, 1.7 million and 1.1 million, respectively.

11. RESTRUCTURING AND OTHER EXIT COSTS

Restructuring and other exit costs were a result of management’s decision to streamline operations and increase profitability and, for the years ended December 31, 2015 and 2014, consisted primarily of employee termination costs. The following tables summarize restructuring and other exit costs (in thousands):

Accrued restructuring and other exit costs at December 31, 2014	$	195
Restructuring and other exit costs		1,469
Cash paid for restructuring and other exit costs		(1,543	)
Accrued restructuring and other exit costs at December 31, 2015	$	121

12. COMMITMENTS AND CONTINGENCIES

Leases

Future minimum lease payments at December 31, 2015 under noncancelable operating leases with initial lease terms in excess of one year were as follows (in thousands):

	Year Ending December 31,
	Total		2016		2017		2018		2019		2020
Noncancelable operating leases	$	6,383	$	2,112	$	1,437	$	1,019	$	1,027	$	788

The Company leases certain office space, data centers, and office equipment under operating leases expiring at various periods through 2020. Certain of the Company’s operating leases include rent holidays, as well as rent escalation provisions. The Company records rent expense on a straight-line basis over the lease term. Rent expense under operating leases for the years ended December 31, 2015, 2014 and 2013 was $2.0 million, $4.5 million and $6.5 million, respectively.

Letters of Credit

Letters of credit are maintained pursuant to certain of the Company’s lease arrangements and contractual obligations. The amounts of letters of credit are subject to change based on the terms of the related agreements. Certificates of deposit totaling $0.5 million and $0.6 million at December 31, 2015 and 2014, respectively, were maintained by the Company in connection with certain of these letters of credit and were included in other current assets and other assets in the consolidated balance sheets. Commitments under letters of credit at December 31, 2015 were scheduled to expire as follows (in thousands):

			Year Ending December 31,
	Total		2016		2017		2018		2019		2020		Thereafter
Letters of credit	$	465	$	—	$	—	$	—	$	—	$	—	$	465

27

Other Commitments

At December 31, 2015, the Company had $1.2 million of purchase obligations and $1.3 million of other liabilities. At December 31, 2015, the Company had liabilities for uncertain tax positions totaling $4.8 million, of which $1.3 million, at December 31, 2015, was expected to be due in less than one year and is included in the $1.3 million of other liabilities discussed above. The Company is not able to reasonably estimate when or if cash payments for long-term liabilities related to uncertain tax positions will occur.

In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to customers, vendors, lessors, sureties and insurance companies, business partners, and other parties with respect to certain matters, including, but not limited to, losses arising out of the Company’s breach of such agreements, services to be provided by the Company, or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with the Company’s directors and certain of the Company’s officers and employees that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. The Company has also agreed to indemnify certain former officers, directors and employees of acquired companies in connection with the acquisition of such companies. The Company maintains director and officer insurance, which may cover certain liabilities, including those arising from the Company’s obligation to indemnify its directors and certain of its officers and employees, and former officers, directors and employees of acquired companies, in certain circumstances.

It is not possible to determine the maximum potential amount of exposure under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Such indemnification agreements may not be subject to maximum loss clauses.

Legal Matters

In June 2011, Memory Lane, Inc., a California corporation, filed a complaint in United States District Court, Central District of California, against Classmates International, Inc., Classmates Online, Inc. and Classmates, Inc. (then known as Memory Lane, Inc.) (“Classmates”), alleging false designation of origin under the Lanham Act, 15 U.S.C. section 1125, and state and common law unfair competition. The complaint included requests for an award of damages and for preliminary and permanent injunctive relief. Notwithstanding the request for preliminary injunctive relief, no motion for such relief was filed. Classmates responded to the complaint in September 2011. In October 2011, the plaintiff amended its complaint to, among other things, dismiss Classmates International, Inc. and add United Online, Inc. as a defendant. In February 2014, the jury issued a verdict for the defendants, concluding that the defendants did not infringe plaintiff’s trademark and the court entered judgment in favor of the defendants. In March 2014, plaintiff filed a notice of appeal of the judgment in favor of defendants. The plaintiff’s appeal brief was filed in November 2014. Classmates’ opposition brief was filed in December 2014. Plaintiff’s reply brief was filed in March 2015. Classmates’ reply brief was filed in April 2015 and oral arguments on the appeal are scheduled for March 2016.

In 2010, Classmates, Inc., and Florists’ Transworld Delivery, Inc. and FTD.COM Inc. (together, the “FTD Parties”) received subpoenas from the Attorney General for the State of Kansas and the Attorney General for the State of Maryland, respectively. These subpoenas were issued on behalf of a Multistate Work Group that consists of the Attorneys General for the following states: Alabama, Alaska, Delaware, Florida, Idaho, Illinois, Kansas, Maine, Maryland, Michigan, Nebraska, New Mexico, New Jersey, North Dakota, Ohio, Oregon, Pennsylvania, South Dakota, Texas, Vermont, Washington and Wisconsin (the “Multistate Work Group”). The inquiry concerned certain post-transaction sales practices in which these companies previously engaged with certain third-party vendors and certain auto-renewal practices of Classmates, Inc. In May 2015, Classmates, Inc. and the FTD Parties entered into settlement agreements with each member of the Multistate Work Group. Under the terms of the settlement agreements, Classmates, Inc. and the FTD Parties denied all wrong-doing and agreed to certain injunctive relief and to two areas of monetary relief: (1) a payment from Classmates, Inc. and the FTD Parties in the aggregate amount of $8 million to be distributed amongst the states in the Multistate Work Group (with approximately $5.18 million to be paid by Classmates, Inc. and approximately $2.82 million to be paid by the FTD Parties); and (2) Classmates, Inc. funding a $3 million restitution program covering eligible consumers in the states in the Multistate Work Group, with any restitution not paid to consumers being paid to such states. The Classmates, Inc. portion of the payments described above relating to the settlement agreements was paid by Classmates, Inc. in July 2015. In October 2015, the Company received insurance proceeds in the amount of $4.2 million related to the Multistate Work Group inquiry and accompanying legal fees. Of this amount, $2.8 million was allocated to United Online, Inc. and $1.4 million was allocated to FTD, which was remitted to FTD in October 2015.

The Company cannot predict the outcome of these or any other legal actions or governmental investigations or their potential implications for its business. In addition, the Company, at times, has negotiated resolutions related to certain legal actions and governmental investigations. There are no assurances that additional legal actions or governmental investigations will not be instituted in connection with the Company’s current or former business practices.

28

The Company records a liability when it believes that it is both probable that a loss will be incurred, and the amount of loss can be reasonably estimated. The Company evaluates, at least quarterly, developments in its legal matters that could affect the amount of liability that has been previously accrued, and makes adjustments as appropriate. Significant judgment is required to determine both probability and the estimated amount. The Company may be unable to estimate a possible loss or range of possible loss due to various reasons, including, among others: (i) if the damages sought are indeterminate; (ii) if the proceedings are in early stages; (iii) if there is uncertainty as to the outcome of pending appeals, motions, or settlements; (iv) if there are significant factual issues to be determined or resolved; and (v) if there are novel or unsettled legal theories presented. In such instances, there is considerable uncertainty regarding the ultimate resolution of such matters, including a possible eventual loss, if any. At December 31, 2015, the Company had reserves totaling $0.1 million for estimated losses related to legal matters. With respect to the legal matters described above that are ongoing, the Company has determined, based on its current knowledge, that the amount of possible loss or range of loss, including any reasonably possible losses in excess of amounts already accrued, is not reasonably estimable. However, legal matters are inherently unpredictable and subject to significant uncertainties, some of which are beyond the Company’s control. As such, even though the Company intends to vigorously defend itself with respect to its legal matters, there can be no assurance that the final outcome of these matters will not materially and adversely affect the Company’s business, financial condition, results of operations, or cash flows.

13. SUPPLEMENTAL CASH FLOW INFORMATION

The following table sets forth supplemental cash flow disclosures (in thousands):

	Year Ended December 31,
	2015		2014		2013
Cash paid for interest	$	—	$	—	$	7,762
Cash paid for income taxes, net	$	8,902	$	3,412	$	13,599

At December 31, 2015 and 2014 non-cash investing items from continuing operations included $0.2 million and $1.8 million, respectively, of property and equipment that was not yet paid for and was included in accounts payable and other liabilities in the Company’s consolidated balance sheets. During the year ended December 31, 2013, in accordance with the FTD Spin-Off Transaction, the Company made a non-cash distribution to stockholders through a tax-free dividend, which reduced the Company’s stockholders’ equity by $277.3 million.

14. DISCONTINUED OPERATIONS—FTD COMPANIES, INC. AND CLASSMATES, INC.

On November 1, 2013, United Online, Inc. completed the FTD Spin-Off Transaction. In August 2015, the Company consummated the sale of its Classmates domestic business unit to Intelius Holdings, Inc. Accordingly, the results of operations, financial condition and cash flows of FTD Companies, Inc. and the Classmates domestic business unit have been presented as discontinued operations for all periods presented.

Revenues and income (loss) from discontinued operations were as follows (in thousands):

	Year Ended December 31,
	2015		2014			2013
Revenues	$	31,523	$	52,416		$	573,893
Operating expenses:
Cost of revenues		5,488		9,813			337,867
Sales and marketing		12,696		20,007			106,874
Technology and development		5,678		10,599			26,485
General and administrative		1,714		15,416			52,776
Amortization of intangible assets		988		5,203			25,020
Contingent consideration—fair value adjustment		—		—			(5,124	)
Restructuring and other exit costs		3		502			1,308
Impairment of goodwill, intangible assets and long-lived assets		—		—			17,684
Total operating expenses		26,567		61,540			562,890
Operating income (loss)		4,956		(9,124	)		11,003
Interest income		1		1			536
Interest expense		—		—			(10,926	)
Other income, net		—		(88	)		304
Gain on disposal of discontinued operations		20,787		—			—
Income (loss) from discontinued operations before income taxes		25,744		(9,211	)		917
Provision for (benefit from) income taxes		278		(224	)		3,476
Income (loss) from discontinued operations, net of tax	$	25,466	$	(8,987	)	$	(2,559	)

29

The Company recorded $1.7 million of transaction-related costs in the year ended December 31, 2013 in connection with the FTD Spin-Off Transaction, which were included in discontinued operations in the consolidated statements of operations. The Company recorded $0.3 million of transaction-related costs in the year ended December 31, 2015 in connection with the sale of the Classmates domestic business unit, which was included in discontinued operations in the consolidated statement of operations. During the year ended December 31, 2015, the Company recorded an insurance recovery gain of $2.8 million related to the Classmates’ portion of the Multistate Work Group inquiry and accompanying legal fees, which was included in discontinued operations in the consolidated statement of operations.

The major classes of assets and liabilities included in discontinued operations related to the Classmates domestic business unit at December 31, 2014 were as follows (in thousands):

Assets
Current assets:
Cash and cash equivalents	$	161
Accounts receivable, net		397
Inventory, net		3
Deferred tax assets		3,746
Other current assets		1,365
Total current assets		5,672
Property and equipment, net		7,740
Goodwill		16,152
Intangible assets, net		8,714
Other assets		205
Total assets	$	38,483
Liabilities
Current liabilities:
Accounts payable	$	2,591
Accrued liabilities		12,284
Deferred revenue		16,670
Total current liabilities		31,545
Deferred revenue		1,897
Deferred tax liabilities, net		3,256
Total liabilities	$	36,698

15. DISCONTINUED OPERATIONS—INTERNATIONAL SOCIAL NETWORKING BUSINESSES AND MYPOINTS BUSINESS UNIT

In March 2016, the Company entered into a Share Purchase Agreement for the sale of its StayFriends GmbH, Trombi Acquisition SARL, Klassträffen Sweden AB, and Klassenfreunde.ch GmbH entities to Ströer Content Group GmbH. The purchase price for the international social networking businesses is approximately 16 million Euros in cash, which includes cash of 6.5 million Euros on the balance sheets of the international social networking businesses, subject to a post-signing purchase price adjustment. The Share Purchase Agreement includes customary representations, warranties and covenants of each party, some of which survive the closing of the transaction for a period of time. The transaction was completed on May 24, 2016.

In April 2016, the Company consummated the sale of its MyPoints business unit to Prodege, LLC. The purchase price received for the MyPoints business unit was approximately $13 million in cash, subject to a post-closing working capital adjustment. The Stock Purchase Agreement for the sale included customary representations, warranties and covenants of each party, some of which survive the closing of the transaction for a period of time.

Accordingly, the results of operations, financial condition and cash flows of the international social networking businesses and the MyPoints business unit have been presented as discontinued operations for all periods presented.

Revenues and income (loss) from discontinued operations related to the international social networking businesses and the MyPoints business unit were as follows (in thousands):

	Year Ended December 31,
	2015		2014		2013
Revenues	$	60,903	$	62,454	$	76,152
Operating expenses:
Cost of revenues		26,264		19,535		26,919
Sales and marketing		15,060		17,562		21,783

30

	Year Ended December 31,
	2015			2014		2013
Technology and development		4,855			6,028		7,299
General and administrative		5,920			6,769		7,279
Amortization of intangible assets		409			422		399
Restructuring and other exit costs		(2	)		1,458		1,193
Impairment of goodwill, intangible assets and long-lived assets		—			—		37,756
Total operating expenses		52,506			51,774		102,628
Operating income (loss)		8,397			10,680		(26,476	)
Interest income		5			18		40
Other income, net		56			343		31
Income (loss) from discontinued operations before income taxes		8,458			11,041		(26,405	)
Provision for income taxes		3,162			4,648		10,165
Income (loss) from discontinued operations, net of tax	$	5,296		$	6,393	$	(36,570	)

The Company recorded $0.2 million of transaction-related costs in the year ended December 31, 2015 in connection with the sale of the international social networking businesses and the MyPoints business unit, which was included in discontinued operations in the consolidated statement of operations.

The major classes of assets and liabilities included in discontinued operations related to the international social networking businesses and the MyPoints business unit were as follows (in thousands):

	December 31,
	2015		2014
Assets
Current assets:
Cash and cash equivalents	$	14,000	$	11,164
Accounts receivable, net		8,296		8,577
Inventory, net		5,246		2,931
Deferred tax assets		—		367
Other current assets		3,148		2,310
Total current assets		30,690		25,349
Property and equipment, net		6,838		6,223
Goodwill		39,172		39,373
Intangible assets, net		335		733
Deferred tax assets		1,338		3,650
Other assets		228		246
Total assets	$	78,601	$	75,574
Liabilities
Current liabilities:
Accounts payable	$	1,909	$	3,031
Accrued liabilities		3,003		8,175
Member redemption liability		6,781		7,287
Deferred revenue		9,506		11,562
Total current liabilities		21,199		30,055
Member redemption liability		11,322		11,360
Deferred revenue		17		18
Deferred tax liabilities, net		2,488		548
Other liabilities		393		298
Total liabilities	$	35,419	$	42,279

31

16. QUARTERLY FINANCIAL DATA (UNAUDITED)

	Quarter Ended
	December 31		September 30		June 30			March 31
	(in thousands, except per share data)
Year ended December 31, 2015:
Revenues	$	21,289	$	21,466	$	23,208		$	24,264
Cost of revenues	$	8,312	$	8,311	$	9,046		$	10,872
Operating income (loss)	$	981	$	712	$	(54	)	$	(2,948	)
Income (loss) from continuing operations	$	1,040	$	930	$	139		$	(2,898	)
Income from discontinued operations, net of income tax	$	1,484	$	25,021	$	2,218		$	2,039
Net income (loss)	$	2,524	$	25,951	$	2,357		$	(859	)
Net income (loss) attributable to common stockholders	$	2,446	$	24,989	$	2,261		$	(859	)
Income (loss) from continuing operations per common share—basic	$	0.06	$	0.00	$	0.00		$	(0.20	)
Income (loss) from continuing operations per common share—diluted	$	0.06	$	0.00	$	0.00		$	(0.20	)
Net income (loss) per common share—basic	$	0.17	$	1.69	$	0.15		$	(0.06	)
Net income (loss) per common share—diluted	$	0.16	$	1.69	$	0.15		$	(0.06	)

	Quarter Ended
	December 31		September 30			June 30			March 31
	(in thousands, except per share data)
Year ended December 31, 2014:
Revenues	$	26,001	$	25,295		$	26,201		$	25,769
Cost of revenues	$	9,895	$	10,387		$	10,149		$	11,135
Operating income (loss)	$	441	$	(1,530	)	$	(81	)	$	(6,004	)
Income (loss) from continuing operations	$	6,059	$	(1,845	)	$	(532	)	$	(6,517	)
Income (loss) from discontinued operations, net of income tax	$	943	$	2,051		$	(1,718	)	$	(3,870	)
Net income (loss)	$	7,002	$	206		$	(2,250	)	$	(10,387	)
Net income (loss) attributable to common stockholders	$	6,606	$	206		$	(2,250	)	$	(10,387	)
Income (loss) from continuing operations per common share—basic	$	0.40	$	(0.13	)	$	(0.04	)	$	(0.47	)
Income (loss) from continuing operations per common share—diluted	$	0.40	$	(0.13	)	$	(0.04	)	$	(0.47	)
Net income (loss) per common share—basic	$	0.46	$	0.01		$	(0.16	)	$	(0.75	)
Net income (loss) per common share—diluted	$	0.46	$	0.01		$	(0.16	)	$	(0.75	)

17. SUBSEQUENT EVENTS (UNAUDITED)

On May 4, 2016, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with B. Riley Financial, Inc. (“Parent”) and Unify Merger Sub, Inc. (“Merger Sub”), a wholly-owned subsidiary of Parent. Upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into the Company with the Company surviving the merger as a wholly-owned subsidiary of Parent (the “Merger”).

At the effective time of the Merger (the “Effective Time”), each share of common stock, par value $0.0001 per share, of the Company (“Company Common Stock”) issued and outstanding immediately prior to the Effective Time (other than certain shares held by Parent, Merger Sub or any wholly-owned subsidiary of Parent or Merger Sub, held in the Company’s treasury or owned by stockholders who have perfected and not withdrawn a demand for appraisal rights pursuant to Section 262 of the Delaware General Corporation Law (the “Excluded Shares”)) will be converted into the right to receive $11.00 in cash, without interest (the “Per Share Merger Consideration”). At the Effective Time, all of the Excluded Shares outstanding immediately prior to the Effective Time will be automatically canceled for no consideration.

At the Effective Time, each outstanding option to purchase shares of Company Common Stock pursuant to the Company’s incentive plans will be automatically canceled and converted into the right to receive an amount in cash, less applicable tax withholding, equal to the product of (x) the number of shares of Company Common Stock underlying such option immediately prior to the Effective Time and (y) the excess, if any, of the Per Share Merger Consideration over the exercise price per share of such option. In addition, at the Effective Time, each outstanding Company restricted stock unit award will be automatically canceled and converted into the right to receive an amount in cash, less applicable tax withholding, equal to the product of (a) the Per Share Merger Consideration, and (b) the number of shares of Company Common Stock underlying such restricted stock unit award immediately prior to the Effective Time.

32

Parent and the Company have made customary representations, warranties and covenants in the Merger Agreement for a transaction of this nature. Subject to certain exceptions, Parent and the Company have agreed to use their respective commercially reasonable efforts to do or cause to be done all things necessary, proper or advisable to cause the conditions to the Merger to be satisfied and to consummate the Merger. In addition, the Company has agreed, among other things, to covenants relating to the conduct of its business during the interim period between the execution of the Merger Agreement and the consummation of the Merger and facilitating the Company’s stockholders’ consideration of, and voting upon, the adoption of the Merger Agreement and certain related matters, as applicable.

The closing of the Merger is subject to the satisfaction or waiver of certain conditions, including, among others, the approval of the Merger Agreement and the Merger by the holders of a majority of the outstanding Company Common Stock. The Company anticipates that the Merger transaction will be consummated by the end of the third quarter of 2016. However, the Company cannot predict with certainty whether and when any of the required closing conditions will be satisfied or if the Merger will close.

On May 5, 2016, the Company filed a Current Report on Form 8-K with additional information regarding the terms and conditions of the Merger Agreement and the Merger transaction.

Additionally, on May 5, 2016, the Company received notice that a number of law firms intend to investigate the Merger transaction on behalf of stockholders under various legal theories, including that the price offered per share undervalues the Company and that the Board of Directors’ decision to proceed with the Merger transaction violated its fiduciary duties. In addition, a putative stockholder class action, captioned Akerman v. United Online, Inc., et al., C.A. No. 12321, was filed in the Court of Chancery of the State of Delaware on May 12, 2016. The complaint alleges that the members of the Board breached their fiduciary duties to United Online’s stockholders in connection with the proposed transaction, and that the Merger Agreement involves an unfair price, an inadequate sales process, and unreasonable deal protection provisions that purportedly prevent competing offers. The complaint further alleges that United Online, the Board, B. Riley, and Merger Sub aided and abetted the purported breaches of fiduciary duty. The lawsuit seeks injunctive relief, including enjoining or rescinding the merger, and an award of other unspecified attorneys’ and other fees and costs, in addition to other relief.

33

EX-99.2

Exhibit 99.2

UNITED ONLINE, INC.

UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

1

UNITED ONLINE, INC.

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

TABLE OF CONTENTS

	Page(s)
Condensed Consolidated Balance Sheets as of June 30, 2016	3
Condensed Consolidated Statements of Operations for the Six Months Ended June 30, 2016 and 2015	4
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Six Months Ended June 30, 2016 and 2015	5
Condensed Consolidated Statements of Stockholders’ Equity for the Six Months Ended June 30, 2016 and 2015	6
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2016 and 2015	7
Notes to Condensed Consolidated Financial Statements	8 – 16

2

UNITED ONLINE, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

	June 30, 2016			December 31, 2015
Assets
Current assets:
Cash and cash equivalents	$	125,542		$	90,834
Accounts receivable, net of allowance		3,850			5,127
Inventories, net		624			1,632
Other current assets		4,854			7,093
Assets of discontinued operations		—			30,690
Total current assets		134,870			135,376
Property and equipment, net		5,681			6,418
Deferred tax assets, net		156			176
Goodwill		7,489			7,489
Other assets		833			840
Assets of discontinued operations		—			47,911
Total assets	$	149,029		$	198,210
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	5,037		$	6,550
Accrued liabilities		6,443			7,250
Deferred revenue		3,706			3,926
Liabilities of discontinued operations		—			21,199
Total current liabilities		15,186			38,925
Deferred tax liabilities, net		1,974			2,132
Other liabilities		5,196			5,313
Liabilities of discontinued operations		—			14,220
Total liabilities		22,356			60,590
Commitments and contingencies
Stockholders’ equity:
Common stock		1			1
Additional paid-in capital		224,506			222,164
Accumulated other comprehensive loss		(2,180	)		(4,086	)
Accumulated deficit		(95,654	)		(80,459	)
Total stockholders’ equity		126,673			137,620
Total liabilities and stockholders’ equity	$	149,029		$	198,210

The accompanying notes are an integral part of these

unaudited condensed consolidated financial statements.

3

UNITED ONLINE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

	Six Months Ended June 30,
	2016			2015
Revenues	$	36,454		$	47,472
Operating expenses:
Cost of revenues		15,130			19,918
Sales and marketing		5,064			6,942
Technology and development		4,160			5,772
General and administrative		17,311			16,877
Restructuring and other exit costs		296			965
Total operating expenses		41,961			50,474
Operating loss		(5,507	)		(3,002	)
Interest income		322			178
Other income, net		741			30
Loss before income taxes		(4,444	)		(2,794	)
Provision for (benefit from) income taxes		1,470			(35	)
Loss from continuing operations		(5,914	)		(2,759	)
Income (loss) from discontinued operations, net of tax		(9,281	)		4,257
Net income (loss)	$	(15,195	)	$	1,498
Income allocated to participating securities		—			—
Net income (loss) attributable to common stockholders	$	(15,195	)	$	1,498
Basic net income (loss) per common share:
Continuing operations	$	(0.40	)	$	(0.19	)
Discontinued operations		(0.62	)		0.29
Basic net loss per common share	$	(1.02	)	$	0.10
Shares used to calculate basic net income (loss) per common share		14,936			14,547
Diluted net income (loss) per common share:
Continuing operations	$	(0.40	)	$	(0.19	)
Discontinued operations		(0.62	)		0.29
Diluted net loss per common share	$	(1.02	)	$	0.10
Shares used to calculate diluted net income (loss) per common share		14,936			14,547

The accompanying notes are an integral part of these

unaudited condensed consolidated financial statements.

4

UNITED ONLINE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

	Six Months Ended June 30,
	2016			2015
Net income (loss)	$	(15,195	)	$	1,498
Other comprehensive income (loss):
Cash flow hedges:
Changes in net gains on derivatives, net of tax provision of $— for the six months ended June 30, 2016 and 2015		—			7
Derivative settlement losses reclassified into earnings, net of tax benefit of $— for the six months ended June 30, 2016 and 2015		—			39
Other hedges:
Changes in net gains on derivatives, net of tax provision of $— for the six months ended June 30, 2016 and 2015		(213	)		—
Reclassifications out of accumulated other comprehensive loss		1,559			—
Foreign currency translation		560			(329	)
Other comprehensive income (loss)		1,906			(283	)
Comprehensive income (loss)	$	(13,289	)	$	1,215

The accompanying notes are an integral part of these

unaudited condensed consolidated financial statements.

5

UNITED ONLINE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(in thousands)

	Common Stock				Additional Paid-In			Accumulated Other Comprehensive			Accumulated			Total Stockholders’
	Shares		Amount		Capital			Loss			Deficit			Equity
Balance at December 31, 2015		14,850	$	1	$	222,164		$	(4,086	)	$	(80,459	)	$	137,620
Exercises of stock options		17		—		184			—			—			184
Issuance of common stock through ESPP		46		—		418			—			—			418
Vesting of restricted stock units		81		—		—			—			—			—
Repurchases of common stock		—		—		(547	)		—			—			(547	)
Stock-based compensation		—		—		2,287			—			—			2,287
Other comprehensive income		—		—		—			1,906			—			1,906
Net loss		—		—		—			—			(15,195	)		(15,195	)
Balance at June 30, 2016		14,994	$	1	$	224,506		$	(2,180	)	$	(95,654	)	$	126,673

The accompanying notes are an integral part of these

unaudited condensed consolidated financial statements.

6

UNITED ONLINE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Six Months Ended June 30,
	2016			2015
Cash flows from operating activities:
Net income (loss)	$	(15,195	)	$	1,498
Less: Income (loss) from discontinued operations, net of tax		(9,281	)		4,257
Loss from continuing operations		(5,914	)		(2,759	)
Adjustments to reconcile net loss from continuing operations to net cash used for operating activities:
Depreciation		1,509			1,808
Stock-based compensation		2,200			2,671
Provision for doubtful accounts receivable		(14	)		(2	)
Deferred taxes, net		(141	)		(268	)
Other, net		(198	)		379
Changes in operating assets and liabilities, net of effects of discontinued operations:
Accounts receivable, net		1,290			1,146
Inventories, net		948			14
Other assets		2,383			400
Accounts payable and accrued liabilities		(1,965	)		(3,971	)
Deferred revenue		(219	)		(256	)
Other liabilities		(118	)		247
Net cash used for operating activities from continuing operations		(239	)		(591	)
Cash flows from investing activities:
Purchases of property and equipment		(924	)		(584	)
Proceeds from sales of investments		258			—
Net cash used for investing activities from continuing operations		(666	)		(584	)
Cash flows from financing activities:
Proceeds from exercises of stock options		184			1,287
Proceeds from employee stock purchase plans		418			936
Repurchases of common stock		(547	)		(1,310	)
Net cash provided by financing activities from continuing operations		55			913
Effect of foreign currency exchange rate changes on cash and cash equivalents		66			(810	)
Net cash provided by (used for) discontinued operations:
Operating activities		3,311			2,268
Investing activities		18,182			(4,980	)
Effect of a change in cash and cash equivalents on discontinued operations		13,999			(1,994	)
Net cash provided by (used for) discontinued operations		35,492			(4,706	)
Change in cash and cash equivalents		34,708			(5,778	)
Cash and cash equivalents, beginning of period		90,834			67,470
Cash and cash equivalents, end of period	$	125,542		$	61,692

The accompanying notes are an integral part of these

unaudited condensed consolidated financial statements.

7

UNITED ONLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION, ACCOUNTING POLICIES, AND RECENT ACCOUNTING PRONOUNCEMENTS

Description of Business

United Online, Inc. (together with its subsidiaries, “United Online” or the “Company”), through its operating subsidiaries, provides consumer subscription services and products, consisting of internet access services and devices, including dial-up, mobile broadband, DSL, e-mail, internet security, web hosting, and voice services, under the NetZero and Juno brands.

In March 2016, the Company entered into a Share Purchase Agreement for the sale of its StayFriends GmbH, Trombi Acquisition SARL, Klassträffen Sweden AB, and Klassenfreunde.ch GmbH entities (collectively, the “Social Media Business”) to Ströer Content Group GmbH. The purchase price for the Social Media Business was approximately 16 million Euros in cash, which included cash of 6.5 million Euros on the Social Media Business balance sheet, subject to a post-signing purchase price adjustment. The Share Purchase Agreement included customary representations, warranties and covenants of each party, some of which survived the closing of the transaction for a period of time. The sale closed in May 2016. The results of operations, the financial condition and the cash flows of the Social Media Business have been presented as discontinued operations for all periods presented.

In April 2016, the Company consummated the sale of its MyPoints business unit to Prodege, LLC. The purchase price for the MyPoints business unit was approximately $13 million in cash, subject to a post-closing working capital adjustment. The Stock Purchase Agreement for the sale included customary representations, warranties and covenants of each party, some of which survived the closing of the transaction for a period of time. The results of operations, the financial condition and the cash flows of the MyPoints business unit have been presented as discontinued operations for all periods presented.

In June 2016, the stockholders voted to approve the merger by and among the Company, B. Riley Financial, Inc. and Unify Merger Sub, Inc., a wholly-owned subsidiary of B. Riley Financial, Inc., pursuant to which B. Riley Financial, Inc. merged with and into the Company with the Company continuing as the surviving corporation and as a wholly-owned subsidiary of B. Riley Financial, Inc. on July 1, 2016.

Basis of Presentation

The Company’s unaudited condensed consolidated financial statements for the six months ended June 30, 2016 and 2015 have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Accordingly, such financial statements do not include all of the information and note disclosures required by GAAP for complete financial statements. All significant intercompany accounts and transactions have been eliminated in consolidation. The unaudited condensed consolidated financial statements, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair statement of the results for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for any future periods. The unaudited condensed consolidated balance sheet at December 31, 2015 was derived from the Company’s audited consolidated financial statements, filed on May 26, 2016, with the SEC in the Company’s Current Report on Form 8-K for the year ended December 31, 2015, but does not include all of the disclosures required by GAAP.

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent liabilities and the reported amounts of revenues and expenses. Actual results could differ from these estimates and assumptions. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 2015 included in the Company’s Current Report on Form 8-K filed on May 26, 2016.

The most significant areas of the unaudited condensed consolidated financial statements that require management judgment include the Company’s revenue recognition, goodwill, other long-lived assets, income taxes, and legal contingencies.

The Company believes that its existing cash and cash equivalents and cash generated from operations will be sufficient to fund its working capital requirements, capital expenditures and other obligations through at least the next 12 months.

8

Accounting Policies

Refer to the Company’s audited consolidated financial statements for the year ended December 31, 2015 included in the Company’s Current Report on Form 8-K filed May 26, 2016 for a discussion of the Company’s significant accounting policies.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in this ASU will be effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. The amendments should be applied retrospectively. In July 2015, the FASB approved a one-year deferral of the effective date with early adoption permitted. The Company intends to adopt the standard effective January 1, 2018 and is currently assessing the impact of this update on its consolidated financial statements.

In June 2014, the FASB issued ASU No. 2014-12, Compensation—Stock Compensation: Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. The core principle of the guidance requires that a performance target that affects vesting and that could be achieved after the requisite service period should be treated as a performance condition. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Early adoption is permitted. Entities may apply the amendments in ASU No. 2014-12 either: (a) prospectively to all awards granted or modified after the effective date; or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. The Company adopted the standard for the six months ended June 30, 2016 with no impact on its consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The update provides GAAP guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and about related footnote disclosures. The amendments in this update are effective for annual periods ending after December 15, 2016, and for annual periods and interim periods thereafter. Early adoption is permitted. The Company does not expect this update to have a material impact on its consolidated financial statements.

  In April 2015, the FASB issued ASU No. 2015-05, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer's Accounting for Fees Paid in a Cloud Computing Arrangement. The update provides GAAP guidance on evaluating the accounting for fees paid by a customer in a cloud computing arrangement. The amendments in this update also provide a basis for evaluating whether a cloud computing arrangement includes a software license. The amendments in this update are effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. Early adoption is permitted. The Company adopted the standard for six months ended June 30, 2016 with no impact on its consolidated financial statements.

In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. The amendments in this update more closely align the measurement of inventory in GAAP with the measurement of inventory in International Financial Reporting Standards (IFRS). The amendments in this update are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The amendments in this update should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is currently assessing the impact of this update on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The amendments in this update require that a lessee recognize the assets and liabilities that arise from leases. The amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The amendments in this update should be applied at the beginning of the earliest period presented using a modified retrospective approach. The Company is currently assessing the impact of this update on its consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net). The amendments in this update do not change the core principle of the guidance as noted above at ASU No. 2014-09. The amendments clarify the implementation guidance on principal versus agent considerations. The effective date and transition requirements for the amendments in this update are the same as the effective date and transition requirements of ASU No. 2014-09. The Company intends to adopt the standard effective January 1, 2018 and is currently assessing the impact of this update on its consolidated financial statements.

9

In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The amendments in this update involve simplification in several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments in this update are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The amendments in this update require both prospective and retrospective application with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is currently assessing the impact of this update on its consolidated financial statements.

In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. The amendments in this Update do not change the core principle of the guidance as noted above at ASU No. 2014-09. The core principle of the update is to clarify the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. The Company intends to adopt the standard effective January 1, 2018 and is currently assessing the impact of this update on its consolidated financial statements.

In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. The amendments in this Update do not change the core principle of the guidance as noted above at ASU No. 2014-09. The core principle of the update is to clarify the following narrow aspects of Topic 606: assessing the collectibility criterion, presentation of sales taxes and other similar taxes collected from customers, noncash consideration, contract modifications at transition, completed contracts at transition, and technical correction. The Company intends to adopt the standard effective January 1, 2018 and is currently assessing the impact of this update on its consolidated financial statements.

2. SEGMENT INFORMATION

As a result of the presentation of the Company’s former Commerce & Loyalty and Social Media segments as discontinued operations, the Company now operates as a single operating and reportable segment.

Revenues were as follows (in thousands):

	Six Months Ended June 30,
	2016		2015
Services revenues	$	25,926	$	33,391
Products revenues		2,084		2,775
Advertising and other revenues		8,444		11,306
Total revenues	$	36,454	$	47,472

Geographic revenues are attributed to countries based on the principal location of the Company’s entities from which those revenues were generated. The Company’s only principal location from which revenues were generated was the United States.

Geographic information for long-lived assets, which consist of property and equipment and other assets, was as follows (in thousands):

	June 30, 2016		December 31, 2015
United States	$	6,318	$	7,031
India		196		227
Total long-lived assets	$	6,514	$	7,258

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3. BALANCE SHEET COMPONENTS

Inventories

Inventories, net, consisted entirely of finished goods at June 30, 2016 and December 31, 2015.

Other Current Assets

Other current assets consisted of the following (in thousands):

	June 30, 2016		December 31, 2015
Income taxes receivable	$	1,994	$	1,651
Prepaid expenses		1,339		1,393
Prepaid insurance		581		1,287
Other		940		2,762
Total	$	4,854	$	7,093

Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

	June 30, 2016		December 31, 2015
Employee compensation and related liabilities	$	5,125	$	5,270
Income taxes payable		325		710
Non-income taxes payable		154		200
Reserve for legal settlements		100		100
Accrued restructuring and other exit costs		—		121
Other		739		849
Total	$	6,443	$	7,250

Other Liabilities

Other liabilities consisted of the following (in thousands):

	June 30, 2016		December 31, 2015
Income taxes payable	$	3,632	$	3,528
Other		1,564		1,785
Total	$	5,196	$	5,313

Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss were as follows (in thousands):

	Gains on Other Hedging Instruments, Net of Tax			Foreign Currency Translation			Reclassifications out of Accumulated Other Comprehensive Loss		Accumulated Other Comprehensive Loss
Balance at December 31, 2015	$	213		$	(4,299	)	$	—	$	(4,086	)
Other comprehensive income (loss)		(213	)		560			1,559		1,906
Balance at June 30, 2016	$	—		$	(3,739	)	$	1,559	$	(2,180	)

In May 2016, the Company completed the sale of its Social Media Business to Ströer Content Group GmbH. As a result, the Company reclassified $1.6 million out of accumulated other comprehensive loss into loss from discontinued operations.

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4. FAIR VALUE MEASUREMENTS

Financial assets that were required to be measured at fair value on a recurring basis consisted of money market funds (Level 1 assets) totaling $124.6 million and $65.8 million at June 30, 2016 and December 31, 2015, respectively.

5. STOCKHOLDERS’ EQUITY

Common Stock Repurchases

In May 2001, the Company’s Board of Directors authorized a common stock repurchase program (the “Program”) that allows the Company to repurchase shares of its common stock through open market or privately negotiated transactions based on prevailing market conditions and other factors. From time to time since then, the Board of Directors has increased the amount authorized for repurchase under this Program and has extended the Program, which was recently extended by the Board of Directors (in December 2015) through December 31, 2018. From August 2001 through December 2015, the Company had repurchased $150.2 million of its common stock under the Program. There were no repurchases under the Program during the six months ended June 30, 2016 and, at June 30, 2016, the authorization remaining under the Program was $80.0 million.

Shares withheld upon the vesting of restricted stock units and upon the issuance of stock awards to pay minimum statutory employee withholding taxes are considered common stock repurchases, but are not counted as purchases against the Program. Upon vesting of most restricted stock units or issuance of stock awards, the Company currently does not collect the minimum statutory withholding taxes from employees. Instead, the Company automatically withholds, from the restricted stock units that vest and from the stock awards that are issued, the portion of those shares with a fair market value equal to the amount of the minimum statutory employee withholding taxes due, which is accounted for as a repurchase of common stock. The Company then pays the minimum statutory employee withholding taxes in cash. The amounts remitted in the six months ended June 30, 2016 and 2015 were $0.5 million and $1.3 million respectively, for which the Company withheld 0.1 million and 0.1 million shares of common stock, respectively, that were underlying the restricted stock units that vested.

6. STOCK-BASED COMPENSATION PLANS

Stock-Based Compensation

The following table summarizes the stock-based compensation that has been included in the following line items within the unaudited condensed consolidated statements of operations (in thousands):

	Six Months Ended June 30,
	2016		2015
Operating expenses:
Cost of revenues	$	55	$	107
Sales and marketing		35		112
Technology and development		212		371
General and administrative		1,898		2,081
Total stock-based compensation	$	2,200	$	2,671

Restricted Stock Units

The following table summarizes activity for restricted stock units (in thousands):

Nonvested at December 31, 2015	402
Granted	204
Vested	(138	)
Forfeited/canceled	(73	)
Nonvested at June 30, 2016	395

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Stock Options

The following table summarizes activity for stock options (in thousands):

Outstanding at December 31, 2015	843
Exercised	(17	)
Forfeited/canceled	(82	)
Outstanding at June 30, 2016	744

7. INCOME TAXES

The Company’s provision for income taxes for the six months ended June 30, 2016 differed from the U.S. federal statutory tax rate of 34% primarily due to a provision for income taxes related to discrete items, including $0.8 million of withholding taxes on distributions from the Company’s India subsidiary. For the six months ended June 30, 2016, the Company utilized the actual effective tax rate (discrete method) in determining the domestic income tax expense, rather than the annual effective tax rate method, as allowed under ASC 740-270-30-36, Income Taxes—Interim Reporting.

The Company’s provision for income taxes for the six months ended June 30, 2016 has an unusual relationship to pre-tax loss primarily due to the existence of a full deferred tax asset valuation allowance. This circumstance generally results in a zero net tax provision since the income tax expense or benefit that would otherwise be recognized is offset by the change in the valuation allowance. However, the tax provision recorded in the six months ended June 30, 2016 included dividend withholding tax, state audit assessments, an accrual for uncertain tax positions, and an income tax accrual related to certain goodwill assets. The Company does not consider the deferred tax liabilities related to certain goodwill assets when determining the need for a valuation allowance. The Company’s benefit from income taxes for the six months ended June 30, 2015 differed from the U.S. federal statutory tax rate of 34% primarily due to a benefit from income taxes related to discrete items. The benefit from income taxes recorded in the six months ended June 30, 2015 included a benefit from discontinued operations, state minimum and franchise taxes, and an income tax accrual related to certain goodwill assets.

8. NET LOSS PER COMMON SHARE

The following table sets forth the computation of basic and diluted net income (loss) per common share (in thousands, except per share amounts):

	Six Months Ended June 30,
	2016			2015
Numerator:
Loss from continuing operations	$	(5,914	)	$	(2,759	)
Income allocated to participating securities		—			—
Loss from continuing operations available to common stockholders		(5,914	)		(2,759	)
Income (loss) from discontinued operations, net of tax, available to common stockholders		(9,281	)		4,257
Net income (loss) attributable to common stockholders	$	(15,195	)	$	1,498
Denominator:
Weighted-average common shares		14,936			14,547
Add: Dilutive effect of non-participating securities		—			—
Shares used to calculate diluted net income (loss) per common share		14,936			14,547
Basic net income (loss) per common share:
Continuing operations	$	(0.40	)	$	(0.19	)
Discontinued operations		(0.62	)		0.29
Basic net loss per common share	$	(1.02	)	$	0.10
Diluted net income (loss) per common share:
Continuing operations	$	(0.40	)	$	(0.19	)
Discontinued operations		(0.62	)		0.29
Diluted net loss per common share	$	(1.02	)	$	0.10

13

The diluted net loss per common share computations exclude stock options and restricted stock units that are antidilutive. Weighted-average antidilutive shares for the six months ended June 30, 2016 and 2015 were 1.2 million and 1.1 million, respectively.

9. RESTRUCTURING AND OTHER EXIT COSTS

Restructuring and other exit costs were a result of management’s decision to streamline operations and increase profitability and, for the six months ended June 30, 2016 and 2015, consisted of employee termination costs. The following tables summarize restructuring and other exit costs (in thousands):

Accrued restructuring and other exit costs at December 31, 2015	$	121
Restructuring and other exit costs		296
Cash paid for restructuring and other exit costs		(417	)
Accrued restructuring and other exit costs at June 30, 2016	$	—

10. CONTINGENCIES—LEGAL MATTERS

In June 2011, Memory Lane, Inc., a California corporation, filed a complaint in United States District Court, Central District of California, against Classmates International, Inc., Classmates Online, Inc. and Classmates, Inc. (then known as Memory Lane, Inc.) (“Classmates”), alleging false designation of origin under the Lanham Act, 15 U.S.C. section 1125, and state and common law unfair competition. The complaint included requests for an award of damages and for preliminary and permanent injunctive relief. Notwithstanding the request for preliminary injunctive relief, no motion for such relief was filed. Classmates responded to the complaint in September 2011. In October 2011, the plaintiff amended its complaint to, among other things, dismiss Classmates International, Inc. and add United Online, Inc. as a defendant. In February 2014, the jury issued a verdict for the defendants, concluding that the defendants did not infringe plaintiff’s trademark and the court entered judgment in favor of the defendants. In March 2014, plaintiff filed a notice of appeal of the judgment in favor of defendants. The plaintiff’s appeal brief was filed in November 2014. Classmates’ opposition brief was filed in December 2014. Plaintiff’s reply brief was filed in March 2015. Classmates’ reply brief was filed in April 2015. In March 2016, the U.S. Ninth Circuit Court of Appeals issued an opinion which denied the plaintiff’s appeal and affirmed the jury trial verdict.

On May 4, 2016, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”), with B. Riley Financial, Inc. (“B. Riley”) and Unify Merger Sub, Inc., pursuant to which a wholly-owned subsidiary of B. Riley will, subject to the satisfaction or waiver of the conditions contained in the Merger Agreement, merge with and into us, with us surviving the merger as a wholly-owned subsidiary of B. Riley (the “Transaction”). Pursuant to the terms of, and subject to the satisfaction or waiver of the closing conditions set forth in, the Merger Agreement, at the effective time of the merger, each share of our common stock issued and outstanding immediately prior to the effective time of the Merger will be converted into $11.00 in cash, without interest. Starting on May 5, 2016, the Company received notice that a number of law firms intend to investigate the Transaction on behalf of stockholders under various legal theories, including that the price offered per share undervalues the Company and that the Board of Directors’ decision to proceed with the Transaction violated its fiduciary duties. Three putative class action stockholder lawsuits have been filed on May 12, 2016, June 7, 2016, and June 10, 2016 alleging, among other things, breach of fiduciary duty by the board of directors, and that the merger agreement includes an unfair price, an inadequate sales process, and unreasonable deal protection provisions that purportedly prevent competing offers. One plaintiff has served document requests in anticipation of litigation. The Company is currently evaluating its alternatives in defense of these claims. On July 5, 2016, Quadre Investments, LP, filed a petition seeking appraisal of the fair value of its shares of United Online common stock instead of the cash for each share of United Online common stock that would be provided pursuant to the Merger Agreement. The Company is continuing to evaluate these assertions.

The Company cannot predict the outcome of legal actions or governmental investigations or their potential implications for its business. In addition, the Company, at times, has negotiated resolutions related to certain legal actions and governmental investigations. There are no assurances that additional legal actions or governmental investigations will not be instituted in connection with the Company’s current or former business practices or in connection with the proposed Transaction.

The Company records a liability when it believes that it is both probable that a loss will be incurred, and the amount of loss can be reasonably estimated. The Company evaluates, at least quarterly, developments in its legal matters that could affect the amount of liability that has been previously accrued, and makes adjustments as appropriate. Significant judgment is required to determine both probability and the estimated amount. The Company may be unable to estimate a possible loss or range of possible loss due to various reasons, including, among others: (i) if the damages sought are indeterminate; (ii) if the proceedings are in early stages; (iii) if there is uncertainty as to the outcome of pending appeals, motions, or settlements; (iv) if there are significant factual issues to be determined or resolved; and (v) if there are novel or unsettled legal theories presented. In such instances, there is considerable uncertainty regarding the ultimate resolution of such matters, including a possible eventual loss, if any. At June 30, 2016, the Company had reserves totaling $0.1 million for estimated losses related to legal matters. With respect to the legal matters described above, if any, that are ongoing, the Company has determined, based on its current knowledge, that the amount of possible loss or range of loss, including any reasonably possible losses in excess of amounts already accrued, is not reasonably estimable. However, legal matters are inherently unpredictable and subject to significant uncertainties, some of which are beyond the Company’s control. As such, even though the Company intends to vigorously defend itself with respect to its legal matters, there can be no assurance that the final outcome of these matters will not materially and adversely affect the Company’s business, financial condition, results of operations, or cash flows.

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11. DISCONTINUED OPERATIONS

In August 2015, the Company consummated the sale of its Classmates domestic business unit to Intelius Holdings, Inc. The Classmates domestic business unit was previously included as part of the Social Media segment results. Accordingly, the results of operations, financial condition and cash flows of the Classmates domestic business unit have been presented as discontinued operations for all periods presented.

In March 2016, the Company entered into a Share Purchase Agreement for the sale of its Social Media Business to Ströer Content Group GmbH. The purchase price for the Social Media Business was approximately 16 million Euros in cash, which included cash of 6.5 million Euros on the Social Media Business balance sheet, subject to a post-signing purchase price adjustment. The Share Purchase Agreement included customary representations, warranties and covenants of each party, some of which survive the closing of the transaction for a period of time. The sale closed in May 2016. The results of operations, the financial condition and the cash flows of the Social Media Business have been presented as discontinued operations for all periods presented.

In April 2016, the Company consummated the sale of its MyPoints business unit to Prodege, LLC. The purchase price received for the MyPoints business unit was approximately $13 million in cash, subject to a post-closing working capital adjustment. The Stock Purchase Agreement for the sale included customary representations, warranties and covenants of each party, some of which survive the closing of the transaction for a period of time. The results of operations, the financial condition and the cash flows of the MyPoints business unit have been presented as discontinued operations for all periods presented.

Revenues and income (loss) from discontinued operations were as follows (in thousands):

	Six Months June 30,
	2016			2015
Revenues	$	19,132		$	53,020
Operating expenses:
Cost of revenues		7,870			14,260
Sales and marketing		5,493			18,105
Technology and development		2,070			7,384
General and administrative		2,693			6,368
Amortization of intangible assets		120			1,007
Restructuring and other exit costs		—			1
Impairment of goodwill		37,713			—
Total operating expenses		55,959			47,125
Operating income (loss)		(36,827	)		5,895
Interest income		1			3
Gain on disposal of discontinued operations		26,343			—
Other income (loss), net		(17	)		40
Income (loss) from discontinued operations before income taxes		(10,500	)		5,938
Provision for (benefit from) income taxes		(1,219	)		1,681
Income (loss) from discontinued operations, net of tax	$	(9,281	)	$	4,257

During the quarter ended March 31, 2016, due to the comparison of negotiated sales prices for the Company's MyPoints and Social Media reporting units to their respective carrying values, the Company performed an interim quantitative goodwill impairment assessment for these reporting units. Step one of the goodwill impairment test for each of the Company's reporting units that were tested resulted in the Company's determination that the carrying values, including goodwill, exceeded the fair values of the MyPoints and Social Media reporting units by $2.9 million and $3.1 million, respectively. The fair values of the reporting units for step one of the goodwill impairment test were based on their respective negotiated sales prices. During the quarter ended March 31, 2016, the Company recognized goodwill impairment charges totaling $22.5 million and $15.2 million related to its MyPoints and Social Media reporting units, respectively, before provision for income taxes, which were included in discontinued operations in the unaudited condensed consolidated statements of operations. As a result of these goodwill impairment charges in the quarter ended March 31, 2016, the Company recorded a gain on sale for both the MyPoints business unit and the Social Media Business during the quarter ended June 30, 2016 totaling $17.2 million and $9.1 million, respectively.

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The major classes of assets and liabilities included in discontinued operations were as follows (in thousands):

	December 31, 2015
Assets
Current assets:
Cash and cash equivalents	$	14,000
Accounts receivable, net		8,296
Inventory, net		5,246
Other current assets		3,148
Total current assets		30,690
Property and equipment, net		6,838
Goodwill		39,172
Intangible assets, net		335
Deferred tax assets		1,338
Other assets		228
Total assets	$	78,601
Liabilities
Current liabilities:
Accounts payable	$	1,909
Accrued liabilities		3,003
Member redemption liability		6,781
Deferred revenue		9,506
Total current liabilities		21,199
Member redemption liability		11,322
Deferred revenue		17
Deferred tax liabilities, net		2,488
Other liabilities		393
Total liabilities	$	35,419

The Company recorded transaction-related costs totaling $0.5 million in the six months ended June 30, 2016, in connection with the sales of the Company’s business units, which was included in discontinued operations in the unaudited condensed consolidated statements of operations.

12. SUBSEQUENT EVENTS

On July 1, 2016, pursuant to the Agreement and Plan of Merger, dated as of May 4, 2016 (the “Merger Agreement”), by and among B. Riley Financial, Inc., a Delaware corporation (“BRF”), Unify Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of BRF (“Merger Sub”), and United Online, Inc., a Delaware corporation (the “Company”), Merger Sub merged with and into the Company with the Company continuing as the surviving corporation as a wholly-owned subsidiary of BRF (the “Merger”).

At the effective time of the Merger (the “Effective Time”), each share of common stock, par value $0.0001 per share, of the Company (“Company Common Stock”) issued and outstanding immediately prior to the Effective Time (other than certain shares held by Parent, Merger Sub or any wholly-owned subsidiary of Parent or Merger Sub, held in the Company’s treasury or owned by stockholders who have perfected and not withdrawn a demand for appraisal rights pursuant to Section 262 of the Delaware General Corporation Law (the “Excluded Shares”)) will be converted into the right to receive $11.00 in cash, without interest (the “Per Share Merger Consideration”). At the Effective Time, all of the Excluded Shares outstanding immediately prior to the Effective Time will be automatically canceled for no consideration.

At the Effective Time, each outstanding option to purchase shares of Company Common Stock pursuant to the Company’s incentive plans will be automatically canceled and converted into the right to receive an amount in cash, less applicable tax withholding, equal to the product of (x) the number of shares of Company Common Stock underlying such option immediately prior to the Effective Time and (y) the excess, if any, of the Per Share Merger Consideration over the exercise price per share of such option.  In addition, at the Effective Time, each outstanding Company restricted stock unit award will be automatically canceled and converted into the right to receive an amount in cash, less applicable tax withholding, equal to the product of (a) the Per Share Merger Consideration, and (b) the number of shares of Company Common Stock underlying such restricted stock unit award immediately prior to the Effective Time.

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EX-99.3

EXHIBIT 99.3

B. RILEY FINANCIAL, INC. AND SUBSIDIARIES

PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

(UNAUDITED)

AS OF JUNE 30, 2016

							PRO FORMA
							ADJUSTMENTS
	B. RILEY FINANCIAL,			UNITED ONLINE,			RELATED TO
	INC. (a)			INC. (b)			ACQUISITION			PRO FORMA TOTAL
	(Dollars in thousands, except par value)
Assets
Current assets:
Cash and cash equivalents	$	48,123		$	125,542	(2)	$	(169,290	)	$	14,654
						(3)		(2,200	)
						(5)		12,479
Restricted cash		12,108			-			-			12,108
Securities owned, at fair value		24,644			-	(5)		(12,479	)		12,165
Accounts receivable, net		7,997			3,850			-			11,847
Due from related parties		2,255			-			-			2,255
Advances against customer contracts		5,609			-			-			5,609
Inventory		-			624			-			624
Goods held for sale or auction		36			-			-			36
Prepaid expenses and other current assets		8,507			4,854			-			13,361
Total current assets		109,279			134,870			(171,490	)		72,659
Property and equipment, net		475			5,681			-			6,156
Goodwill		34,528			7,489	(1)		20,506			55,034
						(4)		(7,489	)
Other intangible assets, net		4,545			-	(1)		41,000			45,545
Deferred income taxes		18,722			156	(1)		(11,400	)		7,478
Other assets		1,989			833			-			2,822
Total assets	$	169,538		$	149,029		$	(128,873	)	$	189,694
Liabilities
Current liabilities:
Accounts payable	$	1,084		$	5,037		$	-		$	6,121
Accrued payroll and related expenses		3,084			5,125			-			8,209
Accrued value added tax payable		34			154			-			188
Accrued expenses and other liabilities		5,335			1,164			-			6,499
Auction and liquidation proceeds payable		15,959			-			-			15,959
Securities sold not yet purchased		5,932			-			-			5,932
Mandatorily redeemable noncontrolling interests		2,512			-			-			2,512
Deferred revenue		-			3,706			-			3,706
Contingent consideration payable		1,196			-			-			1,196
Total current liabilities		35,136			15,186			-			50,322
Deferred tax liabilities, net		-			1,974			-			1,974
Other liabilities					5,196			-			5,196
Total liabilities		35,136			22,356			-			57,492
Equity:
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued		-			-			-			-
Common stock, $0.0001 par value; 40,000,000 shares authorized; 19,043,072 issued and outstanding at June 30, 2016		2			1	(1)		(1	)		2
Additional paid-in capital		140,555			224,506	(1)		(217,017	)		140,555
						(4)		(7,489	)
Accumulated deficit		(6,158	)		(95,654	)(1)		95,654			(8,358	)
						(3 )		(2,200	)
Accumulated other comprehensive income		(1,075	)		(2,180	)(1)		2,180			(1,075	)
Total stockholders' equity		133,324			126,673			(128,873	)		131,124
Noncontrolling interests		1,078			-						1,078
Total equity		134,402			126,673			(128,873	)		132,202
Total liabilities and equity	$	169,538		$	149,029		$	(128,873	)	$	189,694

The accompanying notes are an integral part of this statement.

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B. RILEY FINANCIAL, INC. AND SUBSIDIARIES

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(UNAUDITED)

FOR THE YEAR ENDED DECEMBER 31, 2015

	B. RILEY FINANCIAL, INC. (a)			UNITED ONLINE, INC. (b)			PRO FORMA ADJUSTMENTS RELATED TO ACQUISITION			PRO FORMA TOTAL
	(Dollars in thousands, except share data)
Revenues:
Services and fees	$	101,929		$	85,395		$	-		$	187,324
Sale of goods and products		10,596			4,832			-			15,428
Total revenues		112,525			90,227			-			202,752
Operating expenses:
Direct cost of services		29,049			36,541	(6)		(5,512	)		60,078
Cost of goods sold		3,072			-	(6)		5,512			8,584
Technology and development		-			10,010			-			10,010
Selling, general and administrative expenses		58,322			43,516	(7)		5,088			106,926
Restructuring and other exit costs		-			1,469			-			1,469
Total operating expenses		90,443			91,536			5,088			187,067
Operating income (loss)		22,082			(1,309	)		(5,088	)		15,685
Other income (expense):
Interest income		17			442			-			459
Interest expense		(834	)		-			-			(834	)
Other income, net		-			877			-			877
Income before income taxes		21,265			10			(5,088	)		16,187
Provision for income taxes		7,688			799	(8)		(2,035	)		6,452
Net income		13,577			(789	)		(3,053	)		9,735
Income attributable to noncontrolling interests		1,772			-			-			1,772
Net income attributable to common stockholders	$	11,805		$	(789	)	$	(3,053	)	$	7,963
Basic earnings per share	$	0.73								$	0.49
Diluted earnings per share	$	0.73								$	0.49
Weighted average basic shares outstanding		16,221,040									16,221,040
Weighted average dilted shares outstanding		16,265,915									16,265,915

The accompanying notes are an integral part of this statement.

2

B. RILEY FINANCIAL, INC. AND SUBSIDIARIES

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(UNAUDITED)

FOR THE SIX MONTHS ENDED JUNE 30, 2016

	B. RILEY FINANCIAL, INC. (a)			UNITED ONLINE, INC. (b)			PRO FORMA ADJUSTMENTS RELATED TO ACQUISITION			PRO FORMA TOTAL
	(Dollars in thousands, except share data)
Revenues:
Services and fees	$	40,205		$	34,370		$	-		$	74,575
Sale of goods and products		2			2,084			-			2,086
Total revenues		40,207			36,454			-			76,661
Operating expenses:
Direct cost of services		12,243			15,130	(9)		(2,064	)		25,309
Cost of goods sold		2			-	(9)		2,064			2,066
Technology and development		-			4,160			-			4,160
Selling, general and administrative expenses		26,117			22,375	(10)		2,544			51,036
Restructuring and other exit costs		-			296			-			296
Total operating expenses		38,362			41,961			2,544			82,867
Operating income (loss)		1,845			(5,507	)		(2,544	)		(6,206	)
Other income (expense):
Interest income		6			322			-			328
Interest expense		(407	)		-			-			(407	)
Other income, net		-			741			-			741
Income (loss) before income taxes		1,444			(4,444	)		(2,544	)		(5,544	)
Provision (benefit) for income taxes		101			1,470	(11)		(1,018	)		553
Net income (loss)		1,343			(5,914	)		(1,526	)		(6,097	)
Income attributable to noncontrolling interests		1,196			-			-			1,196
Net income (loss) attributable to common stockholders	$	147		$	(5,914	)	$	(1,526	)	$	(7,293	)
Basic earnings per share	$	0.01								$	(0.42	)
Diluted earnings per share	$	0.01								$	(0.42	)
Weighted average basic shares outstanding		17,212,716									17,212,716
Weighted average dilted shares outstanding		17,547,073									17,212,716

The accompanying notes are an integral part of this statement.

3

B. RILEY FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO PRO FORMA UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in ‘000’s)

NOTE 1—ACQUISITION

On May 4, 2016, B. Riley Financial, Inc. (“B. Riley”) entered into an agreement and plan of merger by and among B. Riley, Unify Merger Sub, Inc. and United Online, Inc. (“UOL”) to acquire all of the outstanding common stock of UOL (“Acquisition Agreement”). On July 1, 2016, B. Riley acquired all of the outstanding common stock of UOL in accordance with the Acquisition Agreement. The acquisition was accounted for using the purchase method of accounting in accordance with ASC 805, “Business Combinations”.

NOTE 2—PRO FORMA ADJUSTMENTS AND ASSUMPTIONS

The pro forma adjustments to the condensed combined balance sheet give effect to the acquisition of UOL as if the transaction had occurred on June 30, 2016. The pro forma adjustments to the condensed consolidated statements of operations for the six months ended June 30, 2016 and year ended December 31, 2015 give effect to the acquisition of UOL as if the transaction had had been completed as of January 1, 2015. The pro forma financial statements were based on, and should be read in conjunction with, the financial statements indicated below. The pro forma financial statements have been presented for informational purposes only and are not necessarily indicative of what the combined company’s results of operations and financial position would have been had the acquisition of UOL been completed on the dates indicated. The pro forma financial statements do not reflect the cost of any integration activities or benefits that may result from synergies that may be derived from any integration activities or corporate overhead that will not be duplicated. In addition, the pro forma financial statements do not purport to project the future results of operations or financial position of the combined company.

Balance Sheet—June 30, 2016

a. Derived from the unaudited condensed consolidated balance sheet of B. Riley as of June 30, 2016 contained in the Form 10-Q filed with the Securities and Exchange Commission (“SEC”) on August 5, 2016.

b. Derived from the unaudited condensed consolidated balance sheet of UOL as of June 30, 2016 contained within this filing.

(1) Reflects the acquisition of UOL based on preliminary consideration of $169,290, comprised of all cash which was paid upon closing. The pro forma purchase price adjustments are based on a preliminary valuation of assets and liabilities acquired, and are subject to future adjustment to the extent that additional information is obtained about the facts and circumstances that will exist on the acquisition date, and have been made solely for the purpose of providing the unaudited pro forma consolidated financial information presented herewith. Differences between these provisional estimates and the final acquisition accounting will occur and these differences could have a material impact on the accompanying pro forma financial statements and the Company’s future results of operations and financial position.

The following table summarizes the preliminary estimated fair values of the assets acquired.

Total consideration	$	169,290
Tangible assets acquired and assumed:
Cash	$	125,542
Accounts Receivables		3,850
Inventory		624
Prepaid expenses and other assets		5,687
Property and equipment		5,681
Accounts payable		(5,037	)
Accrued expenses and other liabilities		(6,443	)
Deferred revenue		(3,706	)
Deferred tax liabilities		(13,218	)
Other liabilities		(5,196	)
Customer list		39,500
Tradename		1,500
Goodwill		20,506
Total Assets	$	169,290

The total consideration for the acquisition has been reflected as $169,290 paid in cash. Total consideration paid was allocated to the tangible and intangible assets and liabilities assumed based on estimates of their respective fair values at the date of acquisition with the remaining unallocated purchase price in the amount of $20,506 recorded as goodwill. The deferred tax liability is the result of tax attributes acquired from UOL and the tax effect of the customer list and tradename which is not expected to be deductible for income tax purposes.

4

Management is responsible for the valuation of net assets and considered a number of factors when estimating the fair values and estimated useful lives of acquired assets and liabilities.

(2) Reflects the estimated total cash consideration paid upon closing the acquisition of UOL in the amount of $169,290.

(3)	Reflects the estimated expenses of $2,200 to be incurred by B. Riley and UOL in connection with the acquisition of UOL by B. Riley.
(4)	Reflects the elimination of the historical goodwill of UOL in the amount of $7,489.

(5) Reflects the reduction in securities owned by B. Riley (common stock of UOL which was cancelled upon closing of the acquisition) which had a fair value of $12,479 at June 30, 2016 and the corresponding estimated impact on cash of $12,479.

Statement of Operations—For the Year Ended December 31, 2015

a.	Derived from the audited consolidated statement of operations of B. Riley Financial, Inc. for the year ended December 31, 2015 contained in the Form 10-K filed with the SEC on March 28, 2016.
b.	Derived from the audited consolidated statement of operations of UOL for the year ended December 31, 2015 contained within this filing excluding income or loss from discontinued operations.
(6)	Reflects the estimated cost of goods sold of $5,512 that is reclassified from direct cost of services to conform to the presentation of B. Riley Financial, Inc. and Subsidiaries Pro Forma Condensed Consolidated Statement of Operations.
(7)	Reflects the estimated amortization expense of intangible assets acquired using the straight-line method. The estimated useful life of the tradename and customer list in Note (1) above is estimated to be 10 years and 8 years, respectively. Upon completion of the final valuation of assets, liabilities and intangible assets for the purchase accounting, the estimated useful life of the intangible assets may change.

(8) Reflects pro forma adjustment for the income tax provision of $2,035 for the year ended December 31, 2015 based on the impact of a combined federal and state statutory tax rate of 40.0% on the pro forma adjustments related to income before income taxes.

Statement of Operations—For the Six Months Ended June 30, 2016

a.	Derived from the the unaudited condensed statement of operations of B. Riley Financial, Inc. for the six months ended June 30, 2016 contained in the Form 10-Q filed with the SEC on August 5, 2016.
b.	Derived from the the unaudited condensed statement of operations of UOL for the six months ended June 30, 2016 contained within this filing excluding income or loss from discontinued operations.
(9)	Reflects the estimated cost of goods sold of $2,064 that is reclassified from direct cost of services to conform to the presentation of B. Riley Financial, Inc. and Subsidiaries Pro Forma Condensed Consolidated Statement of Operations.
(10)	Reflects the estimated amortization expense of intangible assets acquired using the straight-line method. The estimated useful life of the tradename and customer list in Note (1) above is estimated to be 10 years and 8 years, respectively. Upon completion of the final valuation of assets, liabilities and intangible assets for the purchase accounting, the estimated useful life of the intangible assets may change.

(11) Reflects pro forma adjustment for the income tax benefit of $1,018 for the six months ended June 30, 2016 based on the impact of a combined federal and state statutory tax rate of 40.0% on the pro forma adjustments related to loss before income taxes.   

5

NOTE 3—CONTINGENCIES

Legal Matters

In 2010, Classmates, Inc., and Florists' Transworld Delivery, Inc. and FTD.COM Inc. (together, the "FTD Parties") received subpoenas from the Attorney General for the State of Kansas and the Attorney General for the State of Maryland, respectively. These subpoenas were issued on behalf of a Multistate Work Group that consists of the Attorneys General for the following states: Alabama, Alaska, Delaware, Florida, Idaho, Illinois, Kansas, Maine, Maryland, Michigan, Nebraska, New Mexico, New Jersey, North Dakota, Ohio, Oregon, Pennsylvania, South Dakota, Texas, Vermont, Washington and Wisconsin (the "Multistate Work Group"). The inquiry concerned certain post-transaction sales practices in which these companies previously engaged with certain third-party vendors and certain auto-renewal practices of Classmates, Inc. In May 2015, Classmates, Inc. and the FTD Parties entered into settlement agreements with each member of the Multistate Work Group. Under the terms of the settlement agreements, Classmates, Inc. and the FTD Parties denied all wrong-doing and agreed to certain injunctive relief and to two areas of monetary relief: (1) a payment from Classmates, Inc. and the FTD Parties in the aggregate amount of $8,000 to be distributed amongst the states in the Multistate Work Group (with approximately $5,180 to be paid by Classmates, Inc. and approximately $2,820 to be paid by the FTD Parties); and (2) Classmates, Inc. funding a $3,000 restitution program covering eligible consumers in the states in the Multistate Work Group, with any restitution not paid to consumers being paid to such states. The Classmates, Inc. portion of the payments described above relating to the settlement agreements was paid by Classmates, Inc. in July 2015. In October 2015, the Company received insurance proceeds in the amount of $4,200 related to the Multistate Work Group inquiry and accompanying legal fees. Of this amount, $2,800 was allocated to United Online, Inc. and $1,400 was allocated to FTD, which was remitted to FTD in October 2015. In August 2016, as a result of mediation, the Company and its insurance carrier agreed to a $2,500 recovery for all remaining insurance claims related to the Multistate Work Group. The Company received proceeds of $2,500 from its insurance carrier, and, of this amount, $1,667 was allocated to United Online, Inc. and $833 was allocated to the FTD Parties.

6