BUSINESS ACQUISITION

9 Months Ended

Dec. 31, 2013

BUSINESS ACQUISITION

BUSINESS ACQUISITION

3. BUSINESS ACQUISITION

On January 17, 2013, the Company completed its acquisition of Storycode, Inc., a privately held mobile application publishing company. The acquisition was structured as a non-taxable transaction. Pursuant to the terms of the Agreement and Plan of Merger dated December 27, 2012, as amended (the “Merger Agreement”), Storycode became a wholly-owned subsidiary of the Company as of January 17, 2013.  The Company has incorporated Storycode’s expertise in mobile application development, user experience, and design into its Postano social media visualization platform to create a new kind of social platform with unique mobile distribution capabilities and allow brands to use original and fan-generated content to develop engaging experiences across the worldwide web, live events, and mobile environment.

In accordance with the Merger Agreement, the Company issued an aggregate of 1,696,329 shares of its common stock with a fair value of approximately $3.3 million and may issue an additional 444,468 shares with a fair value as of the acquisition closing date of approximately $861,000, subject to an 18-month holdback for general indemnification purposes pursuant to the Merger Agreement, which holdback share number may be adjusted from time to time. The Company also substituted 822,320 options to purchase its common stock for options to purchase Storycode’s common stock of which value of approximately $949,000 was allocated to the purchase price as of the acquisition closing date. In addition, the Company made cash payments aggregating approximately $499,000. Total consideration to acquire Storycode was approximately $5.6 million and comprised of the following (in thousands):

Fair value of common stock issued at closing	$	3,285
Fair value of common stock issuable-subject to the 18-month holdback	861
Fair value of stock options assumed	949
Cash consideration paid	499
Total purchase price	$	5,594

The fair value of shares issued and issuable is based on the closing price of the Company’s common stock on the acquisition closing date of $2.28 per share. However, all of the shares issued or issuable are subject to a one-year lock up agreement that resulted in an adjustment to the estimated fair value of the common stock to $1.94 per share.  Cash consideration includes a bridge loan from the Company to Storycode made during the quarter ended December 31, 2012 as well as legal and accounting fees incurred by Storycode and reimbursed by the Company. The Company incurred approximately $497,000 in direct transaction costs relating to this acquisition. Of this amount, approximately $288,000 was incurred in the fiscal year ended March 31, 2013 and approximately $209,000 was incurred in the nine months ended December 31, 2013.

In connection with the acquisition, each Storycode stock option that was outstanding and unexercised as of the acquisition date was assumed and converted into an option to purchase TigerLogic common stock based on a conversion ratio of 0.43085. Based on Storycode’s stock options outstanding at January 17, 2013, the Company converted options to purchase 1,908,583 shares of Storycode common stock into options to purchase 822,320 shares of TigerLogic common stock. The estimated value of the assumed stock options included in the purchase price equals the fair value of the fully vested stock options assumed plus the fair value of the portion of the partially vested stock options assumed attributable to pre-combination services.

The portion of the estimated fair value of the partially vested replacement stock options that was considered unearned compensation as of the date of acquisition was approximately $393,000, which is being recognized as stock-based compensation expense on a straight line basis over the remaining vesting periods of the respective awards.

Purchase Price Allocation

The total purchase price was allocated to Storycode’s net tangible and intangible assets based upon their estimated fair values as of the acquisition date. The excess purchase price over the value of the net tangible liabilities and identifiable intangible assets was recorded as goodwill. The table below represents the allocation of the purchase price to the acquired net assets of Storycode based on their estimated fair values as of the acquisition date and the associated estimated useful lives at that date.

	Amount			Useful Life (years)
Identifiable intangible assets:
Trade and domain names	$	80		10
Technology	530			7
Goodwill	5,268			N/A
Net tangible liabilities	(284		)	N/A
Total purchase price allocation	$	5,594

Pro Forma Results

The following pro forma combined results of Storycode’s operations for the three and nine month periods ended December 31, 2012 assumes the acquisition had taken place as of April 1, 2012, and combines the Company’s historical results of continuing operations for the periods ended December 31, 2012, with Storycode’s unaudited historical results of operations for the periods ended December 31, 2012. The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place on April 1, 2012 or the results that may occur in the future.

	Three Months Ended			Nine Months Ended
	December 31, 2012			December 31, 2012
	(in thousands, except per share data)
	(unaudited)
Net revenue	$	1,165		$	3,646
Net loss	$	(975	)	$	(3,761	)
Net loss per basic and diluted share	$	(0.03	)	$	(0.13	)