Quarterly Report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended June 30, 2011

	Or

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

	For the transition period from to .

Commission File Number: 000-28369

Geeknet, Inc.

(Exact name of Registrant as specified in its charter)

Delaware	77-0399299
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

11216 Waples Mill Rd., Suite 100, Fairfax, VA 22030

(Address, including zip code, of principal executive offices)

(877) 433-5638

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act). (Check one):

Large accelerated filer ¨		Accelerated filer x
Non-accelerated filer ¨		Smaller reporting company ¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The Registrant had 6,330,661 shares of Common Stock, $0.001 par value per share, outstanding as of July 29, 2011.

Table of Contents

			Page No.
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)		3
		Condensed Consolidated Balance Sheets at June 30, 2011 and December 31, 2010	3
		Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2011 and June 30, 2010	4
		Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and June 30, 2010	5
		Notes to Unaudited Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		29
Item 4.	Controls and Procedures		30

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings		30
Item 1A.	Risk Factors		30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		43
Item 6.	Exhibits		43
Signatures			44
Certifications

PART I

GEEKNET, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, unaudited)

	June 30,			December 31,
	2011			2010
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	24,923		$	35,333
Short-term investments		8			8
Accounts receivable, net of allowance of $3 and $0, respectively		6,813			5,078
Inventories		9,311			13,322
Prepaid expenses and other current assets		4,110			2,919
Total current assets		45,165			56,660
Property and equipment, net		5,020			5,114
Other long-term assets		4,916			4,983
Total assets	$	55,101		$	66,757

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	4,686		$	13,381
Deferred revenue		2,668			1,836
Accrued liabilities and other		1,923			3,591
Total current liabilities		9,277			18,808
Other long-term liabilities		82			77
Total liabilities		9,359			18,885
Commitments and contingencies (Note 11)
Stockholders’ equity:
Common stock, $0.001 par value; authorized — 25,000; issued- 6,426 and 6,365 shares, respectively; outstanding — 6,331 and 6,273 shares, respectively		6			6
Treasury stock		(811	)		(622	)
Additional paid-in capital		805,752			803,160
Accumulated other comprehensive income		5			10
Accumulated deficit		(759,210	)		(754,682	)
Total stockholders’ equity		45,742			47,872
Total liabilities and stockholders’ equity	$	55,101		$	66,757

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

GEEKNET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts, unaudited)

	Three Months Ended June						Six Months Ended June 30,
	2011			2010			2011			2010
Revenue:
ThinkGeek revenue	$	14,319		$	10,558		$	29,524		$	20,942
Media revenue		5,751			4,716			10,462			9,011
Revenue		20,070			15,274			39,986			29,953
Cost of revenue:
ThinkGeek cost of revenue		13,209			8,792			26,843			17,610
Media cost of revenue		1,459			1,795			2,805			3,576
Cost of revenue		14,668			10,587			29,648			21,186
Gross margin		5,402			4,687			10,338			8,767
Operating expenses:
Sales and marketing		3,302			3,551			6,669			6,713
Research and development		1,309			1,613			2,286			3,143
General and administrative		2,927			2,049			5,899			4,173
Amortization of intangible assets		20			93			41			184
Restructuring		-			(101	)		-			(101	)
Total operating expenses		7,558			7,205			14,895			14,112
Loss from operations		(2,156	)		(2,518	)		(4,557	)		(5,345	)
Interest and other income (expense), net		15			22			7			27
Loss from continuing operations before income taxes		(2,141	)		(2,496	)		(4,550	)		(5,318	)
Income tax benefit		-			(12	)		(23	)		(13	)
Loss from continuing operations		(2,141	)		(2,484	)		(4,527	)		(5,305	)
Loss from discontinued operations		-			(22	)		-			(22	)
Net loss	$	(2,141	)	$	(2,506	)	$	(4,527	)	$	(5,327	)

Loss per share from continuing operations:
Basic and diluted	$	(0.34	)	$	(0.42	)	$	(0.72	)	$	(0.88	)
Loss per share from discontinued operations:
Basic and diluted	$	-		$	-		$	-		$	-
Net loss per share:
Basic and diluted	$	(0.34	)	$	(0.42	)	$	(0.72	)	$	(0.88	)

Shares used in per share calculations:
Basic and diluted		6,306			6,029			6,294			6,021

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

GEEKNET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)

	Six Months Ended June 30,
	2011			2010

Cash flows from operating activities from operations:
Net Loss	$	(4,527	)	$	(5,327	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,056			1,089
Stock-based compensation expense		1,913			1,430
Provision for bad debts		3			-
Provision for excess and obsolete inventory		221			14
Loss on sale of assets		-			18
Non-cash restructuring expense		-			(101	)
Changes in assets and liabilities:
Accounts receivable		(1,738	)		(395	)
Inventories		3,790			(1,629	)
Prepaid expenses and other assets		(1,165	)		83
Accounts payable		(8,695	)		(844	)
Accrued restructuring liabilities		-			(1,137	)
Deferred revenue		832			261
Accrued liabilities and other		(1,668	)		(1,477	)
Other long-term liabilities		4			(9	)
Net cash used in operating activities		(9,974	)		(8,024	)
Cash flows from investing activities from operations:
Change in restricted cash		-			1,000
Purchase of property and equipment		(921	)		(3,063	)
Purchase of intangible assets		-			(122	)
Maturities or sale of marketable securities		-			7,200
Acquistion of a business, net of acquired		-			(1,000	)
Net cash (used in) provided by investing activities from operations:		(921	)		4,015
Cash flows from financing activities from operations:
Proceeds from issuance of common stock		679			141
Repurchase of common stock		(189	)		(98	)
Net cash provided by financing activities from operations:		490			43
Effect of exchange rate changes on cash and cash equivalents		(5	)		(6	)
Net decrease in cash and cash equivalents		(10,410	)		(3,972	)
Cash and cash equivalents, beginning of period		35,333			28,943
Cash and cash equivalents, end of period	$	24,923		$	24,971

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

GEEKNET, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1.	Basis of Presentation

Overview

Geeknet, Inc. (“Geeknet” or the “Company”) is an online network for the global geek community, comprised of technology professionals, technology enthusiasts and general consumers of technology-oriented goods, services and media. The Company’s e-commerce segment, consisting solely of ThinkGeek, Inc., sells geek-themed retail products to technology enthusiasts and general consumers through its ThinkGeek web site. Geeknet’s audience of technology professionals and technology enthusiasts relies on its web sites — SourceForge and freshmeat — to create, improve, compare and distribute Open Source software and on Slashdot to peer-produce and peer-moderate technology news and discussion.

Geeknet was incorporated in California in January 1995 and reincorporated in Delaware in December 1999. From the date of its incorporation through October 2001, the Company sold Linux-based hardware systems and services under the name VA Linux Systems, Inc. In December 2001, the Company changed its name to VA Software Corporation to reflect its decision to pursue Media, e-commerce, Software and Online Images businesses. In May 2007, the Company changed its name to SourceForge, Inc. In November 2009, the Company changed its name to Geeknet to project a more accurate reflection of its business, primarily to the advertising community.

The interim financial information presented in this Form 10-Q is not audited and is not necessarily indicative of the Company’s future consolidated financial position, results of operations or cash flows. The accompanying condensed consolidated balance sheet as of December 31, 2010 has been derived from audited financial statements included on Form 10-K, and the interim unaudited condensed consolidated financial statements contained in this Form 10-Q have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and on the same basis as the annual financial statements. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been condensed or omitted in accordance with such rules and regulations. In the opinion of management, all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s financial position as of June 30, 2011, its results of operations for the three and six months ended June 30, 2011 and June 30, 2010 and its cash flows for the six months ended June 30, 2011 and June 30, 2010 have been made. These financial statements and notes should be read in conjunction with the Company’s audited financial statements and notes thereto for the fiscal year ended December 31, 2010, included in the Company’s Annual Report on Form 10-K filed with the SEC.

2.	Summary of Significant Accounting Policies

Except as discussed below, there have been no significant changes to the Company’s critical accounting estimates during the three and six months ended June 30, 2011 as compared to what was previously disclosed in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

On November 10, 2010, the Company effected a 1-for-10 reverse stock split. All share and per share amounts in this report have been adjusted to give effect to the reverse stock split. In conjunction with the reverse stock split, the common stock par value remained constant at $0.001 per share. Following the reverse stock split, a portion of the common stock was transferred to additional paid in capital

Loss from discontinued operations consists of direct revenue and direct expenses of Geek.com, including cost of revenue. For the three and six months ended June 30, 2010, Geek.com had revenue of $25 thousand and expenses of $26 thousand. For the same periods amortization of intangible assets was $21 thousand.

Adopted Accounting Pronouncements

On January 1, 2011, the Company prospectively adopted accounting standard update (“ASU”) 2009-13, which amends Accounting Standards Codification (“ASC”) Topic 605, Revenue Recognition. Under this standard, Media revenue in arrangements with multiple deliverables is allocated using estimated selling prices, whereas prior to January 1, 2011, the Company's rate card was used to allocate such revenue and in some instances the residual method was used to allocate revenue. The adoption of ASU 2009-13 did not have a significant impact on the Company's consolidated financial statements.

Use of Estimates in Preparation of Consolidated Financial Statements

The preparation of the Company’s consolidated financial statements and related notes requires the Company to make estimates, and these include judgments and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. The Company has based its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances and the Company evaluates its estimates on a regular basis and makes changes accordingly. Historically, the Company’s estimates relative to its critical accounting estimates have not differed materially from actual results, however actual results may differ from these estimates under different conditions.

A critical accounting estimate is based on judgments and assumptions about matters that are highly uncertain at the time the estimate is made. Different estimates that reasonably could have been used, or changes in accounting estimates, could materially impact the financial statements.

Principles of Consolidation

The interim financial information presented in this Quarterly Report on Form 10-Q includes the accounts of Geeknet and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. At June 30, 2011, the Company owned approximately 9% of CollabNet consisting of CollabNet’s Series C-1 preferred stock. As the Company holds less than 20% of the voting stock of CollabNet and does not otherwise exercise significant influence over them, the investment is accounted for under the cost method. CollabNet is a developer of software used in collaborative software development.

Foreign Currency Translation

The Company has wholly-owned subsidiaries in the United Kingdom and Belgium. The functional currency of each subsidiary is the local currency. Balance sheet accounts are translated into U.S. dollars at exchange rates prevailing at balance sheet dates. Revenue and expenses are translated into U.S. dollars at average rates for the period. Adjustments resulting from translation are charged or credited in other comprehensive income as a component of stockholders’ equity. For all non-functional currency account balances, the re-measurement of such balances to the functional currency is recorded as a foreign exchange gain or loss, which is included in interest and other income, net.

Segment and Geographic Information

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker, or decision-making group, in making decisions about how to allocate resources and assess performance. The Company’s chief decision-making group is the Office of the Chief Executive Officer which includes the Chief Executive Officer, the Chief Financial Officer and the heads of the Media and ThinkGeek business units. The Company currently operates as two reportable business segments: ThinkGeek e-commerce and Media.

Cash and Cash Equivalents

The Company considers all highly-liquid investments with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents consist principally of cash deposited in money market and checking accounts as well as treasury bills.

Investments

Investments in highly-liquid financial instruments with remaining maturities greater than three months and less than one year are classified as short-term investments. Financial instruments with remaining maturities greater than one year are classified as long-term investments.

Marketable securities classified as available-for-sale are reported at market value, with net unrealized gains or losses recorded in accumulated other comprehensive income (loss), a separate component of stockholders' equity, until realized. Realized gains and losses on investments are computed based upon specific identification and are included in interest and other income (expense), net. Investments designated as trading securities are stated at fair value, with gains or losses resulting from changes in fair value recognized currently in earnings. Non-marketable equity securities are accounted for at historical cost.

Other-Than-Temporary Impairment

All of the Company’s available-for-sale investments and non-marketable equity securities are subject to a periodic impairment review. Investments are considered to be impaired when a decline in fair value is judged to be other-than-temporary. This determination requires significant judgment. For publicly-traded investments, impairment is determined based upon the specific facts and circumstances present at the time, including a review of the closing price over the previous six months, general market conditions and the Company’s intent and ability to hold the investment for a period of time sufficient to allow for recovery. For non-marketable equity securities, the impairment analysis requires the identification of events or circumstances that would likely have a significant adverse effect on the fair value of the investment, including revenue and earnings trends, overall business prospects and general market conditions in the investees’ industry or geographic area. Investments identified as having an indicator of impairment are subject to further analysis to determine if the investment is other-than-temporarily impaired, in which case the investment is written down to its impaired value.

Inventories

Inventories related to the Company’s ThinkGeek e-commerce business consist solely of finished goods that are valued at the lower of cost, using the weighted average cost method, or market. We review inventories quarterly and, when required, provisions are made to reduce excess and obsolete inventories to their estimated net realizable values.

Property and Equipment

Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the lesser of the estimated useful lives or the corresponding lease term.

Goodwill and Intangibles

Goodwill, which is entirely related to our Media segment, is carried at cost. Intangible assets are amortized on a straight-line basis over their estimated lives of three to five years. The Company continually evaluates whether events or circumstances have occurred that indicate the remaining estimated useful lives of these intangible assets may not be recoverable. When events or circumstances indicate that the goodwill and intangible assets should be evaluated for possible impairment, the Company uses an estimate of undiscounted cashflows over the remaining useful life of the intangible assets in measuring whether they are recoverable. No events or circumstances occurred that would indicate a possible impairment in the carrying value of intangible assets at June 30, 2011.

Goodwill and intangible assets are as follows (in thousands):

	June 30, 2011							December 31, 2010
	Gross		Accumulated			Net		Gross		Accumulated			Net
	asset		amortization			asset		asset		amortization			asset
Goodwill	$	62,037	$	(60,362	)	$	1,675	$	62,037	$	(60,362	)	$	1,675

Identified intangible assets:
Domain and trade names		6,176		(6,052	)		124		6,176		(6,012	)		164
Purchased technology		2,535		(2,535	)		-		2,535		(2,535	)		-
		8,711		(8,587	)		124		8,711		(8,547	)		164
Total goodwill and identified intangible assets	$	70,748	$	(68,949	)	$	1,799	$	70,748	$	(68,909	)	$	1,839

The future amortization expense of identified intangibles is as follows (in thousands):

Year ending December 31,	Amount
2011	$	41
2012		67
2013		15
	$	123

Revenue Recognition

The Company recognizes revenue as follows:

ThinkGeek

ThinkGeek revenue is derived from the online sale of consumer goods. The Company recognizes ThinkGeek revenue from product sales when persuasive evidence of an arrangement exists, delivery has occurred, the sale price is fixed or determinable, and collectability is reasonably assured. The Company recognizes ThinkGeek revenue when products are delivered and title transfers to the customer. The Company grants customers a limited right to return products. The Company has recorded provisions of $0.3 million for such returns at June 30, 2011. At June 30, 2010 the reserve was zero.

The Company’s ThinkGeek business is highly seasonal, reflecting the general pattern associated with the retail industry of peak sales and earnings during the calendar year-end holiday shopping season. In the past several years, a substantial portion of the Company’s ThinkGeek revenue has occurred in the Company’s fourth quarter which begins on October 1 and ends on December 31. As is typical in the retail industry, the Company generally experiences lower monthly revenue during the first nine months of the year. The Company’s ThinkGeek revenue in a particular period is not necessarily indicative of future revenue for a subsequent quarter or a full year.

Media

Media revenue is derived primarily from advertising on the Company’s various web sites or from lead generation information provided to the customer. Advertisements include various forms of rich media and banner advertising, text links and sponsorships, while lead generation information utilizes advertising and other methods to deliver leads to a customer. The Company recognizes Media advertising revenue over the contractual campaign period as advertisements are displayed. The Company recognizes lead generation revenue as leads are delivered to the customer, provided that persuasive evidence of an arrangement exists, no significant obligations remain, the fee is fixed or determinable, and collection of the receivable is reasonably assured. The Company’s obligations may include guarantees of a minimum number of impressions (the number of times that an advertisement is viewed by visitors to the Company’s web sites). To the extent that minimum guaranteed impressions are not delivered in the specified time frame, the Company does not recognize the corresponding revenue until the guaranteed impressions are delivered.

Concentrations of Credit Risk and Significant Customers

The Company’s investments are held with two reputable financial institutions; both institutions are headquartered in the United States. The Company’s investment policy limits the amount of risk exposure. Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and trade receivables. The Company provides credit, in the normal course of business, to a number of companies and performs ongoing credit evaluations of its customers. The credit risk in the Company’s trade receivables is substantially mitigated by its credit evaluation process and reasonably short collection terms. At December 31, 2010, no customer accounted for more than 10% of the Company's gross accounts receivable. At June 30, 2011, Neo@Ogilvy accounted for 20% of our outstanding receivables balance.

For the three months ended June 30, 2011 and June 30, 2010, no one customer represented more than 10% of revenue. For the six months ended June 30, 2011 and June 30, 2010 no one customer represented more than 10% of revenue.

Reclassifications

Certain reclassifications have been made to the prior period consolidated financial statements to conform to the current year presentation. These reclassifications have no impact on previously reported net loss or cash flows. The gain or loss on sale of assets which was previously included in other income is now included in total operating expenses.

3.	Composition of Certain Balance Sheet Components

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

	June 30,			December 31,
	2011			2010
Computer and office equipment (useful lives of 2 to 4 years)	$	6,030		$	5,685
Distribution equipment (useful live of 5 years)		4,321			3,911
Furniture and fixtures (useful lives of 2 to 4 years)		316			226
Leasehold improvements (useful lives of lesser of estimated life or lease term)		282			207
Software (useful lives of 2 to 5 years)		580			579
Total property and equipment		11,529			10,608
Less: Accumulated depreciation and amortization		(6,509	)		(5,494	)
Property and equipment, net	$	5,020		$	5,114

Distribution equipment includes payments on the equipment which was installed at the Company's new third-party fulfillment and warehouse provider. This equipment has been placed in service at a total cost of $3.3 million. Also included in distribution equipment is $0.4 million of payments for the build out of additional warehouse capacity in order to better meet demand.

Other long-term assets consist of the following (in thousands):

	June 30,		December 31,
	2011		2010
Equity investment	$	1,979	$	1,979
Goodwill		1,675		1,675
Note receivable		711		711
Intangible assets, net		123		164
Other		427		454
Other long-term assets	$	4,915	$	4,983

Accrued liabilities and other consist of the following (in thousands):

	June 30,		December 31,
	2011		2010
Accrued employee compensation and benefits	$	1,664	$	2,252
Other accrued liabilities		259		1,339
Accrued liabilities and other	$	1,923	$	3,591

4.	Investments

The Company classifies its investments as available-for-sale or trading at the time they are acquired and reports them at fair value with net unrealized gains or losses reported, net of tax, using the specific identification method as other comprehensive gain or loss in stockholders’ equity or other income in the statement of operations. See Note 5 – Fair Value Measurements.

The Company’s cash, cash equivalents and investments consist of the following (in thousands):

	June 30, 2011						December 31, 2010
	Adjusted		Unrealized		Estimated		Adjusted		Unrealized		Estimated
	Cost		Loss		Fair Value		Cost		Loss		Fair Value
Cash and cash equivalents:
Cash	$	1,661	$	-	$	1,661	$	5,072	$	-	$	5,072
Money market funds		23,262		-		23,262		30,261		-		30,261
Total cash and cash equivalents	$	24,923	$	-	$	24,923	$	35,333	$	-	$	35,333

Short-term investments:
Corporate securities		8		-		8		8		-		8
Total short-term investments	$	8	$	-	$	8	$	8	$	-	$	8

5.	Fair Value Measurements

The following table represents the Company’s fair value hierarchy for its financial assets (cash equivalents and investments) measured at fair value on a recurring basis as of June 30, 2011 (in thousands):

	Fair Value Measurements at Reporting Date Using
	Level 1		Level 2		Level 3		Total
Money market fund deposits	$	23,262	$	-	$	-	$	23,262
Corporate debt		-		-		8		8

Total	$	23,262	$	-	$	8	$	23,270

Amounts included in:
Cash and cash equivalents	$	23,262	$	-	$	-	$	23,262
Short-term investments		-		-		8		8

Total	$	23,262	$	-	$	8	$	23,270

Level 3 assets consist primarily of municipal bonds with an auction reset feature (“auction-rate securities” or “ARS”) whose underlying assets are student loans which are substantially backed by the federal government. Auction-rate securities are long-term floating rate bonds tied to short-term interest rates.

The following table provides a reconciliation of the beginning and ending balances for the assets measured at fair value using significant unobservable inputs (Level 3) (in thousands):

	Fair Value Measurements at Reporting Date Using significant Unobservable Inputs (Level 3) Financial Assets
Balance at December 31, 2010	$	8
Sales/Maturities		-

Balance at June 30, 2011	$	8

6.	Computation of Per Share Amounts

Basic earnings per common share is computed using the weighted-average number of common shares outstanding (adjusted for treasury stock and common stock subject to repurchase activity) during the period. Diluted earnings per common share is computed using the weighted-average number of common and dilutive common equivalent shares outstanding during the period. Common equivalent shares are anti-dilutive when their conversion would reduce the loss per share. Dilutive common equivalent shares consist primarily of stock options and restricted stock awards.

Employee equity share options, nonvested shares, and similar equity instruments granted by the Company are treated as potential common shares outstanding in computing diluted earnings per share. Diluted shares outstanding would include the dilutive effect of in-the-money options, calculated based on the average share price for each period using the treasury stock method, had there been any during the period. Under the treasury stock method, the amount the employee must pay for exercising stock options, the amount of compensation cost for future service that the Company has not yet recognized, and the amount of tax benefits that would be recorded in additional paid-in capital when the award becomes deductible are assumed to be used to repurchase shares. Additionally, under the treasury stock method the amount the purchaser of the written call options must pay for exercising stock options is assumed to be used to repurchase shares.

The following table presents the calculation of basic and diluted earnings per share (in thousands, except per share data):

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010

Net loss	$	(2,141	)	$	(2,506	)	$	(4,527	)	$	(5,327	)
Net loss per share:
Basic and diluted	$	(0.34	)	$	(0.42	)	$	(0.72	)	$	(0.88	)

Net loss from continuing operations	$	(2,141	)	$	(2,506	)	$	(4,527	)	$	(5,327	)
Net loss per share from continuing operations:
Basic and diluted	$	(0.34	)	$	(0.42	)	$	(0.72	)	$	(0.88	)

Loss from discontinued operations	$	-		$	(22	)	$	-		$	(22	)

Net loss per share from discontinued operations:
Basic and diluted	$	-		$	-		$	-		$	-

Weighted average shares - basic and diluted		6,306			6,029			6,294			6,021

The following potential common shares have been excluded from the calculation of diluted earnings per share for all periods presented because they are anti-dilutive (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010

Anti-dilutive securities:		116		613		143		548
Options to purchase common stock		-		16		53		164
Restricted stock awards and restricted stock units total		116		629		196		712

7.	Comprehensive Loss

Comprehensive loss is comprised of net loss and other non-owner changes in stockholders’ equity, including foreign currency translation gains or losses and unrealized gains or losses on available-for-sale marketable securities. The following table presents the components of comprehensive loss (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Net loss	$	(2,141	)	$	(2,506	)	$	(4,527	)	$	(5,327	)
Unrealized gain on marketable securities and investments		-			-			-			-
Foreign currency translation loss		(4	)		(4	)		(5	)		(6	)
Comprehensive loss	$	(2,145	)	$	(2,510	)	$	(4,532	)	$	(5,333	)

8.	Stockholders’ Equity and Stock-Based Compensation

Common Stock

During the three months ended June 30, 2011, the Company repurchased 1,945 shares of its common stock at a weighted-average price of $25.93 under an "odd lot" share repurchase program.

Stock option plans

In December 2007, the Company’s stockholders approved the 2007 Equity Incentive Plan (“2007 Plan”). The 2007 Plan replaced the Company’s 1998 Stock Plan (the “1998 Plan”) and the 1999 Director Option Plan (the “Directors’ Plan”), which are collectively referred to as the “Equity Plans”. The Equity Plans will continue to govern awards previously granted under each respective plan. There were initially 525,000 shares of common stock reserved for issuance under the 2007 Plan, subject to increase for stock options or awards previously issued under the Equity Plans which expire or are cancelled. On June 29, 2011 a registration statement was filed for the purpose of registering an additional 200,000 shares of Common Stock to be issued as a result of an increase in the number of shares issuable under the 2007 Plan. At June 30, 2011, a total of 179,830 shares were available for issuance. The 2007 Plan provides that each share award granted with an exercise price less than the fair market value on the date of grant will be counted as two shares towards the shares reserved and each such share award forfeited or repurchased by the Company will increase the shares reserved by two shares.

Under the 2007 Plan, the Board of Directors may grant to employees, consultants and directors an option to purchase shares of the Company’s Common Stock and/or awards of the Company’s common stock at terms and prices determined by the Board of Directors.

The 2007 Plan will terminate in 2017. Options granted under the 2007 Plan must be issued at a price equal to at least the fair market value of the Company’s common stock at the date of grant. All vested options granted under the 2007 Plan may be exercised at any time within 10 years of the date of grant or within 90 days of termination of employment, or such other time as may be provided in the stock option agreement, and vest over a vesting schedule determined by the Board of Directors. The Company’s policy is to issue new shares upon exercise of options, granting of Restricted Stock Awards ("RSA") or vesting of Restricted Stock Units ("RSU") under the 2007 Plan. The following table summarizes option and restricted stock purchase rights activities from December 31, 2009 through June 30, 2011:

							Stock Options Outstanding
	Available for Grant			Restricted Stock Outstanding			Number Outstanding			Weighted- Average Exercise Price per Share		Weighted-Average Remaining Contractual Term		Aggregate Intrinsic Value ($ 000's)
Balance at December 31, 2009		310,964			41,249			725,721		$	20.88		7.58	$	1,291
Granted		(632,769	)		163,650			305,469		$	15.32
Exercised		-			-			(230,723	)	$	8.51
Restricted stock released		-			(33,428	)		-		$	-
Restricted stock repurchased		14,084			(7,042	)		-		$	-
Cancelled		322,967			-			(325,809	)	$	24.05

Balance at December 31, 2010		15,246			164,429			474,658		$	20.72		7.15	$	3,573
Authorized		200,000
Granted		(301,852	)		336,201			98,200		$	26.59
Exercised		-			-			(50,144	)	$	17.42
Restricted stock released		-			(28,470	)		-		$	-
Restricted stock repurchased		-			-			-		$	-
Cancelled		266,436			(78,125	)		(110,186	)	$	28.30

Balance at June 30, 2011		179,830			394,035			412,528		$	20.49		7.96	$	3,184
Exercisable at June 30, 2011								162,086		$	22.20		6.09	$	1,336

Stock Based Compensation Expense

The following table summarizes employee stock-based compensation expense resulting from stock options and stock purchase rights (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Included in cost of revenue:
ThinkGeek cost of revenue	$	57	$	44	$	80	$	99
Media cost of revenue		22		32		43		58
Total included in cost of revenue		79		76		123		157
Included in operating expenses:
Sales and marketing		19		202		82		350
Research and development		31		110		47		185
General and administrative		1,055		363		1,661		738
Total included in operating expenses		1,105		675		1,790		1,273
Included in discontinued operations		-		-		-		-

Total stock-based compensation expense	$	1,184	$	751	$	1,913	$	1,430

The fair value of the option grants has been calculated on the date of grant using the Black-Scholes option pricing model. The expected life for the three and six months ended June 30, 2011 and June 30, 2010 was based on historical settlement patterns. Expected volatility was based on historical implied volatility in the Company’s stock. The interest rate for periods within the contractual life of the award is based on the U.S. Treasury yield curve in effect at the time of grant. The following table summarizes the weighted-average assumptions for stock options granted:

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Expected life (years)		4.41			5.9			4.35			5.89
Risk-free interest rate		1.30	%		2.77	%		1.52	%		2.76	%
Volatility		65.3	%		62.7	%		65.3	%		62.8	%
Dividend yield	None			None			None			None
Weighted-average fair value at grant date	$	13.96		$	9.00		$	13.83		$	8.90

As stock-based compensation expense recognized in the Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2011 and June 30, 2010 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures based on historical experience.

9.	Acquisitions

Geek.com

In May 2010, the Company acquired the Geek.com web site for $1.0 million in cash. Geek.com is an online technology resource and community for technology enthusiasts and professionals.

The Company allocated the $1.0 million purchase price to the intangible assets acquired based on their estimated fair values. The excess purchase price over those fair values was recorded as goodwill. In determining the purchase price, the Company considered the audience and traffic patterns of Geek.com and the opportunity for the Company to monetize Geek.com through its direct and indirect sales channels as well as through its E-commerce business.

The fair values assigned to intangible assets acquired are based on management estimates and assumptions, including third-party valuations that utilize established valuation techniques appropriate for internet domains and web sites. The fair value of the domain name and web site was estimated by applying the cost approach. This fair value measurement is based on significant inputs that are not observable in the market and thus represents a Level 3 measurement. Key assumptions include the estimated costs to develop the web site. The purchase price was allocated as follows (in thousands):

Identified intangible assets	$	746
Goodwill		254
	$	1,000

The identified intangible assets are comprised of Geek.com's domain name and have a useful life of three years. In December 2010 the Company sold the Geek.com business to Ziff Davis, Inc. for $0.8 million. The net loss from Geek.com has been treated as a discontinued operation in the accompanying consolidated financial statements.

10.	Segment and Geographic Information

The Company’s operating segments are significant strategic business units that offer different products and services. The Company has two operating segments: Media and E-commerce.

The Company’s Media segment consists of web sites serving technology professionals and technology enthusiasts and the Company’s E-commerce segment provides online sales of a variety of retail products of interest to these communities and general consumers. The Company’s websites that comprise the Media segment include: SourceForge, Slashdot and freshmeat.

(in thousands)	E-commerce			Media			Total Company
Three Months Ended June 30, 2011
Revenue from external customers	$	14,319		$	5,751		$	20,070
Cost of revenue	$	13,209		$	1,459		$	14,668
Gross margin	$	1,110		$	4,292		$	5,402
Loss from operations	$	(2,352	)	$	196		$	(2,156	)
Depreciation and amortization	$	272		$	243		$	515
Three Months Ended June 30, 2010
Revenue from external customers	$	10,558		$	4,716		$	15,274
Cost of revenue	$	8,792		$	1,795		$	10,587
Gross margin	$	1,766		$	2,921		$	4,687
Loss from operations	$	(704	)	$	(1,814	)	$	(2,518	)
Depreciation and amortization	$	61		$	500		$	561
Six Months Ended June 30, 2011
Revenue from external customers	$	29,524		$	10,462		$	39,986
Cost of revenue	$	26,843		$	2,805		$	29,648
Gross margin	$	2,681		$	7,657		$	10,338
Operating loss	$	(4,091	)	$	(466	)	$	(4,557	)
Depreciation and amortization	$	545		$	511		$	1,056
Six Months Ended June 30, 2010
Revenue from external customers	$	20,942		$	9,011		$	29,953
Cost of revenue	$	17,610		$	3,576		$	21,186
Gross margin	$	3,332		$	5,435		$	8,767
Operating loss	$	(1,233	)	$	(4,112	)	$	(5,345	)
Depreciation and amortization	$	119		$	970		$	1,089

During the time period covered by the table above, the Company marketed its Media products in the United States through its direct sales force. ThinkGeek products were marketed through its online web site and with respect to international Media sales, through its subsidiary in the United Kingdom and representatives based in the United Kingdom, Europe and Australia.

11.	Commitments and Contingencies

Litigation

In January 2001, the Company, two of its former officers, and Credit Suisse First Boston, the lead underwriter in the Company's initial public offering ("IPO"), were named as defendants in a shareholder lawsuit filed in the U.S. District Court for the Southern District of New York, later consolidated and captioned In re VA Software Corp. Initial Public Offering Securities Litigation, 01-CV-0242. The plaintiffs' class action suit seeks unspecified damages on behalf of a purported class of purchasers of the Company's common stock from the time of the Company's initial public offering in December 1999 through December 2000.

Among other things, this complaint alleged that the prospectus pursuant to which shares of common stock were sold in the Company's initial public offering contained certain false and misleading statements or omissions regarding the practices of the Underwriters with respect to their allocation of shares of common stock in these offerings and their receipt of commissions from customers related to such allocations. Various plaintiffs have filed actions asserting similar allegations concerning the initial public offerings of approximately 300 other issuers. These various cases were coordinated for pretrial proceedings as In re Initial Public Offering Securities Litigation, 21 MC 92.

In 2008, the parties reached a global settlement of the litigation. On October 5, 2009, the Court entered an order certifying a settlement class and granting final approval of the settlement. Under the settlement, the insurers will pay the full amount of settlement share allocated to the Company, and the Company will bear no financial liability. The Company, as well as the officer and director defendants, who were previously dismissed from the action pursuant to a stipulation, will receive complete dismissals from the case. A group of objectors appealed the Court's October 5, 2009 order to the U.S. Second Circuit Court of Appeals. The Plaintiffs have filed motions to dismiss the appeals, some of which have been granted and some of which are still pending. If for any reason the settlement does not become effective and litigation resumes, the Company believes that it has meritorious defenses to plaintiffs' claims and intends to defend the action vigorously.

On October 3, 2007, a purported Geeknet shareholder filed a complaint for violation of Section 16(b) of the Securities Exchange Act of 1934, which prohibits short-swing trading, against the Company's IPO underwriters. The complaint, Vanessa Simmonds v. Credit Suisse Group, et al., Case No. C07-1583, in the U.S. District Court for the Western District of Washington, seeks the recovery of short-swing profits. The Company is named as a nominal defendant and no recovery is sought from the Company. The plaintiff, Vanessa Simmonds, has filed similar lawsuits in the U.S. District Court for the Western District of Washington alleging short-swing trading in the stock of 54 other companies. On July 25, 2008, a majority of the named issuer companies, including Geeknet, jointly filed a motion to dismiss plaintiff's claims. On March 12, 2009, the court issued an order granting the motion to dismiss and a judgment in the favor of the moving issuers. On April 10, 2009, Ms. Simmonds appealed the order and judgment dismissing her claims to the U.S. Court of Appeals for the Ninth Circuit. On December 2, 2010, U.S. Court of Appeals for the Ninth Circuit affirmed the dismissal with respect to certain claims and remanded others to the district court. On January 18, 2011, the Ninth Circuit Court of Appeals voted unanimously to deny Simmonds’s petition for a rehearing en banc . On June 27, 2011, the U.S. Supreme Court denied Simmonds’s petition for a writ of certiorari with respect to the dismissed claims and granted the underwriters’ petition for a writ of certiorari with respect to the remanded claims.

On November 17, 2010, the Company filed a lawsuit against Tightrope Interactive claiming among other things trademark infringement, cyber piracy and violation of the California Consumer Protection against Computer Spyware Act regarding Tightrope Interactive’s use of certain software provided by VLC, a French non-profit whose software project is hosted on SourceForge.net. On December 14, 2010, Tightrope Interactive answered the complaint and filed counterclaims alleging the Company sent a wrongful Digital Millennium Copyright Act request to take down Tightrope Interactive material and seeking unspecified damages. The Company believes that the resolution of this matter will not have a material adverse impact on its consolidated financial position and results of operation.

The Company is subject to various claims and legal actions arising in the ordinary course of business. The Company reviews all claims and accrues a liability for those matters where it believes that the likelihood that a loss will occur is probable and the amount of loss is reasonably estimable. At June 30, 2011, no liability was recorded for outstanding matters.

Guarantees and Indemnifications

The following is a summary of the Company’s agreements, including Indirect Guarantees of Indebtedness of Others, some of which are specifically grandfathered because the guarantees were in effect prior to December 31, 2002. Accordingly, the Company has not recorded any liabilities for these agreements as of June 30, 2011.

As permitted under Delaware law, the Company has agreements whereby the Company’s officers and directors are indemnified for certain events or occurrences while the officer or director is, or was, serving at the Company’s request in such capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has obtained director and officer liability insurance designed to limit the Company’s exposure and to enable the Company to recover a portion of any future amounts paid. As a result of the Company’s insurance policy coverage, the Company believes the estimated fair value of these indemnification agreements is minimal. Accordingly, the Company has no liabilities recorded for these agreements as of June 30, 2011.

The Company enters into standard indemnification agreements in the ordinary course of business. Pursuant to these agreements, the Company indemnifies, holds harmless, and agrees to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally, the Company’s business partners, subsidiaries and/or customers, in connection with any patent, copyright or other intellectual property infringement claim by any third party with respect to the Company’s products. The term of these indemnification agreements is generally perpetual any time after execution of the agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. The Company has not incurred significant costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, the Company believes the estimated fair value of these agreements is insignificant. Accordingly, the Company has no liabilities recorded for these agreements as of June 30, 2011.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. Words such as “may,” “could,” “anticipate,” “potential,” “intend,” “expect,” “believe,” “in our view,” and variations of such words and similar expressions, are intended to identify such forward-looking statements, which include, but are not limited to, statements regarding our expectations and beliefs regarding future revenue growth; and sources of revenue; gross margins; financial performance and results of operations; technological trends in, and demand for online advertising; management's strategy, plans and objectives for future operations; employee relations and our ability to attract and retain highly qualified personnel; our intent to continue to invest in establishing our brand identity and developing of our web properties; competition, competitors and our ability to compete; liquidity and capital resources; changes in foreign currency exchange rates; the outcome of any litigation to which we are a party; our accounting policies; and sufficiency of our cash resources and investments to meet our operating and working capital requirements Actual results may differ materially from those expressed or implied in such forward-looking statements due to various factors, including those set forth in the Risk Factors contained in this Quarterly Report on Form 10-Q We undertake no obligation to update the forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.

Critical Accounting Estimates

There have been no significant changes in our critical accounting estimates during the three and six months ended June 30, 2011 as compared to what was previously disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2010.

Overview

We are an online network for the global geek community, which is comprised of technology professionals, technology enthusiasts and general consumers of technology-oriented goods, services and media. Our sites include: SourceForge, Slashdot, ThinkGeek and freshmeat. We provide our audiences with content, culture, connections and commerce.

Our e-commerce segment sells geek-themed retail products to technology enthusiasts and general consumers through our ThinkGeek web site. Our audience of technology professionals and technology enthusiasts relies on our web sites: SourceForge and freshmeat to create, improve, compare and distribute Open Source software and on Slashdot to peer-produce and peer-moderate technology news and discussion.

We were incorporated in California in January 1995 and reincorporated in Delaware in December 1999. From the date of our incorporation through October 2001, we sold Linux-based hardware systems and services under the name VA Linux Systems, Inc. In December 2001, we changed our name to VA Software Corporation to reflect our decision to pursue Media, e-commerce, Software and Online Images businesses. In December 2005, we sold our Online Images business to WebMediaBrands Inc. and in April 2007, we sold our Software business to CollabNet, Inc. (“CollabNet”). On May 24, 2007 we changed our name to SourceForge, Inc. In November 2009, we changed our name to Geeknet, Inc.

Our business consists of two operating segments: e-commerce and Media. Our e-commerce segment sells technology-themed retail products for technology enthusiasts through our ThinkGeek.com web site. We offer a broader range of unique products in a single web property than are available in traditional brick-and-mortar stores. We introduce a range of new products to our audience on a regular basis and develop, manufacture and sell our own “Invented at ThinkGeek” custom products. Our Media segment provides web properties that serve as platforms for the creation, review and distribution of online peer produced content. Our audience of technology professionals and enthusiasts relies on our web properties, SourceForge, Slashdot, and freshmeat, to create, improve, compare and distribute Open Source software and to research, debate and discuss current issues relating to the technology marketplace.

ThinkGeek’s business strategy is to increase revenue by expanding the range of new and innovative products we sell, including products developed by us, and by increasing traffic to our site. We also develop, manufacture and sell our own “Invented at ThinkGeek “custom products. We attract traffic to our sites using a variety of traditional online and direct retail marketing channels, direct mail and email to our customers and followers. We continue to use the capabilities of the internet, including social networking sites such as Facebook, Twitter and YouTube, to increase brand awareness and also to communicate with our customers.

In 2010, we changed our third-party fulfillment and warehouse provider and invested in modern automated distribution equipment in Lockbourne, Ohio. This will allow us to continue to develop our distribution capabilities to provide a high level of service to our customers.

We currently use the following key metrics to measure ThinkGeek’s business:

	Three Months Ended						Six Months Ended
	June 30, 2011			June 30, 2010			June 30, 2011			June 30, 2010

Daily Unique Visitors (in thousands) (1)		15,991			12,517			29,605			22,702
Orders Received (in thousands)		245			173			514			344
Conversion Rate		1.53	%		1.38	%		1.74	%		1.52	%
Average Order Value Orders Received	$	64		$	64		$	61		$	62

(1)

Unique Visitor is the aggregate average unique visitors for all Online Media sites during the period presented. This does not consider possible duplicate visitors who may visit more than one of our web sites during the month or may visit from a different device or platform. Beginning in the third quarter 2011, we will be making changes to our site to account for this calculation and the number of Unique Visitors.

Our Media business connects millions of influential technology professionals and enthusiasts. Our strategy is targeted to business-to-business technology companies and their advertising agencies with the goal of increasing revenue per page. During 2010, we hired individuals with the experience and capability of providing a greater variety of lead generation programs directly to our customers. We believe that customers value lead generation programs and that these programs will have the potential to constitute a growing source of future revenue. We are also focused on increasing the monetization of our international traffic and currently have a sales team in London, United Kingdom, to develop and implement strategies to increase international revenue and we have agreements with representatives in Europe, Australia and Asia to market and sell our advertising products.

We continue to invest in our web properties, primarily SourceForge and Slashdot. In March 2011, we launched an open source version of our platform for developers of Open Source projects, named Allura. The new version includes source code repositories, bug reports, discussions, mailing lists, wiki pages and blogs. It demonstrates our commitment to the Open Source community. The improvements to Slashdot included site redesign and improved site performance.

We currently use the following key metrics which are derived from data provided by Google Analytics to measure our Media business:

	Three Months Ended				Six Months Ended
	June 30, 2011		June 30, 2010		June 30, 2011		June 30, 2010

Unique Visitors per Month (in thousands) (1)(2)		47,804		38,868		48,618		39,530
Visits per Unique Visitor per Month (1)		1.6		1.8		1.6		1.7
Visits per Month (in thousands) (2)		76,815		69,763		78,206		67,190
Pages per Visit (1)		2.0		2.0		2.4		2.4
Page Views per Month (in thousands) (1)(2)		155,788		140,752		163,108		144,071

Revenue per Thousand Pages (RPM)		12.31		11.25	$	10.59	$	9.31
Revenue per User (RPU) (3)		0.48		0.49	$	0.54	$	0.52

(1)

(2)	Per month amounts are the average calculated as the total amount for the period divided by the months in the period. The 2010 numbers have been changed for comparative purposes and do not include RSS feeds. RSS feeds are no longer tracked by Google Analytics.

(3)	Revenue per User (“RPU”) is an annualized amount based on revenue and unique users during the period presented.

A key element of our growth plans is to increase engagement. Our metrics around engagement per user are an important measure, and we are focused on both growing the number of unique visitors and deepening the average levels of engagement.

Results of Operations

The following table sets forth our operating results for the periods indicated as a percentage of revenue, represented by selected items from the unaudited condensed consolidated statements of operations. This table should be read in conjunction with the condensed consolidated financial statements and the accompanying notes included in this Quarterly Report on Form 10-Q.

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Consolidated Statements of Operations Data:
ThinkGeek revenue		71.3	%		69.1	%		73.8	%		69.9	%
Media revenue		28.7	%		30.9	%		26.2	%		30.1	%
Revenue		100.0	%		100.0	%		100.0	%		100.0	%
ThinkGeek cost of revenue		65.8			57.6			67.1			58.8
Media cost of revenue		7.3			11.8			7.0			11.9
Cost of revenue		73.1	%		69.4	%		74.1	%		70.7	%
Gross margin		26.9	%		30.6	%		25.9	%		29.3	%
Operating expenses:
Sales and marketing		16.5			23.2			16.7			22.4
Research and development		6.5			10.6			5.7			10.5
General and administrative		14.6			13.4			14.8			13.9
Amortization of intangible assets		0.1			0.6			0.1			0.6
Restructuring costs		-			(0.7	)		-			(0.3	)
Total operating expenses		37.7	%		47.1	%		37.3	%		47.1	%
Loss from operations		(10.8	)%		(16.5	)%		(11.4	)%		(17.8	)%
Interest and other income (expense), net		0.1	%		0.1	%		0.0	%		0.1	%
Loss before income taxes		(10.7	)%		(16.4	)%		(11.4	)%		(17.7	)%
Income tax benefit		0.0	%		(0.1	)%		(0.1	)%		0.0	%
Net loss		(10.7	)%		(16.3	)%		(11.3	)%		(17.7	)%

Revenue

The following table summarizes our revenue by business segment:

	Three Months Ended				Six Months Ended				% Change
	June 30, 2011		June 30, 2010		June 30, 2011		June 30, 2010		Three Months			% Change Six Months
($ in thousands)
ThinkGeek revenue	$	14,319	$	10,558	$	29,524	$	20,942		36	%		41	%
Media revenue	$	5,751	$	4,716	$	10,462	$	9,011		22	%		16	%
Revenue	$	20,070	$	15,274	$	39,986	$	29,953		31	%		33	%

Sales for the three and six months ended June 30, 2011 and June 30, 2010 were primarily to customers located in the United States of America.

Revenue by Segment

ThinkGeek

	Three Months Ended						Six Months Ended						% Change
	June 30, 2011			June 30, 2010			June 30, 2011			June 30, 2010			Three Months			% Change Six Months

ThinkGeek revenue (in thousands)	$	14,319		$	10,558		$	29,524		$	20,942			36	%		41	%
Percentage of total revenue		71	%		69	%		74	%		70	%
Number of orders shipped		253,999			178,833			538,110			363,380			42	%		48	%
Average order size shipped	$	59		$	59		$	56		$	58			5	%		(3	)%

ThinkGeek revenue is derived from the online sale of consumer goods, including shipping, net of any returns and allowances and credit card chargebacks. The increase in ThinkGeek revenue during the three months ended June 30, 2011, as compared to the three months ended June 30, 2010, was primarily due to a 42% increase in the number of shipments year-over-year. ThinkGeek revenue for the second quarter increased 36% to $14.3 million, from $10.6 million for the same period last year. Our investments in the business continue to yield terrific new products and new customers. We have increased our investments in sales and marketing, merchandising and operations to support our growth. In 2011 we upgraded our inventory leadership and our processes and we are continuing to improve our efficiency. We decided to discontinue certain products to focus on bringing in exciting new products. We implemented our checkout re-write to ensure scalability and flexibility of our website and we plan to launch a mobile site during the second half of the year.

The increase in ThinkGeek’s revenue during the six months ended June 30, 2011, as compared to the six months ended June 30, 2010, was primarily due to a 48% increase in the number of shipments year-over-year. The increase in the number of shipments was primarily driven by increased demand for ThinkGeek’s innovative products.

Media

	Three Months Ended				Six Months Ended				% Change
	June 30, 2011		June 30, 2010		June 30, 2011		June 30, 2010		Three Months			% Change Six Months
($ in thousands)
Direct sales	$	4,014	$	3,363	$	7,447	$	6,452		19	%		15	%
Ad Networks		1,211		1,029		2,349		1,991		18	%		18	%
Other		526		324		666		568		62	%		17	%
Media revenue	$	5,751	$	4,716	$	10,462	$	9,011		22	%		16	%

Our Media revenue is derived primarily from advertising products delivered on our web properties. Direct sales revenue is generated from orders received by our United States based sales team and may also include advertisements to be delivered globally. Ad Networks revenue represents revenue from our Ad Network partners, primarily Google Inc., who sell our inventory globally to customers through automated systems and includes revenue from international resellers who use automated systems. Other revenue represents orders received from our international direct sales team and resellers, sales of reports on data underlying the open source community as well as referral fees and revenue earned from subscriptions to our web properties.

Direct sales revenue for the three months ended June 30, 2011 was higher by $0.7 million when compared to the three months ended June 30, 2010. This was primarily due to new customer spend of $1.5 million while existing customers added $0.4 million, offset by a $1.0 million decrease in revenue from advertisers whose campaigns were not renewed. The increase in Ad Networks revenue for the three months ended June 30, 2011 as compared to the three months ended June 30, 2010 was higher due to revenue from Google Inc. This was driven by the larger number of ad units we made available to them. Since we obtain higher prices for direct sales revenue, we allocate our available ad units first to direct sales campaigns and then to ad networks. To the extent that direct sales campaigns decline, we would allocate additional ad units to ad networks. The increase in Other revenue during the three months ended June 30, 2011 when compared to the three months ended June 30, 2010 was due to higher international display revenue and our increased focus on Lead Generation sales as a complement to our display advertising. Our international revenue continues to grow through the efforts of our direct sales force and expanded reseller relationships in Europe and Asia.

Direct sales revenue for the six months ended June 30, 2011 increased $1.0 million as compared with the six months ended June 30, 2010. The majority of the increase was due to new customer spend of $1.9 million offset by a $0.7 million decrease from advertisers whose campaigns were not renewed. Existing customers added $0.1 million in revenue when comparing the six months ended June 30, 2011 to the same period last year. The increase in Ad Networks revenue for the six months ended June 30, 2011 as compared to the six months ended June 30, 2010 was due to increased revenue from Google Inc., due to an increase in the number of ad units we made available to them. Since we obtain higher prices for direct sales revenue, we allocate our available ad units first to direct sales campaigns and then to ad networks. To the extent that direct sales campaigns decline, we would allocate additional ad units to ad networks. The increase in Other revenue during the six months ended June 30, 2011 when compared to the six months ended June 30, 2010 was primarily due to higher international display revenue and our increased focus on Lead Generation sales as a complement to our display advertising. Our international revenue continues to grow through the efforts of our direct sales force and expanded reseller relationships in Europe and Asia.

Cost of Revenue/Gross Margin

Three Months Ended

Six Months Ended

% Change

($ in thousands)

June 30,

2011

June 30,

2010

June 30,

2011

June 30,

2010

Three

Months

% Change

Six Months

Cost of revenue