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 Freecode — 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. This is due in part to our ThinkGeek business which is highly seasonal, with a disproportionate amount of our sales occurring in the fourth quarter, which begins on October 1 and ends on December 31. 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 September 30, 2011, its results of operations for the three and nine months ended September 30, 2011 and September 30, 2010 and its cash flows for the nine months ended September 30, 2011 and September 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 nine months ended September 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
In December 2010, the Company sold Geek.com. The results of operations related to Geek.com have been presented as discontinued operations. Loss from discontinued operations consists of direct revenue and direct expenses of Geek.com, including cost of revenue. For the three months ended September 30, 2010, Geek.com had revenue of $54 thousand and total operating expenses of $143 thousand which included amortization of intangible assets of $62 thousand. For the nine months ended September 30, 2010, Geek.com had revenue of $88 thousand and total operating expenses of $199 thousand which included amortization of intangible assets of $83 thousand.
New Guidance to Be Implemented
Statement of Comprehensive Income
In June 2011, the FASB issued authoritative guidance that amends previous guidance for the presentation of comprehensive income. It eliminates the current option to present other comprehensive income in the statement of changes in equity. Under this revised guidance, an entity will have the option to present the components of net income and other comprehensive income in either a single continuous statement of comprehensive income or in two separate but consecutive financial statements. The standard is effective for us beginning in 2012.
Fair Value Measurements
In May 2011, the FASB issued authoritative guidance that amends previous guidance for fair value measurement and disclosure requirements. The revised guidance changes certain fair value measurement principles, clarifies the application of existing fair value measurements and expands the disclosure requirements, particularly for Level 3 fair value measurements. This standard is effective for us beginning in the first quarter of fiscal year 2012. We are currently evaluating the impact of this guidance, but we do not anticipate a material impact to our consolidated financial statements upon adoption.
Goodwill Impairment
In September 2011, the FASB issued ASU No. 2011-08, “Intangibles-Goodwill and Other” that will allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under these amendments, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The amendments include a number of events and circumstances for an entity to consider in conducting the qualitative assessment. The guidance is effective for fiscal years beginning after December 15, 2011 with early adoption permitted. The Company does not expect that the adoption of this update will have a material impact on its consolidated financial statements at this time.
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. 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 September 30, 2011, the Company owned approximately 9% of CollabNet, a developer of software used in collaborative software development, 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 nine 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 September 30, 2011. The goodwill balance at September 30, 2011 and December 31, 2010 was $1.7 million.
Intangible assets are as follows (in thousands):
|
|
|
September 30, 2011
|
|
|
December 31, 2010
|
|
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Net
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Net
|
|
|
|
|
asset
|
|
|
amortization
|
|
|
asset
|
|
|
asset
|
|
|
amortization
|
|
|
asset
|
|
|
Identified intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domain and trade names, intellectual property
|
|
|
6,196
|
|
|
|
(6,073
|
)
|
|
|
123
|
|
|
|
6,176
|
|
|
|
(6,012
|
)
|
|
|
164
|
|
|
Purchased technology
|
|
|
2,535
|
|
|
|
(2,535
|
)
|
|
|
-
|
|
|
|
2,535
|
|
|
|
(2,535
|
)
|
|
|
-
|
|
|
Total Identified intangible assets
|
|
$
|
8,731
|
|
|
$
|
(8,608
|
)
|
|
$
|
123
|
|
|
$
|
8,711
|
|
|
$
|
(8,547
|
)
|
|
$
|
164
|
|
The future amortization expense of identified intangibles is as follows (in thousands):
|
Year ending December 31,
|
|
|
Amount
|
|
|
2011
|
*
|
|
$
|
22
|
|
|
2012
|
|
|
|
74
|
|
|
2013
|
|
|
|
22
|
|
|
2014
|
|
|
|
5
|
|
|
|
|
|
$
|
123
|
|
*For 2011 this amount represents the final three months of the year.
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 $0.1 million for such returns at September 30, 2011. At September 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 defers revenue on the undelivered guaranteed impressions.
Concentrations of Credit Risk and Significant Customers
The Company’s cash and cash equivalents 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 September 30, 2011, one company accounted for 11% of our outstanding receivables balance.
For the three months ended September 30, 2011 and September 30, 2010, no one customer represented more than 10% of revenue. For the nine months ended September 30, 2011 and September 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):
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Computer and office equipment (useful lives of 2 to 4 years)
|
|
$
|
6,083
|
|
|
$
|
5,685
|
|
|
Distribution equipment (useful live of 5 years)
|
|
|
5,087
|
|
|
|
3,911
|
|
|
Furniture and fixtures (useful lives of 2 to 4 years)
|
|
|
240
|
|
|
|
226
|
|
|
Leasehold improvements (useful lives of lesser of estimated life or lease term)
|
|
|
346
|
|
|
|
207
|
|
|
Software (useful lives of 2 to 5 years)
|
|
|
601
|
|
|
|
579
|
|
|
Total property and equipment
|
|
|
12,357
|
|
|
|
10,608
|
|
|
Less: Accumulated depreciation and amortization
|
|
|
(6,905
|
)
|
|
|
(5,494
|
)
|
|
Property and equipment, net
|
|
$
|
5,452
|
|
|
$
|
5,114
|
|
Other long-term assets consist of the following (in thousands):
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Equity investment
|
|
$
|
1,979
|
|
|
$
|
1,979
|
|
|
Goodwill
|
|
|
1,675
|
|
|
|
1,675
|
|
|
Note receivable
|
|
|
-
|
|
|
|
711
|
|
|
Intangible assets, net
|
|
|
123
|
|
|
|
164
|
|
|
Other
|
|
|
418
|
|
|
|
454
|
|
|
Other long-term assets
|
|
$
|
4,195
|
|
|
$
|
4,983
|
|
Accrued liabilities and other consist of the following (in thousands):
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Accrued employee compensation and benefits
|
|
$
|
2,081
|
|
|
$
|
2,252
|
|
|
Other accrued liabilities
|
|
|
441
|
|
|
|
1,339
|
|
|
Accrued liabilities and other
|
|
$
|
2,522
|
|
|
$
|
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):
|
|
|
September 30, 2011
|
|
|
December 31, 2010
|
|
|
|
|
Adjusted Cost
|
|
|
Unrealized Loss
|
|
|
Estimated Fair
Value
|
|
|
Adjusted Cost
|
|
|
Unrealized Loss
|
|
|
Estimated Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
5,738
|
|
|
$
|
-
|
|
|
$
|
5,738
|
|
|
$
|
5,072
|
|
|
$
|
-
|
|
|
$
|
5,072
|
|
|
Money market funds
|
|
|
18,263
|
|
|
|
-
|
|
|
|
18,263
|
|
|
$
|
30,261
|
|
|
$
|
-
|
|
|
$
|
30,261
|
|
|
Total cash and cash equivalents
|
|
$
|
24,001
|
|
|
$
|
-
|
|
|
$
|
24,001
|
|
|
$
|
35,333
|
|
|
$
|
-
|
|
|
$
|
35,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8
|
|
|
|
-
|
|
|
|
8
|
|
|
Total short-term investments
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
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 September 30, 2011 (in thousands):
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Money market fund deposits
|
|
$
|
18,263
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
18,263
|
|
|
Corporate debt
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,263
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
18,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
18,263
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
18,263
|
|
|
Short-term investments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,263
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
18,263
|
|
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 September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,683
|
)
|
|
$
|
(3,850
|
)
|
|
$
|
(7,217
|
)
|
|
$
|
(9,177
|
)
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.42
|
)
|
|
$
|
(0.64
|
)
|
|
$
|
(1.14
|
)
|
|
$
|
(1.52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
$
|
(2,683
|
)
|
|
$
|
(3,761
|
)
|
|
$
|
(7,217
|
)
|
|
$
|
(9,066
|
)
|
|
Net loss per share from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.42
|
)
|
|
$
|
(0.62
|
)
|
|
$
|
(1.14
|
)
|
|
$
|
(1.50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
$
|
-
|
|
|
$
|
(89
|
)
|
|
$
|
-
|
|
|
$
|
(111
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share from discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
-
|
|
|
$
|
(0.02
|
)
|
|
$
|
-
|
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares - basic and diluted
|
|
|
6,337
|
|
|
|
6,046
|
|
|
|
6,306
|
|
|
|
6,030
|
|
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 September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options to purchase common stock
|
|
|
212
|
|
|
|
605
|
|
|
|
165
|
|
|
|
567
|
|
|
Restricted stock awards and restricted stock units
|
|
|
228
|
|
|
|
3
|
|
|
|
113
|
|
|
|
-
|
|
|
Total
|
|
|
440
|
|
|
|
608
|
|
|
|
278
|
|
|
|
567
|
|
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 September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
Net loss
|
|
$
|
(2,683
|
)
|
|
$
|
(3,850
|
)
|
|
$
|
(7,217
|
)
|
|
$
|
(9,177
|
)
|
|
Unrealized gain on marketable securities and investments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Foreign currency translation loss
|
|
|
3
|
|
|
|
2
|
|
|
|
7
|
|
|
|
(4
|
)
|
|
Comprehensive loss
|
|
$
|
(2,680
|
)
|
|
$
|
(3,848
|
)
|
|
$
|
(7,210
|
)
|
|
$
|
(9,181
|
)
|
8. Stockholders’ Equity and Stock-Based Compensation
Common Stock
During the three months ended September 30, 2011, the Company repurchased 8,753 shares to satisfy tax withholding obligations that arose on the vesting of shares of restricted stock.
Stock 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 September 30, 2011, a total of 278,460 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.
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 September 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
|
|
|
(365,402
|
)
|
|
|
101,826
|
|
|
|
161,750
|
|
|
$
|
24.67
|
|
|
|
|
|
|
|
|
|
|
Granted Outside of the Plan
|
|
|
|
|
|
|
312,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
(56,087
|
)
|
|
$
|
16.95
|
|
|
|
|
|
|
|
|
|
|
Restricted stock released
|
|
|
-
|
|
|
|
(55,503
|
)
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Restricted stock repurchased
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
428,616
|
|
|
|
(140,208
|
)
|
|
|
(148,200
|
)
|
|
$
|
27.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2011
|
|
|
278,460
|
|
|
|
383,044
|
|
|
|
432,121
|
|
|
$
|
20.27
|
|
|
|
7.64
|
|
|
$
|
1,362
|
|
|
Exercisable at September 30, 2011
|
|
|
|
|
|
|
|
|
|
|
162,086
|
|
|
$
|
19.92
|
|
|
|
5.20
|
|
|
$
|
728
|
|
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
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
Included in cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ThinkGeek cost of revenue
|
|
$
|
54
|
|
|
$
|
(1
|
)
|
|
$
|
134
|
|
|
$
|
98
|
|
|
Media cost of revenue
|
|
|
(7
|
)
|
|
|
15
|
|
|
|
36
|
|
|
|
73
|
|
|
Total included in cost of revenue
|
|
|
47
|
|
|
|
14
|
|
|
|
170
|
|
|
|
171
|
|
|
Included in operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
90
|
|
|
|
46
|
|
|
|
172
|
|
|
|
396
|
|
|
Research and development
|
|
|
47
|
|
|
|
61
|
|
|
|
94
|
|
|
|
246
|
|
|
General and administrative
|
|
|
987
|
|
|
|
400
|
|
|
|
2,649
|
|
|
|
1,138
|
|
|
Total included in operating expenses
|
|
|
1,124
|
|
|
|
507
|
|
|
|
2,915
|
|
|
|
1,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
1,171
|
|
|
$
|
521
|
|
|
$
|
3,085
|
|
|
$
|
1,951
|
|
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 nine months ended September 30, 2011 and September 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
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
Expected life (years)
|
|
|
4.5
|
|
|
|
5.55
|
|
|
|
4.41
|
|
|
|
5.8
|
|
|
Risk-free interest rate
|
|
|
0.67
|
%
|
|
|
1.84
|
%
|
|
|
1.19
|
%
|
|
|
2.51
|
%
|
|
Volatility
|
|
|
88.4
|
%
|
|
|
62.9
|
%
|
|
|
74.4
|
%
|
|
|
62.8
|
%
|
|
Dividend yield
|
|
None
|
|
|
None
|
|
|
None
|
|
|
None
|
|
|
Weighted-average fair value at grant date
|
|
$
|
14.25
|
|
|
$
|
7.60
|
|
|
$
|
14.00
|
|
|
$
|
8.60
|
|
As stock-based compensation expense recognized in the Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2011 and September 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.
Ohloh
On September 30, 2010, the Company sold the Ohloh website, including the developed technology and related equipment required to operate the website to Black Duck for consideration of $1.3 million in cash and a convertible promissory note in the principal amount of $1.3 million, bearing annual interest at 3.25 percent and due on September 30, 2013. A portion of the cash, $0.3 million, was deposited in an escrow account to secure certain representations, warranties and covenants made by Geeknet to Black Duck. The escrow funds, less any claims were released to Geeknet as follows: (1) 25% on October 31, 2010, (2) 25% on November 30, 2010, (3) and the remaining 50% on September 30, 2011. The sale of the Ohloh website resulted in a $1.4 million gain, which is included in the gain on sale of asset.
The note receivable was subordinate to existing Black Duck debt, was secured by Black Duck assets, other than those securing Black Duck's senior debt, and was convertible into common or preferred stock in the event of a future financing activity, or acquisition of Black Duck. Geeknet valued the note receivable at $0.7 million using a discounted cash flow model based on interest rates of similar instruments adjusted for the credit, liquidity and security premiums on the note, and the timing and amount of expected cash flows.
On September 30, 2011, Geeknet agreed to discharge the obligations of Black Duck to pay and perform the note upon payment to Geeknet by Black Duck of $0.8 million. This resulted in a $0.1 million gain, which is included in the Gain on sale of an asset.
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 Freecode.
|
(in thousands)
|
|
E-Commerce
|
|
|
Media
|
|
|
Total Company
|
|
|
Three Months Ended September 30, 2011
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers
|
|
$
|
14,693
|
|
|
$
|
5,007
|
|
|
$
|
19,700
|
|
|
Cost of revenue
|
|
$
|
13,414
|
|
|
$
|
1,193
|
|
|
$
|
14,607
|
|
|
Gross margin
|
|
$
|
1,279
|
|
|
$
|
3,814
|
|
|
$
|
5,093
|
|
|
Loss from operations
|
|
$
|
(2,587
|
)
|
|
$
|
(56
|
)
|
|
$
|
(2,643
|
)
|
|
Depreciation and amortization
|
|
$
|
233
|
|
|
$
|
198
|
|
|
$
|
431
|
|
|
Three Months Ended September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers
|
|
$
|
10,646
|
|
|
$
|
4,013
|
|
|
$
|
14,659
|
|
|
Cost of revenue
|
|
$
|
10,178
|
|
|
$
|
1,693
|
|
|
$
|
11,871
|
|
|
Gross margin
|
|
$
|
468
|
|
|
$
|
2,320
|
|
|
$
|
2,788
|
|
|
Loss from operations
|
|
$
|
(2,553
|
)
|
|
$
|
(1,257
|
)
|
|
$
|
(3,810
|
)
|
|
Depreciation and amortization
|
|
$
|
129
|
|
|
$
|
485
|
|
|
$
|
614
|
|
|
Nine Months Ended September 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers
|
|
$
|
44,217
|
|
|
$
|
15,470
|
|
|
$
|
59,687
|
|
|
Cost of revenue
|
|
$
|
40,263
|
|
|
$
|
3,999
|
|
|
$
|
44,262
|
|
|
Gross margin
|
|
$
|
3,954
|
|
|
$
|
11,471
|
|
|
$
|
15,425
|
|
|
Operating loss
|
|
$
|
(6,684
|
)
|
|
$
|
(522
|
)
|
|
$
|
(7,206
|
)
|
|
Depreciation and amortization
|
|
$
|
703
|
|
|
$
|
784
|
|
|
$
|
1,487
|
|
|
Nine Months Ended September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external customers
|
|
$
|
31,588
|
|
|
$
|
13,024
|
|
|
$
|
44,612
|
|
|
Cost of revenue
|
|
$
|
27,788
|
|
|
$
|
5,269
|
|
|
$
|
33,057
|
|
|
Gross margin
|
|
$
|
3,800
|
|
|
$
|
7,755
|
|
|
$
|
11,555
|
|
|
Operating loss
|
|
$
|
(3,786
|
)
|
|
$
|
(5,387
|
)
|
|
$
|
(9,173
|
)
|
|
Depreciation and amortization
|
|
$
|
248
|
|
|
$
|
1,434
|
|
|
$
|
1,682
|
|
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 single objector appealed the Court's October 5, 2009 order to the U.S. Second Circuit Court of Appeals. 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. On August 10, 2011, the parties executed a settlement agreement whereby both parties agreed to dismiss their claims, with prejudice.
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 September 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 September 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 September 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 September 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 nine months ended September 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 Freecode. 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 Freecode 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 Freecode, 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 we develop, 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 including 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 warehouse provider and invested in modern automated distribution equipment in Lockbourne, Ohio. This has allowed 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
|
|
|
Nine Months Ended
|
|
|
|
|
September 30,
2011
|
|
|
September 30,
2010
|
|
|
September 30,
2011
|
|
|
September 30,
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daily Unique Visitors (in thousands)
(1)
|
|
|
16,176
|
|
|
|
11,699
|
|
|
|
46,076
|
|
|
|
34,402
|
|
|
Orders Received (in thousands)
|
|
|
234
|
|
|
|
175
|
|
|
|
748
|
|
|
|
519
|
|
|
Conversion Rate
|
|
|
1.66
|
%
|
|
|
1.50
|
%
|
|
|
1.71
|
%
|
|
|
1.51
|
%
|
|
Average Order Value
Orders Received
|
|
$
|
64
|
|
|
$
|
64
|
|
|
$
|
62
|
|
|
$
|
63
|
|
|
|
(1)
|
Unique Visitor is the aggregate average unique visitors for all eCommerce 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. In the third quarter 2011, we made 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
|
|
|
Three Months Ended Without
Ohloh
|
|
|
|
|
September 30,
2011
|
|
|
September 30,
2010
|
|
|
September 30,
2011
|
|
|
September 30,
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unique Visitors per Month (in thousands)
(1)(2)
|
|
|
44,676
|
|
|
|
47,298
|
|
|
|
44,676
|
|
|
|
43,703
|
|
|
Visits per Unique Visitor per Month
(1)
|
|
|
1.6
|
|
|
|
1.7
|
|
|
|
1.6
|
|
|
|
1.7
|
|
|
Visits per Month (in thousands)
(2)
|
|
|
70,648
|
|
|
|
78,108
|
|
|
|
70,648
|
|
|
|
73,943
|
|
|
Pages per Visit
(1)
|
|
|
2.1
|
|
|
|
1.9
|
|
|
|
2.1
|
|
|
|
1.9
|
|
|
Page Views per Month (in thousands)
(1)(2)
|
|
|
148,443
|
|
|
|
149,366
|
|
|
|
148,443
|
|
|
|
143,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue per Thousand Pages (RPM)
|
|
|
11.24
|
|
|
|
8.96
|
|
|
|
11.24
|
|
|
|
9.34
|
|
|
Revenue per User (RPU)
(3)
|
|
|
0.45
|
|
|
|
0.34
|
|
|
|
0.45
|
|
|
|
0.37
|
|
|
(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. In the third quarter 2011, we made changes to our site to account for this calculation which may result in the number of Unique Visitors, Visits per Unique Visitor and Visits per Month to decrease while Pages per Visit may increase. This change will not affect Page Views per Month.
|
|
(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.
|
|
|
|
Nine Months Ended
|
|
|
Nine Months Ended without
Ohloh
|
|
|
|
|
September 30,
2011
|
|
|
September 30,
2010
|
|
|
September 30,
2011
|
|
|
September 30,
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unique Visitors per Month (in thousands)
(1)(2)
|
|
|
47,304
|
|
|
|
42,417
|
|
|
|
47,304
|
|
|
|
39,833
|
|
|
Visits per Unique Visitor per Month
(1)
|
|
|
1.6
|
|
|
|
1.7
|
|
|
|
1.6
|
|
|
|
1.7
|
|
|
Visits per Month (in thousands)
(2)
|
|
|
75,687
|
|
|
|
72,375
|
|
|
|
75,687
|
|
|
|
69,441
|
|
|
Pages per Visit
(1)
|
|
|
2.1
|
|
|
|
2.0
|
|
|
|
2.1
|
|
|
|
2.0
|
|
|
Page Views per Month (in thousands)
(1)(2)
|
|
|
158,220
|
|
|
|
145,874
|
|
|
|
158,220
|
|
|
|
141,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
Revenue per Thousand Pages (RPM)
|
|
|
10.86
|
|
|
|
9.92
|
|
|
|
10.86
|
|
|
|
10.07
|
|
|
Revenue per User (RPU)
(3)
|
|
|
0.33
|
|
|
|
0.31
|
|
|
|
0.33
|
|
|
|
0.33
|
|
|
(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. In the third quarter 2011, we made changes to our site to account for this calculation which may result in the number of Unique Visitors, Visits per Unique Visitor and Visits per Month to decrease while Pages per Visit may increase. This change will not affect Page Views per Month.
|
|
(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)
|
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 September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ThinkGeek revenue
|
|
|
74.6
|
%
|
|
|
72.6
|
%
|
|
|
74.1
|
%
|
|
|
70.8
|
%
|
|
Media revenue
|
|
|
25.4
|
%
|
|
|
27.4
|
%
|
|
|
25.9
|
%
|
|
|
29.2
|
%
|
|
Revenue
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
ThinkGeek cost of revenue
|
|
|
68.1
|
|
|
|
69.4
|
|
|
|
67.5
|
|
|
|
62.3
|
|
|
Media cost of revenue
|
|
|
6.1
|
|
|
|
11.5
|
|
|
|
6.7
|
|
|
|
11.8
|
|
|
Cost of revenue
|
|
|
74.1
|
%
|
|
|
81.0
|
%
|
|
|
74.2
|
%
|
|
|
74.1
|
%
|
|
Gross margin
|
|
|
25.9
|
%
|
|
|
19.0
|
%
|
|
|
25.8
|
%
|
|
|
25.9
|
%
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
15.4
|
|
|
|
22.7
|
|
|
|
16.3
|
|
|
|
22.5
|
|
|
Research and development
|
|
|
8.2
|
|
|
|
11.2
|
|
|
|
6.5
|
|
|
|
10.7
|
|
|
General and administrative
|
|
|
16.0
|
|
|
|
20.1
|
|
|
|
15.1
|
|
|
|
15.9
|
|
|
Amortization of intangible assets
|
|
|
0.1
|
|
|
|
0.7
|
|
|
|
0.1
|
|
|
|
0.6
|
|
|
Restructuring costs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(0.2
|
)
|
|
(Gain)loss on sale of assets
|
|
|
(0.4
|
)
|
|
|
(9.6
|
)
|
|
|
(0.1
|
)
|
|
|
(3.1
|
)
|
|
Total operating expenses
|
|
|
39.3
|
%
|
|
|
45.0
|
%
|
|
|
37.9
|
%
|
|
|
46.5
|
%
|
|
Loss from continuing operations
|
|
|
(13.4
|
)%
|
|
|
(26.0
|
)%
|
|
|
(12.1
|
)%
|
|
|
(20.6
|
)%
|
|
Interest and other income (expense), net
|
|
|
(0.2
|
)%
|
|
|
(0.0
|
)%
|
|
|
(0.1
|
)%
|
|
|
0.1
|
%
|
|
Loss from continuing operations before income taxes
|
|
|
(13.6
|
)%
|
|
|
(26.0
|
)%
|
|
|
(12.1
|
)%
|
|
|
(20.5
|
)%
|
|
Income tax benefit
|
|
|
0.0
|
%
|
|
|
(0.3
|
)%
|
|
|
(0.0
|
)%
|
|
|
(0.1
|
)%
|
|
Loss from continuing operations
|
|
|
(13.6
|
)%
|
|
|
(25.7
|
)%
|
|
|
(12.1
|
)%
|
|
|
(20.3
|
)%
|
Revenue
The following table summarizes our revenue by business segment:
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
% Change
|
|
|
% Change
|
|
|
|
|
September 30,
2011
|
|
|
September 30,
2010
|
|
|
September 30,
2011
|
|
|
September 30,
2010
|
|
|
Three
Months
|
|
|
Nine
Months
|
|
|
($ in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ThinkGeek revenue
|
|
$
|
14,693
|
|
|
$
|
10,646
|
|
|
$
|
44,217
|
|
|
$
|
31,588
|
|
|
|
38
|
%
|
|
|
40
|
%
|
|
Media revenue
|
|
$
|
5,007
|
|
|
$
|
4,013
|
|
|
$
|
15,470
|
|
|
$
|
13,024
|
|
|
|
25
|
%
|
|
|
19
|
%
|
|
Revenue
|
|
$
|
19,700
|
|
|
$
|
14,659
|
|
|
$
|
59,687
|
|
|
$
|
44,612
|
|
|
|
34
|
%
|
|
|
34
|
%
|
For the three months ended September 30, 2011 and September 30, 2010, no one customer represented more than 10% of revenue. For the nine months ended September 30, 2011 and September 30, 2010 no one customer represented more than 10% of revenue.
Revenue by Segment
ThinkGeek
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
% Change
|
|
|
% Change
|
|
|
|
|
September 30,
2011
|
|
|
September 30,
2010
|
|
|
September 30,
2011
|
|
|
September 30,
2010
|
|
|
Three
Months
|
|
|
Nine
Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ThinkGeek revenue (in thousands)
|
|
$
|
14,693
|
|
|
$
|
10,646
|
|
|
$
|
44,217
|
|
|
$
|
31,588
|
|
|
|
38
|
%
|
|
|
40
|
%
|
|
Percentage of total revenue
|
|
|
75
|
%
|
|
|
73
|
%
|
|
|
74
|
%
|
|
|
71
|
%
|
|
|
|
|
|
|
|
|
|
Number of orders shipped
|
|
|
241,274
|
|
|
|
184,888
|
|
|
|
779,384
|
|
|
|
548,268
|
|
|
|
30
|
%
|
|
|
42
|
%
|
|
Average order size shipped
|
|
$
|
61
|
|
|
$
|
58
|
|
|
$
|
57
|
|
|
$
|
60
|
|
|
|
5
|
%
|
|
|
(5
|
)%
|
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 September 30, 2011, as compared to the three months ended September 30, 2010, was primarily due to a 30% increase in the number of shipments year-over-year. ThinkGeek revenue for the third quarter increased 38% to $14.7 million, from $10.6 million for the same period last year. Our investments in the business continue to yield new products and new customers. We have increased our investments in sales and marketing, merchandising and operations to support our growth. In 2011, we upgraded our inventory leadership and processes and we are continuing to improve our efficiency. We decided to discontinue certain products to focus on bringing in exciting new products. We updated our checkout process to ensure scalability and flexibility of our website and we launched a mobile site to bring increased visibility to our products.
The increase in ThinkGeek’s revenue during the nine months ended September 30, 2011, as compared to the nine months ended September 30, 2010, was primarily due to a 42% increase in the number of shipments year-over-year. The increase in the number of shipments was primarily driven by increased demand for ThinkGeek’s innovative products.
Media
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
% Change
|
|
|
% Change
|
|
|
|
|
September 30,
2011
|
|
|
September 30,
2010
|
|
|
September 30,
2011
|
|
|
September 30,
2010
|
|
|
Three
Months
|
|
|
Nine
Months
|
|
|
($ in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct sales
|
|
$
|
3,085
|
|
|
$
|
2,783
|
|
|
$
|
10,531
|
|
|
$
|
9,198
|
|
|
|
11
|
%
|
|
|
14
|
%
|
|
Ad Networks
|
|
|
1,431
|
|
|
|
962
|
|
|
|
3,780
|
|
|
|
2,953
|
|
|
|
49
|
%
|
|
|
28
|
%
|
|
Other
|
|
|