Document and Entity Information(USD $)
In Millions, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Feb. 14, 2012
Jun. 30, 2011
Document Information [Line Items]
Entity Registrant Name
Geeknet, Inc
Entity Central Index Key
0001096199
Current Fiscal Year End Date
--12-31
Entity Filer Category
Accelerated Filer
Document Type
10-K
Document Period End Date
Dec. 31, 2011
Document Fiscal Year Focus
2011
Document Fiscal Period Focus
FY
Amendment Flag
false
Entity Common Stock, Shares Outstanding
6,382,306
Entity Well-known Seasoned Issuer
No
Entity Voluntary Filers
No
Entity Current Reporting Status
Yes
Entity Public Float
$106
Consolidated Balance Sheets(USD $)
In Thousands, unless otherwise specified
Dec. 31, 2011
Dec. 31, 2010
Current assets:
Cash and cash equivalents
$36,910
$35,333
Short-term investments
0
8
Accounts receivable, net of allowance of $27 and $0 as of December 31, 2011 and 2010, respectively
6,264
5,078
Inventories, net
8,935
13,322
Prepaid expenses and other current assets
2,377
2,919
Total current assets
54,486
56,660
Property and equipment, net
5,717
5,114
Other long-term assets
4,089
4,983
Total assets
64,292
66,757
Current liabilities:
Accounts payable
6,327
13,381
Deferred revenue
3,500
1,836
Accrued liabilities and other
3,409
3,591
Total current liabilities
13,236
18,808
Other long-term liabilities
71
77
Total liabilities
13,307
18,885
Commitments and contingencies (Note 5 and Note 6)
  
  
Stockholders' equity:
Preferred stock, $0.001 par value; 1,000 shares authorized; no shares issued or outstanding
0
0
Common stock, $0.001 par value; authorized - 25,000; issued- 6,473 and 6,365 shares, respectively; outstanding - 6,361 and 6,273 shares as of December 31, 2011 and 2010, respectively
7
6
Treasury stock
(978)
(622)
Additional paid-in capital
807,829
803,160
Accumulated other comprehensive income
(1)
10
Accumulated deficit
(755,872)
(754,682)
Total stockholders' equity
50,985
47,872
Total liabilities and stockholders' equity
$64,292
$66,757
Consolidated Balance Sheets (Parenthetical)(USD $)
In Thousands, except Per Share data, unless otherwise specified
Dec. 31, 2011
Dec. 31, 2010
Accounts receivable, allowance
$27
$0
Preferred stock, par value
$0.001
$0.001
Preferred stock, shares authorized
1,000
1,000
Preferred stock, shares issued
0
0
Preferred stock, shares outstanding
0
0
Common stock, par value
$0.001
$0.001
Common stock, authorized
25,000
25,000
Common stock, issued
6,473
6,365
Common stock, shares outstanding
6,361
6,273
Consolidated Statements of Operations(USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Net revenue:
e-Commerce revenue
$99,057
$76,335
$49,091
Media revenue, including $0, $0 and $545 of related party revenue, repectively
20,409
18,284
16,486
Total net revenue
119,466
94,619
65,577
Cost of revenue:
e-Commerce cost of revenue
83,277
62,630
38,151
Media cost of revenue
4,906
6,610
6,953
Total cost of revenue
88,183
69,240
45,104
Gross margin
31,283
25,379
20,473
Operating expenses:
Sales and marketing
15,420
15,277
11,775
Research and development
5,542
6,148
8,103
General and administrative
11,565
9,551
8,843
Amortization of intangible assets
83
306
200
(Gain) loss on sale of assets
(65)
(1,391)
1,020
Restructuring costs
0
(101)
(62)
Total operating expenses
32,545
29,790
29,879
Loss from operations
(1,262)
(4,411)
(9,406)
Interest and other income (expense), net
(11)
44
110
Other than temporary impairment of non-marketable equity securities
0
0
(4,585)
Income (loss) from continuing operations before income taxes
(1,273)
(4,367)
(13,881)
Provision (benefit) for income taxes
(83)
(167)
140
Income (loss) from continuing operations
(1,190)
(4,200)
(14,021)
Discontinued operations:
Loss from operations, net of taxes
0
(193)
0
Loss on sale, net of taxes
0
(55)
0
Loss from discontinued operations
0
(248)
0
Net income (loss)
$(1,190)
$(4,448)
$(14,021)
Income (loss) per share from continuing operations:
Basic
$(0.19)
$(0.69)
$(2.31)
Diluted
$(0.19)
$(0.69)
$(2.31)
Loss per share from discontinued operations:
Basic
$0.00
$(0.04)
$0.00
Diluted
$0.00
$(0.04)
$0.00
Net income (loss) per share:
Basic
$(0.19)
$(0.73)
$(2.31)
Diluted
$(0.19)
$(0.73)
$(2.31)
Shares used in per share calculations:
Basic
6,319
6,073
6,080
Diluted
6,319
6,073
6,080
Consolidated Statement of Operations Consolidated Statement of Operations (Parentheticals)(USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Related party revenue $0, $0 and $545
$0
$0
$545
Consolidated Statements of Stockholders' Equity and Other Comprehensive Income (Loss)(USD $)
In Thousands
Total
Common Stock
Treasury Stock
Additional Paid-in Capital
Accumulated Other Comprehensive Income (Loss)
Accumulated Deficit
Balance at Dec. 31, 2008
$62,567
$65
$(331)
$799,037
$9
$(736,213)
Balance, shares at Dec. 31, 2008
6,417
Issuance of common stock, shares
25
Issuance of common stock
259
259
Repurchase of restricted stock, shares
(20)
Repurchase of restricted stock
(161)
(161)
Repurchase of common stock, shares
(370)
Repurchase of common stock
(3,034)
(4)
(3,030)
Stock based compensation
2,651
2,651
Net income (loss)
(14,021)
(14,021)
Unrealized gain on marketable securites
4
4
Comprehensive income (loss)
(14,017)
Balance at Dec. 31, 2009
48,265
61
(492)
798,917
13
(750,234)
Balance, shares at Dec. 31, 2009
6,052
Issuance of common stock, shares
231
Issuance of common stock
1,962
1
1,961
Repurchase of restricted stock, shares
(10)
Repurchase of restricted stock
(157)
(130)
(27)
Par value change resulting from reverse stock split
0
(56)
56
Stock based compensation
2,253
2,253
Net income (loss)
(4,448)
(4,448)
Foreign currency translation adjustment
(3)
(3)
Comprehensive income (loss)
(4,451)
Balance at Dec. 31, 2010
47,872
6
(622)
803,160
10
(754,682)
Balance, shares at Dec. 31, 2010
6,273
6,273
Issuance of common stock, shares
88
Issuance of common stock
1,014
1
1,013
Repurchase of restricted stock, shares
0
Repurchase of restricted stock
(356)
(356)
Stock based compensation
3,656
3,656
Net income (loss)
(1,190)
(1,190)
Foreign currency translation adjustment
(11)
(11)
Comprehensive income (loss)
(1,201)
Balance at Dec. 31, 2011
$50,985
$7
$(978)
$807,829
$(1)
$(755,872)
Balance, shares at Dec. 31, 2011
6,361
6,361
Consolidated Statements of Cash Flows(USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Cash flows from operating activities from continuing operations:
Net income (loss)
$(1,190)
$(4,448)
$(14,021)
Loss from discontinued operations
0
248
0
Income (loss) from continuing operations
(1,190)
(4,200)
(14,021)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization
1,922
2,277
2,157
Stock-based compensation expense
3,656
2,253
2,651
Provision for bad debts
27
0
46
Provision for excess and obsolete inventory
65
42
17
Provision for returns
301
350
258
(Gain) Loss on sale of assets
(65)
(1,391)
1,020
Impairment of investments
8
0
4,585
Accounts receivable
(1,213)
(779)
78
Inventories
4,322
(8,084)
(2,033)
Prepaid expenses and other assets
606
361
(471)
Accounts payable
(7,054)
7,209
1,735
Deferred revenue
1,664
908
337
Accrued restructuring liabilities
0
(1,238)
(2,878)
Accrued liabilities and other
(483)
(619)
858
Other long-term liabilities
(6)
(26)
(66)
Net cash provided by (used in) operating activities from continuing operations
2,560
(2,937)
(5,727)
Cash flows from investing activities from continuing operations:
Change in restricted cash
0
1,000
0
Purchase of property and equipment
(2,516)
(4,191)
(1,001)
Maturities or sale of investments and marketable securities
0
10,207
659
Acquistion of a business, net of cash acquired
0
(1,000)
(2,613)
Proceeds from sales of intangible assets, net
906
1,040
172
Purchase of intangible assets
(20)
(122)
(122)
Net cash (used in) provided by investing activities from continuing operations:
(1,630)
6,934
(2,905)
Cash flows from financing activities from continuing operations:
Proceeds from issuance of common stock
1,014
1,962
259
Repurchase of stock
(356)
(157)
(3,195)
Net cash (used in) provided by financing activities from continuing operations:
658
1,805
(2,936)
Cash flows from discontinued operations:
Net cash provided by (used in) operating activities
0
(48)
0
Net cash provided by investing activities
0
640
0
Net cash provided by discontinued operations
0
592
0
Effect of exchange rate changes on cash and cash equivalents
(11)
(4)
0
Net increase (decrease) in cash and cash equivalents
1,577
6,390
(11,568)
Cash and cash equivalents, beginning of year
35,333
28,943
40,511
Cash and cash equivalents, end of year
$36,910
$35,333
$28,943
Organization and Operations of the Company
Organization and Operations of the Company
Organization and Operations of the Company:

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 September 2009, the Company acquired Ohloh Corporation (“Ohloh”), a directory of open source projects and developers and in November 2009 the Company changed its name to Geeknet to project a more accurate reflection of its business, primarily to the advertising community.

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.

These financial statements reflect the results for the calendar years ended December 31, 2011, December 31, 2010, and December 31, 2009.
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies:

Use of Estimates in Preparation of Consolidated Financial Statements

The preparation of consolidated financial statements in conformity with accounting principles generally accepted by the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of such financial statements, as well as the reported amounts of revenue and expenses during the periods indicated.  Actual results could differ from those estimates. Except as discussed below, there have been no significant changes to the Company’s critical accounting policies during the year ended December 31, 2011.

Adopted Accounting Pronouncements

In December 2010, the FASB issued Accounting Standards Update No. 2010-28, When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts (Topic 350)—Intangibles—Goodwill and Other (ASU 2010-28). ASU 2010-28 amends the criteria for performing Step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts and requires performing Step 2 if qualitative factors indicate that it is more likely than not that a goodwill impairment exists. The Company adopted this standard in 2011. The adoption of this standard did not have an impact on the Company’s consolidated financial statements.

In January 2010, the FASB issued a new standard, Improving Disclosures About Fair Value Measurements, which requires reporting entities to make new disclosures about recurring or nonrecurring fair-value measurements including significant transfers into and out of Level 1 and Level 2 fair-value measurements and information on purchases, sales, issuances, and settlements on a gross basis in the reconciliation of Level 3 fair- value measurements. This standard is effective for the Company’s 2010 calendar year reporting, except for Level 3 reconciliation disclosures which are effective for the Company’s 2011 calendar year reporting. The adoption of this standard did not have a material impact on its consolidated financial statements.

In September 2009, the FASB issued an update to the existing multiple-element revenue arrangements guidance. The revised guidance primarily provides two significant changes: 1) eliminates the need for objective and reliable evidence of the fair value for the undelivered element in order for a delivered item to be treated as a separate unit of accounting, and 2) eliminates the residual method to allocate the arrangement consideration. In addition, the guidance also expands the disclosure requirements for revenue recognition. The Company adopted this standard in 2011. The adoption of this standard did not have a material impact on its consolidated financial statements.

In June 2009, the FASB issued a new standard which requires an analysis to determine whether a variable interest gives the entity a controlling financial interest in a variable interest entity. This statement requires an ongoing reassessment and eliminates the quantitative approach previously required for determining whether an entity is the primary beneficiary. The Company adopted this standard in 2011. The adoption of this standard did not have a material impact on its consolidated financial statements.

Recent Accounting Pronouncements

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.

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.

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.

Principles of Consolidation

These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.  All significant intercompany accounts and transactions have been eliminated in consolidation.

Related Party Transactions

The Company owns approximately 9% of the outstanding capital stock of CollabNet, consisting of CollabNet’s Series C-1 preferred stock, which is recorded at $2.0 million.  As the Company holds less than 20% of the voting stock and does not otherwise exercise significant influence over it, this investment is accounted for using the cost method.  CollabNet is a developer of software used in collaborative software development.

There was no related-party revenue during the year ended December 31, 2011 and December 31, 2010 and $0.5 million of related-party revenue from continuing operations associated with CollabNet for the year ended December 31, 2009.

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. Chief Administrative Officer and the Chief Executive Officer of the Media and e-Commerce business units. The Company currently operates as two reportable business segments:  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.

Credit Line

On December 12, 2011, the Company entered into a new secured credit agreement with Wells Fargo Bank, N.A., or Wells Fargo, that provided us with a $5 million revolving line of credit including a $2 million sub-facility for the issuance of standby letters of credit. The revolving credit facility has a one-year term and the option of an applicable interest rate of 2.5% above one or three month LIBOR. To date, we have not drawn down on our line of credit and have no plans to do so at this time. As part of our agreement we must keep a minimum of $5 million dollars in Wells Fargo Bank at all times. This credit line is collateralized by substantially all of the assets of the Corporation. As of December 31, 2011, we were in default of certain covenants and we have received a waiver from Wells Fargo Bank.

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 an impairment review whenever events or circumstances indicate that their fair value is less than their carrying value.  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.  It is reasonably possible that actual results could change in the near term. The Company performs an impairment analysis of its investments annually. 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. There was no impairment for the year ended December 31, 2011 and December 31, 2010. For the year ended December 31, 2009, the Company recorded impairment loss of $4.6 million related to its non-marketable equity investment in CollabNet, Inc.

Cash, cash equivalents and investments consist of the following (in thousands):

 
December 31, 2011
 
December 31, 2010
 
Adjusted
Cost
 
Unrealized
Loss
 
Estimated
Fair Value
 
Adjusted
Cost
 
Unrealized
Loss
 
Estimated
Fair Value
Cash and cash equivalents:
 

 
 

 
 

 
 

 
 

 
 

Cash
$
18,647

 
$
—

 
$
18,647

 
$
5,072

 
$
—

 
$
5,072

Money market funds
18,263

 
—

 
18,263

 
30,261

 
—

 
30,261

Total cash and cash equivalents
$
36,910

 
$
—

 
$
36,910

 
$
35,333

 
$
—

 
$
35,333

Short-term investments:
 

 
 

 
 

 
 

 
 

 
 

Corporate securities
$
—

 
$
—

 
$
—

 
$
8

 
$
—

 
$
8

Total short-term investments
$
—

 
$
—

 
$
—

 
$
8

 
$
—

 
$
8


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 December 31, 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


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 December 31, 2010 (in thousands):
 
Fair Value Measurements at Reporting Date Using
 
Level 1
 
Level 2
 
Level 3
 
Total
Money market fund deposits
$
30,261

 
$
—

 
$
—

 
$
30,261

Corporate debt
—

 
—

 
8

 
—

Total
$
30,261

 
$
—

 
$
8

 
$
30,261

Amounts included in:
 

 
 

 
 

 
 

Cash and cash equivalents
$
30,261

 
$
—

 
$
—

 
$
30,261

Short-term investments
—

 
—

 
8

 
—

Total
$
30,261

 
$
—

 
$
8

 
$
30,261


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
 
ARS
 
ARS Right
 
Other
Balance at December 31, 2009
$
9,400

 
$
1,350

 
$
8

Loss on other current assets
—

 
(807
)
 
—

Gain on investments
807

 
—

 
—

Sales/Maturities of assets
(10,207
)
 
(543
)
 
—

Balance at December 31, 2010
$
—

 
$
—

 
$
8

Loss on investments
$
—

 
$
—

 
$
(8
)
Balance at December 31, 2011
$
—

 
$
—

 
$
—


Trade Accounts Receivable

Trade accounts receivable are recorded at the invoiced amount and are not interest bearing.  The Company will record an allowance for doubtful accounts to reserve for potentially uncollectible trade receivables.  The Company also reviews its trade receivables by aging category to identify specific customers with known disputes or collectibility issues.  The Company exercises judgment when determining the adequacy of these reserves and evaluates historical bad debt trends, general economic conditions in the United States and internationally, and changes in customer financial conditions.

Inventories

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

Restricted Cash

The Company has no restricted cash at December 31, 2011 or at December 31, 2010.  

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

 
December 31,
2011
 
December 31,
2010
Computer and office equipment (useful lives of 2 to 4 years)
$
5,143

 
$
5,685

Distribution equipment (useful live of 5 years)
5,394

 
3,911

Furniture and fixtures (useful lives of 2 to 4 years)
347

 
226

Leasehold improvements (useful lives of lesser of estimated life or lease term)
365

 
207

Software (useful lives of  2 to 5 years)
700

 
579

Total property and equipment
11,949

 
10,608

Less: Accumulated depreciation and amortization
(6,232
)
 
(5,494
)
Property and equipment, net
$
5,717

 
$
5,114


Depreciation and amortization expense for continuing operations for the years ended December 31, 2011, December 31, 2010, and December 31, 2009 was $1.8 million, $2.0 million and $2.2 million respectively.

Goodwill and Intangible Assets

Goodwill, which is entirely related to our Media segment, is carried at cost. Intangible assets are amortized on a straight-line basis over three to five years. Intangible asset amortization was $0.1 million, $0.3 million, and $0.2 million during the years ended December 31, 2011, December 31, 2010 and December 31, 2009, respectively. Intangible assets at December 31, 2011 and December 31, 2010 relates primarily to domain and trade names associated with the Company's Media business.  This balance is included in “Other Long-Term Assets” in the Consolidated Balance Sheet.

The Company evaluates goodwill and intangible assets for impairment annually and when an event occurs or circumstances change that indicates that the carrying value may not be recoverable. The annual testing date is December 31. Impairment of goodwill is tested at the reporting unit level by comparing the reporting unit's carrying net assets, including goodwill, to the fair value of the reporting unit. The fair value of the reporting unit is estimated using a combination of the income, or discounted cash flows, approach and the market approach, which utilizes comparable companies' data. If the carrying amount of the reporting unit exceeds its fair value, a second step is performed to measure the amount of the impairment loss, if any.  The preparation of the goodwill impairment analysis requires the Company to make significant estimates and assumptions with respect to the determination of fair values of reporting units and tangible and intangible assets. These estimates and assumptions, which include future values, are often subjective and may differ significantly from period to period based on changes in the overall economic environment, changes in its business and changes in its strategy or its internal forecasts.  Based on these assessments, there was no indication of impairment for the year ended December 31, 2011, December 31, 2010, and December 31, 2009.

The carrying amount of goodwill is as follows (in thousands):
Goodwill
Amount
Goodwill -December 31, 2009
$
1,670

Additions
254

Disposals
249

Goodwill - December 31, 2010
$
1,675

Additions
—

Disposals
—

Goodwill - December 31, 2011
$
1,675


The changes in the carrying amount of the intangible assets are as follows (in thousands):
 
December 31, 2011
 
December 31, 2010
 
Gross Asset
 
Accumulated Amortization
 
Net Asset
 
Gross Asset
 
Accumulated Amortization
 
Net Asset
Identified intangible assets:
 
 
 
 
 
 
 
 
 
 
 
Domain and trade names, intellectual property
$
6,196

 
$
(6,095
)
 
$
101

 
$
6,176

 
$
(6,012
)
 
$
164

Purchased technology
2,535

 
(2,535
)
 
—

 
2,535

 
(2,535
)
 
—

Total Identified intangible assets
$
8,731

 
$
(8,630
)
 
$
101

 
$
8,711

 
$
(8,547
)
 
$
164


The future amortization of identified intangible assets is as follows (in thousands):
Year ending December 31,
Amount
2012
$
74

2013
22

2014
5

 
$
101


Revenue Recognition

The Company recognizes revenue as follows:

e-Commerce Revenue

e-Commerce revenue is derived from the online sale of consumer goods.  The Company recognizes e-Commerce revenue from product sales when persuasive evidence of an arrangement exists, delivery has occurred, the sale price is fixed or determinable, and collectibility is reasonably assured.  The Company generally recognizes e-Commerce revenue when products are delivered and title transfers to the customer.  ThinkGeek also engages in the sale of gift certificates. When a gift certificate is sold we defer the revenue until the certificate is redeemed. Once the certificate is redeemed and the products are delivered we recognize the revenue. The balance in our deferred revenue at December 31, 2011 relating to gift certificates was $0.7million.The Company grants customers a limited right to return e-Commerce products.  The Company has recorded reserves of $0.6 million and $0.4 million for such returns at December 31, 2011 and December 31, 2010, respectively.

Media Revenue

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 and 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.  Revenue recognized is limited to the lesser of actual delivery or on a straight line basis. 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).  

Advertising Expenses

The Company expenses advertising costs as incurred.  Total advertising expenses for continuing operations were $4.8 million, $4.1 million, and $2.8 million for the years ended December 31, 2011, December 31, 2010 and December 31, 2009 respectively. During the years ended December 31, 2011, December 31, 2010 and December 31, 2009 the Company's e-Commerce business segment incurred advertising expense of $0.9 million, $0.7 million and $0.1 million with a customer of its Media business segment.

Software Development Costs

Costs related to the planning and post-implementation phases of internal use software products are recorded as an operating expense. Direct costs incurred in the development phase are capitalized and amortized over the product’s estimated useful life as charges to cost of revenue.

Computation of Per Share Amounts

Basic income (loss) 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 income (loss) 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 increase earnings or decrease loss per share.  Dilutive common equivalent shares consist primarily of stock options and restricted stock awards.  For the years ended December 31, 2011, December 31, 2010, and December 31, 2009 the Company excluded all stock options and restricted stock awards from the calculation of diluted net loss per common share because all such securities are anti-dilutive.
 
The Company considers employee equity share options, non-vested shares, and similar equity instruments 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 fiscal 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 and the amount of compensation cost for future service that is not yet recognized 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 net income (loss) per share (in thousands, except per share data):
 
Year Ended
December 31,
 
2011
 
2010
 
2009
Income (loss) from continuing operations
$
(1,190
)
 
$
(4,200
)
 
$
(14,021
)
Loss from discontinued operations
—

 
(248
)
 
—

Net income (loss)
(1,190
)
 
(4,448
)
 
(14,021
)
Weighted average shares - basic
6,319

 
6,073

 
6,080

Effect of dilutive potential common shares
—

 
—

 
—

Weighted average shares - diluted
$
6,319

 
$
6,073

 
$
6,080

Income (loss) per share from continuing operations:
 
 
 
 
 
Basic
$
(0.19
)
 
$
(0.69
)
 
$
(2.31
)
Diluted
(0.19
)
 
(0.69
)
 
(2.31
)
Loss per share from discontinued operations:
 
 
 
 
 
Basic
—

 
(0.04
)
 
—

Diluted
—

 
(0.04
)
 
—

Net income (loss) per share:
 
 
 
 
 
Basic
(0.19
)
 
(0.73
)
 
(2.31
)
Diluted
$
(0.19
)
 
$
(0.73
)
 
$
(2.31
)

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

 
Year Ended
December 31,
 
2011
 
2010
 
2009
Anti-dilutive securities:
 
 
 
 
 
Options to purchase common stock
192

 
537

 
610

Unvested restricted stock purchase rights
174

 
8

 
16

Total
366

 
545

 
626


Comprehensive Income (Loss)

Comprehensive income (loss) is comprised of net income (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.

Supplier Concentration

While no supplier concentration exists in the Company’s Media or e-Commerce businesses, certain of the Company’s e-Commerce business’s manufacturers are located outside of the United States, most of which are located in Asia (primarily China). The Company’s e-Commerce business’s ability to receive inbound inventory and ship completed orders to its customers is substantially dependent on a single third-party contract-fulfillment and warehouse provider.

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. The Company has cash in financial institutions that is insured by the Federal Deposit Insurance Corporation ("FDIC") up to $0.25 million per institution. At December 31, 2011 and December 31, 2010, the Company had cash and cash equivalents in excess of the FDIC limits.

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of 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.  The Company maintains reserves for potential credit losses, if any, and such losses have been within management’s expectations.  As of December 31, 2011 and December 31, 2009, an advertising agency accounted for 16% and 10.5% of gross account receivable respectively. At December 31, 2010, no one advertising agency represented more than 10% of gross accounts receivables.

For the years ended December 31, 2011, December 31, 2010 and December 31, 2009 respectively, no one customer represented 10% or greater of net revenue.
Balance Sheet Components
Balance Sheet Components
Balance Sheet Components

Other Long-Term Assets

Other Long Term Assets consisted of the following (in thousands):

 
December 31,
 
2011
 
2010
Non marketable equity investment (1)
$
1,979

 
$
1,979

Goodwill
1,675

 
1,675

Note receivable
—

 
711

Intangible assets, net
101

 
164

Other
334

 
454

Other long-term assets
$
4,089

 
$
4,983


(1) The non-marketable equity investment represents a preferred stock investment in a private technology company, CollabNet accounted for on the cost method.

Accrued liabilities and other

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

 
December 31,
 
2011
 
2010
Accrued employee compensation and benefits
$
2,175

 
$
2,252

Other accrued liabilities
1,234

 
1,339

Accrued liabilities and other
$
3,409

 
$
3,591

Restructuring Costs
Restructuring Costs
Restructuring Costs

In October 2007, we relocated our corporate headquarters to Mountain View, California. During fiscal year 2008, which ended on July 31, 2008 under our prior fiscal calendar, we recorded a restructuring charge of $2.2 million for the remaining facility space and leasehold improvements at our former corporate headquarters located in Fremont, California. At December 31, 2011 and December 31, 2010 all restructuring liabilities have been settled and no restructuring liabilities remain.

Below is a summary of the restructuring charges, net (in thousands):
 
Year Ended
December 31,
 
2011
 
2010
 
2009
Cash provision:
 
 
 
 
 
Facilities charges
$
—

 
$
(27
)
 
$
(62
)
Cash proceeds from sales of furniture
—

 
(74
)
 
 

 
$
—

 
$
(101
)
 
$
(62
)
 
Below is a summary of the changes to the restructuring liability (in thousands):

 
Balance at
Beginning
of Period
 
Other
 
Restructuring
Charges
 
Cash
payments
 
Balance at
End of Period
For the year ended December 31, 2009
$
4,116

 
$
65

 
$
(62
)
 
$
(2,881
)
 
$
1,238

For the year ended December 31, 2010
$
1,238

 
$
4

 
$
(101
)
 
$
(1,141
)
 
$
—

For the year ended December 31, 2011
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Commitments and Contingencies
Commitments and Contingencies
Commitments and Contingencies

The Company leases its facilities under operating leases that expire at various dates through 2014.  Future minimum lease payments under non-cancelable operating leases, net of sublease income, as of December 31, 2011 are as follows (in thousands):
 
Gross
Operating
Leases
 
Sublease
Income
 
Net
Operating
Leases
2012
$
1,063

 
$
(603
)
 
$
460

2013
367

 
—

 
367

2014
255

 
—

 
255

Total minimum lease obligations
$
1,685

 
$
(603
)
 
$
1,082


Gross rent expense for the years ended December 31, 2011, December 31, 2010 and December 31, 2009 was approximately $1.3, $1.3 million, $1.0 million respectively.  This rent expense was offset by sublease income of $0.6 million, $0.2 million, $0.1 million for the years ended December 31, 2011, December 31, 2010, and December 31, 2009 respectively.
Litigation
Litigation
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. On January 9, 2012, the matter was withdrawn with prejudice by the Plaintiffs.
On October 3, 2007, a purported Geeknet (formerly SourceForge, Inc.) 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.  Between October 2 and October 12, 2007, the plaintiff filed approximately 53 other similar cases against other defendants.  On March 12, 2009, the district court granted without prejudice the motion to dismiss filed by 30 of the issuer defendants, and granted with prejudice the motion to dismiss filed by all of the underwriter defendants, which resulted in the dismissal of the complaint filed against the Company.  The plaintiff timely appealed the dismissal to the United States Court of Appeals for the Ninth Circuit.  By opinion dated December 3, 2010, the Ninth Circuit affirmed the dismissal of the suits against the 30 moving issuer defendants on the grounds that the demand letters sent to those issuers were inadequate under Delaware law, and converted the dismissals from without prejudice to with prejudice.  The court also reversed the dismissal of the suits against the underwriter defendants, and the remaining 24 issuer defendants, including the Company, but is allowing those issuer defendants to challenge the adequacy of the demand letters that the plaintiff sent to the issuers before filing suit.  Both sides filed petitions for writs of certiorari to the United States Supreme Court, which denied plaintiff's writ, but granted the underwriters' writ.  Oral argument was held before the U.S. Supreme Court on November 29, 2011.  A decision is expected during this term of court, which extends from October 2011-June 2012.  If the Court reverses the 9th Circuit the case will be concluded.  If the court affirms the 9th Circuit the case will be remanded to the District Court for further proceedings.
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 December 31, 2011, no liability was recorded for outstanding matters.
Retirement Savings Plan
Retirement Savings Plan
Retirement Savings Plan

The Company maintains an employee savings and retirement plan which is qualified under Section 401(k) of the Internal Revenue Code and is available to substantially all full-time employees of the Company.  The plan provides for tax deferred salary deductions and after-tax employee contributions.  Contributions include employee salary deferral contributions and beginning in 2012, matching employer contributions.  Prior to 2012, there have been no employer discretionary contributions.
Common Stock
Common Stock
Common Stock and Stock Compensation

Stock Repurchase Program
In February 2011, the Company announced an "odd lot" share repurchase program under which the Board of Directors approved the repurchase of up to $1.0 million of the Company's common stock through March 18, 2011. Under this program, the Company repurchased approximately 5,000 shares of common stock at a weighted average price of 26.01 per share for aggregate purchase price of approximately $127,000.

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”), 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 canceled.  In May 2011, the Company's stockholders added 200,000 shares of common stock to the Plan. At December 31, 2011, after consideration of options outstanding in the table below, a total of 270,479 shares of common stock were available for issuance under the 2007 Plan.  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 or awards 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.

As of December 31, 2011, the Company had reserved shares of its common stock for future issuance as follows:

1998 Stock Option Plan and Assumed Plans
35,726

1999 Director Option Plan
10,000

2007 Equity Plan
366,000

 
411,726

 
The following table summarizes option activities from December 31, 2008 through December 31, 2011:
 
 
Number of Shares
 
Weighted-Average Exercise Price per Share
Outstanding as of December 31, 2008
 
865,082

 
$29.10
Granted
 
187,905

 
$12.10
Exercised
 
(20,519
)
 
$12.60
Canceled
 
(306,747
)
 
$39.20
 Outstanding as of December 31, 2009
 
725,721

 
$20.88
Granted
 
305,469

 
$15.32
Exercised
 
(230,723
)
 
$8.51
Canceled
 
(325,809
)
 
$24.05
Outstanding as of December 31, 2010
 
474,658

 
$20.72
Granted
 
174,017

 
$24.34
Exercised
 
(73,907
)
 
$16.34
Canceled
 
(163,042
)
 
$27.19
 Outstanding as of December 31, 2011
 
411,726

 
$20.47

The options outstanding and currently exercisable by exercise price at December 31, 2011 were as follows (in thousands, except years and per-share amounts):

 
 
 
 
 
 
OPTIONS OUTSTANDING
 
OPTIONS EXERCISABLE
Range of Exercise 
Prices
 
Number
Outstanding
 
Weighted
Average
Remaining
Life (in years)
 
Weighted
Average
Exercise Price
 
Shares
 
Weighted
Average
Exercise Price
$8.30
 
—
 
$11.90
 
42,722

 
6.70

 
$
11.65

 
28,081

 
$
11.64

12.50
 
—
 
14.00
 
55,134

 
7.46

 
13.53

 
32,049

 
13.54

14.20
 
—
 
14.50
 
15,897

 
6.52

 
14.39

 
10,789

 
14.35

14.70
 
—
 
14.70
 
46,000

 
8.26

 
14.70

 
19,166

 
14.70

14.90
 
—
 
19.47
 
45,622

 
7.71

 
17.00

 
18,692

 
16.44

20.22
 
—
 
21.09
 
56,267

 
9.70

 
20.71

 
921

 
20.88

21.80
 
—
 
26.40
 
37,179

 
7.21

 
24.73

 
14,104

 
24.80

26.60
 
—
 
26.60
 
42,550

 
9.25

 
26.60

 
—

 
—

26.72
 
—
 
28.50
 
42,700

 
9.19

 
26.80

 
6,812

 
27.24

29.66
 
—
 
52.00
 
27,655

 
4.06

 
$
41.33

 
24,255

 
42.96

$8.30
 
—
 
$52.00
 
411,726

 
7.88

 
$
20.47

 
154,869

 
$
20.02

 
The total intrinsic value of stock options outstanding and stock options exercisable as of December 31, 2011 and December 31, 2010 was $0.6 million and $3.6 million respectively. The aggregate intrinsic value in the above table is calculated as the excess of the December 31, 2011 official closing price of the Company's stock of $17.05 per share as reported by the NASDAQ Global Market over the exercise price of the shares. The weighted-average remaining contractual life of options exercisable as of December 31, 2011 was 5.90 years.  The total number of in-the-money options exercisable as of December 31, 2011 was 0.1 million.

The following table summarizes restricted stock activities from December 31, 2008 through December 31, 2011:
 
 
 
Number of Shares
 
Weighted-Average Exercise Price per Share
Outstanding as of December 31, 2008
 
86,667

 
$
29.10

Granted
 
4,900

 
$
12.14

Restricted Stock Release
 
(42,651
)
 
$
12.26

Restricted Stock Repurchase
 
(7,667
)
 
$
12.34

 Outstanding as of December 31, 2009
 
41,249

 
$
12.14

Granted
 
163,650

 
$
25.89

Restricted Stock Release
 
(33,428
)
 
$
14.41

Restricted Stock Repurchase
 
(7,042
)
 
$
20.15

Outstanding as of December 31, 2010
 
164,429

 
$
25.89

Granted
 
107,100

 
$
25.63

Granted outside of Plan
 
312,500

 
$
23.18

Restricted Stock Release
 
(55,503
)
 
$
25.17

Canceled
 
(140,208
)
 
$
25.94

 Outstanding as of December 31, 2011
 
388,318

 
$
23.65


Restricted stock includes both RSAs and RSUs.  At December 31, 2011, the Company had 388,318 outstanding RSUs, which vest over a three year period. At December 31, 2010, the Company had 156,250 outstanding RSUs, which vest over a three year period.  There were no RSUs outstanding at December 31, 2009.  There were no outstanding RSAs at December 31, 2011. At December 31, 2010 and December 31, 2009 the Company had outstanding RSAs of 8,179 and 41,249, respectively, which are included in Common Stock.  The total intrinsic value of options exercised was negligible during the years ended December 31, 2011, December 31, 2010 and December 31, 2009.  The Company issues new shares upon the exercise of options.  For the years ended December 31, 2011, December 31, 2010, and December 31, 2009, no tax benefit was realized from exercised options.

The total fair value of options vested during the years ended December 31, 2011, December 31, 2010 and December 31, 2009 were insignificant.  As of December 31, 2011, total compensation cost not yet recognized and the weighted-average remaining term is as follows (amounts in thousands)

 
Expense not yet
recognized
 
Remaining Term(years)
Stock Options
$
2,766

 
3.0

Restricted Stock Units
$
7,037

 
2.4

 
Valuation and Expense Information

The following table summarizes stock-based compensation expense recorded (in thousands):

 
For Year Ended December 31,
 
2011
 
2010
 
2009
E-commerce cost of revenue
$
193

 
$
97

 
$
79

Media cost of revenue
44

 
109

 
240

Included in cost of revenue
$
237

 
$
206

 
$
319

Sales and marketing
$
257

 
$
458

 
$
513

Research and development
157

 
298

 
343

General and administrative
3,004

 
1,291

 
1,476

Included in operating expenses
$
3,418

 
$
2,047

 
$
2,332

Total share-based compensation expense
$
3,656

 
$
2,253

 
$
2,651


In conjunction with the resignation of certain key executives in March 2011 and September 2011, the Company accelerated vesting of options to purchase 23,000 shares. In conjunction with the resignation of certain executives in August 2010 and September 2010, the Company accelerated vesting of options to purchase 88,000 shares and extended the exercise period of 29,000 options.   As a result of these modifications the Company recorded minimal additional stock-based compensation for the year ended December 31, 2011 and $0.4 million for December 31, 2010 and $1.0 million for the year ended December 31, 2009.

The fair value of RSAs and RSUs has been calculated based on the grant date fair value of the Company's common stock.  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 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:

 
Year Ended December 31,
 
2011
 
2010
 
2009
Expected life (years)
4.36
 
5.6
 
5.82
Risk-free interest rate
1.15%
 
2.3%
 
2.8%
Volatility
74%
 
63%
 
66%
Dividend yield
None
 
None
 
None
Weighted average fair value at grant date
$13.72
 
$8.70
 
$7.40
 
As stock-based compensation expense is recognized in the Consolidated Statement of Operations is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures are estimated based on historical experience. Stock based compensation is recognized on a straight line basis over the vesting period.
Income Taxes
Income Taxes
Income Taxes

The Company provides for income taxes using an asset and liability approach, where deferred income taxes are provided based upon enacted tax laws and rates applicable to periods in which the taxes become payable.

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

 
Year ended
December 31,
 
2011
 
2010
 
2009
United States
$
(1,370
)
 
$
(4,391
)
 
$
(13,881
)
Foreign
97

 
24

 
—

 
$
(1,273
)
 
$
(4,367
)
 
$
(13,881
)
 
During the years ended December 31, 2011, December 31, 2010, December 31, 2009, the Company paid income taxes of $0 million, $0.1 million, $0.1 million respectively.

A summary of total tax expense, by classification, included in the accompanying consolidated statements of income is as follows (in thousands):

 
Year ended December 31,
 
2011
 
2010
 
2009
Current:
 
 
 
 
 
Federal
$
(105
)
 
$
(44
)
 
$
—

State
3

 
(128
)
 
140

Foreign
19

 
5

 
—

 
$
(83
)
 
$
(167
)
 
$
140

 
Deferred tax assets (liabilities) consist of the following (in thousands):

 
Year ended December 31,
 
2011
 
2010
Deferred tax assets:
 
 
 
Accruals and reserves
$
3,288

 
$
3,309

Net operating loss carryforwards
96,351

 
96,090

Research and development credit carryforward
3,022

 
3,141

Gross deferred tax asset
$
102,661

 
$
102,540

Valuation allowance
(102,661
)
 
(102,540
)
Net deferred tax asset
$
—

 
$
—


At December 31, 2011, management believes that, based on a number of factors, the available objective evidence creates sufficient uncertainty regarding the realizability of the deferred tax assets such that a full valuation allowance was recorded.

Reconciliation of the statutory federal income tax to the Company’s effective tax is as follows:

 
Year ended December 31,
 
2011
 
2010
 
2009
Tax Benefit at Federal statutory rate
34.0
 %
 
34.0
 %
 
34.0
 %
State, net of Federal benefit
(0.2
)%
 
2.9
 %
 
(0.7
)%
Stock compensation
1.0
 %
 
(2.9
)%
 
(2.1
)%
Research and development credit
10.3
 %
 
5.6
 %
 
1.1
 %
Return to Provision and True-ups
—
 %
 
3.1
 %
 
—
 %
Change in valuation allowance
(36.5
)%
 
(36.6
)%
 
(30.3
)%
Other
(2.1
)%
 
(2.5
)%
 
(2.9
)%
Benefit (Provision) for taxes
6.5
 %
 
3.6
 %
 
(0.9
)%

As of December 31, 2011, the Company has approximately $280.6 million of federal net operating losses available to offset future federal taxable income, which expire at various dates beginning in 2019.   The Company also has California net operating loss carryforwards of approximately $75.9 million to offset future California taxable income, which expire at various dates beginning in 2017.  We have not recognized any benefit from these net operating loss carry-forwards and a valuation allowance has been recorded for the total deferred tax assets as a result of uncertainties regarding realization of the assets based on limited history of the profitability and uncertainty of future profitability. The net operating loss carryforwards stated above are reflective of various federal and state tax limitations.  As of December 31, 2011 and December 31, 2010, the Company has gross Federal and California state research and development credit carryforwards of $2.8 million and $1.9 million, respectively. Additionally, net operating losses could be limited due to a change in control.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

 
Year ended December 31,
 
2011
 
2010
 
2009
Unrecognized tax benefits at beginning of period
$
1,234

 
$
810

 
$
718

Gross increases to current period tax positions
59

 
180

 
92

Gross increases to prior period tax positions
(101
)
 
244

 
—

Unrecognized tax benefits at end of period
$
1,192

 
$
1,234

 
$
810

 
The Company classifies interest expense and penalties related to unrecognized tax benefits and interest income on tax overpayments as components of its income tax expense. During the years ended December 31, 2011, December 31, 2010 and December 31, 2009 no interest or penalties were recognized.  The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months. There are no unrecognized tax benefits that would affect the actual tax rate at December 31, 2011, as the full valuation is recorded as deferred tax asset.
Acquisitions and Discontinued Operations
Acquisition and Discontinued Operations
Acquisitions and Discontinued Operations

Geek.com
In May 2010, the Company's Media segment acquired Geek.com for $1.0 million in cash.  Geek.com is an online technology resource and community for technology enthusiasts and professionals.  Geek.com was acquired to expand the Company's traffic and to provide a platform to penetrate Geeknet's mainstream consumer advertising categories.

The acquisition was treated as the acquisition of a business and 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 were based on management estimates and assumptions, including third-party valuations that used 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 had a useful life of three years.

In conjunction with the Company's decision to focus its Media web sites on the business community, the Company sold the Geek.com business to Ziff Davis, Inc. for $0.8 million on December 31, 2010.  The Company received $0.6 million in cash and $0.2 million in an escrow account with respect to certain standard representations and warranties made by the Company.  The escrow funds, net of any claims, are included in the calculation of the proceeds on sale of Geek.com due to the Company’s assessment, that no liabilities will arise under the indemnification provisions of the agreement with Ziff Davis, Inc.  The funds are returnable on demand. The sale of Geek.com has been treated as a discontinued operation in the accompanying consolidated financial statements.

Income from discontinued operations consists of direct revenue and direct expenses of Geek.com, including cost of revenue, as well as other direct and allocated costs. The loss on sale of assets includes the goodwill recorded on the acquisition of Geek.com.  A summary of the operating results of Geek.com included in discontinued operations in the accompanying condensed consolidated statements of income is as follows (in thousands):

 
Year Ended
December 31, 2010
Revenue
$
156

 
 

Loss from operations before income taxes
$
(193
)
Income taxes
—

Loss from operations, net of income taxes
$
(193
)
 
 

Loss on sale of assets, net of income taxes
$
(55
)
 
Ohloh Corporation
In June 2009, the Company's Media segment acquired Ohloh Corporation (“Ohloh”) for $2.6 million in cash.  Visitors to Ohloh's web site, Ohloh.net, supply data about open source projects and developers.  Ohloh augmented this user-contributed data with data gathered from its web-crawling technology.  The Company used Ohloh's database of open source software and developers to enhance its understanding of the Open Source Software (“OSS”) community and generated additional revenue from advertisers who used Ohloh’s data to reach their desired audience.  The acquisition of Ohloh was intended to enhance the Company’s position in and reach into the OSS community.

The Company allocated the purchase price to the tangible and intangible assets acquired and liabilities assumed, based on their estimated fair values.  The excess purchase price over those fair values was recorded as goodwill.  The acquisition provided the Company with a web crawling technology, including the data collected, its team of engineers and equipment to operate the business.

The fair values assigned to tangible and intangible assets acquired and liabilities assumed are based on management estimates and assumptions, including third-party valuations that use established valuation techniques appropriate for the high-technology industry.  The fair value of the developed technology was estimated by applying the income approach and a market 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 expected cash flows to be generated from this developed technology over its remaining life and the discount rate of 35 percent.  The purchase price was allocated as follows (in thousands):

Financial assets
$
5

Equipment
23

Identified intangible assets
958

Financial liabilities
(43
)
Total identifiable net assets
943

Goodwill
1,670

 
$
2,613

 
The $1.0 million of identified intangible assets were allocated to developed technology, which was being amortized over a three year useful life.


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 Software, Inc. ("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 the Company to Black Duck.  As of December 31, 2011, the Company has received all of the escrow funds.  The sale of the Ohloh website, which did not meet the criteria for a discontinued operation, resulted in a $1.4 million gain, which is included in the Gain (loss) 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 is convertible into common or preferred stock in the event of a future financing activity, or acquisition of Black Duck.  The Company 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. Additionally, the remaining amounts held in escrow were released in full.
Segment and Geographic Information
Segment and Geographic Information
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:  e-Commerce and Media.

The Company’s e-Commerce segment provides online sales of a variety of retail products of interest to technology professionals and technology enthusiasts and general consumers and the Media segment consists of web sites serving these communities.  The Company’s websites that comprise the Media segment include: SourceForge, Slashdot and Freecode.  Those corporate expenses that are not allocated to the individual operating segments and are not considered by the Company’s chief decision-making group in evaluating the performance of the operating segments are included in “Other”.

The accounting policies of the segments are consistent with those described in the summary of significant accounting policies.  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. Chief Administrative Officer and the Chief Executive Officer of the Media and e-Commerce business units.  The Company’s chief decision-making group excludes any intersegment sales and assets when evaluating the performance of the segments.  The Company’s assets and liabilities are not allocated or reviewed by the chief decision-making group for either operating segment.  The depreciation of the Company’s property, equipment and leasehold improvements are allocated based on headcount, unless specifically identified by operating segment.

(in thousands)
e-Commerce
 
Media
 
Other
 
Total Company
Year ended December 31, 2011
 
 
 
 
 
 
 
  Revenue from external customers
$
99,057

 
$
20,409

 
$
—

 
$
119,466

  Cost of revenue
$
83,277

 
$
4,906

 
$
—

 
$
88,183

  Gross margin
$
15,780

 
$
15,503

 
$
—

 
$
31,283

  Loss from operations
$
(923
)
 
$
(339
)
 
$
—

 
$
(1,262
)
  Depreciation and amortization
$
1,122

 
$
800

 
$
—

 
$
1,922

Year ended December 31, 2010
 
 
 
 
 
 
 
  Revenue from external customers
$
76,335

 
$
18,284

 
$
—

 
$
94,619

  Cost of revenue
$
62,630

 
$
6,610

 
$
—

 
$
69,240

  Gross margin
$
13,705

 
$
11,674

 
$
—

 
$
25,379

  Loss from operations
$
733

 
$
(5,144
)
 
$
—

 
$
(4,411
)
  Depreciation and amortization
$
496

 
$
1,781

 
$
—

 
$
2,277

Year ended December 31, 2009
 

 
 

 
 

 
 
  Revenue from external customers
$
49,091

 
$
16,486

 
$
—

 
$
65,577

  Cost of revenue
$
38,151

 
$
6,953

 
$
—

 
$
45,104

  Gross margin
$
10,940

 
$
9,533

 
$
—

 
$
20,473

  Operating loss
$
2,787

 
$
(12,193
)
 
$
—

 
$
(9,406
)
  Depreciation and amortization
$
145

 
$
2,535

 
$
(523
)
 
$
2,157

 
During the time period covered by the table above, the Company marketed its e-Commerce products through its online web site and its Media products in the United States through its direct sales force.  International Media sales were marketed through representatives based in the United Kingdom, Europe, Asia and Australia.  International revenue from the e-Commerce segment comprised approximately 14%, 18%, and 17%, total e-Commerce revenue for the year ended December 31, 2011, December 31, 2010, and December 31, 2009 respectively.  International revenue for the Media segment was less than 10% of total Media revenue for all periods presented.  International revenue consists of e-Commerce shipments outside the United States of America and revenue from Media customers located outside the United States of America.
Quarterly Financial Information
Quarterly Financial Information
Quarterly Financial Information

Quarterly Consolidated Financial Data
(Unaudited, in Thousands, except per share amounts)

The Company’s quarters end on March 31, June 30, September 30 and December 31 of each calendar year.
 
For the three months ended
 
March 31
 
June 30
 
September 30
 
December 31
Year 2011
 
 
 
 
 
 
 
Net revenue
$
19,916

 
$
20,070

 
$
19,700

 
$
59,780

Gross margin
4,936

 
5,402

 
5,093

 
15,852

Income (loss) from continuing operations
(2,386
)
 
(2,141
)
 
(2,683
)
 
6,020

Net income (loss)
$
(2,386
)
 
$
(2,141
)
 
$
(2,683
)
 
$
6,020

Net income (loss) per share from continuing operations:
 

 
 

 
 

 
 

Basic
$
(0.38
)
 
$
(0.34
)
 
$
(0.42
)
 
$
0.95

Diluted
$
(0.38
)
 
$
(0.34
)
 
$
(0.42
)
 
$
0.95

Net income (loss) per share:
 

 
 

 
 

 
 

Basic
$
(0.38
)
 
$
(0.34
)
 
$
(0.42
)
 
$
0.95

Diluted
$
(0.38
)
 
$
(0.34
)
 
$
(0.42
)
 
$
0.95

Year 2010
 

 
 

 
 

 
 

Net revenue
$
14,679

 
$
15,274

 
$
14,659

 
$
50,007

Gross margin
4,080

 
4,687

 
2,788

 
13,824

Income (loss) from continuing operations
(2,821
)
 
(2,484
)
 
(3,761
)
 
4,866

Net income (loss)
$
(2,821
)
 
$
(2,506
)
 
$
(3,850
)
 
$
4,729

Net income (loss) per share from continuing operations:
 

 
 

 
 

 
 

Basic
$
(0.47
)
 
$
(0.41
)
 
$
(0.62
)
 
$
0.78

Diluted
$
(0.47
)
 
$
(0.41
)
 
$
(0.62
)
 
$
0.77

Net income (loss) per share:
 
 
 
 
 
 
 
Basic
$
(0.47
)
 
$
(0.41
)
 
$
(0.64
)
 
$
0.76

Diluted
$
(0.47
)
 
$
(0.41
)
 
$
(0.64
)
 
$
0.75

 
Loss from continuing operations includes severance expense of $0.5 million during the three months ended March 31, 2011 and $0.5 million during the three months ended September 30, 2011. Loss from continuing operations includes severance expense of $0.4 million, $1.9 million and $0.3 million