Geeknet 10Q 2012 Q3 Quarterly report

Geeknet (GKNT) Inactive 10-Q2012 Q3 Quarterly report

Content analysis

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934		¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
		or
	For the quarterly period ended September 30, 2012			For the transition period from to .

Commission File Number: 000-28369

Geeknet, Inc.

(Exact name of Registrant as specified in its charter)



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

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

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

(877) 433-5638

(Registrant’s telephone number, including area code)

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

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

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



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

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

The registrant had 6,547,092 shares of Common Stock, $0.001 par value per share, outstanding as of October 31, 2012.

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		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets at September 30, 2012 and December 31, 2011	1
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2012 and September 30, 2011	2
	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2012 and September 30, 2011	3
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2012 and September 30, 2011	4
	Notes to Unaudited Condensed Consolidated Financial Statements	5

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	25

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 6.	Exhibits	35
Signatures		36
Certifications

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PART I

GEEKNET, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, unaudited)



	September 30, 2012			December 31, 2011
ASSETS
Current assets:
Cash and cash equivalents	$	37,922		$	36,910
Accounts receivable, net of allowance of $10 and $27 as of September 30, 2012 and December 31, 2011, respectively	952			6,264
Inventories, net	22,672			8,935
Prepaid expenses and other current assets	12,756			2,377
Total current assets	74,302			54,486
Property and equipment, net	3,826			5,717
Other long-term assets	335			4,089
Total assets	$	78,463		$	64,292

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	11,759		$	6,327
Deferred revenue	1,489			3,500
Accrued liabilities and other	1,841			3,409
Total current liabilities	15,089			13,236
Other long-term liabilities	77			71
Total liabilities	15,166			13,307
Commitments and Contingencies (Note 9)
Stockholders’ equity:
Preferred stock, $0.001 par value; 1,000 shares authorized; no shares issued or outstanding	—			—
Common stock, $0.001 par value; authorized — 25,000; issued — 6,728 and 6,473 shares, as of September 30, 2012 and December 31, 2011, respectively; outstanding — 6,546 and 6,361 shares as of September 30, 2012 and December 31, 2011, respectively	7			7
Treasury stock	(2,172		)	(978		)
Additional paid-in capital	813,525			807,829
Accumulated other comprehensive income	(41		)	(1		)
Accumulated deficit	(748,022		)	(755,872		)
Total stockholders’ equity	63,297			50,985
Total liabilities and stockholders’ equity	$	78,463		$	64,292

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

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GEEKNET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts, unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Net revenue	$	17,260		$	14,693		$	52,574		$	44,217
Cost of revenue	15,004			13,414			45,656			40,263
Gross margin	2,256			1,279			6,918			3,954
Operating expenses:
Sales and marketing	1,714			1,507			5,089			4,649
Research and development	1,117			497			2,792			1,324
General and administrative	2,635			2,645			7,629			7,124
Total operating expenses	5,466			4,649			15,510			13,097
Loss from operations	(3,210		)	(3,370		)	(8,592		)	(9,143		)
Gain on sale of non-marketable securities	—			—			4,021			—
Interest and other income (expense), net	(15		)	(3		)	(59		)	(2		)
Loss from continuing operations before income taxes	(3,225		)	(3,373		)	(4,630		)	(9,145		)
Income tax benefit	(1,226		)	(262		)	(1,759		)	(746		)
Net loss from continuing operations	(1,999		)	(3,111		)	(2,871		)	(8,399		)
Discontinued operations:
Income from discontinued operations, net of tax	10,362			428			10,722			1,182
Net income (loss)	$	8,363		$	(2,683	)	$	7,851		$	(7,217	)
Loss per share from continuing operations:
Basic	$	(0.31	)	$	(0.49	)	$	(0.45	)	$	(1.33	)
Diluted	$	(0.31	)	$	(0.49	)	$	(0.45	)	$	(1.33	)
Income per share from discontinued operations:
Basic	$	1.60		$	0.07		$	1.67		$	0.19
Diluted	$	1.57		$	0.07		$	1.64		$	0.19
Net income (loss) per share:
Basic	$	1.29		$	(0.42	)	$	1.22		$	(1.14	)
Diluted	$	1.27		$	(0.42	)	$	1.20		$	(1.14	)
Shares used in per share calculations:
Basic	6,483			6,337			6,438			6,306
Diluted	6,597			6,385			6,529			6,379

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

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GEEKNET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands, unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011

Net income (loss)	$	8,363		$	(2,683	)	$	7,851		$	(7,217	)
Other comprehensive income (loss):
Foreign currency translation loss	(38		)	3			(40		)	7
Comprehensive income (loss)	$	8,325		$	(2,680	)	$	7,811		$	(7,210	)

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

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GEEKNET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)



	Nine Months Ended September 30,
	2012			2011
Cash flows from operating activities from continuing operations:
Net income (loss)	$	7,851		$	(7,217	)
Income from discontinued operations, net of tax	(10,722		)	(1,182		)
Loss from continuing operations	(2,871		)	(8,399		)
Adjustments to reconcile loss from continuing operations to net cash used in operating activities:
Depreciation and amortization	1,076			876
Stock-based compensation expense	2,843			2,332
Provision for bad debts	21			26
Provision for excess and obsolete inventory	230			83
Provision for returns	717			738
Gain on sale of non-marketable securities	(4,021		)	—
Loss on sale of assets, net	56			(66		)
Changes in assets and liabilities:
Accounts receivable	(195		)	(92		)
Inventories	(13,967		)	4,953
Prepaid expenses and other assets	(7,604		)	(2,884		)
Accounts payable	5,805			(8,616		)
Deferred revenue	(250		)	238
Accrued liabilities and other	(2,513		)	(1,642		)
Net cash used in operating activities	(20,673		)	(12,453		)
Cash flows from investing activities:
Purchase of property and equipment	(108		)	(1,501		)
Proceeds from sales of intangible assets, net	—			65
Proceeds from sale of non-marketable equity investment	6,000			—
Proceeds from sale of discontinued operations	17,000			—
Net cash provided by (used in) investing activities	22,892			(1,436		)
Cash flows from financing activities:
Proceeds from issuance of common stock	249			757
Repurchase of stock	(1,194		)	(355		)
Net cash (used in) provided by financing activities	(945		)	402
Cash flows from discontinued operations:
Net cash (used in) provided by operating activities	(2,220		)	2,175
Net cash provided by (used in) investing activities	1,958			(20		)
Net cash (used in) provided by discontinued operations	(262		)	2,155
Net increase (decrease) in cash and cash equivalents	1,012			(11,332		)
Cash and cash equivalents, beginning of year	36,910			35,333
Cash and cash equivalents, end of period	$	37,922		$	24,001

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

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GEEKNET, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

Overview

On September 17, 2012 (the “Closing Date”), Geeknet, Inc. ("Geeknet" or the “Company”) entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Dice Holdings, Inc. (“Dice”) and two of Dice’s subsidiaries, Dice Career Solutions, Inc. and eFinancialCareers Limited (collectively, the “Buyers”) pursuant to which the Buyers purchased the Company’s Media business, including the SourceForge, Slashdot and Freecode websites (the “Purchased Business”) and assumed certain related liabilities.

Subsequent to the sale of the Company's Media business, Geeknet, Inc.'s business consists solely of its e-Commerce business that sells geek-themed retail products to technology enthusiasts and general consumers through its ThinkGeek website and wholesale channel. Some ThinkGeek products are custom made and developed by the Company's product development team ("GeekLabs"). Revenue is generated by attracting traffic to the ThinkGeek website, by offering a broad range of products that are not available in traditional brick-and-mortar stores and by introducing new products to the ThinkGeek audience and fans on a regular basis. The Company also sells ThinkGeek products through its wholesale channel. The Company has wholesale partnerships with brick and mortar retailers that allow the Company to reach a new consumer audience and expand ThinkGeek's unique brand. The Company recently established and strengthened partnerships with retail store chains that have hundreds of locations throughout the United States and Canada.

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 the seasonal nature of the business with a disproportionate amount of sales occurring in the fourth quarter, which begins on October 1 and ends on December 31. 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, 2011, included in the Company’s Annual Report on Form 10-K ("Form 10-K") filed with the Securities and Exchange Commission (“SEC”) .

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, 2012, its results of operations for the three and nine months ended September 30, 2012 and September 30, 2011 and its cash flows for the nine months ended September 30, 2012 and September 30, 2011 have been made.

The results of the Company's Media business, which was sold on September 17, 2012, are classified as discontinued operations for the three and nine months ended September 30, 2012 and 2011 in the Company's condensed consolidated statement of operations. The cash flows from the Media business' operating and investing activities are shown separately in cash flows from discontinued operations.

The accompanying condensed consolidated balance sheet as of December 31, 2011 has been derived from the Company's audited financial statements included on its 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 SEC and on the same basis as the annual financial statements. The assets and liabilities related to the Media business are included in their respective sections on the December 31, 2011 consolidated balance sheet as they did not meet the criteria for classification as assets held for sale at that date.

Certain prior period amounts have been reclassified to conform to the current period's presentation. Included in the condensed consolidated Statements of Cash Flows for the nine months ended September 30, 2011, there was $65 thousand included as net cash provided by prepaid expenses and other assets included in operating activities that is now included as proceeds from sales of intangible assets, net in investing activities. This amount relates to a payment in escrow for the sale of Ohloh website, including the developed technology and related equipment, to a third party.

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2. Summary of Significant Accounting Policies

Except for the updates discussed below, there have been no significant changes to the Company’s critical accounting policies during the nine months ended September 30, 2012 as compared to what was previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2011.

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.

Net Revenue

Net revenue is derived from the online sale of consumer goods and from product sales through our wholesale channel. The Company recognizes revenue from sales of consumer goods or products when persuasive evidence of an arrangement exists, delivery has occurred, the sale price is fixed or determinable, and collectibility is reasonably assured. Revenue is deferred for orders shipped but not delivered before the end of the period. The amount recorded as deferred revenue is estimated because of the Company's high volume of transactions and the use of multiple shipping carriers. These estimates are used to determine what orders that shipped at the end of the reporting period, were delivered and should be recognized as revenue. When calculating these estimates, the Company considers historical experiences of shipping transit times for domestic and international orders using different carriers. On average, shipping transit times are approximately one to six business days. As of September 30, 2012 and December 31, 2011, $0.7 million and $0.9 million, respectively, was recognized as deferred revenue for orders placed at the end of the reporting period, but not yet delivered.

The Company also engages in the sale of gift certificates. When a gift certificate is sold, revenue is deferred until the certificate is redeemed and the products are delivered. Deferred revenue at September 30, 2012 and December 31, 2011 relating to gift certificates was $0.7 million at each period.

The Company reserves an amount for estimated returns at the end of each reporting period. The Company generally gives customers a 90-day right to return products. These estimates are based on historical trends of amounts returned per revenue for a period. Reserves for returns at September 30, 2012 and December 31, 2011 were $0.2 million and $0.7 million, respectively.

The Company voluntarily ceased selling a product in July 2012 because of safety concerns. The Company is offering its customers who have purchased this product, the opportunity to return the product in exchange for a ThinkGeek credit. The Company believes the reserves for returns at September 30, 2012 to be adequate. The Company will adjust its reserves for returns as deemed appropriate based on future product returns.

Discontinued Operations

Due to the sale of the Company's Media business on September 17, 2012, the results of the Media business are classified as discontinued operations for the three and nine months ended September 30, 2012 and 2011. The results include Media business revenues, cost of sales and operating and non operating expenses, excluding previously allocated general corporate costs. See Note 7. Discontinued Operations for additional information.

Adopted Accounting Pronouncements

In June 2011, the FASB issued authoritative guidance that amends previous guidance for the presentation of comprehensive income. It eliminates the option to present other comprehensive income in the statement of changes in equity. Under this revised guidance, an entity has 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 revised guidance also required entities to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement in which net income is presented and the statement in which other comprehensive income is presented. In

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December 2011, the FASB issued guidance which indefinitely defers the guidance related to the presentation of reclassification adjustments. The Company adopted this standard on January 1, 2012. The adoption of this standard only impacts the presentation of the Company’s consolidated financial statements.

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. The Company adopted this standard on January 1, 2012. The adoption of this standard did not have an impact on the Company’s consolidated financial statements.

3. Balance Sheet Components

Prepaid expenses and other current assets

Prepaid expenses and other current assets consist of the following (in thousands):



	September 30,		December 31,
	2012		2011
Prepaid expenses and deposits for inventory	$	9,015	$	1,991
Escrow receivable	3,000		—
Other current assets	741		386
Prepaid expenses and other current assets	$	12,756	$	2,377

Property and Equipment

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



	September 30,			December 31,
	2012			2011
Computer and office equipment (useful lives of 2 to 4 years)	$	638		$	5,143
Distribution equipment (useful life of 5 years)	5,290			5,394
Furniture and fixtures (useful lives of 2 to 4 years)	143			347
Leasehold improvements (useful lives of lesser of estimated life or lease term)	220			365
Software (useful lives of 2 to 5 years)	393			700
Total property and equipment	6,684			11,949
Less: Accumulated depreciation and amortization	(2,858		)	(6,232		)
Property and equipment, net	$	3,826		$	5,717

Depreciation and amortization expense for property and equipment was $0.3 million for each of the three months ended September 30, 2012 and September 30, 2011, respectively, and $1.1 million and $0.9 million for the nine months ended September 30, 2012 and September 30, 2011, respectively.

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Other long-term assets

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



	September 30		December 31,
	2012		2011
Non marketable equity investment	$	—	$	1,979
Goodwill	—		1,675
Intangible assets, net	—		101
Other	335		334
Other long-term assets	$	335	$	4,089

Non-marketable equity investments

As of December 31, 2011, the Company owned approximately 9% of the outstanding capital stock of CollabNet, Inc. (“CollabNet”), which consisted of shares of CollabNet’s Series C-1 preferred stock. This investment was accounted for under the cost method as the Company held less than 20% of the voting stock of CollabNet and did not otherwise exercise significant influence over CollabNet.

On April 5, 2012, the Company sold its Series C-1 preferred stock investment in CollabNet, Inc. to a third party for $6.0 million. The carrying value of the investment at the time of the sale was $2.0 million and as such, a gain of $4.0 million was recognized during the second quarter of 2012.

The carrying value of the investment is included in Other long-term assets and was zero and $2.0 million at September 30, 2012 and December 31, 2011.

Accrued liabilities and other

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



	September 30, 2012		December 31, 2011
Accrued employee compensation and benefits	$	1,319	$	2,175
Other accrued liabilities	522		1,234
Accrued liabilities and other	$	1,841	$	3,409

4. Fair Value Measurements

The Company holds certain of its cash and cash equivalents in money market funds which is measured and recorded at fair value on a recurring basis at each reporting period using Level 1 inputs. The following tables show the fair value of the amounts held in money market funds at each reporting period (in thousands).



	September 30, 2012
	Level 1		Level 2		Level 3		Total

Money market fund deposits	$	18,265	$	—	$	—	$	18,265


	December 31, 2011
	Level 1		Level 2		Level 3		Total

Money market fund deposits	$	18,263	$	—	$	—	$	18,263

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5. Computation of Per Share Amounts

Basic earnings per common share is computed using the weighted-average number of common shares outstanding 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. For the three and nine months ended September 30, 2011, the Company excluded all stock options and restricted stock awards from the calculation of diluted net loss per common share because all such securities were anti-dilutive.

Employee stock 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 include the dilutive effect of in-the-money options, calculated based on the average share price for each period using the treasury stock method. 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.

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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,
	2012			2011			2012			2011

Loss from continuing operations	(1,999		)	(3,111		)	(2,871		)	(8,399		)
Income from discontinued operations, net of tax	10,362			428			10,722			1,182
Net income (loss)	$	8,363		$	(2,683	)	$	7,851		$	(7,217	)

Weighted average shares - basic	6,483			6,337			6,438			6,306
Dilutive effect of stock-based awards	114			48			91			73
Weighted average shares - dilutive	6,597			6,385			6,529			6,379

Loss per share from continuing operations:
Basic	$	(0.31	)	$	(0.49	)	$	(0.45	)	$	(1.33	)
Diluted	$	(0.31	)	$	(0.49	)	$	(0.45	)	$	(1.33	)

Income per share from discontinued operations:
Basic	$	1.60		$	0.07		$	1.67		$	0.19
Diluted	$	1.57		$	0.07		$	1.64		$	0.19

Net income (loss) per share:
Basic	$	1.29		$	(0.42	)	$	1.22		$	(1.14	)
Diluted	$	1.27		$	(0.42	)	$	1.20		$	(1.14	)

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,
	2012	2011	2012	2011
Anti-dilutive securities:
Options to purchase common stock	107	212	40	165
Unvested restricted stock units	186	228	263	113
Total	293	440	303	278

6. Stock Compensation

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 approved the addition of 200,000 shares of common stock available for issuance under the 2007 Plan. At September 30, 2012, a total of 227,198 shares of common stock were available for issuance under the 2007 Plan.

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In May 2012 at the Annual Meeting of Stockholders, the stockholders approved an amendment to the 2007 Plan. The 2007 Plan was amended to change the way restricted stock unit grants reduce the number of shares available for issuance under the 2007 Plan. Prior to the amendment, for each grant or forfeiture of a restricted stock unit, the number of shares available for issuance under the 2007 Plan decreased or increased by two. The amendment changed this 2:1 ratio to a 1:1 ratio.

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 on the date of grant. All vested stock options 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 as 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.

Stock Options

The following table summarizes option activities from December 31, 2011 through September 30, 2012:



	Number of Shares		Weighted-Average Exercise Price per Share	Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding as of December 31, 2011	411,726		$20.47
Granted	4,269		$18.02
Exercised	(19,547	)	$12.75
Canceled	(120,035	)	$20.68
Outstanding as of September 30, 2012	276,413		$20.89	7.2	$655
Vested or expected to vest at September 30, 2012	256,496		$20.76	7.1	$641
Exercisable at September 30, 2012	167,820		$20.55	6.3	$514

The total intrinsic value of options exercised for the three months ended September 30, 2012 and September 30, 2011 was insignificant for both periods, and for the nine months ended September 30, 2012 and September 30, 2011 was $0.1 million and $0.5 million, respectively. The Company issues new shares upon the exercise of options. The weighted average grant date fair value for the three months ended September 30, 2012 and September 30, 2011 was $7.20 and $14.25, respectively. The weighted average grant date fair value for the nine months ended September 30, 2012 and September 30, 2011 was $7.51 and $14.00, respectively. For the three and nine months ended September 30, 2012 and September 30, 2011, no tax benefit was realized from exercised options.

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:



	Three Months Ended September 30,		Nine Months Ended September 30,
	2012	2011	2012	2011
Expected life (years)	3.00	4.50	3.03	4.41
Risk-free interest rate	0.4%	0.7%	0.4%	1.2%
Volatility	60%	88%	63%	74%
Dividend yield	—	—	—	—

Restricted Stock

Outstanding restricted stock units granted to employees vest over a three year period. Outstanding restricted

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stock units granted to non-employee directors typically vest in less than a year and represent compensation for serving on the Company's Board of Directors. The following table summarizes restricted stock activities from December 31, 2011 through September 30, 2012:



	Number of Shares		Weighted-Average Grant-Date Fair Value
Outstanding as of December 31, 2011	388,318		$23.65
Granted	163,164		$16.28
Restricted Stock Release	(233,265	)	$22.46
Canceled	(90,483	)	$18.26
Outstanding as of September 30, 2012	227,734		$21.73

Stock-Based Compensation Expense

The following table summarizes stock-based compensation expense as recorded in the Condensed Consolidated Statements of Operations (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Cost of revenue	$	95	$	54	$	269	$	134

Sales and marketing	$	37	$	15	$	108	$	36
Research and development	53		17		72		39
General and administrative	651		824		2,394		2,123
Included in operating expenses	741		856		2,574		2,198

Total stock-based compensation expense	$	836	$	910	$	2,843	$	2,332

Stock-based compensation expense is recognized, net of estimated forfeitures, on a straight line basis over the vesting period. Forfeitures are estimated at the time of the grant, based on historical trends, and revised in subsequent periods, if necessary.

As of September 30, 2012, total compensation cost not yet recognized and the weighted-average remaining term is as follows ($ in thousands):

7. Discontinued Operations

On May 11, 2012, the Company announced that its Board of Directors was exploring strategic alternatives with respect to the Company's Media business, including the SourceForge, Slashdot and Freecode websites. The Company and its advisers evaluated a range of options to maximize shareholder value, including, but not limited to, selling the Media business. On September 17, 2012, Geeknet, Inc. entered into a Purchase Agreement with Dice and two of Dice’s subsidiaries, (collectively, the “Buyers”) pursuant to which the Buyers purchased the Company’s Media business segment, including the SourceForge, Slashdot and Freecode websites (the “Purchased Business”) and assumed certain related liabilities.

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In accordance with the terms of the Purchase Agreement, the Buyers paid to the Company $20.0 million in cash, of which $3.0 million was deposited by the Buyers into an escrow account for a period of twelve months after the Closing Date in order to secure the Company’s indemnification obligations to the Buyers for breaches of the Company’s representations, warranties, covenants and other obligations under the Purchase Agreement.

The Purchase Agreement contains customary representations, warranties and covenants. Subject to certain exceptions and limitations, each party has agreed to indemnify the other for breaches of representations, warranties and covenants and other specified matters. The Purchase Agreement generally limits the Company's liability for breaches of representations and warranties made in the Purchase Agreement to an aggregate of $10.0 million. The Purchase Agreement also contains covenants requiring the Company not to solicit or hire certain employees of the Buyers or compete with the Purchased Business for a period of three years. The Company and Dice have also agreed to provide certain transition services to one another following the Closing Date for a period of up to six months.

The following shows revenues, gross profit and income from discontinued operations, net of tax from discontinued operations:



	Three Months Ended September 30,					Nine Months Ended September 30,
	2012			2011		2012			2011
Revenue	$	3,848		$	5,007	$	13,876		$	15,470
Gross profit	$	2,658		$	3,814	$	10,500		$	11,471

(Loss) income from discontinued operations	$	(2,343	)	$	691	$	(1,437	)	$	1,906
Gain on sale of discontinued operations	14,042			—		14,042			—
Income tax provision from discontinued operations	1,337			263		1,883			$	724
Income from discontinued operations, net of tax	$	10,362		$	428	$	10,722		$	1,182

Gross profit and (loss) income from discontinued operations do not include allocated corporate costs that were previously allocated to the Company's Media segment. The $14.0 million gain on the sale of the Media business is the the selling price of $20.0 million less the carrying value of certain assets and liabilities assumed by the Buyers, offset by transaction costs of $1.1 million. The carrying value of the total assets and total liabilities included in the Purchased Business were $8.3 million and $3.4 million, respectively. The gain on the sale of discontinued operations is a preliminary estimate and assumes a full recovery of the $3.0 million held in escrow. The gain is also subject to adjustments based upon final allocation of revenues and expenses to the Company and the Buyers which is expected to be completed prior to year end. The tax provision recorded on discontinued operations for the three and nine months ended September 30, 2012 and 2011 represents the tax based upon the with and without method.

8. Segment Information

Prior to the sale of the Company's Media business on September 17, 2012, the Company had two strategic business segments that offered different products and services, e-Commerce and Media. The Company currently has one segment, e-Commerce, that sells geek-themed retail products to technology enthusiasts and general consumers through its ThinkGeek website and wholesale channel.

9. Commitments and Contingencies

On October 3, 2007, a purported Geeknet (formerly known as VA Linux Systems, Inc.) shareholder filed a complaint for violation of Section 16(b) of the Securities Exchange Act of 1934 (“Exchange Act”), which prohibits short-swing trading, against the Company's IPO underwriters. On June 11, 2012, the Plaintiff voluntarily dismissed the action with prejudice. On August 29, 2012, the same Plaintiff sent a demand to the Company requesting the Company commence an action under Section 16(b) of the Exchange Act against Credit Suisse Securities (USA) LLC, one of the Company's IPO underwriters based on similar allegations as in Plaintiff's prior lawsuit. The Company believes that pursuing the claim would not be in the best interests of the Company and therefore did not take the action requested in the letter. On November 2, 2012, the Plaintiff filed a complaint in the United States District Court for the Western District of Washington under Section 16(b) of the Exchange Act against Credit Suisse Securities (USA) LLC seeking

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disgorgement of short-swing trading profits (Simmonds v. Credit Suisse Securities (USA) LLC, No. 12-cv-01937). The Company was named as a nominal plaintiff in the suit, and no recovery is sought against the Company.

During July 2012, the Consumer Product Safety Commission ("CPSC") filed an administrative complaint against the maker of a product that is sold on the Company's ThinkGeek website. The CPSC complaint does not name ThinkGeek or Geeknet as a party. This complaint is in its early stages; however, the Company voluntarily ceased selling this product due to the safety concerns raised by the CPSC. The Company is offering its customers who have purchased this product the opportunity to return the product in exchange for a ThinkGeek credit. This exchange is being offered through August 31, 2013. Due to the early stages of this complaint, the ultimate outcome could differ materially from our estimates.

During September 2012, the Company sold its Media business for $20.0 million of which $3.0 million was deposited by the Buyers into an escrow account for a period of twelve months after the Closing Date in order to secure the Company’s indemnification obligations to the Buyers for breaches of the Company’s representations, warranties, covenants and other obligations under the Purchase Agreement. The Purchase Agreement generally limits the Company's liability for breaches of representations and warranties made in the Purchase Agreement to an aggregate of $10.0 million.

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, 2012 and December 31, 2011, no liability was recorded for outstanding matters.

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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; sources of revenue; gross margins; financial performance and results of operations; 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; competition, competitors and our ability to compete; liquidity and capital resources; 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 Part II., Item 1A Risk Factors, included elsewhere in this 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 to our critical accounting estimates during the nine months ended September 30, 2012 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, 2011.

Overview

Prior to September 17, 2012, we had two operating segments: e-Commerce and Media. e-Commerce sells technology-themed retail products for technology enthusiasts and others through our ThinkGeek website and our wholesale channel. Our Media segment provided web properties that served as platforms for the creation, review and distribution of online peer produced content, using our Media websites, SourceForge, Slashdot, and Freecode.

On May 11, 2012, we announced that our Board of Directors was exploring strategic alternatives with respect to our Media business, including the SourceForge, Slashdot and Freecode websites. We, along with our advisers, evaluated a range of options to maximize shareholder value, including, but not limited to, selling the Media business. We received bids from various organizations interested in purchasing the Media business and reviewed each one carefully with our advisers.

On September 17, 2012 (the “Closing Date”), we entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Dice Holdings, Inc. (“Dice”) and two of Dice’s subsidiaries, Dice Career Solutions, Inc. and eFinancialCareers Limited (collectively, the “Buyers”) pursuant to which the Buyers purchased our Media business, including the SourceForge, Slashdot and Freecode websites (the “Purchased Business”) and assumed certain related liabilities.

Our Board of Directors and management believe that selling the Media business will allow us to focus on our business strategies to grow and improve our e-Commerce business and our ThinkGeek sourced and custom developed products by our product development team ("GeekLabs"). We believe the proceeds generated from the sale of the Media business and management's ability to solely focus on our core e-Commerce business will result in a positive impact to our future business strategy.

In accordance with the terms of the Purchase Agreement, the Buyers paid us $20.0 million in cash, of which $3.0 million was deposited by the Buyers into an escrow account for a period of twelve months after the Closing Date in order to secure our indemnification obligations to the Buyers for breaches of our representations, warranties, covenants and other obligations under the Purchase Agreement.

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and covenants and other specified matters. The Purchase Agreement generally limits the Company's liability for breaches of representations and warranties made in the Purchase Agreement to an aggregate of $10.0 million. The Purchase Agreement also contains covenants requiring us not to solicit or hire certain employees of the Buyers or compete with the Purchased Business for a period of three years. We have also agreed with Dice to provide certain transition services to one another following the Closing Date for a period of up to six months.

We sell technology-themed retail products for technology enthusiasts and others through our ThinkGeek website and our wholesale channel. We offer a broad range of unique products in a single web property that are not available in traditional brick-and-mortar stores. We introduce a range of new products to our audience on a regular basis and sell our own innovative GeekLabs products developed in-house. We have several wholesale partnerships with brick and mortar retailers that allow us to reach a new consumer audience and expand our unique brand. We have recently established and strengthened partnerships with certain retail store chains that have hundreds of locations throughout the United States and Canada.

ThinkGeek's business strategy is to increase revenue by expanding the range of new and innovative products we sell, including our exclusive GeekLabs products, and by increasing traffic to our site and customer conversion. We attract traffic to our sites by using a variety of traditional online and direct retail marketing channels including paid search and e-mail 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 to communicate with our customers.

Our 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 ThinkGeek revenue has occurred in the fourth quarter ending December 31. As is typical in the retail industry, we generally experience lower monthly revenue during the first nine months of the year.

Each year we initiate programs and promotions to attract additional customers and increase sales to our existing customer base. This year we enhanced our Geek Points program by making the program more flexible for our customers and we expect to continue to implement improvements next year. We regularly send direct marketing e-mails to our customers and we increase the number of e-mails and promotions during the fourth quarter in preparation for the holiday season. We also utilize Facebook, Twitter and YouTube to generate interest in our new product launches.

We currently use the following key metrics to measure our e-Commerce business:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Unique visitors (in thousands) ⁽¹⁾	19,599			16,176			56,686			46,076
Number of orders received (in thousands)⁽²⁾	284			234			887			748
Conversion rate	1.45		%	1.45		%	1.56		%	1.62		%
Average order value received⁽³⁾	$	65		$	64		$	62		$	62

Number of orders shipped (in thousands) ⁽⁴⁾	279			241			892			779
Average order value shipped ^{(3) (5)}	$	62		$	61		$	59		$	57


(1)	Unique visitors is the total of unique visitors for the ThinkGeek website during the periods presented. This data is accumulated daily and can include the same unique visitor on different days. We track unique visitors and the volume of traffic to our website to help us determine the effectiveness of our online marketing efforts.


(2)	The number of orders received represents all orders placed on the ThinkGeek website during each period shown and does not necessarily correlate to revenue recognized during the period. For example, some orders placed on the ThinkGeek website at the end of a reporting period are recognized as revenue in the subsequent reporting period because delivery had not yet occurred.


(3)	Average order value received or shipped is calculated by the total sales for orders received or shipped divided by the number of orders received or shipped. Average order value can vary depending on, but not limited to, seasonality, promotions, the number of volume sales in a given period, the competitive environment and economic conditions.

(4) The number of orders shipped represents all orders associated with the amount of revenue recognized for ThinkGeek for the period presented.

(5) Wholesale channel sales contributed to the total average order value shipped. Excluding wholesale channel sales, average order value

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shipped for ThinkGeek website orders was $57 and $58 for the three months ended September 30, 2012 and 2011 and $55 and $54 for the nine months ended September 30, 2012 and 2011.

Critical Accounting Policies

Accounting policies, methods and estimates are an integral part of the condensed consolidated financial statements prepared by management and are based upon management’s current judgments. Those judgments are normally based on knowledge and experience with regard to past and current events and assumptions about future events. Certain accounting policies, methods and estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ from management’s current judgments. While there are a number of accounting policies, methods and estimates affecting our financial statements, areas that are particularly significant include revenue recognition, inventories, the assessment of impairment of goodwill and long-lived assets, stock-based compensation and contingencies and litigation.

Net Revenue

Net revenue is derived from the online sale of consumer goods and from product sales through our wholesale channel. We recognize revenue from consumer goods or product sales when persuasive evidence of an arrangement exists, delivery has occurred, the sale price is fixed or determinable, and collectibility is reasonably assured. Revenue is deferred for orders shipped but not delivered before the end of the period. The amount recorded as deferred revenue is estimated because of our high volume of transactions and the use of multiple shipping carriers. These estimates are used to determine what orders that shipped at the end of the reporting period, were delivered and should be recognized as revenue. When calculating these estimates, we consider historical experiences of shipping transit times for domestic and international orders using different carriers. On average, shipping transit times are approximately one to six business days. As of September 30, 2012 and December 31, 2011, $0.7 million and $0.9 million, respectively, was recognized as deferred revenue for orders placed at the end of the reporting period, but not yet delivered.

We also engage in the sale of gift certificates. When a gift certificate is sold, revenue is deferred until the certificate is redeemed and the products are delivered. Deferred revenue at September 30, 2012 and December 31, 2011 relating to gift certificates was $0.7 million at each period.

We reserve an amount for estimated returns at the end of each reporting period. We generally give customers a 90-day right to return products. These estimates are based on historical trends of amounts returned per revenue for a period. Reserves for returns at September 30, 2012 and December 31, 2011 were $0.2 million and $0.7 million, respectively. This decrease was due to the seasonality effect from holiday sales occurring at year end.

We voluntarily ceased selling a product in July 2012 because of safety concerns. We are offering our customers who have purchased this product, the opportunity to return the product in exchange for a ThinkGeek credit. We believe the reserves for returns at September 30, 2012 to be adequate. We will adjust our reserves for returns as deemed appropriate based on future product returns.

Inventories

Inventories consist solely of finished goods that are valued at the lower of cost, using the weighted average cost method, or market. We review inventories each quarter and, when required, reduce estimated excess and obsolete inventories to their net realizable values.

Long-Lived Assets

We continually evaluate whether events and circumstances have occurred that indicate the remaining estimated useful life of long-lived assets may warrant revision or that the remaining balance of long-lived assets may not be recoverable. When factors indicate that long-lived assets should be evaluated for possible impairment, we use an estimate of the related undiscounted future cash flows over the remaining life of the long-lived assets in measuring whether they are recoverable. If the carrying value of the asset exceeds the estimated undiscounted future cash flows, a loss is recorded as the excess of the asset’s carrying value over fair value. Long-lived assets and certain identifiable intangible assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.

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Stock-Based Compensation

We measure compensation cost for stock awards at grant date fair value and recognize the expense net of estimated forfeitures for shares expected to vest over the service period of the award.

Calculating compensation expense for stock options requires the input of subjective assumptions, including the expected term of the stock option grant, stock price volatility, interest rates and the forfeiture rate. The fair value of the option grants are calculated on the date of grant using the Black-Scholes option pricing model. The expected life is based on historical settlement patterns. Expected volatility is based on the historical implied volatility of our 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. We estimate the forfeiture rate based on historical trends of our stock-based awards that cancel.

Discontinued Operations

Results of Operations and Discontinued Operations

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



	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Consolidated Statements of Operations Data:
Net revenue	100.0	%	100.0	%	100.0	%	100.0	%
Cost of revenue	86.9		91.3		86.8		91.1
Gross margin	13.1	%	8.7	%	13.2	%	8.9	%
Operating expenses:
Sales and marketing	9.9		10.3		9.7		10.5
Research and development	6.5		3.4		5.3		3.0
General and administrative	15.3		18.0		14.5		16.1
Total operating expenses	31.7	%	31.7	%	29.5	%	29.6	%
Loss from operations	(18.6	)	(23.0	)	(16.3	)	(20.7	)
Gain on Sale of non-marketable securities	—		—		7.6		—
Interest and other income (expense), net	(0.1	)	—		(0.1	)	—
Loss from continuing operations before income taxes	(18.7	)	(23.0	)	(8.8	)	(20.7	)
Income tax benefit	(7.1	)	(1.8	)	(3.3	)	(1.7	)
Net loss from continuing operations	(11.6	)%	(21.2	)%	(5.5	)%	(19.0	)%
Income from discontinued operations, net of tax	60.0	%	2.9	%	20.4	%	2.7	%
Net income (loss)	48.5	%	(18.3	)%	14.9	%	(16.3	)%

Net Revenue

Net revenue is derived from the sale of consumer goods at retail on our ThinkGeek website and from our wholesale channel, and includes shipping, net of returns and allowances. These consumer goods are typically electronics, toys, gadgets, apparel, edibles, geek-themed and other specialty or unique items. Our customers are primarily technology enthusiasts and general consumers. We sell and ship our products domestically and internationally.

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	Three Months Ended September 30,						Nine Months Ended September 30,
	2012		2011		% Change		2012		2011		% Change
($ in thousands)
Net revenue	$	17,260	$	14,693	17	%	$	52,574	$	44,217	19	%

Net revenue increased $2.6 million and $8.4 million during the three and nine months ended September 30, 2012 as compared to the same prior year periods primarily due to an increase in the number of orders placed through our ThinkGeek website and an increase in revenue through our wholesale channel as compared to the prior year period.

The number of unique visitors increased 21% and 23% during the three and nine month periods ended September 30, 2012, respectively, as compared to the same prior year periods. The higher volume of visitors is primarily due to our efforts to increase consumer awareness of our ThinkGeek website through advertising and media coverage.

Wholesale revenue to retailers and brick and mortar stores increased $0.7 million and $1.6 million during the three and nine month periods ended September 30, 2012, respectively, as compared to the same prior year periods ended September 30, 2011. These increases are the result of the ThinkGeek sales team strengthening relationships with our existing wholesale clients and acquiring new clients who have particular interest in ThinkGeek products. We continue to diversify our product offerings by introducing new products, including our innovative GeekLabs products and expanding licensing partnerships.

Thinkgeek products are sold in the U.S. and internationally. The majority of Thinkgeek sales are in the U.S. and were 77% and 79% of total sales for each of the three months ended September 30, 2012 and September 30, 2011, respectively, and 80% and 82% of total sales for each of the nine months ended September 30, 2012 and September 30, 2011, respectively. International sales continue to grow and were 23% and 21% of total net sales for each of the three months ended September 30, 2012 and September 30, 2011, respectively, and 20% and 18% for each of the nine months ended September 30, 2012 and 2011, respectively. We have been focused on increasing Thinkgeek awareness in other countries and increasing our ability to ship to other countries which have resulted in the increase in sales internationally.

Cost of Revenue / Gross Margin

Cost of revenue consists of product, shipping and fulfillment costs and personnel and related overhead expenses associated with the operations and merchandising functions.



	Three Months Ended September 30,								Nine Months Ended September 30, 2012
	2012			2011			% Change		2012			2011			% Change
($ in thousands)
Cost of revenue	$	15,004		$	13,414		12	%	$	45,656		$	40,263		13	%
Gross margin	$	2,256		$	1,279		76	%	$	6,918		$	3,954		75	%
Gross margin %	13		%	9		%			13		%	9		%

Cost of revenues increased $1.6 million during the three months ended September 30, 2012 as compared to the three months ended September 30, 2011 primarily due to higher sales. Also, contributing to the increase is a $0.2 million reserve to inventory for a product that we sell on our ThinkGeek website. The Consumer Product Safety Commission filed an administrative complaint against the maker of this product because of safety concerns, particularly to children. As other retailers have done, we voluntarily suspended the sales of this product in late July 2012. We do not anticipate this to have a material impact on net revenues.

Cost of revenues increased $5.4 million during the nine months ended September 30, 2012 as compared to the nine months ended September 30, 2011 primarily due to higher sales and the $0.2 million reserve to inventory for a certain product as described above.

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Gross margin as a percentage of revenues for the three and nine months ended September 30, 2012 increased by four percentage points due to our efforts in reducing fulfillment and outbound shipping costs and improvements in inventory management. We also continued to create efficiencies in inventory management throughout the past year which led to fewer discontinued inventory discounts and reduced write downs of obsolete inventory.

Also contributing to the increase in gross margins is a decrease in seventeen full-time equivalents ("FTEs"). During the first quarter of 2012, we began outsourcing our ThinkGeek customer service department, which reduced FTEs. We also redirected certain of our workforce from merchandising, included as cost of revenue, to developing our own innovative products in our GeekLabs, included in research and development.

Operating Expenses

Sales and Marketing Expenses

Sales and marketing expenses consist primarily of personnel and related overhead expenses, including sales commissions, marketing and sales support functions, as well as costs associated with advertising and promotional activities.



	Three Months Ended September 30,								Nine Months Ended September 30,
	2012			2011			% Change		2012			2011			% Change
($ in thousands)
Sales and marketing	$	1,714		$	1,507		14	%	$	5,089		$	4,649		9	%
Percentage of total net revenue	10		%	10		%			10		%	11		%

Sales and marketing expenses increased $0.2 million for the three months ended September 30, 2012 as compared to the three months ended September 30, 2011 primarily due to an increase of $0.3 million in personnel and related overhead expenses due to certain individuals that were transferred to the sales and marketing department during the third quarter of 2012 and severance costs of $0.1 million. This increase was partially offset by a decrease of $0.2 million in marketing expenses primarily due our decision to discontinue printing large catalogs.

Sales and marketing expenses increased $0.4 million for the nine months ended September 30, 2012 as compared to the nine months ended September 30, 2011 primarily due to an increase of $0.8 million in personnel and related overhead expenses because of an average of five additional FTE in our marketing workforce as compared to the same prior year period, partially offset by a decrease in marketing expenses of $0.3 million and $0.2 million of cost savings in credit card fees. Marketing expenses are lower primarily due to our decision to discontinue printing large catalogs. Our credit card fees are lower because during the fourth quarter of 2011 we reduced our fees by changing our credit card processing vendor.

Sales and marketing as a percentage of sales decreased one percentage point during the nine months ended September 30, 2012 as compared to the same period in the prior year period primarily due to a decrease in credit card fees.

Research and Development Expenses

Research and development expenses consist primarily of personnel and related overhead expenses for GeekLabs and product developers for ThinkGeek. We expense all of our research and development costs as they are incurred.



	Three Months Ended September 30,								Nine Months Ended September 30,
	2012			2011			% Change		2012			2011			% Change
($ in thousands)
Research and development	$	1,117		$	497		125	%	$	2,792		$	1,324		111	%
Percentage of total net revenue	6		%	3		%			5		%	3		%

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Research and development expense increased $0.6 million for the three months ended September 30, 2012 as compared to the three months ended September 30, 2011 primarily due to our increased focus on testing and developing our own GeekLabs innovative products. We redirected certain of our workforce and hired new employees for our internal development center, GeekLabs, which resulted in an increase of $0.4 million in personnel and related overhead expenses. Also contributing to the increase are $0.1 million in fees related to developing prototypes of GeekLabs custom products and $0.1 million rent expense for equipment used in our new data recovery site built this year.

Research and development expense increased $1.5 million for the nine months ended September 30, 2012 as compared to the nine months ended September 30, 2011 primarily due to our increased focus on developing our own GeekLabs innovative products, which resulted in an increase of $0.9 million in personnel and related overhead expenses. Also contributing to the increase are $0.3 million rent expense for equipment used in our new data recovery site built this year.

Research and development as a percentage of net sales increased 3 percentage points and 2 percentage points in the three and nine months ended September 30, 2012 as compared to the same prior year periods primarily due to higher personnel and related overhead expenses as a percentage of sales.

General and Administrative Expenses

General and administrative expenses consist of salaries and related expenses for finance and accounting, human resources and legal personnel, professional fees for accounting and legal services as well as insurance and other public company related costs.



	Three Months Ended September 30,								Nine Months Ended September 30,
	2012			2011			% Change		2012			2011			% Change
($ in thousands)
General and administrative	$	2,635		$	2,645		—	%	$	7,629		$	7,124		7	%
Percentage of total net revenue	15		%	18		%			15		%	16		%

General and administrative expenses remained unchanged for the three months ended September 30, 2012 as compared to the three months ended September 30, 2012.

General and administrative expenses increased $0.5 million for the nine months ended September 30, 2012 as compared to the nine months ended September 30, 2012. This is primarily due to an increase in professional services fees of $0.5 million and an increase of $0.3 million in stock-based compensation. These increases were partially offset by nonrecurring severance costs of $0.2 million that occurred in the prior year period related to the resignation of our ThinkGeek Chief Executive Officer.

General and administrative expenses as a percentage of total net revenue improved by three and one percentage points in the three and nine months ended September 30, 2012 as compared to the same prior year periods primarily due to the significant investments in our ThinkGeek business and our leadership that occurred in the prior year period.

Gain on Sale of Non-Marketable Securities



	Three Months Ended September 30,					Nine Months Ended September 30,
	2012		2011		% Change	2012		2011		% Change
($ in thousands)
Gain on sale of non-marketable securities	$	—	$	—	nm	$	4,021	$	—	nm

nm= not meaningful

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As of December 31, 2011, we owned approximately 9% of the outstanding capital stock of CollabNet, Inc. (“CollabNet”), which consist of shares of CollabNet’s Series C-1 preferred stock. This investment was accounted for under the cost method as we held less than 20% of the voting stock of CollabNet and did not otherwise exercise significant influence over CollabNet.

On April 5, 2012, we sold our Series C-1 preferred stock investment in CollabNet, Inc. to a third party for $6.0 million. The carrying value of the investment at the time of the sale was $2.0 million and as such, a gain of $4.0 million was recognized during the second quarter of 2012. The carrying value of the investment was zero and $2.0 million at September 30, 2012 and December 31, 2011.

Interest and Other Income (Expense), Net



	Three Months Ended September 30,								Nine Months Ended September 30,
	2012			2011			% Change		2012			2011			% Change
($ in thousands)
Interest income	$	—		$	1		(100	)%	$	1		$	1		—	%
Other income (expense), net	(15		)	(4		)	275	%	(60		)	(3		)	1,900	%
Interest and other income (expense), net	$	(15	)	$	(3	)	400	%	$	(59	)	$	(2	)	2,850	%

Interest and other income (expense), net during the three months ended September 30, 2012 primarily consisted of foreign currency gains and losses, partially offset by other income. Interest and other income (expense), net during the and nine months ended September 30, 2012, consisted primarily of penalties and credit facility fees and other expenses.

Income Taxes



	Three Months Ended September 30,								Nine Months Ended September 30, 2012
	2012			2011			% Change		2012			2011			% Change
($ in thousands)
Income tax benefit	$	(1,226	)	$	(262	)	368	%	$	(1,759	)	$	(746	)	136	%

The income tax benefits recognized for the three and nine months ended September 30, 2012 and 2011 represent the tax benefit that would be recognized from continuing operations calculated on a with and without basis. This benefit was recognized as we are able to reduce the income tax expense derived from the income from discontinued operations in each period.

As of December 31, 2011, we had $280.6 million of federal net operating loss carry-forwards available to offset future federal taxable income, which expire at various dates through 2030. A significant part of these net operating losses may be limited due to historical changes in ownership as defined by the Internal Revenue Code. We also have California net operating loss carry forwards 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 our limited history of profitability and the uncertainty of future profitability.

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Discontinued Operations, Net of Tax



	Three Months Ended September 30,					Nine Months Ended September 30, 2012
	2012			2011		2012			2011
($ in thousands)
(Loss) income from discontinued operations	$	(2,343	)	$	691	$	(1,437	)	$	1,906
Gain on sale of discontinued operations	$	14,042		$	—	$	14,042		$	—
Income tax provision from discontinued operations	1,337			263		1,883			724
Income from discontinued operations, net of tax	$	10,362		$	428	$	10,722		$	1,182

Due to the sale of our Media business on September 17, 2012, the results of the Media business are classified as (Loss) income on discontinued operations for the three and nine months ended September 30, 2012 and 2011. The results include Media business revenues, cost of sales and operating and non operating expenses, excluding previously allocated general corporate costs.

On September 17, 2012, we entered into a Purchase Agreement with Dice pursuant to which the Buyers purchased our Media business, including the SourceForge, Slashdot and Freecode websites and assumed certain related liabilities. In accordance with the terms of the Purchase Agreement, the Buyers paid Geeknet $20.0 million in cash of which $3.0 million was deposited by the Buyers into an escrow account. The $14.0 million gain on the sale of the Media business is the the selling price of $20.0 million less the carrying value of certain assets and liabilities assumed by the Buyers, offset by transaction costs of $1.1 million. The gain on disposal is a preliminary estimate and assumes a full recovery of the $3.0 million held in escrow. The gain is also subject to adjustments based upon final allocation of revenues and expenses to us and the Buyers which is expected to be completed prior to year end. The tax provision recorded on discontinued operations for the three and nine months ended September 30, 2012 and 2011 represents the tax based upon the with and without method.

Liquidity and Capital Resources



	Nine Months Ended September 30,
	2012			2011
($ in thousands)
Net cash (used in) provided by:
Operating activities	$	(20,673	)	$	(12,453	)
Investing activities	22,892			(1,436		)
Financing activities	(945		)	402
Net cash (used in) provided by discontinued operations	(262		)	2,155
Net increase (decrease) in cash and cash equivalents	$	1,012		$	(11,332	)

Our principal sources of cash as of September 30, 2012 were our existing cash and cash equivalents of $37.9 million.

Operating Activities

Net cash used in operating activities increased $8.2 million during the nine months ended September 30, 2012 as compared to the nine months ended September 30, 2011 as a result of improved profitability from continuing operations of $1.6 million, excluding the $4.0 million gain on sale of non-marketable securities, offset by a change in assets and liabilities of $10.7 million. The changes in assets and liabilities was primarily due to an increase in cash used to purchase inventory due to our efforts to have sufficient levels on hand to meet holiday demands and reduce back order or out of stock occurrences.

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Investing Activities

Cash provided by investing activities for the nine months ended September 30, 2012 of $22.9 million included proceeds of $17.0 million for the sale of the Company's Media business and proceeds of $6.0 million for the sale of the Company's series C-1 preferred stock investment in CollabNet, Inc.

Cash used in investing activities for nine months ended September 30, 2011 of $1.4 million was primarily due to the expansion of our distribution equipment at our contract-fulfillment and warehouse provider and purchases of property and equipment related to computer and equipment and leasehold improvements for relocating our corporate headquarters from Mountain View, California to Fairfax, Virginia.

Financing Activities

Cash used in financing activities for the nine months ended September 30, 2012 of $0.9 million included $1.2 million for the repurchase of our common stock to satisfy tax withholding obligations that arose from the vesting of restricted stock, partially offset by $0.2 million cash provided by the issuance of common stock from stock option exercises.

Cash provided by financing activities for the nine months ended September 30, 2011 of $0.4 million included $0.8 million in cash provided by the issuance of common stock from stock option exercises, partially offset by $0.4 million of repurchases of our common stock.

Net Cash Provided By Discontinued Operations

Cash flow from discontinued operations includes operating and investing activities that have been reported separately in the condensed consolidated statements of cash flows. The absence of cash flows from discontinued operations in our ongoing operations is not expected to materially impact our future cash flow or liquidity due to the

relatively modest amounts historically contributed by the discontinued operations.

Liquidity

Our liquidity and capital requirements depend on numerous factors, including our investment in inventory to support the e-Commerce business, market acceptance of our online products, the resources we devote to developing, marketing, selling and supporting our online products and website, the timing and expense associated with expanding our distribution channels, potential acquisitions and other factors.

On December 12, 2011, we 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 Company. As of December 31, 2011, we were in default of certain covenants for which we received a waiver from Wells Fargo Bank. As of September 30, 2012, we were not in default of these covenants.

On September 17, 2012 we entered into an Asset Purchase Agreement with Dice pursuant to which the Buyers purchased our Media business, including the SourceForge, Slashdot and Freecode websites and assumed certain related liabilities. In accordance with the terms of the Purchase Agreement, the Buyers paid us $20.0 million in cash, of which $3.0 million was deposited by the Buyers into an escrow account for a period of twelve months after the Closing Date in order to secure our indemnification obligations to the Buyers for breaches of our representations, warranties, covenants and other obligations under the Purchase Agreement.

The Purchase Agreement contains customary representations, warranties and covenants. Subject to certain exceptions and limitations, each party has agreed to indemnify the other for breaches of representations, warranties and covenants and other specified matters. The Purchase Agreement generally limits the Company's liability for breaches of representations and warranties made in the Purchase Agreement to an aggregate of $10.0 million. The Purchase Agreement also contains covenants requiring us not to solicit or hire certain employees of the Buyers or compete with the Purchased Business for a period of three years. We have also agreed with Dice to provide certain transition services to one another following the Closing Date for a period up to six months.

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We expect to devote capital resources to continue our e-Commerce research and development efforts, to invest in our sales, support, marketing and product development organizations, to enhance and introduce marketing programs, to invest in capital projects to continue to support our operations, distribution and related support systems and infrastructure, and for other general corporate activities and investments. We do not believe that the absence of cash flows from our Media business will significantly impact our cash balances as the majority of cash generated is derived from our e-Commerce sales. We believe that our existing cash balances will be sufficient to meet near term liquidity needs.

Financial Risk Management

We currently face limited exposure to adverse movements in foreign currency exchange rates and we do not engage in hedging activity. We do not anticipate significant currency gains or losses in the near term. These exposures may change over time as business practices evolve and could have a material adverse impact on our financial results.

Recent Accounting Pronouncements

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. We adopted this standard on January 1, 2012. The adoption of this standard did not have an impact on our consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We have operated primarily in the United States, and the majority of sales have been made in U.S. dollars. Accordingly, we have not had any material exposure to foreign currency rate fluctuations.

We do not currently hold any derivative instruments and do not engage in hedging activities.

Item 4. Controls and Procedures

a) Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s chief executive officer and chief financial officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of September 30, 2012.

Disclosure controls and procedures are designed with the objective of ensuring that (i) information required to be disclosed in the Company’s reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and (ii) information is accumulated and communicated to management, including the Company's chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, the Company’s chief executive officer and chief financial officer concluded that as of September 30, 2012, the Company’s disclosure controls and procedures were effective.

b) Changes in Internal Control over Financial Reporting

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No change in the Company’s internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act) occurred during the three months ended September 30, 2012, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II

Item 1. Legal Proceedings

The disclosure included in Note 8. Commitments and Contingencies in the Notes to Condensed Consolidated Financial Statements is incorporated by reference into this Item 1.

Item 1A. Risk Factors

CURRENT AND PROSPECTIVE INVESTORS IN GEEKNET SECURITIES SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING AN INVESTMENT DECISION. IN ADDITION, THESE RISKS ARE NOT THE ONLY ONES FACING OUR COMPANY. ADDITIONAL RISKS OF WHICH WE ARE NOT PRESENTLY AWARE OR THAT WE CURRENTLY BELIEVE ARE IMMATERIAL MAY ALSO IMPAIR OUR BUSINESS OPERATIONS. OUR BUSINESS COULD BE HARMED BY ANY OF THESE RISKS. THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE DUE TO ANY OF THESE RISKS, AND INVESTORS MAY LOSE ALL OR PART OF THEIR INVESTMENT.

The following risk factors have been updated to reflect the new structure of our business subsequent to the sale of our Media business on September 17, 2012.

Risks Related To Our e-Commerce Business

If ThinkGeek fails to launch new and innovative products, the demand for our products may be limited and our revenue will be adversely affected.

In order to attract customers to our site, we must continually release new and innovative products, including products internally developed by GeekLabs. In addition to the direct revenue we derive from product sales, the release of new and innovative products attracts media coverage and drives customers to our site. The successful development, sourcing, manufacturing and merchandising of products is subject to numerous risks and uncertainties, including:


•	specific economic conditions relating to ThinkGeek


•	the spending habits of our ThinkGeek customers


•	the performance of our ThinkGeek suppliers


•	execution by our third party fulfillment center


•	our ability to retain qualified merchandising, sales and product development personnel

There can be no assurance that our new products will appeal to customers or that demand for these products will be sufficient to generate revenue consistent with our estimates. In addition, there can be no assurance that new products will be developed in a timely or cost-effective manner, or that we will be able to procure appropriate quantities of such products. If we are unable to deliver new and innovative products that allow us to increase demand, we may not be able to generate sufficient revenue to grow our ThinkGeek business. See also additional risks related to competition set forth elsewhere in these Risk Factors.

Our ThinkGeek e-Commerce business is highly seasonal. In addition, we are exposed to significant inventory risks as a result of seasonality, new product launches, rapid changes in product cycles and changes in consumer tastes.

Our ThinkGeek business 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. In order to be successful, we must accurately predict our customers' tastes and demands to avoid purchasing too much or too little inventory. If we purchase too much inventory, we may be required to discount those products or write off products we are unable to sell, reducing our gross margins. If we purchase too little inventory, we may fail to meet customer demand and lose potential orders, which will adversely affect our financial results.

In addition, when we launch a new product, it is difficult to accurately forecast customer demand. Certain products, especially custom manufactured products or products purchased from outside the United States may require significant

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lead-time, payment or partial payment prior to shipment, and may not be returnable. We carry a broad selection of products and significant inventory levels of certain products and we may be unable to sell products in sufficient quantities or during the relevant selling seasons. Failure to properly assess our inventory needs could adversely affect our financial results.

We are dependent upon a single third-party fulfillment and warehouse provider. Our customer satisfaction is highly dependent upon fulfillment of orders in a professional and timely manner. Any decrease in the quality of service offered by our fulfillment and warehouse provider will adversely affect our reputation and the growth of our ThinkGeek e-Commerce business. If we fail to realize anticipated operating efficiencies at our third-party fulfillment and warehouse provider, our operating results will be adversely affected.

Our ThinkGeek business' ability to receive inbound inventory and ship completed orders efficiently and in a timely manner to our customers is substantially dependent on a single third-party fulfillment and warehouse provider. We ship products to customers worldwide using the services of Exel, Inc. (“Exel”), located in Lockbourne, Ohio. Our contract with Exel ends April 26, 2016.

If Exel fails to meet our distribution and fulfillment needs, our relationship with and reputation among our ThinkGeek e-Commerce customers will suffer and this will adversely affect our ThinkGeek revenue. Additionally, if Exel is unable to meet our distribution and fulfillment needs, particularly during the holiday season, or our contract with Exel is terminated, we may be required to secure a second-source or replacement fulfillment and warehouse provider. If we fail to secure such a fulfillment and warehouse provider or are unable to secure a fulfillment and warehouse provider on comparable terms our reputation and our ThinkGeek e-Commerce financial results would be adversely affected.

In August 2010, we began shipping products to customers worldwide using the services of Exel, located in Lockbourne, Ohio. This change of providers required significant efforts by our ThinkGeek management's engineering and operations teams. In June 2011, we contracted for the build out of additional capacity in order to better meet demand. This additional capacity will allow us to accommodate more products and be more efficient during our peak times. If we are unable to realize anticipated operating efficiencies, our shipping and fulfillment costs may not decline as a percent of revenues and our ThinkGeek gross margins and operating income would be adversely affected.

Unplanned system interruptions and capacity constraints could harm our revenue and reputation.

Our ThinkGeek business is dependent on the uninterrupted and highly-available operation of our website. We experience periodic service interruptions with our ThinkGeek web site. Service interruptions may be caused by a variety of factors, including capacity constraints, software design flaws and bugs, and third party denial of service attacks. If we fail to provide customers with such access to our web site at the speed and performance which they require, our ThinkGeek sales and business reputation will be adversely affected.

Our systems and operations remain vulnerable to damage or interruption from fire, power loss, telecommunications failure and similar events. If our web site experiences frequent or lengthy service interruptions, our business and reputation could be adversely affected. In the third quarter of 2012, we moved our disaster recovery site to Dallas, Texas from Chicago, Illinois.

We are subject to risks as a result of our reliance on foreign sources of production for certain products.

In order to offer cost-effective and innovative products, we rely on manufacturers located outside of the United States, most of which are located in Asia (primarily China), to supply us with sufficient quantities of these products based on our forecasts and to deliver these products in a timely manner.

Our arrangements with these manufacturers are generally limited to purchase orders tied to specific lots of goods. We are subject to the risks of relying on products manufactured outside of the United States, including political unrest, trade restrictions, customs and import/export regulations, local business practice and geo-political issues, such as political and social unrest and economic instability. Additionally, significant reliance on foreign sources of production increases the risks relating to compliance with domestic or international labor standards, customs and import/export laws and regulations, compliance with domestic or international manufacturing and product safety standards, currency fluctuations, restrictions on the transfer of funds, work stoppages or slowdowns and other labor issues, economic uncertainties including inflation and government regulations, availability and costs of raw materials, potentially adverse tax consequences and other uncertainties. China, in particular, has recently experienced rapid social, political and economic change and further changes may adversely affect our ability to procure our products from Chinese suppliers.

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Our ability to obtain goods on a cost effective basis is also subject to our ability to maintain relationships with our suppliers and our ability to negotiate and maintain supply arrangements on favorable terms. The Chinese Yuan (“CNY”) exchange rate to the U.S. Dollar (“USD”) has not historically been volatile. In the event that the CNY/USD exchange rate changes substantially, our suppliers could attempt to renegotiate our purchase orders with them and increase our costs. In addition, because our purchases are usually on a case by case basis, we are subject to the risk of unexpected changes in pricing or supply from these suppliers. We may also be unable to develop beneficial relationships with new vendors in the future.

We may be subject to product liability claims if people or property are harmed by the products we sell on our ThinkGeek website, which could be costly to defend and subject us to significant damage claims.

Some of the products we offer for sale on our ThinkGeek website such as consumer electronics, office products, toys, computers and peripherals, toiletries, beverages, food items and clothing, may expose us to product liability or product safety claims relating to personal injury, death or property damage caused by such products and may require us to take actions such as product recalls, which could involve significant expense incurred by the Company. Although we maintain liability insurance, we cannot be certain that our coverage will be adequate for liabilities actually incurred or that insurance will continue to be available to us on economically reasonable terms, or at all. The successful assertion of an uninsured product liability or other claim against us could cause us to incur significant expenses to pay such a claim and could adversely affect our financial results. Even a successfully defended product liability claim could cause us to incur significant expenses to defend such a claim and could adversely affect our financial results. In addition, some of our vendor agreements with our suppliers do not indemnify us from product liability and even if some agreements provide for indemnification, it may not be possible or practical to avail ourselves of the benefits of the protection.

Increased focus on sales and use tax could subject us to liability for past sales and cause our future sales to decrease.

We do not collect sales or other taxes on shipments of our goods into most states in the United States or internationally. The relocation of our fulfillment center or customer service centers or any future expansion of them, along with other aspects of our business, may result in additional sales and other tax obligations. We do not collect consumption tax (including value added tax, goods and services tax, and provincial sales tax) as applicable on goods and services sold that are delivered outside of the United States as our terms of sale provide that the customer is responsible for such expenses. One or more states or foreign countries may seek to impose sales or other tax collection obligations on out-of-jurisdiction e-Commerce companies. A successful assertion by one or more states or foreign countries that we should collect sales or other taxes on the sale of merchandise or services could result in substantial tax liabilities for past sales, decrease our ability to compete with traditional retailers, and otherwise harm our business.

Currently, U.S. Supreme Court decisions restrict the imposition of obligations to collect state and local sales and use taxes with respect to sales made over the Internet. However, a number of states and the U.S. Congress continue to consider initiatives that could limit or supersede the Supreme Court's position regarding sales and use taxes on Internet sales, and some states have adopted laws that attempt to impose obligations on out-of-state retailers to collect taxes on their behalf. If any of these initiatives are successful, we could be required to collect sales and use taxes in additional states. The imposition by state and local governments of various taxes upon Internet commerce could create administrative burdens for us, put us at a competitive disadvantage if they do not impose similar obligations on all of our online competitors and decrease our future sales.

Risks Related To Our Financial Results

Certain factors specific to our business over which we have limited or no control may nonetheless adversely impact our total revenue and financial results.

The primary factors over which we have limited or no control that may adversely impact our total revenue and financial results include the following:


•	specific economic conditions relating to ThinkGeek


•	the spending habits of our ThinkGeek customers


•	our ability to keep our ThinkGeek website operational at a reasonable cost

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If our revenue and operating results fall below our expectations, the expectations of securities analysts or the expectations of investors, the trading price of our common stock will likely be materially and adversely affected. You should not rely on the results of our business in any past periods as an indication of our future financial performance.

Future changes in financial accounting standards, including pronouncements and interpretations of accounting pronouncements on revenue recognition, share-based payments, fair value measurements and financial instruments, may cause adverse unexpected revenue fluctuations and/or affect our reported results of operations.

From time to time, the Financial Accounting Standards Board (“FASB”) may issue updates to the FASB Accounting Standards Codification. A change in an accounting policy can have a significant effect on our reported results and may even affect our reporting of transactions completed before a change is announced. Accounting policies affecting our business, including rules relating to fair value accounting, revenue recognition, share-based payments and financial instruments have recently been revised or are under review. The SEC has issued a work plan regarding the potential use of financial statements prepared in accordance with International Financial Reporting Standards (“IFRS“). IFRS is a comprehensive series of accounting standards published by the International Accounting Standards Board (“IASB”).

If we fail to adequately monitor and minimize our use of existing cash, we may need additional capital to fund continued operations beyond the next 12 months.

We must continue to closely monitor the use of our existing cash, cash equivalents and marketable securities. In addition, our existing marketable securities may not provide us with adequate liquidity when needed. While we believe we will not require additional capital to fund continued operations for the next 12 months, we may require additional funding within this time frame, and this additional funding, if needed, may not be available on terms acceptable to us, or at all. A slowdown in ThinkGeek spending or an increased working capital requirement for our ThinkGeek inventory, as well as other factors that may arise, could affect our future capital requirements and the adequacy of our available funds. As a result, we may be required to raise additional funds through private or public financing facilities, strategic relationships or other arrangements. Any additional equity financing would likely be dilutive to our stockholders. Debt financing, if available, may involve restrictive covenants on our operations and financial condition. Our inability to raise capital when needed could seriously harm our business.

Furthermore, if we fail to adequately deploy or invest the cash we received in our September 17, 2012 sale of our former Media business, our financial results could be adversely affected.

We have a history of losses and may incur net losses in the foreseeable future. Failure to attain consistent profitability may materially and adversely affect the market price of our common stock and our ability to raise capital and continue operations.

We have an accumulated deficit of $748 million as of September 30, 2012. We may continue to incur net losses in the future. Failure to attain profitability on a sustained basis may materially and adversely affect the market price of our common stock and our ability to raise capital and continue operations beyond the next 12 months.

Risks Related To Competition

Our competition is intense. Our failure to compete successfully could adversely affect our revenue and financial results.

Our ThinkGeek business is rapidly evolving and intensely competitive. We have many competitors, including other e-Commerce businesses as well as traditional brick and mortar retailers. Increases in shipping costs or the taxation of Internet commerce may make our products uncompetitive when compared with traditional brick and mortar retailers. Additionally, our current and future competitors may have greater resources, more customers and greater brand recognition than we do. These competitors may secure better terms from vendors and adopt more competitive pricing for their products. They may also devote more resources to their technology infrastructure, product development, order fulfillment, distribution facilities and marketing and advertising campaigns. In addition, as we expand into new markets and broaden our product offering, our competition may intensify as our current and future competitors enter into similar markets and offer similar products. Local competitors in these new markets may have substantial competitive

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advantages because of greater focus on and knowledge of local customers and their preferences and greater brand recognition.

Increased competition in our ThinkGeek business could result in price reductions, reduced margins or loss of market share, any of which could have a material adverse effect on our future revenue and financial results.

Risks Related To Intellectual Property

We are vulnerable to claims that our ThinkGeek website infringes third-party intellectual property rights. Any resulting claims against us could be costly to defend or subject us to significant damages.

We expect that our ThinkGeek website will increasingly be subject to infringement claims as the number of competitors in our industry segment grows and the functionality of web properties in different Internet industry segments overlap. The scope of United States patent protection for software is not well defined and will evolve as the United States Patent and Trademark Office grants additional patents. Because patent applications in the United States are not publicly disclosed until the patent is issued, applications may have been filed that would relate to our products. In addition, we may receive patent infringement claims as companies increasingly seek to patent their software. Our developers may fail to perform patent searches and may therefore unknowingly infringe on third-party patent rights. We cannot prevent current or future patent holders or other owners of intellectual property from suing us and others seeking monetary damages or an injunction against our web offerings. A patent holder may deny us a license or force us to pay royalties. In either event, our operating results could be seriously harmed. In addition, employees hired from competitors might utilize proprietary and trade secret information from their former employers without our knowledge, even though our employment agreements and policies clearly prohibit such practices.

Any litigation regarding our intellectual property, with or without merit, could be costly and time consuming to defend, divert the attention of our management and key personnel from our business operations and cause interruption in our ThinkGeek website. Claims of intellectual property infringement may require us to enter into royalty and licensing agreements that may not be available on acceptable terms. In addition, parties making claims against us may be able to obtain injunctive or other equitable relief that could effectively block our ability to offer our products in the United States and abroad and could result in an award of substantial damages against us. Defense of any lawsuit or failure to obtain any required license could delay release of our products and increase our costs. If a successful claim is made against us and we fail to develop or license a substitute technology, our business, results of operations, financial condition or cash flows could be immediately and materially adversely affected.

If we fail to adequately protect our intellectual property rights, competitors may use our technology and trademarks, which could weaken our competitive position, reduce our revenue, and increase our costs.

We rely on a combination of copyright, trademark, patent and trade secret laws, employee and third-party nondisclosure agreements, and other arrangements to protect our proprietary rights. Despite these precautions, it may be possible for unauthorized third parties to copy our ThinkGeek website, or products and services offered thereon or obtain and use information that we regard as proprietary to create sites that compete against ours. Some license provisions protecting against unauthorized use, copying, transfer, and disclosure of our licensed programs may be unenforceable under the laws of certain jurisdictions and foreign countries.

In addition, the laws of some countries do not protect proprietary rights to the same extent as do the laws of the United States. To the extent that we increase our international activities, our exposure to unauthorized copying and use of our ThinkGeek website and proprietary information will increase.

Our collection of trademarks is important to our business. The protective steps we take or have taken may be inadequate to deter misappropriation of our trademark rights. We have filed applications for registration of and registered some of our trademarks in the United States and internationally. Effective trademark protection may not be available in every country in which we offer or intend to offer our products and services. Failure to protect our trademark rights adequately could damage our brand identity and impair our ability to compete effectively. Furthermore, defending or enforcing our trademark rights could result in the expenditure of significant financial and managerial resources.

Our success depends significantly upon our proprietary technology and information. Despite our efforts to protect our proprietary technology and information, it may be possible for unauthorized third parties to copy certain portions of our offerings or to reverse engineer or otherwise obtain and use our proprietary technology or information. We periodically discover products that are counterfeit reproductions of our products or designs, or that otherwise infringe

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our intellectual property rights. The actions we take to establish and protect our intellectual property rights may not be adequate to prevent imitation of our offerings by others or prevent others from seeking to block sales of our offerings as violations of proprietary rights. Existing copyright laws afford only limited protection, and the laws of certain foreign countries may not protect intellectual property rights to the same extent as do United States laws. Litigation may be necessary to protect our proprietary technology and information. Such litigation may be costly and time-consuming and if we are unsuccessful in challenging a party on the basis of intellectual property infringement, our sales and intellectual property rights could adversely be affected and result in a shift of customer preference away from our offerings.

In addition, we cannot be certain that others will not develop substantially equivalent or superseding proprietary technology, or that equivalent offerings will not be marketed in competition with our offerings, thereby substantially reducing the value of our proprietary rights. Currently, we do not have any software, utility, or design patents and we may not be able to develop proprietary offerings or technologies that are patentable, that any patent, if issued, would provide us with any competitive advantages or would not be challenged by third parties, or that the patents of others will not adversely affect our ability to do business.

Other Risks Related To Our Overall Business

We are exposed to risks associated with worldwide economic slowdowns and related uncertainties.

We are subject to macroeconomic fluctuations in the U.S. economy and elsewhere. Concerns about consumer and investor confidence, volatile corporate profits and reduced capital spending, international conflicts, terrorist and military activity, civil unrest and pandemic illness could cause a slowdown in sales revenue. In addition, political and social turmoil related to international conflicts and terrorist acts may put further pressure on economic conditions in the United States and abroad.

Recent macroeconomic issues involving the broader financial markets, including the housing and credit system, European sovereign debt market and general liquidity issues in the securities markets, have negatively impacted the economy and may negatively affect our business. In addition, weak economic conditions and declines in consumer spending and consumption may harm our operating results. Purchases of our ThinkGeek products are discretionary. If the economic climate deteriorates, customers or potential customers could delay, reduce or suspend their purchases of our products. This could impact our business in a number of ways, including lower prices for our products and reduced or delayed sales. There could be a number of follow-on effects from the recent financial crisis on our business, including insolvency of key suppliers resulting in product delays; customer insolvencies; counterparty failures; and increased expense or inability to obtain future financing.

If negative macroeconomic conditions persist, or if the economy enters a prolonged period of decelerating growth, our results of operations may be harmed.

Our business could be adversely affected if our consumer data protection measures are not seen as adequate or unauthorized persons disrupt or access our systems.

As our e-Commerce business sells goods and operates on-line, we are at risk of cyber-attacks. Our e-Commerce business involves the use of our proprietary information as well as the storage and transmission of customers' personally identifiable and proprietary information, and security breaches could expose us to a risk of loss of this information, litigation, and potential liability. While we take measures to protect personally identifiable information from unauthorized access or disclosure, it is possible that our security controls over personally identifiable information may not prevent improper access or disclosure. Our security measures may be breached due to the actions of outside parties, employee error, malfeasance, or otherwise. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. As a result, an unauthorized party may be able to disrupt our operations or obtain access to our data or our customers' personally identifiable information or proprietary data. Due to the nature of sophisticated cyber-attacks, there is a risk that such attack may remain undetected for a period of time.

A security breach that leads to disclosure of our proprietary information may compromise our ability to compete in the marketplace by allowing others to use our proprietary information to develop similar or competitive products. A security breach that leads to disclosure of user or consumer information (including sensitive personally identifiable information) could harm our reputation, compel us to comply with disparate breach notification laws in various

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jurisdictions and otherwise subject us to liability under laws that protect personal data, resulting in increased costs or loss of revenue. A cyber-attack, such as a denial of service attack, that renders our site inoperable would result in adverse consequences, including significant loss of revenues. Any security breach may also cause us to expend significant resources to restore system functionality and incur costs to deploy additional personnel, protection technologies and third party consultants to defend against a future security breach.

We outsource the operation of our network connectivity and work actively to maintain up-to-date security and defense measures. In 2011, management undertook a review of our security and privacy practices, and we are continuing to implement policies and practices as a result of the review and our ongoing reviews. If any of our outsourcing providers do not perform adequately, we may be exposed to greater risk of a cyber-attack.

Legislation in the United States as well as international laws and directives could result in compliance costs which may reduce our revenue and income, as well as governmental action should our compliance measures not be deemed satisfactory.

We depend on third parties to provide a number of products and services, subjecting us to significant operational risks.

We currently depend on a number of third-party providers, and this reliance subjects us to significant operational risks, any of which could impair our ability to deliver products to our customers should they occur. These risks include:


•	reduced management and control of our data, including the risk of unauthorized disclosure of customer and/or other protected information


•	reduced control over delivery schedule and quality assurance


•	misappropriation of our intellectual property


•	failures by the third parties on whom we rely to comply with all domestic and foreign laws relating to our business

We may not detect weaknesses in our internal control over financial reporting in a timely manner, or at all.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 ("Section 404"), we are required to evaluate the effectiveness of our internal control over financial reporting as well as our disclosure controls and procedures each fiscal year. As of December 31, 2011 , management has concluded that our internal control over financial reporting and our disclosure controls and procedures were effective. We will need to continue to evaluate, upgrade and enhance our internal controls. Because of inherent limitations, our internal control over financial reporting may not prevent or detect misstatements, errors or omissions, and any projections of any evaluation of effectiveness of internal controls to future periods are subject to the risk that the controls may become inadequate because of changes in conditions or that the degree of compliance with our policies or procedures may deteriorate. We cannot be certain in future periods that other control deficiencies that may constitute one or more “significant deficiencies” (as defined by the relevant auditing standards) or material weaknesses in our internal control over financial reporting will not be identified. If we fail to maintain the adequacy of our internal controls, including any failure to implement or difficulty in implementing required or new or improved controls, our business and results of operations could be harmed, the results of operations we report could be subject to adjustments, we may not be able to provide reasonable assurance as to our financial results or the effectiveness of our internal controls and we may not be able to meet our reporting obligations.

If we are unable to implement appropriate systems, procedures and controls, we may not be able to successfully offer our services and grow our business.

Our ability to successfully offer our services and grow our business requires an effective planning and management process. We periodically update our operations and financial systems, procedures and controls; however; we still rely on manual processes and procedures that may not scale commensurately with our business growth. Our systems will continue to require automation, modifications and improvements to respond to current and future changes in our business. If we cannot grow our businesses, and manage that growth effectively, or if we fail to implement in a timely manner appropriate internal systems, procedures, controls and necessary automation and improvements to these systems, our businesses will suffer.

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If we lose key personnel or fail to integrate replacement personnel successfully, our ability to manage our business could be impaired.

Our future success depends upon the continued service of our key management, technical, sales, and other critical personnel. Our officers and other key personnel are employees-at-will, and we may not be able to retain them. Key personnel have left our company in the past and there likely will be additional departures of key personnel from time to time in the future. The loss of any key employee could result in significant disruptions to our operations, including adversely affecting the timeliness of product releases, the successful implementation and completion of company initiatives, and the results of our operations. Competition for these individuals is intense, and we may not be able to attract, assimilate or retain highly qualified personnel. Competition for qualified personnel in our industry, as well as other geographic markets, in which we recruit, is intense. In the Internet and high technology industries, qualified candidates often consider equity awards in compensation arrangements and fluctuations in our stock price may make it difficult to recruit, retain, and motivate employees. In addition, the integration of replacement personnel could be time consuming, may cause additional disruptions to our operations, and may be unsuccessful.

Our stock price has been volatile historically and may continue to be volatile.

The trading price of our common stock has been and may continue to be subject to wide fluctuations. During the nine months ended September 30, 2012, the closing sale prices of our common stock on the NASDAQ Global Market ranged from $12.68 to $21.42 per share and the closing sale price on September 30, 2012, the last trading day of our third quarter, was $19.35 per share. Our stock price may fluctuate in response to a number of events and factors, such as quarterly variations in operating results, announcements of technological innovations or new products by us or our competitors, changes in financial estimates and recommendations by securities analysts, the operating and stock price performance of other companies that investors may deem comparable to us, and news reports relating to trends in our markets or general economic conditions.

In addition, the stock market in general and the market prices for Internet-related companies in particular have experienced volatility that often has been unrelated to the operating performance of such companies. These broad market and industry fluctuations may adversely affect the price of our stock, regardless of our operating performance. Additionally, volatility or a lack of positive performance in our stock price may adversely affect our ability to retain key employees, all of whom have been granted stock options.

Sales of our common stock by a significant stockholder may cause the price of our common stock to decrease.

Several of our stockholders own significant portions of our common stock. If these stockholders were to sell substantial amounts of their holdings of our common stock, then the market price of our common stock could be negatively impacted. The effect of such sales, or of significant portions of our stock being offered or made available for sale, could result in strong downward pressure on our stock price. Investors should be aware that they could experience significant short-term volatility in our stock if such stockholders decide to sell a substantial amount of their holdings of our common stock at once or within a short period of time.

Our networks may be vulnerable to unauthorized persons accessing our systems, which could disrupt our operations and result in the theft of our proprietary information.

A party who is able to circumvent our security measures could misappropriate proprietary information or cause interruptions or malfunctions in our Internet operations. We may be required to expend significant capital and resources to protect against the threat of security breaches or to alleviate problems, including dissemination of our customer's personally identifiable information, caused by breaches in security.

System disruptions could adversely affect our future operating results.

Our ability to attract and maintain relationships with customers, merchants and strategic partners will depend on the satisfactory performance, reliability and availability of our Internet channels and network infrastructure. In the past year, our ThinkGeek website has experienced unplanned service interruptions. We will continue to suffer future interruptions from time to time whether due to capacity constraints, natural disasters, telecommunications failures, other system failures, rolling blackouts, viruses, hacking or other events. System interruptions or slower response times could have a material adverse effect on our revenue and financial condition.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Items 2(a) and 2(b) are not applicable.

The following table sets forth information regarding the Company's purchases of its common stock during the three months ended June 30, 2012.



Period	Total Number of Shares Purchased ⁽¹⁾	Average Price Paid Per Share
July 1, 2012 to July 31, 2012	—	$	—
August 1, 2012 to August 31, 2012	—	$	—
September 1, 2012 to September 30, 2012	39,940	$	18.62
Total	39,940

⁽¹⁾ All shares were repurchased to satisfy tax withholding obligations from restricted stock vestings.

Item 6. Exhibits



Exhibit Number		EXHIBIT INDEX

2.1		Asset Purchase Agreement between Geeknet, Inc., Dice Holdings, Inc., Dice Career Solutions, Inc, and eFinancialCareers Limited dated September 17, 2012 (incorporated by reference from Exhibit 2.1 of Registrant's Current Report on From 8-K filed on September 18, 2012).

10.1		Separation Agreement by and between Colon Washburn and Geeknet, Inc. dated August 20, 2012.

31.1		Certification of Chief Executive Officer Pursuant to Section 302 of The Sarbanes-Oxley Act Of 2002

31.2		Certification of Chief Financial Officer Pursuant to Section 302 of The Sarbanes-Oxley Act Of 2002

32.1		Certification of Chief Executive Officer Pursuant to Section 906 of The Sarbanes-Oxley Act Of 2002

32.2		Certification of Chief Financial Officer Pursuant to Section 906 of The Sarbanes-Oxley Act Of 2002

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

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SIGNATURES

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



	GEEKNET, INC.

	By:	/s/ Kenneth G. Langone
		Kenneth G. Langone
		President and Chief Executive Officer

	By:	/s/ Kathryn K. McCarthy
		Kathryn K. McCarthy
		Executive Vice President and Chief Financial Officer

Date: November 7, 2012

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. sophomore Good

Expense not yet
recognized

Weighted Average Remaining Term (in years)

Stock Options

Restricted Stock Units