Acquisitions and Discontinued Operations

Geek.com

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

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

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



Identified intangible assets	$	746
Goodwill	254
	$	1,000

The identified intangible assets are comprised of Geek.com's domain name and had a useful life of three years.

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

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



	Year Ended December 31, 2010
Revenue	$	156

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

Loss on sale of assets, net of income taxes	$	(55	)

Ohloh Corporation

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

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

The fair values assigned to tangible and intangible assets acquired and liabilities assumed are based on management estimates and assumptions, including third-party valuations that use established valuation techniques appropriate for the high-technology industry. The fair value of the developed technology was estimated by applying the income approach and a market approach. This fair value measurement is based on significant inputs that are not observable in the market and thus represents a Level 3 measurement. Key assumptions include the expected cash flows to be generated from this developed technology over its remaining life and the discount rate of 35 percent. The purchase price was allocated as follows (in thousands):



Financial assets	$	5
Equipment	23
Identified intangible assets	958
Financial liabilities	(43		)
Total identifiable net assets	943
Goodwill	1,670
	$	2,613

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

On September 30, 2010, the Company sold the Ohloh website, including the developed technology and related equipment required to operate the website to Black Duck Software, Inc. ("Black Duck") for consideration of $1.3 million in cash and a convertible promissory note in the principal amount of $1.3 million, bearing annual interest at 3.25 percent and due on September 30, 2013. A portion of the cash, $0.3 million, was deposited in an escrow account to secure certain representations, warranties and covenants made by the Company to Black Duck. As of December 31, 2011, the Company has received all of the escrow funds. The sale of the Ohloh website, which did not meet the criteria for a discontinued operation, resulted in a $1.4 million gain, which is included in the Gain (loss) on sale of asset.

The note receivable was subordinate to existing Black Duck debt, was secured by Black Duck assets, other than those securing Black Duck's senior debt, and is convertible into common or preferred stock in the event of a future financing activity, or acquisition of Black Duck. The Company valued the note receivable at $0.7 million using a discounted cash flow model based on interest rates of similar instruments adjusted for the credit, liquidity and security premiums on the note, and the timing and amount of expected cash flows. On September 30, 2011, Geeknet agreed to discharge the obligations of Black Duck to pay and perform the note upon payment to Geeknet by Black Duck of $0.8 million. This resulted in a $0.1 million gain, which is included in the Gain on sale of an asset. Additionally, the remaining amounts held in escrow were released in full.