Summary of Significant Accounting Policies:

Use of Estimates in Preparation of Consolidated Financial Statements

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

Adopted Accounting Pronouncements

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

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

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

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

Recent Accounting Pronouncements

In June 2011, the FASB issued authoritative guidance that amends previous guidance for the presentation of comprehensive income. It eliminates the current option to present other comprehensive income in the statement of changes in equity. Under this revised guidance, an entity will have the option to present the components of net income and other comprehensive income in either a single continuous statement of comprehensive income or in two separate but consecutive financial statements. The standard is effective for us beginning in 2012.

In May 2011, the FASB issued authoritative guidance that amends previous guidance for fair value measurement and disclosure requirements. The revised guidance changes certain fair value measurement principles, clarifies the application of existing fair value measurements and expands the disclosure requirements, particularly for Level 3 fair value measurements. This standard is effective for us beginning in the first quarter of fiscal year 2012. We are currently evaluating the impact of this guidance, but we do not anticipate a material impact to our consolidated financial statements upon adoption.

In September 2011, the FASB issued ASU No. 2011-08, “Intangibles-Goodwill and Other” that will allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under these amendments, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The amendments include a number of events and circumstances for an entity to consider in conducting the qualitative assessment. The guidance is effective for fiscal years beginning after December 15, 2011 with early adoption permitted. The Company does not expect that the adoption of this update will have a material impact on its consolidated financial statements at this time.

Principles of Consolidation

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

Related Party Transactions

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

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

Foreign Currency Translation

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

Segment and Geographic Information

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

Cash and Cash Equivalents

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

Credit Line

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

Investments

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

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

Other-Than-Temporary Impairment

All of the Company’s available-for-sale investments and non-marketable equity securities are subject to an impairment review whenever events or circumstances indicate that their fair value is less than their carrying value. Investments are considered to be impaired when a decline in fair value is judged to be other-than-temporary. This determination requires significant judgment. For publicly-traded investments, impairment is determined based upon the specific facts and circumstances present at the time, including a review of the closing price over the previous six months, general market conditions and the Company’s intent and ability to hold the investment for a period of time sufficient to allow for recovery. For non-marketable equity securities, the impairment analysis requires the identification of events or circumstances that would likely have a significant adverse effect on the fair value of the investment, including revenue and earnings trends, overall business prospects and general market conditions in the investees’ industry or geographic area. It is reasonably possible that actual results could change in the near term. The Company performs an impairment analysis of its investments annually. Investments identified as having an indicator of impairment are subject to further analysis to determine if the investment is other-than-temporarily impaired, in which case the investment is written down to its impaired value. There was no impairment for the year ended December 31, 2011 and December 31, 2010. For the year ended December 31, 2009, the Company recorded impairment loss of $4.6 million related to its non-marketable equity investment in CollabNet, Inc.

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



	December 31, 2011						December 31, 2010
	Adjusted Cost		Unrealized Loss		Estimated Fair Value		Adjusted Cost		Unrealized Loss		Estimated Fair Value
Cash and cash equivalents:
Cash	$	18,647	$	—	$	18,647	$	5,072	$	—	$	5,072
Money market funds	18,263		—		18,263		30,261		—		30,261
Total cash and cash equivalents	$	36,910	$	—	$	36,910	$	35,333	$	—	$	35,333
Short-term investments:
Corporate securities	$	—	$	—	$	—	$	8	$	—	$	8
Total short-term investments	$	—	$	—	$	—	$	8	$	—	$	8

Fair Value Measurements

The following table represents the Company’s fair value hierarchy for its financial assets (cash equivalents and investments) measured at fair value on a recurring basis as of December 31, 2011 (in thousands):



	Fair Value Measurements at Reporting Date Using
	Level 1		Level 2		Level 3		Total
Money market fund deposits	$	18,263	$	—	$	—	$	18,263
Corporate debt	—		—		—		—
Total	$	18,263	$	—	$	—	$	18,263
Amounts included in:
Cash and cash equivalents	$	18,263	$	—	$	—	$	18,263
Short-term investments	—		—		—		—
Total	$	18,263	$	—	$	—	$	18,263



	Fair Value Measurements at Reporting Date Using
	Level 1		Level 2		Level 3		Total
Money market fund deposits	$	30,261	$	—	$	—	$	30,261
Corporate debt	—		—		8		—
Total	$	30,261	$	—	$	8	$	30,261
Amounts included in:
Cash and cash equivalents	$	30,261	$	—	$	—	$	30,261
Short-term investments	—		—		8		—
Total	$	30,261	$	—	$	8	$	30,261

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



	Fair Value Measurements at Reporting Date Using significant Unobservable Inputs (Level 3) Financial Assets
	ARS			ARS Right			Other
Balance at December 31, 2009	$	9,400		$	1,350		$	8
Loss on other current assets	—			(807		)	—
Gain on investments	807			—			—
Sales/Maturities of assets	(10,207		)	(543		)	—
Balance at December 31, 2010	$	—		$	—		$	8
Loss on investments	$	—		$	—		$	(8	)
Balance at December 31, 2011	$	—		$	—		$	—

Trade Accounts Receivable

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

Inventories

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

Restricted Cash

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

Property and Equipment

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



	December 31, 2011			December 31, 2010
Computer and office equipment (useful lives of 2 to 4 years)	$	5,143		$	5,685
Distribution equipment (useful live of 5 years)	5,394			3,911
Furniture and fixtures (useful lives of 2 to 4 years)	347			226
Leasehold improvements (useful lives of lesser of estimated life or lease term)	365			207
Software (useful lives of 2 to 5 years)	700			579
Total property and equipment	11,949			10,608
Less: Accumulated depreciation and amortization	(6,232		)	(5,494		)
Property and equipment, net	$	5,717		$	5,114

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

Goodwill and Intangible Assets

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

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

The carrying amount of goodwill is as follows (in thousands):



Goodwill	Amount
Goodwill -December 31, 2009	$	1,670
Additions	254
Disposals	249
Goodwill - December 31, 2010	$	1,675
Additions	—
Disposals	—
Goodwill - December 31, 2011	$	1,675

The changes in the carrying amount of the intangible assets are as follows (in thousands):



	December 31, 2011							December 31, 2010
	Gross Asset		Accumulated Amortization			Net Asset		Gross Asset		Accumulated Amortization			Net Asset
Identified intangible assets:
Domain and trade names, intellectual property	$	6,196	$	(6,095	)	$	101	$	6,176	$	(6,012	)	$	164
Purchased technology	2,535		(2,535		)	—		2,535		(2,535		)	—
Total Identified intangible assets	$	8,731	$	(8,630	)	$	101	$	8,711	$	(8,547	)	$	164

The future amortization of identified intangible assets is as follows (in thousands):



Year ending December 31,	Amount
2012	$	74
2013	22
2014	5
	$	101

Revenue Recognition

The Company recognizes revenue as follows:

e-Commerce Revenue

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

Media Revenue

Media revenue is derived primarily from advertising on the Company’s various web sites or from lead generation information provided to the customer. Advertisements include various forms of rich media and banner advertising, text links and sponsorships, while lead generation information utilizes advertising and other methods to deliver leads to a customer. The Company recognizes Media advertising revenue over the contractual campaign period and recognizes lead generation revenue as leads are delivered to the customer, provided that persuasive evidence of an arrangement exists, no significant obligations remain, the fee is fixed or determinable, and collection of the receivable is reasonably assured. Revenue recognized is limited to the lesser of actual delivery or on a straight line basis. The Company’s obligations may include guarantees of a minimum number of impressions (the number of times that an advertisement is viewed by visitors to the Company’s web sites).

Advertising Expenses

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

Software Development Costs

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

Computation of Per Share Amounts

Basic income (loss) per common share is computed using the weighted-average number of common shares outstanding (adjusted for treasury stock and common stock subject to repurchase activity) during the period. Diluted income (loss) per common share is computed using the weighted-average number of common and dilutive common equivalent shares outstanding during the period. Common equivalent shares are anti-dilutive when their conversion would increase earnings or decrease loss per share. Dilutive common equivalent shares consist primarily of stock options and restricted stock awards. For the years ended December 31, 2011, December 31, 2010, and December 31, 2009 the Company excluded all stock options and restricted stock awards from the calculation of diluted net loss per common share because all such securities are anti-dilutive.

The Company considers employee equity share options, non-vested shares, and similar equity instruments as potential common shares outstanding in computing diluted earnings per share. Diluted shares outstanding would include the dilutive effect of in-the-money options, calculated based on the average share price for each fiscal period using the treasury stock method, had there been any during the period. Under the treasury stock method, the amount the employee must pay for exercising stock options and the amount of compensation cost for future service that is not yet recognized are assumed to be used to repurchase shares. Additionally, under the treasury stock method the amount the purchaser of the written call options must pay for exercising stock options is assumed to be used to repurchase shares.

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



	Year Ended December 31,
	2011			2010			2009
Income (loss) from continuing operations	$	(1,190	)	$	(4,200	)	$	(14,021	)
Loss from discontinued operations	—			(248		)	—
Net income (loss)	(1,190		)	(4,448		)	(14,021		)
Weighted average shares - basic	6,319			6,073			6,080
Effect of dilutive potential common shares	—			—			—
Weighted average shares - diluted	$	6,319		$	6,073		$	6,080
Income (loss) per share from continuing operations:
Basic	$	(0.19	)	$	(0.69	)	$	(2.31	)
Diluted	(0.19		)	(0.69		)	(2.31		)
Loss per share from discontinued operations:
Basic	—			(0.04		)	—
Diluted	—			(0.04		)	—
Net income (loss) per share:
Basic	(0.19		)	(0.73		)	(2.31		)
Diluted	$	(0.19	)	$	(0.73	)	$	(2.31	)

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



	Year Ended December 31,
	2011	2010	2009
Anti-dilutive securities:
Options to purchase common stock	192	537	610
Unvested restricted stock purchase rights	174	8	16
Total	366	545	626

Comprehensive Income (Loss)

Comprehensive income (loss) is comprised of net income (loss) and other non-owner changes in stockholders’ equity, including foreign currency translation gains or losses and unrealized gains or losses on available-for-sale marketable securities.

Supplier Concentration

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

Concentrations of Credit Risk and Significant Customers

The Company’s investments are held with two reputable financial institutions; both institutions are headquartered in the United States. The Company’s investment policy limits the amount of risk exposure. The Company has cash in financial institutions that is insured by the Federal Deposit Insurance Corporation ("FDIC") up to $0.25 million per institution. At December 31, 2011 and December 31, 2010, the Company had cash and cash equivalents in excess of the FDIC limits.

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of trade receivables. The Company provides credit, in the normal course of business, to a number of companies and performs ongoing credit evaluations of its customers. The credit risk in the Company’s trade receivables is substantially mitigated by its credit evaluation process and reasonably short collection terms. The Company maintains reserves for potential credit losses, if any, and such losses have been within management’s expectations. As of December 31, 2011 and December 31, 2009, an advertising agency accounted for 16% and 10.5% of gross account receivable respectively. At December 31, 2010, no one advertising agency represented more than 10% of gross accounts receivables.

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