Note P - Form Athletics

12 Months Ended

Dec. 31, 2012

Discontinued Operations And Contingent Purchase Price Disclosure [Text Block]

NOTE P – FORM ATHLETICS

On July 23, 2010, the Company entered into a Membership Interest Purchase Agreement (“Purchase Agreement”) with Form Athletics, LLC and its Members to purchase Form Athletics for $1,600,000 in cash.  Form Athletics was established in January 2010 to design, develop and distribute apparel for mixed martial arts under the Form Athletics brand worldwide.  The purchase of Form Athletics was part of an overall strategy to enter the action sports market, however, during the third quarter of 2011, the Company decided to no longer pursue operating in this line of business, as discussed below.  Operations of Form Athletics have been accounted for and presented as a discontinued operation in the accompanying Consolidated Financial Statements.

Pursuant to the Purchase Agreement, the Company was obligated to pay additional cash consideration to certain Members of Form Athletics in an amount equal to Form Athletics’ EBITDA for the twelve months ended December 31, 2012 (“Form CPP”), which was capitalized upon purchase.  The fair value of the Form CPP was determined each quarter based on the net present value of the current quarter’s projection of Form Athletics’ EBITDA for the twelve months ended December 31, 2012.  Any subsequent changes to the Form CPP was recognized as interest income or interest expense during the applicable quarter.

The acquisition of Form Athletics was recorded as a 100% purchase and the Form CPP liability was recognized and accordingly, the results of operations of the acquired business were included in the Company’s Consolidated Financial Statements from the date of acquisition.  A trademark asset totaling $3,150,000 and goodwill of $539,000 were recognized for the amount of the excess purchase price paid over fair market value of the net assets acquired.  The amount of goodwill that was deductible for tax purposes was $507,000 and will be amortized over 15 years.  At July 23, 2010, the acquired assets and liabilities assumed in the purchase of Form Athletics was as follows (in thousands):

	Balance at July 23, 2010
Inventories	$	39
Intangible assets		3,689
Total assets	$	3,728
Current liabilities	$	18
Form CPP		2,110
Total liabilities		2,128
Contribution by K•Swiss Inc.		1,600
Total stockholders’ equity		1,600
Total liabilities and stockholders’ equity	$	3,728

Since Form Athletics began operating in early 2010, operating results prior to the Company’s purchase of Form Athletics were not significant and pro forma information was not materially different than what was reported on the Company’s Consolidated Financial Statements.

The intangible assets were accounted for at the lower of carrying value or fair value.  These indefinite-lived assets were evaluated for impairment at least annually, and more often when events indicate that impairment exists.  During the second quarter of 2011, after a review of sales, backlog, cash flows and marketing strategy, the Company determined that its investment in the Form Athletics goodwill and trademark was impaired and recognized impairment losses of $3,689,000 (see Note E) and reversed the Form CPP liability of $2,110,000, which is included in the loss from discontinued operations as interest income.

The change in the Form CPP for the years ended December 31 was as follows (in thousands):

	2011			2010
Beginning balance	$	2,110		$	0
Initial recognition of the net present value of the CPP		0			2,110
Change in net present value of the CPP		(2,110	)		0
Ending balance	$	0		$	2,110

The operations for Form Athletics for the years ended December 31 were as follows (in thousands):

	2011			2010
Revenues	$	683		$	221
Cost of goods sold		1,223			134
Gross (loss)/profit		(540	)		87
Selling, general and administrative expenses		3,830			1,435
Impairment on intangibles and goodwill		3,689			0
Operating loss		(8,059	)		(1,348	)
Interest income, net		2,110			0
Net loss from discontinued operations	$	(5,949	)	$	(1,348	)