Annual report pursuant to Section 13 and 15(d)

Goodwill And Intangibles

Goodwill And Intangibles
12 Months Ended
Dec. 31, 2011
Goodwill And Intangibles [Abstract]  
Goodwill And Intangibles

Note 6 – Goodwill and Intangibles

        The Company evaluates goodwill for impairment on an annual basis or more frequently if events or circumstances occur that would indicate a reduction in fair value. As of October 31, 2011, the Company performed its annual impairment test and the excess of fair value estimates over carrying value for our reporting unit was approximately $50 million. Based on its analysis, there would have to be a 38% decrease in the estimated fair value of the reporting unit to fail step 1. During the fiscal year ended December 31, 2011, there was no change to the Company's reporting unit and no events or circumstances occurred that would indicate an impairment of goodwill based on the excess of estimated fair value over carrying value for our reporting unit.


The following table summarizes the changes in our goodwill (in thousands):



Balance at December 31, 2008 and January 2, 2010

   $ 9,772   

Goodwill from WAG acquisition





Balance at January 1, 2011 (as previously reported)

   $ 17,137   

Adjustment to goodwill


Balance at January 1, 2011 (as adjusted)

   $ 18,647   

Adjustment to goodwill





Balance at December 31, 2011

   $ 18,854   




During fiscal 2011, the Company recorded goodwill adjustments of $1.7 million related to the immaterial balance sheet reclassification of WAG's $1.5 million accounts receivable and the settlement amount of $0.2 million received from the shareholders of WAG for the negative working capital of WAG on the date of the Acquisition. See "Note 5 – Business Combination" for additional information on the goodwill adjustments.

During fiscal 2009, the Company acquired certain websites and domain names for a purchase price of $739,000, of which $625,000 was allocated to amortizable intangibles. During fiscal 2010, the Company acquired certain websites and domain names for a purchase price of $1.0 million, of which $843,000 was allocated to amortizable intangibles. In addition, associated with the acquisition of WAG, approximately $8.2 million of the total purchase price had been allocated to trade name assets with an indefinite life and $9.2 million had been allocated to amortizable intangible assets during the third quarter of fiscal 2010, as noted in the table below. During fiscal 2011, the Company purchased certain domain and trade names for a purchase price of $74,000, all of which were allocated to intangibles assets not subject to amortization.

The Company did not note events or changes in circumstances indicating that the carrying value of our intangible assets may not be recoverable in fiscal 2009 and 2010, therefore, no impairment loss was recognized for intangible assets as of fiscal year end 2009 and 2010.

As of December 31, 2011, the Company recorded a non-cash impairment charge of $5.1 million related to certain trade name intangible assets associated with the WAG acquisition. The impairment charge was primarily the result of the deterioration in the economic environment and lower sales and profitability which generated losses from WAG. Given the indicators of impairment, the Company utilized the Royalty Savings method in determining fair value of the trade name intangible assets. The decrease in future cash flows resulted in these indefinite-lived assets being impaired, as the carrying value of the trade names exceeded the fair value.

Intangibles subject to amortization are expensed on a straight-line basis, except for the internet platform intellectual property which was amortized on an accelerated basis. Amortization expense relating to intangibles totaled $0.7 million, $2.8 million and $3.7 million for fiscal 2009, fiscal 2010 and fiscal 2011, respectively.

Intangibles, excluding goodwill, consisted of the following at January 1, 2011 and December 31, 2011 (in thousands):


            January 1, 2011      December 31, 2011  
     Useful Life      Gross

Intangible assets subject to amortization:



     5 years       $ 2,035       $ (594   $ 1,441       $ 2,035       $ (1,001   $ 1,034   

Internet platform intellectual property (1)

     10 months         4,300         (1,984     2,316         4,300         (4,300     —     

Product design intellectual property (1)

     9 years         2,750         (116     2,634         2,750         (416     2,334   

Customer relationships (1)

     4 years         2,050         (197     1,853         2,050         (712     1,338   

Assembled workforce

     7 years         478         (182     296         481         (275     206   

Favorable lease (1)

     2.5 years         78         (14     64         78         (56     22   




















              11,691         (3,087     8,604         11,694         (6,760     4,934   

Intangible assets not subject to amortization:


Domain and trade names (2)

     Indefinite life         10,114         —          10,114         5,050         —          5,050   




















            $ 21,805       $ (3,087   $ 18,718       $ 16,744       $ (6,760   $ 9,984   




















Includes the intangible assets acquired in connection with the acquisition of WAG.


Includes domain and trade names of $8.2 million purchased in connection with the acquisition of WAG. As of December 31, 2011, an impairment loss of $5.1 million was recorded related to the WAG trade names.

The following table summarizes the future estimated annual amortization expense for these assets over the next five years (in thousands):





   $ 1,656   















   $ 4,934