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Note 2 - Summary of Significant Accounting Policies
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Mar. 31, 2012
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| Significant Accounting Policies [Text Block] |
2.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation
The
consolidated financial statements include the accounts of the
Company and all of its majority-owned subsidiaries. All
significant inter-company balances and transactions have been
eliminated in consolidation.
Use of
Estimates
The
preparation of financial statements in accordance with
accounting principles generally accepted in 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 the consolidated financial
statements and the reported amounts of revenues and expenses
during the reported period.
The
most significant accounting estimates inherent in the
preparation of the Company’s financial statements
include estimates associated with obsolete inventory and the
fair value of acquired intangible assets, including goodwill,
as well as those used in the determination of liabilities
related to sales returns and income taxes. Various
assumptions and other factors prompt the determination of
these significant estimates. The process of
determining significant estimates is fact specific and takes
into account historical experience and current and expected
economic conditions. The actual results may differ
materially and adversely from the Company’s
estimates. To the extent that there are material
differences between the estimates and actual results, future
results of operations will be affected.
Income
Taxes
The
Company recognizes income taxes under the liability method of
accounting for income taxes. Deferred income taxes
are recognized for differences between the financial
reporting and tax bases of assets and liabilities at enacted
statutory tax rates in effect for the years in which the
differences are expected to reverse. Valuation
allowances are established when necessary to reduce deferred
tax assets to the amounts expected to be ultimately
realized. The Company recognizes tax benefits from
uncertain tax positions only if it is more likely than not
that the tax position will be sustained on examination by the
taxing authorities, based on the technical merits of the
position. The tax benefits recognized in the financial
statements from such a position are measured based on the
largest benefit that has a greater than fifty percent
likelihood of being realized upon ultimate resolution.
The Company recognizes interest and penalties related to
unrecognized tax benefits as a component of income tax
expense. Deferred taxes are not provided on the portion
of undistributed earnings of subsidiaries outside of the
United States when these earnings are considered permanently
reinvested.
The
Company and its subsidiaries file income tax returns in the
United States, various states, and foreign
jurisdictions. The Company is no longer subject to
U.S. federal income tax examinations for years prior to 2008,
and is no longer subject to state income tax examinations for
years prior to 2007. No jurisdictions are
currently examining any income tax returns of the Company or
its subsidiaries.
Fair
Value of Financial Instruments
The
carrying amounts of the Company’s financial
instruments, including cash and cash equivalents, restricted
cash, accounts receivable, accounts payable and accrued
expenses, approximate fair value because of their short
maturities. The carrying amount of the noncurrent
restricted cash approximates fair value since, absent the
restrictions, the underlying assets would be included in cash
and cash equivalents.
Accounting
standards permit companies, at their option, to choose to
measure many financial instruments and certain other items at
fair value. The Company has elected to not fair value
existing eligible items.
Revenue
Recognition
Product
sales are recorded when the products are shipped and title
passes to independent distributors. Product sales
to distributors are made pursuant to a distributor agreement
that provides for transfer of both title and risk of loss
upon our delivery to the carrier that completes delivery to
the distributors, which is commonly referred to as
“F.O.B. Shipping Point.” The Company
primarily receives payment by credit card at the time
distributors place orders. Amounts received for
unshipped product are recorded as deferred
revenue. The Company’s sales arrangements do
not contain right of inspection or customer acceptance
provisions other than general rights of return.
Actual
product returns are recorded as a reduction to net
sales. The Company estimates and accrues a reserve
for product returns based on its return policies and
historical experience.
Enrollment
package revenue, including any nonrefundable set-up fees, is
deferred and recognized over the term of the arrangement,
generally twelve months. Enrollment packages
provide distributors access to both a personalized marketing
website and a business management system. No
upfront costs are deferred as the amount is
nominal.
Shipping charges
billed to distributors are included in net
sales. Costs associated with shipments are
included in cost of sales.
Various
taxes on the sale of products and enrollment packages to
distributors are collected by the Company as an agent and
remitted to the respective taxing authority. These
taxes are presented on a net basis and recorded as a
liability until remitted to the respective taxing
authority.
Income
Per Share
Basic
income per share is computed by dividing net income
applicable to common stockholders by the weighted-average
number of common shares outstanding during the
period. Diluted income per share is determined
using the weighted-average number of common shares
outstanding during the period, adjusted for the dilutive
effect of common stock equivalents, consisting of non-vested
restricted stock and shares that might be issued upon the
exercise of outstanding stock options and warrants and the
conversion of preferred stock.
The
dilutive effect of non-vested restricted stock, stock options
and warrants is reflected by application of 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 benefit
that would be recorded in additional paid-in capital when the
award becomes deductible are assumed to be used to repurchase
shares. The potential tax benefit derived from
exercise of non-qualified stock options has been excluded
from the treasury stock calculation as the Company is
uncertain that the benefit will be realized.
The
following tables illustrate the computation of basic and
diluted income per share for the periods indicated (in
thousands, except per share data):
In
periods where losses are reported, the weighted-average
number of common shares outstanding excludes common stock
equivalents because their inclusion would be
anti-dilutive. In periods where income is
reported, certain non-vested restricted stock is
anti-dilutive upon applying the treasury stock method since
the amount of compensation cost for future service results in
the hypothetical repurchase of shares exceeding the actual
number of shares to be vested. Other common stock
equivalents are also anti-dilutive since the average market
price of the related common stock for the period exceeds the
exercise price.
The
following securities were not included for the time periods
indicated as their effect would have been
anti-dilutive:
Warrants
to purchase 3,704,854 shares of common stock were still
outstanding at March 31, 2012. Such warrants have
expirations through April 21, 2015.
Recently
Issued and Adopted Accounting Pronouncements
In
June 2011, the FASB issued ASU No. 2011-05,
Comprehensive
Income (Topic 220) —Presentation of Comprehensive
Income, to require an entity to present the total of
comprehensive income, the components of net income, and the
components of other comprehensive income either in a single
continuous statement of comprehensive income or in two
separate but consecutive statements. ASU 2011-05
eliminates the option to present the components of other
comprehensive income as part of the statement of
equity. In December 2011, the FASB issued ASU No.
2011-12, Comprehensive
Income (Topic 220) — Deferral of the Effective Date for
Amendments to the Presentation of Reclassifications of Items
Out of Accumulated Other Comprehensive Income in Accounting
Standards Update No. 2011-05, to defer the requirement
for entities to present reclassification adjustments on the
face of the financial statements where net income is
presented, by component of net income, and on the face of the
financial statements where other comprehensive income is
presented, by component of other comprehensive
income. All other requirements in ASU 2011-05 are
not affected. Both ASU 2011-05 and ASU 2011-12 are
effective for interim and annual financial periods beginning
after December 15, 2011. The Company adopted
these standards at the beginning of 2012. As these
updates only relate to financial statement presentation,
their adoption did not have a material effect on its
consolidated financial statements.
Other
recently issued accounting pronouncements did not or are not
believed by management to have a material impact on the
Company’s present or future financial
statements.
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