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Note 2 - Summary of Significant Accounting Policies
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Mar. 31, 2013
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| Significant Accounting Policies [Text Block] |
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 2009, and is no longer subject to state income
tax examinations for years prior to 2008. 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,
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 available 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 warrants and the
conversion of preferred stock.
The
dilutive effect of non-vested restricted stock and
warrants is reflected by application of the treasury
stock method. Under the treasury stock method,
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
following tables illustrate the computation of basic and
diluted income per share for the periods indicated (in
thousands, except per share data):
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, 2013. Such warrants
have expirations through April 21, 2015.
Recently
Issued and Adopted Accounting
Pronouncements
In
February 2013, the FASB issued Accounting Standards
Update ("ASU") No. 2013-02, Comprehensive
Income (Topic 220) —Reporting of Amounts
Reclassified Out of Accumulated Other Comprehensive
Income, to require an entity to provide
information about the amounts reclassified out of
accumulated other comprehensive income by
component. In addition, an entity is
required to present, either on the face of the
statement where net income is presented or in the
notes, significant amounts reclassified out of
accumulated other comprehensive income by the
respective line items in net income but only if the
amount reclassified is required under U.S. generally
accepted accounting principles ("GAAP") to be
reclassified to net income in its entirety in the same
reporting period. For other amounts that are
not required under U.S. GAAP to be reclassified in
their entirety to net income, an entity is required to
cross-reference to other disclosures required under
U.S. GAAP that provide additional detail about those
amounts. ASU 2013-02 is effective
prospectively for reporting periods, including interim
periods, beginning after December 15,
2012. The
Company’s adoption of the standard on January 1,
2013 did not have a material impact on its
consolidated financial statements.
In
March 2013, the FASB issued ASU No. 2013-05, Foreign
Currency Matters (Topic 830) —Parent’s
Accounting for the Cumulative Translation Adjustment
upon Derecognition of Certain Subsidiaries or Groups of
Assets within a Foreign Entity or of an Investment in a
Foreign Entity, to clarify the guidance for
entities that cease to hold a controlling financial
interest in a subsidiary or group of assets within a
foreign entity when (1) the subsidiary or group of
assets is a nonprofit activity or a business (other
than a sale of in substance real estate or conveyance
of oil and gas mineral rights) and (2) there is a
cumulative translation adjustment balance associated
with that foreign entity. ASU 2013-05 is
effective prospectively for reporting periods,
including interim periods, beginning after December 15,
2013. Early adoption is
permitted. The
Company is currently evaluating the impact of adopting
ASU 2013-05.
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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