Note 1 - Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2011

Significant Accounting Policies [Text Block]

(1)   Summary of Significant Accounting Policies

(a)   General

We design, assemble, market and distribute premium quality, technologically innovative golf clubs for all skill levels.  Our recently launched products include the Speedline Fast 12 driver, Fast 12 LS driver and the Speedline Fast 12 fairway wood, along with the Idea a12 OS irons and hybrids, Idea a12 hybrids, Idea Pro a12 irons and hybrids, Tech V3 irons and hybrids, Redline irons, Idea a7 and a7 OS irons and hybrids, Speedline 9088 UL drivers.  We also develop new products under the Yes! Putters, Women's Golf Unlimited, Lady Fairway and Square 2 brands.

The consolidated financial statements include the accounts of Adams Golf, Inc. and its subsidiaries (collectively, the “Company”), all of which are wholly-owned.  All significant intercompany accounts and transactions have been eliminated in consolidation.

On January 20, 2011,weacquired certain assets of Progear Holdings, Inc. (d/b/a Yes! Golf) (“Yes! Golf”)  for $1.65 million, including administrative fees, pursuant to a U.S. Bankruptcy Court bulk auction sale.  The purchased assets of Yes! Golf included, among other things, the following: (i) patented putter technology designs, including Yes! Golf’s line of “C-Groove Putters,” (ii) registered trademarks and (iii) existing inventory and capital equipment.  The Company did not assume any of Yes! Golf’s liabilities in connection with the acquisition.

(b)   Inventories

Inventories are valued at the lower of cost or market and primarily consist of finished golf clubs and component parts.  Cost is determined using the first-in, first-out method.  The inventory balance, which includes material, labor and assembly overhead costs, is recorded net of an estimated allowance for obsolete inventory.  The estimated allowance for obsolete inventory is based upon management's understanding of market conditions and forecasts of future product demand.  Accounting for inventories could result in material adjustments if market conditions and future demand estimates are significantly different than original assumptions, causing the reserve for obsolescence to be materially adversely affected.

(c)   Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts, which estimates losses resulting from the inability of our customers to make required payments.  An estimate of uncollectable amounts is made by management using an evaluation methodology involving both overall and specific identification.  We evaluate each individual customer and measure various key aspects of customer data including, without limitation, their overall credit risk (via Experian and Dun & Bradstreet, Inc. reports), payment history, track record for meeting payment plans, industry communications, the portion of the customer's balance that is past due and other various items.  From an overall perspective, we also look at the aging of the receivables in total and aging relative to prior periods to determine the appropriate reserve requirements.   Fluctuations in the reserve requirements will occur from period to period as the change in customer mix or strength of the customers could affect the reserve disproportionately compared to the total change in the accounts receivable balance.  Based on management's assessment, we provide for estimated uncollectable amounts through a charge to earnings and a credit to the valuation allowance.  Balances which remain outstanding after we have used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable.  We generally do not require collateral.  Accounting for an allowance for doubtful accounts could be significantly affected as a result of a deviation in our assessment of any one or more of our customers' financial strength.  

(d)   Revenue Recognition

We recognize revenue when the product is shipped.  At that time, the title and risk of loss is transferred to the customer, the price is fixed or determinable, and the ability to collect is reasonably assured.  The ability to collect is evaluated on an individual customer basis taking into consideration historical payment trends, current financial position, results of independent credit evaluations and payment terms.  If our ability to collect were to decrease significantly, our revenue would be adversely affected.  Additionally, an estimate of product returns and warranty costs are recorded when revenue is recognized.  Estimates are based on historical trends taking into consideration current market conditions, customer demands and product sell through.  We also record estimated reductions in revenue for sales programs such as co-op advertising and spiff incentives.  Estimates in the sales program accruals are based on program participation and forecast of future product demand.  If actual sales returns and sales programs significantly exceed the recorded estimated allowances, our revenue would be adversely affected.  We recognize deferred revenue as a result of sales that have extended terms and a right of return of the product under a specified program.  Once the product under the deferred revenue program is paid for and all revenue recognition criteria have been met, we record revenue.

(e)   Property and Equipment and Intangible Assets

Property and equipment are stated at cost or imputed value less accumulated depreciation and amortization.   Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the respective assets, which range from three to seven years on property and equipment. Maintenance and repairs are expensed as incurred.  Significant replacements and betterments are capitalized.

Intangible assets consist primarily of patents and trademarks and are amortized over the estimated useful lives of the respective assets, which range from three to fifteen years.

(f)   New Accounting Pronouncements

In 2011, the FASB issued Accounting Standards Update 2011-05, Presentation of Comprehensive Income (the “ASU”),  which amended guidance for the presentation of comprehensive income.  The amended guidance requires an entity to present components of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive incomes, or in two separate, but consecutive statements.  The current option to report other comprehensive incomes and its components in the statement of stockholders’ equity will be eliminated.  Although the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income under existing guidance.  The ASU is effective for us in the first quarter 2012 and retrospective application will be required.  The ASU will change our financial statement presentation of comprehensive income but will not impact our net income, financial position, or cash flows.

(g)   Research and Development

Research and development costs consist of all costs incurred in planning, designing and testing of golf equipment, including salary costs related to research and development.  These costs are expensed as incurred.  Our research and development expenses were approximately $2,898,000 and $2,551,000 for the years ended December 31, 2011 and 2010, respectively.

(h)   Advertising Costs

Advertising costs, included in selling and marketing expenses on the accompanying consolidated statements of operations, other than direct commercial costs, are expensed as incurred and totaled approximately $4,857,000 and $4,022,000 for the years ended December 31, 2011 and 2010, respectively.

 (i)   Product Warranty

Our golf equipment is sold under warranty against defects in material and workmanship for a period of one year.  An allowance for estimated future warranty costs is recorded in the period products are sold.  In estimating our future warranty obligations, we consider various relevant factors, including our stated warranty policies, the historical frequency of claims, and the cost to replace or repair the product.  Accounting for product warranty allowances could be adversely affected if one or more of our products were to fail (i.e., broken shaft, broken head, etc.) to a significant degree above and beyond our historical product failure rates, which determine the product warranty accruals.

	Beginning Balance		Charges for Warranty Claims			Estimated Accruals		Ending Balance
Year ended December 31, 2011	$	294		(363	)		347	$	279
Year ended December 31, 2010	$	365		(382	)		311	$	294

(j)   Income Taxes

We account for income taxes in accordance with FASB ASC 740, Income Taxes.   FASB ASC 740 prescribes the use of the liability method whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards.  Deferred tax assets and liabilities are measured using enacted rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.  In assessing the realizability of deferred income tax assets, we consider whether it is more likely than not that some portion or all of the deferred income tax assets will be realized.  The realization o f the deferred tax assets, including net operating loss carryforwards, is subject to our ability to generate sufficient taxable income during the periods in which the temporary differences become realizable.  In evaluating whether a valuation allowance is required, we consider all available positive and negative evidence, including prior operating results, the nature and reason of any losses, our forecast of future taxable income, and the dates of which any deferred tax assts are expected to expire.  These assumptions require a significant amount of judgment, including estimates of future taxable income.  The estimates are based on our best judgment at the time made based on current and projected circumstances and conditions. We believe that the full value of the asset can be utilized in the future and thus no longer need a reserve against the net asset balance.  We file tax returns with U.S. federal and state jurisdictions and are no longer subject to income tax examinations for years before 2007.

(k)   Net Income Per Share

The weighted average common stock outstanding used for determining basic and diluted income per common share were 7,747,405 and 8,100,347, respectively, for the year ended December 31, 2011.  The effect of options to purchase shares of our common stock for the year ended December 31, 2011 resulted in additional dilutive shares of 352,942.  

The weighted average common stock outstanding used for determining basic and diluted income per common share were 7,210,326 and 7,685,967, respectively, for the year ended December 31, 2010.  The effect of options to purchase shares of our common stock for the year ended December 31, 2010 resulted in additional dilutive shares of 475,671.  25,000 options were excluded from the calculation of dilutive shares as the effect of inclusion would have been antidilutive.

(l)   Financial Instruments

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate fair value due to the short-term maturity of these instruments.

(m)   Impairment of Long-Lived Assets

We review long-lived assets, which include property and equipment and intangible assets,  for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated future undiscounted net cash flows to be generated by the asset.  If the carrying amount is greater than the undiscounted cash flows, such assets are considered to be impaired.  The impairment loss is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset.  Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.  During the years ended December 31, 2011 and 2010, there was no impairment of long-lived assets.

(n)   Comprehensive Income

Comprehensive income consists of net income and foreign currency translation adjustments.

(o)   Cash and Cash Equivalents

We consider all short-term highly liquid instruments, with an original maturity of three months or less, to be cash equivalents.  We historically invest our excess cash in money market accounts and short-term U.S. government securities and have established guidelines relating to diversification and maturities in an effort to maintain safety and liquidity.  These guidelines are periodically reviewed and modified to take advantage of trends in yields and interest rates.

(p)   Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods.  Actual results could differ from those estimates.

(q)  Segment Reporting

We are organized by functional responsibility and operate as a single segment.  Within that segment, we offer more than one class of product.

(r)  Stock-Based Compensation

Compensation cost related to stock-based compensation is estimated based on the grant date fair value of the award and is recognized as expense over the stock award's requisite service/vesting period. 

 (s)  Foreign Currency Translation and Transactions

The functional currency of our Canadian operations is Canadian dollars.  The accompanying consolidated financial statements have been expressed in U. S. dollars, our reporting currency.  Reporting assets and liabilities of our foreign operations have been translated at the rate of exchange at the end of each period.  Revenues and expenses have been translated at the monthly average rate of exchange in effect during the respective period.  Gains and losses resulting from translation are accumulated in other comprehensive income in stockholders' equity.  Gains or losses resulting from transactions that are made in a currency different from the functional currency are recognized in earnings as they occur.  Inventory purchases are invoiced by suppliers in U.S. dollars.

(t)   Classification of Shipping and Handling Fees and Costs

Shipping and handling fees and costs are included in net sales and cost of goods sold, respectively.

(u)   Reclassifications

Certain prior period amounts have been reclassified to conform to current period presentation.