Organization and Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2015

Organization and Summary of Significant Accounting Policies [Abstract]

Organization and summary of significant accounting policies

Note 1 – Organization and summary of significant accounting policies:

Organization – The Company was incorporated in November 1973 under the laws of the state of Florida and manufacturers, markets and distributes products, principally under the Star brite® and Star Tron® brands, to the marine, automotive, recreational vehicle, and outdoor power equipment aftermarkets. The Company also manufactures disinfectants, sanitizers and deodorizers under the Star brite® and Performacide® brands.

Basis of presentation – The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Prior to September 16, 2014, when it became wholly-owned subsidiary of the Company, OdorStar Technology, LLC (“OdorStar) was a joint venture in which the Company had a controlling interest; therefore, OdorStar was included in the Company’s consolidated financial statements for all of 2014. The Company’s 2014 consolidated statement of operations includes a $17,149 loss attributable to the former joint venture partner’s noncontrolling interest. See Note 4 for additional information. All significant inter-company accounts and transactions have been eliminated in consolidation. Certain prior-period data have been reclassified to conform to the current period presentation.

Revenue recognition – Revenue from product sales is recognized when persuasive evidence of a contract exists, the sales price is fixed and determinable, the title of goods passes to the customer, and collectability of the related receivable is probable. Reported net sales are net of customer prompt pay discounts, contractual allowances, authorized customer returns, consumer rebates and other sales incentives.

Collectability of accounts receivable – Trade accounts receivable at December 31, 2015 and 2014 are net of allowances for doubtful accounts aggregating approximately $78,000 and $76,000, respectively. Such amounts are based on management's estimates of the creditworthiness of its customers, current economic conditions and historical information. The Company had bad debt expense of approximately $3,000 and $0 during the years ended December 31, 2015 and 2014, respectively.

Inventories – Inventories are primarily composed of raw materials and finished goods and are stated at the lower of cost, using the first-in, first-out method, or market.

Shipping and handling costs – All shipping and handling costs incurred by the Company are included in cost of goods sold in the consolidated statements of operations. Shipping and handling costs totaled approximately $1,367,000 and $1,348,000 for the years ended December 31, 2015 and 2014, respectively.

Advertising and promotion expense – Advertising and promotion expense consists of advertising costs and marketing expenses, including catalog costs and expenses relating to participation at trade shows. Advertising costs are expensed in the period in which the advertising occurs and totaled approximately $3,011,000 and $2,566,000 in 2015 and 2014, respectively.

Property, plant and equipment – Property, plant and equipment is stated at cost, net of depreciation. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method. Depreciation expense totaled approximately $847,000 and $774,000 for the years ended December 31, 2015 and 2014, respectively.

Research and development costs – Research and development costs are expensed as incurred and recorded in selling and administrative expenses in the consolidated statements of operations. The Company incurred approximately $78,000 and $45,000 of research and development costs for the years ended December 31, 2015 and 2014 respectively.

Stock based compensation – The Company records stock-based compensation in accordance with the provisions of Financial Accounting Standards Board Accounting Standards Codification (“ASC") Topic 718, "Accounting for Stock Compensation," which establishes accounting standards for transactions in which an entity exchanges its equity instruments for goods or services. Under ASC Topic 718, we recognize an expense for the fair value of our outstanding stock options as they vest and the fair value of our stock awards at the time of grant, whether held by employees or others.

Use of estimates – The preparation of financial statements in conformity with U.S. 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 revenues and expenses during the reporting period. Actual results could differ from those estimates.

Concentration of credit risk; dependence on major customers – Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of trade accounts receivable. The Company’s five largest unaffiliated customers represented approximately 49.0% and 47.0% of consolidated net sales for the years ended December 31, 2015 and 2014, and 39.4% and 36.2% of consolidated trade accounts receivable at December 31, 2015 and 2014, respectively. The Company has a longstanding relationship with each of these customers, from which it previously has collected all open receivable balances. The loss of any of these customers could have an adverse impact on the Company’s operations (see Note 12). 

Concentration of cash – At various times during the year and at December 31, 2015 and 2014, the Company had a concentration of cash in one bank in excess of prevailing insurance offered through the Federal Deposit Insurance Corporation at such institution.  Management does not consider the excess deposits to be a significant risk.

Fair value of financial instruments – ASC Topic 820, “Fair Value Measurements and Disclosures” defines “fair value” as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

ASC 820 also sets forth a valuation hierarchy of the inputs (assumptions that market participants would use in pricing an asset or liability) used to measure fair value. The hierarchy prioritizes the inputs into the following three levels:

Level 1: Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in active markets.

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3: Inputs that are generally unobservable. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.

The carrying amounts of the Company’s short-term financial instruments, including accounts receivable, accounts payable, certain accrued expenses, revolving  line of credit, and notes payable to related parties,  approximate their fair value due to the relatively short period to maturity for these instruments.  The fair value of long-term debt is based on current rates at which the Company could borrow funds with similar remaining maturities; the carrying amount of the long-term debt approximates fair value.

Impairment of long-lived assets – Potential impairments of long-lived assets are reviewed annually or when events and circumstances warrant an earlier review.  In accordance with ASC Subtopic 360-10, "Property, Plant and Equipment – Overall," impairment is determined when estimated future undiscounted cash flows associated with an asset are less than the asset’s carrying value.

Income taxes – The Company records income taxes under the asset and liability method. The Company recognizes deferred income tax assets and liabilities for the expected future consequences of temporary differences between the financial reporting and tax bases of assets and liabilities. These differences are measured using tax rates that are expected to apply to taxable income in the years in which those temporary differences are recovered or settled. We recognize in the statement of operations the effect on deferred income taxes of a change in tax rates in the period in which the change is enacted.

We record a valuation allowance when necessary to reduce our deferred tax assets to the net amount that we believe is more likely than not to be realized. We consider all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing tax planning strategies in assessing the need for a valuation allowance.

We recognize tax benefits from uncertain tax positions only if we believe that it is more likely than not that the tax positions will be sustained on examination by the taxing authorities based on the technical merits of the positions; otherwise, we establish reserves for uncertain tax positions.  We adjust reserves with respect to uncertain tax positions to address developments related to these positions, such as the closing of a tax audit, the expiration of a statute of limitations or the refinement of an estimate.  The provision for income taxes includes any reserves with respect to uncertain tax positions that are considered appropriate, as well as the related net interest and penalties.

The Company has been audited by the Internal Revenue Service through the year ended December 31, 2009.

Intangible assets – The Company purchased the Star brite® trade name and trademark in 1980 for $880,000.  The cost of the trade name and trademark initially were amortized on a straight-line basis over an estimated useful life of 40 years.  Effective January 1, 2002 and in accordance with ASC Topic 350, "Intangibles – Goodwill and Other," the Company determined that these intangible assets have indefinite lives and therefore, the Company no longer recognizes amortization expense.   In addition, the Company’s wholly- owned subsidiary, OdorStar Technology, LLC, owns patents relating to a device for producing chlorine dioxide (ClO2), which is incorporated in Company's disinfectant, sanitizer and deodorizer products. The Company amortizes these patents over their remaining life on a straight line basis.  The Company amortized approximately $51,000 for each of the years ended December 31, 2015 and 2014.  On August 6, 2013, the Company purchased for $160,000 royalty rights (previously owned by an unaffiliated company that owned the patents ultimately acquired by OdorStar) relating to sales of products encompassing OdorStar's patented technology.  The Company is amortizing the royalty rights over their remaining life on a straight line basis, and amortized approximately $18,000 for each of the years ended December 31, 2015 and 2014, respectively.  On September 16, 2014, the Company paid its former OdorStar joint venture partner $150,000 and released the former joint venture partner from $305,905 in debt in exchange for the former joint venture partner's membership interest in OdorStar and all rights to the trade name Performacide®. The Company capitalized $244,580 in relation to the Performacide® trade name. The Company has determined that the Performacide® trade name has an indefinite life and, therefore, it is not being amortized. See Note 4 – OdorStar . The Company evaluates trademarks and trade names (all of which are indefinite-lived intangible assets) for impairment every year and at other times when an event occurs or circumstances change such that it is reasonably possible that an impairment may exist. The Company evaluates royalty rights and patents for impairment when an event occurs or circumstances change such that it is reasonably possible that an impairment may exist. 

Foreign currency adjustments – Translation adjustments result from translating the Company’s Canadian subsidiary’s financial statements into U.S. dollars. The Company’s Canadian subsidiary’s functional currency is the Canadian dollar. Assets and liabilities are translated at exchange rates in effect at the balance sheet date.  Income and expenses are translated at average exchange rates during the year. Resulting translation adjustments are included in Shareholders’ Equity and as a component of comprehensive income.

Earnings per share – The Company computes earnings per share in accordance with the provisions of ASC Topic 260, "Earnings Per Share," which specifies the computation, presentation and disclosure requirements for earnings (loss) per share for entities with publicly held common stock.  Basic earnings per share are computed by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share are computed assuming the exercise of dilutive stock options under the treasury stock method and the related income tax effects.  See Note 13 - Earnings per share.