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Summary Of Significant Accounting Policies
9 Months Ended
Sep. 30, 2011
Summary Of Significant Accounting Policies [Abstract] 
Summary Of Significant Accounting Policies

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation—The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.

Accounting Estimates—The Company's financial statements are prepared in conformity with accounting principles generally accepted in the United States of America which require 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.

Fiscal Year—The Company's operating subsidiaries, Deer Valley Homebuilders, Inc. (DVH) and Deer Valley Finance Corp. (DVFC), operate on a 52-53 week fiscal year end. For presentation purposes, the reporting period has been presented as ending on September 30, the Company's quarter end.

Cash Equivalents—The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.

The Company maintains its cash balances in two different financial institutions. At September 30, 2011 these balances totaled $3,981,887. The balances are insured by the Federal Deposit Insurance Corporation up to $250,000 or in the case of non-interest bearing accounts, the insurance is unlimited until December 31, 2012. At September 30, 2011, $531,102 of our cash balances exceeded the current FDIC insurance limits.

Investments—Short-term investments are comprised of Variable Rate Demand Bonds ("VRDB's"). In accordance with FASB Topic ASC 320, Investments-Debt and Equity Securities, based on our ability to market and sell these instruments and our intent to not hold such instruments until maturity, we classify such variable rate demand bonds as available-for-sale, and carry them at their fair value. VRDB's are similar to short-term debt instruments because their interest rates are reset periodically. Investments in these securities can be sold for cash on the auction date. We classify VRDB's as short-term or long-term investments based on the reset dates.

Prior to the end of fiscal year 2010, the Company classified VRDB's in cash and cash equivalents. Prior period information was reclassified to conform to the current year presentation. These reclassifications had no effect on previously reported income, net earnings or stockholders' equity.

Inventory Finance Notes Receivable—The Company offers inventory-secured financing for its products to qualified retail dealers and developers. Finance contracts require periodic installments of principal and interest over periods of up to 24 months. The Company periodically evaluates the collectability of our notes receivable and considers the need to establish an allowance for doubtful accounts based upon our historical collection experience. We have established an allowance for doubtful accounts of $145,070 as of September 30, 2011 and $94,665 at September 30, 2010.

 

Goodwill—The Company previously tested goodwill for impairment, at least annually, during the fourth quarter and on an interim basis if an event or circumstance indicate that it is more likely than not that an impairment loss has been incurred. Recoverability of goodwill was evaluated using a two-step process. In the first step, the fair value of our reporting unit is compared to its carrying value. If the fair value of our reporting unit exceeds the carrying value of the net assets assigned to a reporting unit, goodwill is considered not impaired and no further testing is required. If the carrying value of the net assets assigned to a reporting unit exceeds the fair value of a reporting unit, the second step of the impairment test is performed in order to determine the implied fair value of a reporting unit's goodwill. Determining the implied fair value of goodwill requires valuation of a reporting unit's tangible and intangible assets and liabilities in a manner similar to the allocation of purchase price in a business combination. If the carrying value of a reporting unit's goodwill exceeds its implied fair value, goodwill is deemed impaired and is written down to its fair value. Similar to the review for impairment of other long-lived assets, the resulting fair value determination is significantly impacted by estimates of future sales for the Company's products, capital needs, economic trends and other factors. See Note 4 for further discussion regarding the Company's goodwill.

Impairment of Long-Lived Assets—Property and intangible assets are material to our consolidated financial statements. Further, these assets are subject to the potential negative effects arising from factors beyond the Company's control including changing economic conditions. The Company evaluates its tangible and definite-lived intangible assets for impairment annually during our fourth quarter or more frequently in the presence of circumstances or trends that may be indicators of impairment. The evaluation is a two step process. The first step is to compare our undiscounted cash flows, as projected over the remaining useful lives of the assets, to their respective carrying values. In the event that the carrying values are not recovered by future undiscounted cash flows, as a second step, the Company compares the carrying values to the related fair values and, if fair value is lower, record an impairment adjustment. For purposes of fair value, the Company generally uses replacement costs for tangible fixed assets and discounted cash flows, using risk-adjusted discount rates, for intangible assets. These estimates are made by competent employees, using the best available information, under the direct supervision of our management. For tangible property, plant and equipment, there have been no changes in assumptions or methodologies in the three and nine month periods ended September 30, 2011 as compared to September 30, 2010. The Company did not have definite-lived intangible assets at September 30, 2011 and September 30, 2010.

In accordance with FASB Topic ASC 420 "Exit on Disposal Cost Obligations", the Company evaluates the carrying value of long-lived assets to be held and used when events and circumstances warrant such a review. The carrying value of long-lived assets is considered impaired when the anticipated undiscounted cash flow from such assets is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived assets. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that the fair market values are primarily based on independent appraisals and preliminary or definitive contractual arrangements less costs to dispose.

Revenue Recognition—Revenue for manufactured homes sold to independent dealers generally is recorded when all of the following conditions have been met; (a) an order for the home has been received from the dealer, (b) an agreement with respect to payment terms (usually in the form of a written or verbal approval for payment has been received from the dealer's flooring institution), and (c) the home has been shipped and risk of loss has passed to the dealer and collectability is reasonably assured.

Cost of Sales—The Company's factory-built housing segment includes the following types of expenses in cost of sales: purchase and receiving costs, freight in, direct labor, supply costs, warehousing, direct and indirect overhead costs, inspection, transfer, actual and accrued warranty, depreciation, and amortization costs. The Company's financial services segment includes the following types of expenses in cost of sales: interest expense

Selling, General and Administrative—The Company includes the following types of expenses in selling, general and administrative expense: sales salaries, sales commissions, bad debt expense, advertising, administrative overhead, administrative salaries and bonuses and legal and professional fees.

Derivative Financial Instruments—Upon the adoption of FASB ASC guidance on Topic 815 "Derivatives and Hedging" in "Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity's Own Stock" on January 1, 2009, certain of our financial instruments with "down-round" protection features are no longer considered indexed to our Company's stock for purposes of determining whether they meet the first part of the scope exception ASC 815-10-15-74. As such, these instruments no longer meet the conditions to achieve equity classification and are required to be carried as derivative liabilities, at fair value, with changes in fair value reflected in our income (loss). See Note 9 Derivative Liabilities of the consolidated financial statements for additional disclosure data.

Earnings (Loss) Per Share—The Company uses the guidance set forth under FASB topic ASC 260, "Earnings Per Share" for calculating the basic and diluted loss per share. Basic income/(loss) per share is computed by dividing net income/(loss) and net income/(loss) attributable to common shareholders by the weighted average number of common shares outstanding. Diluted income/(loss) per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential shares had been issued and if the additional shares were dilutive. Common equivalent shares are excluded from the computation of net loss per share if they would be anti-dilutive.

 

The Company's dilutive common stock equivalent shares as of September 30, 2011 and 2010 include all of the Convertible Preferred shares and exclude any incremental shares associated with the Company's outstanding warrants which total 1,272,857, as they were anti-dilutive.

See the detailed list of Common Stock Equivalents below.

 

      Exercise      Expiration Date    September 30,  

Securities

    Price         2011      2010  

Preferred:

            

Series A Preferred

            286,642         286,642   

Series C Preferred

            2,246,300         2,246,300   

Series E Preferred

            1,000,000         1,000,000   
        

 

 

     

 

 

  

Total

            3,532,942         3,532,942   
        

 

 

     

 

 

  

Warrants:

            

Class A Warrants

    $ 1.50       December 4, 2011      160,370         10,369,351   

Class B Warrants

    $ 2.25       August 11, 2013      1,112,487         4,970,824   

Class C Warrants

    $ 0.75       Expired      —           2,000,000   

Class D Warrants

    $ 0.75       Expired      —           2,000,000   

Class E Warrants

    $ 3.00       Expired      —           —     

Class F Warrants

    $ 2.25       Expired      —           1,000,000   

Class BD-2 Warrants

    $ 1.50       Expired      —           899,162   

Class BD-3 Warrants

    $ 2.25       Expired      —           449,581   

Class BD-4 Warrants

    $ 1.50       Expired      —           66,121   

Class BD-5 Warrants

    $ 3.00       Expired      —           66,121   
        

 

 

     

 

 

  

Total

            1,272,857         21,821,160   
        

 

 

     

 

 

  

Total common stock equivalents

            4,805,799         25,354,102   
        

 

 

     

 

 

  

Basic and diluted net income per share, for the three months ended September 30, 2011, were calculated as follows:

 

     Basic      Diluted  

Numerator

      

Net income applicable to common stock

    $ 376,870       $ 376,870   
  

 

 

     

 

 

  

Denominator

      

Weighted average common shares outstanding

      17,064,337         17,064,337   

Preferred stock

      —           3,609,324   
  

 

 

     

 

 

  

Total

      17,064,337         20,673,661   
  

 

 

     

 

 

  

Income Taxes—Income taxes are accounted for using the liability method of accounting. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax basis, using currently enacted tax rates. The effect on deferred assets and liabilities of a change in tax rates is recognized in income in the period when the change is enacted. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized.