|Summary of Significant Accounting Policies
||Summary of Significant Accounting Policies
|Nature of Business
||EnviroStar, Inc. and its subsidiaries (collectively, the Company) sell commercial and industrial laundry and dry cleaning equipment, steam and hot water boilers manufactured by other, as well as replacement parts and accessories and provides maintenance services. The Company also sells individual and area franchises under the DRYCLEAN USA name and develops new turn-key dry cleaning establishments for resale to third parties.
||The Company primarily sells to customers located in the United States, the Caribbean and Latin America.
|The accompanying consolidated financial statements include the accounts of EnviroStar, Inc. and its wholly-owned subsidiaries. Intercompany transactions and balances have been eliminated in consolidation.
Products are generally shipped Free
on Board (FOB) from the Companys warehouse or drop shipped from the Companys Vendor FOB, at which time
risk of loss and title passes to the purchaser. Revenue is recognized when there is persuasive evidence of the arrangement, shipment
or delivery has occurred, the price is fixed and determinable and collectability is reasonably assured. In some cases, the Company
collects non-income related taxes, including sales and use tax, from its customers and remits those taxes to governmental authorities.
The Company presents revenues net of these taxes. Shipping, delivery and handling fee income of approximately $1,028,000 and $867,000
for the years ended June 30, 2013 and 2012, respectively, are included in revenues in the consolidated financial statements. Shipping,
delivery and handling costs are included in cost of sales.
Individual franchise arrangements include
a license and provide for payment of initial fees, as well as continuing royalties. Initial franchise fees are generally recorded
upon the opening of the franchised store, which is evidenced by a certificate from the franchisee, indicating that the store has
opened, and collectability is reasonably assured. Continuing royalties represent regular contractual payments received for the
use of the DRYCLEAN USA marks, which are recognized as revenue when earned, generally on a straight line basis. Royalty
fees recognized during the years ended June 30, 2013 and 2012 were approximately $192,000 and $210,000, respectively.
Commissions and development fees are
recorded when earned, generally when the services are performed or the transaction is closed.
|Accounts and trade notes receivable are customer obligations due under normal trade terms. The Company sells its products primarily to independent and franchise dry cleaning stores and chains, laundry plants, hotels, motels, cruise lines, hospitals, nursing homes, government institutions and distributors. The Company performs continuing credit evaluations of its customers financial condition and, depending on the terms of credit, the amount of the credit granted and managements history with a customer, the Company may require the customer to grant a security interest in the purchased equipment as collateral for the receivable. Senior management reviews accounts and trade notes receivable on a regular basis to determine if any amounts will potentially be uncollectible. The Company includes any balances that are determined to be uncollectible, along with a general reserve, in its overall allowance for doubtful accounts. After all attempts to collect a receivable have failed, the receivable is written off. The Companys allowance for doubtful accounts was $155,000 at June 30, 2013 and 2012, respectively. However, actual write-offs might vary from the recorded allowance.
|The Company sells products to certain customers under lease and mortgage arrangements for terms typically ranging from one to five years. The Company accounts for these sales-type leases according to the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 840, Leases, and, accordingly, recognizes current and long-term leases and mortgages receivable, net of unearned income, on the accompanying consolidated balance sheets. The present value of all payments is recorded as sales and the related cost of the equipment is charged to cost of sales. The associated interest is recorded over the term of the lease or mortgage using the effective interest method.
||Inventories consist principally of equipment and spare parts. Equipment is valued at the lower of cost, determined on the specific identification method, or market. Spare parts are valued at the lower of average cost or market.
|Property and equipment are stated at cost. Depreciation and amortization are calculated on straight-line methods over lives of five to seven years for furniture and equipment and ten years for leasehold improvements for financial reporting purpose. Repairs and maintenance costs are expensed as incurred.
|The Company follows ASC Topic 350, Intangibles Goodwill and Other (ASC 350), which requires that finite-lived intangibles be amortized over their estimated useful life while indefinite-lived intangibles and goodwill are not amortized. Franchise license, trademark, and other finite-lived intangible assets are stated at cost less accumulated amortization, and are amortized on a straight-line basis over the estimated future periods to be benefited (10-15 years). Patents are amortized over the shorter of the patents useful life or legal life from the date the patent is granted.
||ASC Topic 360, Property, Plant, and Equipment (ASC 360) and ASC 350 require the Company to periodically review the carrying amounts of its long-lived assets, including property, plant and equipment and certain identifiable intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of the 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 future net cash flows expected to be generated by the asset. If the assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of their carrying amount or fair value less estimated costs to sell. The Company has concluded that there was no impairment of long-lived assets in fiscal 2013 or fiscal 2012.
||Cash equivalents include all highly liquid investments with original maturities of three months or less.
||The preparation of consolidated financial statements in conformity 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 disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
|Earnings Per Share
||Basic earnings per share are computed on the basis of the weighted average number of common shares outstanding during each year. Diluted earnings per share are computed on the basis of the weighted average number of common shares and dilutive securities outstanding during each year. The Company had no dilutive securities outstanding during fiscal 2013 or fiscal 2012.
|The Company purchases laundry, drycleaning machines, boilers and other products from a number of manufacturers and suppliers. Two of these manufacturers accounted for approximately 45% and 19%, respectively, of the Companys purchases for fiscal 2013 and for approximately 35% and 24%, respectively, of the Companys purchases for fiscal 2012.
||The Company expenses the cost of advertising as of the first date an advertisement is run. The Company expensed approximately $54,000 and $66,000 of advertising costs for the years ended June 30, 2013 and 2012, respectively.
Fair Value of
The Companys financial instruments consist
principally of cash and cash equivalents and accounts and trade notes receivable. Due to their relatively short-term nature or
variable rates, the carrying amounts of those financial instruments, as reflected in the accompanying consolidated balance sheets,
approximate their estimated fair value. Their estimated fair value is not necessarily indicative of the amounts the Company could
realize from those assets in a current market exchange or of future earnings or cash flows.
||Customer deposits represent advances paid by certain customers when placing orders for equipment with the Company.
The Company follows
ASC Topic 740, Income Taxes (ASC 740). Under the asset and liability method of ASC 740, deferred tax
assets and liabilities are recognized for the future tax consequences attributed to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be
recovered or settled. Under ASC 740, 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. If it is more likely than not that some portion of a deferred tax asset
will not be realized, a valuation allowance is recognized.
is required in developing the Companys provision for income taxes, deferred tax assets and liabilities and any valuation
allowances that might be required against the deferred tax assets. Management evaluates its ability to realize its deferred tax
assets on a quarterly basis and adjusts its valuation allowance when it believes that it is more likely than not that the asset
will not be realized. There were no valuation allowances during fiscal 2013 or fiscal 2012.
The Company follows ASC Topic 740-10-25
Accounting for Uncertainty in Income which contains a two-step approach to recognizing and measuring uncertain tax
positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates
it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation
processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized
upon ultimate settlement. The Company considers many factors when evaluating and estimating its tax positions and tax benefits,
which may require periodic adjustments and which may not accurately anticipate actual outcomes. The Company does not believe that
there are any unrecognized tax benefits related to certain tax positions taken on its various income tax returns.
In July and August of 2013, the Company received
a few large orders on which the Company had submitted favorable bids. These orders, which are scheduled to be shipped in fiscal
2014, have increased the Company's subsequent backlog. There were no other material subsequent events in the Company's evaluation
of events and transactions that occurred after June 30, 2013.
In April 2011, the FASB
issued ASU 2011-02, Receivables (Topic 310): A Creditors Determination of Whether a Restructuring Is a Troubled
Debt Restructuring (ASU 2011-02). ASU 2011-02 provides additional guidance clarifying when
the restructuring of a receivable should be considered a troubled debt restructuring. The additional guidance provided by ASU
2011-02 is for determining whether a creditor has granted a concession and whether the debtor is experiencing financial difficulty.
ASU 2011-02 also ends the deferral of activity-based disclosures related to troubled debt restructurings. The Company adopted
ASU 2011-02 in the third quarter of 2011. The adoption of ASU 2011-02 did not impact the Companys consolidated financial
May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements
in U.S. GAAP and IFRSs (ASU 2011-04). ASU 2011-04 amends ASC Topic 820, providing a consistent
definition and measurement of fair value, as well as similar disclosure requirements between U.S. GAAP and International Financial
Reporting Standards. ASU 2011-04 changes certain fair value measurement principles, clarifies the application of existing
fair value measurement and expands the ASC Topic 820 disclosure requirements, particularly for Level 3 fair value measurements. ASU
2011-04 is effective for interim and annual periods beginning after December 15, 2011. The adoption of ASU 2011-04
did not have a material impact on the Companys consolidated financial statements.
believes the impact of other issued standards and updates, which are not yet effective, will not have a material impact on the
Companys consolidated financial position, results of operations or cash flows upon adoption.