Expense categories
Cost of goods sold includes inbound freight and duty charges from vendors to our central warehouse, freight and handling charges to move merchandise from our central warehouse to our stores, and manufacturing overhead, as appropriate.
Operating expenses include all selling, general and administrative costs including wages and related employee expenses (payroll taxes, health benefits, savings plans, etc.), advertising, outbound freight charges (to ship merchandise to customers), rent, and utilities.
Property and equipment, net of accumulated depreciation and amortization
Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which are five to ten years for machinery and equipment, five to seven years for furniture and fixtures, five years for vehicles, and forty years for buildings and related improvements. Leasehold improvements are amortized over the lesser of the life of the lease or the useful life of the asset. Repairs and maintenance costs are expensed as incurred.
Inventory is valued at the lower of first-in, first-out cost or market. In addition, the value of inventory is periodically reduced for slow-moving or obsolete inventory based on management's review of items on hand compared to their estimated future demand.
Impairment of long-lived assets
Potential impairments of long-lived assets are reviewed annually or when events and circumstances warrant an earlier review. Impairment is determined when estimated future undiscounted cash flows associated with an asset are less than the asset’s carrying value.
Basic earnings per share are computed based on the weighted average number of common shares outstanding during the period. Diluted earnings per share includes, to the extent inclusion of such shares would be dilutive to earnings per share, the effect of outstanding options and warrants, computed using the treasury stock method.
BASIC 2009 2008 2007 Net income (loss) $3,318,057 $2,604,181 $3,088,131
Weighted average common shares outstanding 10,471,103 10,931,306 10,951,481
Earnings per share – basic $0.32 $0.24 $0.28
DILUTED Net income (loss) $3,318,057 $2,604,181 $3,088,131
Weighted average common shares outstanding 10,471,103 10,931,306 10,951,481 Effect of assumed exercise of stock options and warrants 64,633 84,351 206,294 Weighted average common shares outstanding, assuming dilution 10,535,736 11,015,657 11,157,775
Earnings per share - diluted $0.31 $0.24 $ 0.28
Outstanding options and warrants excluded as anti-dilutive 61,000 80,500 11,500
For additional disclosures regarding the employee stock options and the warrants, see Note 12. The net effect of converting stock options and warrants to purchase 197,700, 232,200 and 275,200 shares of common stock at option prices less than the average market prices has been included in the computations of diluted EPS for the years ended December 31, 2009, 2008 and 2007, respectively.
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