2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 12 Months Ended |
Dec. 31, 2013 |
Summary Of Significant Accounting Policies Policies | ' |
Basis of Presentation and Use of Estimates | ' |
(a) Basis of Presentation and Use of Estimates |
|
The financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP). |
|
The preparation of financial statements in conformity with US GAAP 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 expense during the reporting period. Actual results may differ from those estimates. Significant estimates made by the Company include: 1) allowance for doubtful accounts for accounts receivable (collectability and sales returns) and asset valuation allowance for deferred income tax assets; 2) write-downs of inventory for slow-moving and obsolete items, and market valuations; and 3) stock based compensation. |
Cash and Cash Equivalents | ' |
(b) Cash and Cash Equivalents |
|
All highly liquid investments with original maturities of less than 90 days from the date of purchase are classified as cash equivalents. Cash equivalents consist exclusively of money market funds. The Company has deposits at a limited number of financial institutions with federally insured limits. Balances of cash and cash equivalents at these institutions are normally in excess of the insured limits. However, the Company believes that the institutions are financially sound and there is only nominal risk of loss. |
|
Inventories | ' |
(c) Inventories |
|
Inventories are stated at the lower of cost, determined using the first-in, first-out method, or market. Consigned inventory is held at third-party locations. The Company retains title to the inventory until purchased by the third-party. Consigned inventory, consisting of finished goods, was approximately $305,000 and $489,000 at December 31, 2013 and 2012, respectively. |
Equipment and Leasehold Improvements | ' |
(d) Equipment and Leasehold Improvements |
|
Equipment and leasehold improvements are stated at cost, less accumulated depreciation and amortization. Depreciation of equipment is provided using the straight-line method over the estimated useful lives of the assets. Amortization of leasehold improvements is provided using the straight-line method over the estimated useful lives of the improvement or lease term, whichever is shorter. |
|
Impairment of Long-Lived Assets | ' |
(e) Impairment of Long-Lived Assets |
|
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. |
|
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset or asset group to undiscounted future net cash flows expected to be generated by the asset or asset group. If such 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 their fair value. Assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell. |
|
Income Taxes | ' |
(f) Income Taxes |
|
Deferred income taxes are provided on the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and on net operating loss and tax credit carry forwards. Deferred income 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. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided for that portion of deferred tax assets not expected to be realized. |
|
Earnings (Loss) Per Common Share | ' |
(g) Earnings (Loss) Per Common Share |
|
Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted loss per share is computed by dividing net income by the weighted average number of common shares and dilutive potential common shares outstanding during the period. Under the treasury stock method, the unexercised options are assumed to be exercised at the beginning of the period or at issuance, if later. The assumed proceeds are then used to purchase common shares at the average market price during the period. A summary of the denominators used to compute basic and diluted earnings (loss) per share follow: |
|
| | 2012 | | | 2013 | |
Weighted average shares outstanding – used to compute basic earnings (loss) per share | | | 6,973,704 | | | | 7,363,482 | |
Net effect of dilutive potential common shares outstanding, based on the treasury stock method | | | –– | | | | –– | |
Weighted average shares outstanding – used to compute diluted earnings (loss) per share | | | 6,973,704 | | | | 7,363,482 | |
|
|
Potential common shares for which inclusion would have the effect of increasing diluted earnings per share (i.e., anti-dilutive) are excluded from the computation. Options to purchase 2,585,000 shares of common stock at December 31, 2013 and 1,083,750 shares of common stock as of December 31, 2012 were outstanding, but not included in the computation of diluted earnings per share as their effect would be anti-dilutive. |
|
Revenue Recognition | ' |
(h) Revenue Recognition |
|
The Company primarily sells hardware products to its customers. The hardware products include dial-up modems, DSL modems, cable modems, embedded modems, ISDN modems, telephone dialers, and wireless and wired networking equipment. The Company generally does not sell software. |
|
The Company derives its net sales primarily from the sales of hardware products to computer peripherals retailers, computer product distributors, and original equipment manufacturers (OEMs). The Company sells an immaterial amount of its hardware products to direct consumers or to any customers via the internet. |
|
The Company recognizes net hardware sales for all four types of customers at the point when the customers take legal ownership of the delivered products. Legal ownership passes to the customer based on the contractual FOB point specified in signed contracts and purchase orders, which are both used extensively. Many customer contracts or purchase orders specify FOB destination. |
|
When Zoom consigns inventory to a retailer, sales revenue for an item in that inventory is recognized when that item is sold to by the retailer to a customer. The item remains in Zoom inventory when it is consigned, and moves out of Zoom inventory when the item is sold by the retailer. |
|
|
|
The Company's net sales of hardware are reduced by certain events which are characteristic of the sales of hardware to retailers of computer peripherals. These events are product returns, certain sales and marketing incentives, price protection refunds, and consumer and in-store mail-in rebates. Each of these is accounted for as a reduction of net sales based on management estimates, which are reconciled to actual customer or end-consumer credits on a monthly or quarterly basis. |
|
The estimates for product returns are based on recent historical trends plus estimates for returns prompted by announced stock rotations, announced customer store closings, etc. Management analyzes historical returns, current economic trends, and changes in customer demand and acceptance of the Company's products when evaluating the adequacy of sales return allowances. The Company's estimates for price protection refunds require a detailed understanding and tracking by customer, by sales program. Estimated price protection refunds are recorded in the same period as the announcement of a pricing change. Information from customer inventory-on-hand reports or from direct communications with the customers is used to estimate the refund, which is recorded as a reserve against accounts receivable and a reduction of current period revenue. The Company's estimates for consumer mail-in rebates are comprised of actual rebate claims processed by the rebate redemption centers plus an accrual for an estimated lag in processing. The Company's estimates for store rebates are comprised of actual credit requests from the eligible customers. |
|
The Company accounts for point-of-sale taxes on a net basis. |
Fair Value of Financial Instruments | ' |
(i) Fair Value of Financial Instruments |
|
The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels: |
|
● | Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities. The Company has the ability to access. | | | | | | | |
|
● | Level 2 - Inputs are inputs (other than quoted prices included within Level 1) that are observable for the asset or liability, either directly or indirectly. | | | | | | | |
|
● | Level 3 - Inputs include unobservable inputs for the asset or liability and rely on management's own assumptions about the assumptions that market participants would use in pricing the asset or liability. (The unobservable inputs should be developed based on the best information available in the circumstances and may include the Company’s own data.) | | | | | | | |
|
Financial instruments consist of cash and cash equivalents, marketable securities, accounts receivable, bank debt, accounts payable, and accrued expenses. Due to the short term nature and payment terms associated with these instruments, except the marketable securities, their carrying amounts approximate fair value. The fair value of the marketable securities is based on observable inputs that reflect quoted prices in an active market and is classified under Level 1 of the fair value hierarchy described above at December 31, 2013 and 2012. Unrealized gains or losses resulting from changes in the fair value of marketable securities were charged or credited to “accumulated other comprehensive income,” until sale of these marketable securities in 2013. |
|
Stock-Based Compensation | ' |
(j) Stock-Based Compensation |
|
Compensation cost for awards is generally recognized over the required service period based on the estimated fair value of the awards on their grant date. Fair value is determined using the Black-Scholes option-pricing model. |
Advertising Costs | ' |
(k) Advertising Costs |
|
Advertising costs are expensed as incurred and reported in selling expense in the accompanying statements of operations and comprehensive income (loss), and include costs of advertising, production, trade shows, and other activities designed to enhance demand for the Company's products. There are no deferred advertising costs in the accompanying balance sheets. The Company reported advertising costs of $300.5 thousand in 2012 and $247.5 thousand in 2013. |
Foreign Currencies | ' |
(l) Foreign Currencies |
|
The Company generates a portion of its revenues in markets outside North America principally in transactions denominated in foreign currencies, which exposes the Company to risks of foreign currency fluctuations. Foreign currency transaction gains and losses are reflected in operations and were not material for any period presented. The Company does not use derivative financial instruments. |
|
The Company considers the local currency to be the functional currency for its U.K. branch. Assets and liabilities denominated in foreign currencies are translated using the exchange rates as of the balance sheet date. Revenues and expenses are translated at average exchange rates prevailing during the year. Translation adjustments resulting from this process are charged or credited to “accumulated other comprehensive income.” |
Warranty Costs | ' |
(m) Warranty Costs |
|
The Company provides for the estimated costs that may be incurred under its standard warranty obligations, based on actual historical repair costs. The reserve for the provision for warranty costs was $52,683 and $38,098 at December 31, 2012 and 2013, respectively. |
Shipping and Freight Costs | ' |
(n) Shipping and Freight Costs |
|
The Company records the expense associated with customer-delivery shipping and freight costs in selling expense. The Company reported shipping and freight costs of $234.6 thousand in 2012 and $191.7 thousand in 2013. |
Recently Issued Accounting Pronouncements | ' |
(o) Recently Issued Accounting Pronouncements |
|
In February 2013, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update on the reporting of amounts reclassified out of accumulated other comprehensive income, to improve the transparency of reporting. These reclassifications present the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income-but only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. This standard update is effective for reporting periods beginning after December 15, 2012. As this guidance only revises the presentation and disclosures related to the reclassification of items out of accumulated other comprehensive income (loss), the Company’s adoption of this guidance did not affect it’s financial position, results of operations or cash flows. See Note (15) – Reclassifications Out of Accumulated Other Comprehensive Income (Loss), which presents the disclosures required by this update. |
|
Reclassifications | ' |
(p) Reclassifications |
|
Certain reclassifications have been made to the prior year’s financial statements to conform to the 2013 presentation. The reclassifications relate to the presentation of changes in accounts receivable and inventory on the statements of cash flows. |
Contingencies | ' |
The Company reviews the status of its legal proceedings and records a provision for a liability when it is considered probable that both a liability has been incurred and the amount of the loss can be reasonably estimated. This review is updated periodically as additional information becomes available. If either or both of the criteria are not met, the Company reassesses whether there is at lease a reasonable possibility that a loss, or additional losses, may be incurred. If there is a reasonable possibility that a loss may be incurred, the Company discloses the estimate of the amount of the loss or range of losses, that the amount is not material, or that an estimate of loss cannot be made. The Company expenses its legal fees as incurred. |
|
In assessing potential loss contingencies, the Company considers a number of factors, including those listed in the FASB’s Accounting Standards Codifications 450-20, Contingencies – Loss Contingencies, regarding assessing the probability of a loss and assessing whether a loss is reasonably estimable. |