Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
Mar. 31, 2017 | May 08, 2017 | |
Document And Entity Information | ||
Entity Registrant Name | Zoom Telephonics, Inc. | |
Entity Central Index Key | 1,467,761 | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2017 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Is Entity a Well-known Seasoned Issuer? | No | |
Is Entity a Voluntary Filer? | No | |
Is Entity's Reporting Status Current? | Yes | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 14,807,790 | |
Document Fiscal Period Focus | Q1 | |
Document Fiscal Year Focus | 2,017 |
Condensed Balance Sheets (Unaud
Condensed Balance Sheets (Unaudited) - USD ($) | Mar. 31, 2017 | Dec. 31, 2016 |
Current assets | ||
Cash and cash equivalents | $ 98,848 | $ 179,846 |
Accounts receivable, net of allowances of $471,578 at March 31, 2017 and $507,296 at December 31, 2016 | 2,105,503 | 2,498,259 |
Inventories | 4,680,374 | 4,926,612 |
Prepaid expenses and other current assets | 189,117 | 652,402 |
Total current assets | 7,073,842 | 8,257,119 |
Other assets | 556,739 | 588,907 |
Equipment, net | 152,043 | 175,743 |
Total assets | 7,782,624 | 9,021,769 |
Current liabilities | ||
Bank debt | 1,545,605 | 1,306,620 |
Accounts payable | 1,914,179 | 2,502,323 |
Accrued expenses | 1,128,903 | 1,051,616 |
Total liabilities | 4,588,687 | 4,860,559 |
Stockholders' equity | ||
Common stock: Authorized: 25,000,000 shares at $0.01 par value Issued and outstanding: 14,807,790 shares at March 31, 2017 and 14,685,290 shares at December 31, 2016 | 148,078 | 146,853 |
Additional paid-in capital | 40,013,923 | 39,893,919 |
Accumulated deficit | (36,968,064) | (35,879,562) |
Total stockholders' equity | 3,193,937 | 4,161,210 |
Total liabilities and stockholders' equity | $ 7,782,624 | $ 9,021,769 |
Condensed Balance Sheets (Unau3
Condensed Balance Sheets (Unaudited) (Parenthetical) - USD ($) | Mar. 31, 2017 | Dec. 31, 2016 |
Assets | ||
Accounts receivable allowances | $ 471,578 | $ 507,296 |
Stockholders Equity | ||
Common stock, par value | $ 0.01 | $ 0.01 |
Common stock, authorized | 25,000,000 | 25,000,000 |
Common stock, issued | 14,807,790 | 14,685,290 |
Common stock, outstanding | 14,807,790 | 14,685,290 |
Condensed Statement of Operatio
Condensed Statement of Operations and Comprehensive Income (Loss) (Unaudited) - USD ($) | 3 Months Ended | |
Mar. 31, 2017 | Mar. 31, 2016 | |
Income Statement [Abstract] | ||
Net sales | $ 5,145,889 | $ 2,720,845 |
Cost of goods sold | 3,411,618 | 1,886,617 |
Gross profit | 1,734,271 | 834,228 |
Operating expenses: | ||
Selling | 1,846,533 | 745,803 |
General and administrative | 431,392 | 469,334 |
Research and development | 507,970 | 347,012 |
Total | 2,785,895 | 1,562,149 |
Operating profit (loss) | (1,051,624) | (727,921) |
Other income (expense): | ||
Interest income | 22 | 195 |
Interest expense | (25,797) | 0 |
Other, net | (11,103) | (12) |
Total other income (expense) | (36,878) | 183 |
Income (loss) before income taxes | (1,088,502) | (727,738) |
Income taxes (benefit) | 0 | (9) |
Net income (loss) | $ (1,088,502) | $ (727,729) |
Other comprehensive income (loss): | ||
Net income (loss) per share: Basic and Diluted | $ (0.07) | $ (0.05) |
Weighted average common and common equivalent shares: | ||
Basic and diluted | 14,781,887 | 13,567,946 |
Condensed Statements of Cash Fl
Condensed Statements of Cash Flows (Unaudited) - USD ($) | 3 Months Ended | |
Mar. 31, 2017 | Mar. 31, 2016 | |
Operating activities: | ||
Net income (loss) | $ (1,088,502) | $ (727,729) |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||
Depreciation and amortization | 144,380 | 122,425 |
Stock based compensation | 76,204 | 78,409 |
Provision (recovery) for accounts receivable allowances | (2,599) | 325 |
Provision (recovery) for inventory reserves | (3,306) | 1,882 |
Changes in operating assets and liabilities: | ||
Accounts receivable | 395,355 | (343,546) |
Inventories | 249,544 | (533,576) |
Prepaid expenses and other assets | 463,285 | (477,985) |
Accounts payable and accrued expenses | (510,857) | 391,913 |
Net cash provided by (used in) operating activities | (276,496) | (1,487,882) |
Investing activities: | ||
Cost of other assets | (88,320) | (150,000) |
Purchases of plant and equipment | (192) | (7,299) |
Net cash provided by (used in) investing activities' | (88,512) | (157,299) |
Financing activities: | ||
Net funds (to) from bank credit lines | 238,985 | 0 |
Proceeds from stock option exercises | 45,025 | 101,520 |
Net cash provided by (used in) financing activities | 284,010 | 101,520 |
Net change in cash | (80,998) | (1,543,661) |
Cash and cash equivalents at beginning of period | 179,846 | 1,846,704 |
Cash and cash equivalents at end of period | 98,848 | 303,043 |
Supplemental disclosures of cash flow information: | ||
Cash paid during the period for: Interest | $ 25,797 | $ 0 |
1. Summary of Significant Accou
1. Summary of Significant Accounting Policies | 3 Months Ended |
Mar. 31, 2017 | |
Notes to Financial Statements | |
Summary of Significant Accounting Policies | The accompanying condensed consolidated financial statements (“financial statements”) are unaudited. However, the condensed consolidated balance sheet as of December 31, 2016 was derived from audited financial statements. In the opinion of management, the accompanying financial statements include all necessary adjustments to present fairly the consolidated financial position, results of operations and cash flows of Zoom Telephonics, Inc. (the “Company” or “Zoom”). The adjustments are of a normal, recurring nature. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the entire year. The Company has evaluated subsequent events from March 31, 2017 through the date of this filing and determined that there are no such events requiring recognition or disclosure in the financial statements. The financial statements of the Company presented herein have been prepared pursuant to the rules of the Securities and Exchange Commission for quarterly reports on Form 10-Q and do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America. These financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2016 included in the Company's 2016 Annual Report on Form 10-K for the year ended December 31, 2016. Recently Adopted Accounting Standards In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"). ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The Company adopted ASU 2016-09 as of January 1, 2017 and elected an accounting policy to record forfeitures as they occur. The impact of this change in accounting policy had an insignificant effect on accumulated deficit as of January 1, 2017. ASU 2016-09 also provides that companies no longer record excess tax benefits or certain tax deficiencies in additional paid-in capital. Instead, all excess tax benefits and tax deficiencies are recorded as income tax expense or benefit in the statement of operations. There was no financial statement impact of adopting this provision of ASU 2016-09 as the Company is currently in a net operating loss position and the excess tax benefits that existed from options previously exercised had a full valuation allowance. The effects of adopting the remaining provisions in ASU 2016-09 affecting the classification of awards as either equity or liabilities when an entity partially settles the award in cash in excess of the employer’s minimum statutory withholding requirements and classification in the statement of cash flows did not have a significant impact on the Company’s financial position, results of operations or cash flows. Recently Issued Accounting Standards In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). ASU 2014-09 supersedes the revenue recognition requirements in ASC Topic 605, “Revenue Recognition” and some cost guidance included in ASC Subtopic 605-35, “Revenue Recognition - Construction-Type and Production-Type Contracts.” The core principle of ASU 2014-09 is that revenue is recognized when the transfer of goods or services to customers occurs in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. ASU 2014-09 requires the disclosure of sufficient information to enable readers of the Company’s financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. ASU 2014-09 also requires disclosure of information regarding significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09provides two methods of retrospective application. The first method would require the Company to apply ASU 2014-09 to each prior reporting period presented. The second method would require the Company to retrospectively apply ASU 2014-09 with the cumulative effect recognized at the date of initial application. ASU 2014-09 will be effective for the Company beginning in fiscal 2019 as a result of ASU 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,” which was issued by the FASB in August 2015 and extended the original effective date by one year. The Company is currently evaluating the impact of adopting the available methodologies of ASU 2014-09 and 2015-14 upon its financial statements in future reporting periods. The Company has not yet selected a transition method. The Company is in the process of evaluating the new standard against its existing accounting policies, including the timing of revenue recognition, and its contracts with customers to determine the effect the guidance will have on its financial statements and what changes to systems and controls may be warranted. There have been four new ASUs issued amending certain aspects of ASU 2014-09, ASU 2016-08, “Principal versus Agent Considerations (Reporting Revenue Gross Versus Net),” was issued in March 2016 to clarify certain aspects of the principal versus agent guidance in ASU 2014-09. In addition, ASU 2016-10, “Identifying Performance Obligations and Licensing,” issued in April 2016, amends other sections of ASU 2014-09 including clarifying guidance related to identifying performance obligations and licensing implementation. ASU 2016-12, “Revenue from Contracts with Customers - Narrow Scope Improvements and Practical Expedients” provides amendments and practical expedients to the guidance in ASU 2014-09 in the areas of assessing collectability, presentation of sales taxes received from customers, noncash consideration, contract modification and clarification of using the full retrospective approach to adopt ASU 2014-09. Finally, ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers,” was issued in December 2016, and provides elections regarding the disclosures required for remaining performance obligations in certain cases and also makes other technical corrections and improvements to the standard. With its evaluation of the impact of ASU 2014-09, the Company will also consider the impact on its financial statements related to the updated guidance provided by these four new ASUs. In March 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” ASU 2016-02 requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the balance sheets, a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term (the lease asset). For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments Credit Losses —Measurement of Credit Losses on Financial Instruments." ASU 2016-13 requires a financial asset (or group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. ASU 2016-13 is effective for public business entities that are SEC filers for fiscal years beginning after December 15, 2019,including interim periods within those fiscal years. Early adoption is permitted in any interim or annual period for fiscal years beginning after December 15, 2018. An entity should apply the amendments in ASU 2016-13 through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (modified-retrospective approach). The Company is currently evaluating the potential impact that the adoption of ASU 2016-13 may have on its consolidated financial statements, however, it does not expect it to have a material effect. |
2. Liquidity
2. Liquidity | 3 Months Ended |
Mar. 31, 2017 | |
Notes to Financial Statements | |
Liquidity | The Company’s cash and cash equivalents balance on March 31, 2017 was approximately $99 thousand, a decrease of approximately $81 thousand from December 31, 2016. Major uses of cash were a $1.1 million loss for the quarter ended March 31, 2017 and a decrease of approximately $511 thousand in accounts payable and accrued expenses. These were offset by decreases of approximately $463 thousand in prepaid expenses, approximately $395 thousand in accounts receivable, and approximately $250 thousand in inventory, and an increase of approximately $239 thousand in bank debt. On March 31, 2017 the Company had approximately $1.5 million in bank debt for a $3.0 million asset-based credit line and working capital of approximately $2.5 million, including approximately $99 thousand in cash and cash equivalents. On December 31, 2016 the Company had working capital of approximately $3.4 million including approximately $180 thousand in cash and cash equivalents. The Company’s current ratio at March 31, 2017 was 1.5 compared to 1.7 at December 31, 2016. The Company has experienced losses in the past, and is expected to continue to experience losses until sales grow significantly. The Company has experienced dramatic growth, with sales in 2016 up 65% over sales in 2015 and with sales in the first quarter of 2017 up 89% over sales in the first quarter of 2016. The Company expects year-over-year growth to continue due to a number of factors including the strength of the Motorola brand, new product introductions, increased shelf space, growing online retailer sales, and international expansion. Because of projected sales increases, the associated improved net income, and its Financing Agreement, the Company expects to maintain acceptable levels of liquidity to meet its obligations as they become due for at least twelve months from the date of issuance of our annual filing with the Securities Exchange Commission. |
3. Inventories
3. Inventories | 3 Months Ended |
Mar. 31, 2017 | |
Notes to Financial Statements | |
Inventories | Inventories consist of : March 31, 2017 December 31, 2016 Materials $ 945,829 $ 888,830 Work in process 226,374 27,708 Finished goods 3,508,171 4,010,074 Total $ 4,680,374 $ 4,926,612 Finished goods includes consigned inventory held by our customers of $308,700 at March 31, 2017 and $442,300 at December 31, 2016. The Company reviews inventory for obsolete and slow moving products each quarter and makes provisions based on its estimate of the probability that the material will not be consumed or that it will be sold below cost. The provision for inventory reserves was negligible in both the first quarter of 2017 and the fourth quarter of 2016. |
4. Commitments and Contingencie
4. Commitments and Contingencies | 3 Months Ended |
Mar. 31, 2017 | |
Notes to Financial Statements | |
Commitments and Contingencies | (a) Contingencies From time to time the Company is party to various lawsuits and administrative proceedings arising in the ordinary course of business. The Company evaluates such lawsuits and proceedings on a case-by-case basis, and its policy is to vigorously contest any such claims that it believes are without merit. The Company's management believes that the ultimate resolution of such matters will not materially and adversely affect the Company's business, financial position, or results of operations. On May 17, 2016, Magnacross LLC ("Magnacross") filed a complaint in the U.S. District Court for the Eastern District of Texas (U.S.D.C., E.D.Tex.) against the Company alleging infringement of U.S. Patent No. 6,917,304 (“the ’304 patent”) entitled “Wireless Multiplex Data Transmission System.” Magnacross alleged that the Company’s wireless routers, including its Model 5363, 5360, and 5354 (N300, N600, and AC1900) Routers, infringe the '304 patent. In its complaint, Magnacross sought injunctive relief and unspecified compensatory damages. The case was resolved on February 2, 2017 with the entry by the judge of an Order of Dismissal with Prejudice. (b) Commitments On May 14, 2015, Zoom entered into a License Agreement with Motorola Mobility LLC (the “License Agreement”). The License Agreement provides Zoom with an exclusive license to use certain trademarks owned by Motorola Trademark Holdings, LLC. for the manufacture, sale and marketing of consumer cable modem products in the United States and Canada through certain authorized sales channels. On August 8, 2016, Zoom entered into an amendment to the License Agreement with Motorola Mobility LLC (the “Amendment”). The Amendment expands Zoom’s exclusive license to use the Motorola trademark to a wide range of authorized channels worldwide, and expands the license from cable modems and gateways to also include consumer routers, WiFi range extenders, home powerline network adapters, and access points. The License Agreement, as amended, has a five-year term beginning January 1, 2016 through December 31, 2020. In connection with the License Agreement, the Company has committed to reserve a certain percentage of wholesale prices for use in advertising, merchandising and promotion of the related products. Additionally, the Company is required to make quarterly royalty payments equal to a certain percentage of the preceding quarter’s net sales with minimum annual royalty payments as follows: Year ending December 31, 2017: $3,000,000 2018: $3,500,000 2019: $4,000,000 2020: $4,500,000 Royalty expense under the License Agreement amounted to $250,000 for the first quarter of 2016, $750,000 for the first quarter of 2017, and is included in selling expense on the accompanying condensed consolidated statements of operations. The balance of the committed royalty expense for 2017 amounts to $750,000 for each of the remaining three quarters of 2017. In order to facilitate the Company’s current and planned increase in production demand, driven in part by the launch of Motorola branded products, the Company has committed with North American Production Sharing, Inc. (“NAPS”) to extend its existing lease used in connection with the Production Sharing Agreement (“PSA”) entered into between the Company and NAPS. The extension term is December 1, 2015 through November 30, 2018 and allows the Company to contract additional Mexican personnel to work in the Tijuana facility. The Company moved its headquarters on June 29, 2016 from its long time location at 207 South Street, Boston, MA. to a nearby location at 99 High Street, Boston, MA. The Company signed a lease for 11,480 square feet that terminates on June 29, 2019. Payments under the lease are zero for the first 2 months, an aggregate of $413,280 for the next 12 months, an aggregate of $424,760 for the next 12 months, and an aggregate of $363,533 for the remaining term of the lease ending June 29, 2019. Rent expense amounted to $100,656 for the first quarter of 2017. |
5. Customer Concentrations
5. Customer Concentrations | 3 Months Ended |
Mar. 31, 2017 | |
Notes to Financial Statements | |
Customer Concentrations | The Company sells its products primarily through high-volume retailers and distributors, Internet service providers, value-added resellers, Personal Computer (“PC”) system integrators, and original equipment manufacturers ("OEMs"). The Company supports its major accounts in their efforts to offer a well-chosen selection of attractive products and to maintain appropriate inventory levels. Relatively few customers account for a substantial portion of the Company’s revenues. In the first quarter of 2017, three customers accounted for 91% of the Company’s total net sales, with our largest customer accounting for 44% of our net sales. At March 31, 2017, three customers accounted for 88% of our accounts receivable, with our largest customer representing 53% of our accounts receivable. In the first quarter of 2016, three customers accounted for 73% of our total net sales, with our largest customer accounting for 31% of our net sales. At March 31, 2016, three customers accounted for 79% of our accounts receivable, with our largest customer representing 50% of our accounts receivable. The Company’s customers generally do not enter into long-term agreements obligating them to purchase products. The Company may not continue to receive significant revenues from any of these or from other large customers. A reduction or delay in orders from any of the Company’s significant customers, or a delay or default in payment by any significant customer could materially harm the Company’s business and prospects. Because of the Company’s significant customer concentration, its net sales and operating income could fluctuate significantly due to changes in political or economic conditions, or the loss, reduction of business, or less favorable terms for any of the Company's significant customers. |
6. Bank Credit Lines
6. Bank Credit Lines | 3 Months Ended |
Mar. 31, 2017 | |
Notes to Financial Statements | |
Bank Credit Lines | On December 18, 2012, the Company entered into a Financing Agreement with Rosenthal & Rosenthal, Inc. (the “Financing Agreement”). The Financing Agreement originally provided for up to $1.75 million of revolving credit, subject to a borrowing base formula and other terms and conditions. The Financing Agreement continued until November 30, 2014 with automatic renewals from year to year thereafter, unless sooner terminated by either party. The lender has the right to terminate the Financing Agreement at any time on 60 days’ prior written notice. On March 25, 2014, the Company entered into an amendment to the Financing Agreement (the “Amendment”) with an effective date of January 1, 2013. The Amendment clarified the definition of current assets in the Financing Agreement, reduced the size of the revolving credit line to $1.25 million, and revised the financial covenants so that Zoom is required to maintain tangible net worth of not less than $2.0 million and working capital of not less than $1.75 million. On October 29, 2015, the Company entered into a second amendment to the Financing Agreement (the “Second Amendment”). Retroactive to October 1, 2015, the Second Amendment eliminated $2,500 in monthly charges for the Financing Agreement. Effective December 1, 2015, the Second Amendment reduces the effective rate of interest to 2.25% plus an amount equal to the higher of prime rate or 3.25%. On July 19, 2016, the Company entered into a third amendment to the Financing Agreement. The Amendment increased the size of the revolving credit line to $2.5 million effective as of date of the amendment. On September 1, 2016, the Company entered into a fourth amendment to the Financing Agreement. The Amendment increased the size of the revolving credit line to $3.0 million effective with the date of this amendment. The Company is required to calculate its covenant compliance on a quarterly basis. As of March 31, 2017, the Company was in compliance with both its working capital and tangible net worth covenants. At March 31, 2017, the Company’s tangible net worth was approximately $2.6 million, while the Company’s working capital was approximately $2.5 million. |
1. Summary of Significant Acc12
1. Summary of Significant Accounting Policies (Policies) | 3 Months Ended |
Mar. 31, 2017 | |
Summary Of Significant Accounting Policies Policies | |
Recently Adopted Accounting Standards | In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"). ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The Company adopted ASU 2016-09 as of January 1, 2017 and elected an accounting policy to record forfeitures as they occur. The impact of this change in accounting policy had an insignificant effect on accumulated deficit as of January 1, 2017. ASU 2016-09 also provides that companies no longer record excess tax benefits or certain tax deficiencies in additional paid-in capital. Instead, all excess tax benefits and tax deficiencies are recorded as income tax expense or benefit in the statement of operations. There was no financial statement impact of adopting this provision of ASU 2016-09 as the Company is currently in a net operating loss position and the excess tax benefits that existed from options previously exercised had a full valuation allowance. The effects of adopting the remaining provisions in ASU 2016-09 affecting the classification of awards as either equity or liabilities when an entity partially settles the award in cash in excess of the employer’s minimum statutory withholding requirements and classification in the statement of cash flows did not have a significant impact on the Company’s financial position, results of operations or cash flows. |
Recently Issued Accounting Standards | In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). ASU 2014-09 supersedes the revenue recognition requirements in ASC Topic 605, “Revenue Recognition” and some cost guidance included in ASC Subtopic 605-35, “Revenue Recognition - Construction-Type and Production-Type Contracts.” The core principle of ASU 2014-09 is that revenue is recognized when the transfer of goods or services to customers occurs in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. ASU 2014-09 requires the disclosure of sufficient information to enable readers of the Company’s financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. ASU 2014-09 also requires disclosure of information regarding significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09provides two methods of retrospective application. The first method would require the Company to apply ASU 2014-09 to each prior reporting period presented. The second method would require the Company to retrospectively apply ASU 2014-09 with the cumulative effect recognized at the date of initial application. ASU 2014-09 will be effective for the Company beginning in fiscal 2019 as a result of ASU 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,” which was issued by the FASB in August 2015 and extended the original effective date by one year. The Company is currently evaluating the impact of adopting the available methodologies of ASU 2014-09 and 2015-14 upon its financial statements in future reporting periods. The Company has not yet selected a transition method. The Company is in the process of evaluating the new standard against its existing accounting policies, including the timing of revenue recognition, and its contracts with customers to determine the effect the guidance will have on its financial statements and what changes to systems and controls may be warranted. There have been four new ASUs issued amending certain aspects of ASU 2014-09, ASU 2016-08, “Principal versus Agent Considerations (Reporting Revenue Gross Versus Net),” was issued in March 2016 to clarify certain aspects of the principal versus agent guidance in ASU 2014-09. In addition, ASU 2016-10, “Identifying Performance Obligations and Licensing,” issued in April 2016, amends other sections of ASU 2014-09 including clarifying guidance related to identifying performance obligations and licensing implementation. ASU 2016-12, “Revenue from Contracts with Customers - Narrow Scope Improvements and Practical Expedients” provides amendments and practical expedients to the guidance in ASU 2014-09 in the areas of assessing collectability, presentation of sales taxes received from customers, noncash consideration, contract modification and clarification of using the full retrospective approach to adopt ASU 2014-09. Finally, ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers,” was issued in December 2016, and provides elections regarding the disclosures required for remaining performance obligations in certain cases and also makes other technical corrections and improvements to the standard. With its evaluation of the impact of ASU 2014-09, the Company will also consider the impact on its financial statements related to the updated guidance provided by these four new ASUs. In March 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” ASU 2016-02 requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the balance sheets, a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term (the lease asset). For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments Credit Losses —Measurement of Credit Losses on Financial Instruments." ASU 2016-13 requires a financial asset (or group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. ASU 2016-13 is effective for public business entities that are SEC filers for fiscal years beginning after December 15, 2019,including interim periods within those fiscal years. Early adoption is permitted in any interim or annual period for fiscal years beginning after December 15, 2018. An entity should apply the amendments in ASU 2016-13 through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (modified-retrospective approach). The Company is currently evaluating the potential impact that the adoption of ASU 2016-13 may have on its consolidated financial statements, however, it does not expect it to have a material effect. |
3. Inventories (Tables)
3. Inventories (Tables) | 3 Months Ended |
Mar. 31, 2017 | |
Inventories Tables | |
Inventories | Inventories consist of : March 31, 2017 December 31, 2016 Materials $ 945,829 $ 888,830 Work in process 226,374 27,708 Finished goods 3,508,171 4,010,074 Total $ 4,680,374 $ 4,926,612 |
3. Inventories (Details)
3. Inventories (Details) - USD ($) | Mar. 31, 2017 | Dec. 31, 2016 |
Inventories Details | ||
Raw materials | $ 945,829 | $ 888,830 |
Work in process | 226,374 | 27,708 |
Finished goods | 3,508,171 | 4,010,074 |
Total inventories | $ 4,680,374 | $ 4,926,612 |
3. Inventories (Details Narrati
3. Inventories (Details Narrative) - USD ($) | Mar. 31, 2017 | Dec. 31, 2016 |
Inventories Details | ||
Finished goods held by customer | $ 308,700 | $ 442,300 |
4. Commitments and Contingenc16
4. Commitments and Contingencies (Details Narrative) | Mar. 31, 2017USD ($) |
Future royalty payments for the year ending December 31, | |
2,017 | $ 3,000,000 |
2,018 | 3,500,000 |
2,019 | 4,000,000 |
2,020 | $ 4,500,000 |
5. Customer Concentrations (Det
5. Customer Concentrations (Details Narrative) | 3 Months Ended | |
Mar. 31, 2017 | Mar. 31, 2016 | |
Three Customers Percentage of Sales | ||
Percent concentration | 91.00% | 73.00% |
One Customer Percentage of Sales | ||
Percent concentration | 44.00% | 31.00% |
Three Customers Percentage of Receivables | ||
Percent concentration | 88.00% | 79.00% |
One Customer Percentage of Receivables | ||
Percent concentration | 53.00% | 50.00% |