Document and Entity Information
Document and Entity Information - USD ($) | 12 Months Ended | ||
Dec. 31, 2017 | Mar. 19, 2018 | Jun. 30, 2017 | |
Document And Entity Information | |||
Entity Registrant Name | Zoom Telephonics, Inc. | ||
Entity Central Index Key | 1,467,761 | ||
Document Type | 10-K | ||
Document Period End Date | Dec. 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 Public Float | $ 25,775,434 | ||
Entity Common Stock, Shares Outstanding | 15,874,040 | ||
Document Fiscal Period Focus | FY | ||
Document Fiscal Year Focus | 2,017 |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) | Dec. 31, 2017 | Dec. 31, 2016 |
Current assets | ||
Cash and cash equivalents | $ 229,218 | $ 179,846 |
Accounts receivable, net of allowances of $582,126 and $507,296 at December 31, 2017 and 2016, respectively | 2,229,512 | 2,498,259 |
Inventories, net | 5,202,303 | 4,926,612 |
Prepaid expenses and other current assets | 578,406 | 652,402 |
Total current assets | 8,239,439 | 8,257,119 |
Equipment, net | 161,574 | 175,743 |
Other assets | 391,668 | 588,907 |
Total assets | 8,792,681 | 9,021,769 |
Current liabilities | ||
Bank credit line | 90,260 | 1,306,620 |
Accounts payable | 3,526,851 | 2,502,323 |
Accrued sales tax | 831,000 | 0 |
Accrued other expenses | 1,172,984 | 1,051,616 |
Total current liabilities | 5,621,095 | 4,860,559 |
Commitments and contingencies (Note 6) | ||
Stockholders' equity | ||
Common stock: Authorized: 25,000,000 shares at $0.01 par value Issued and outstanding: 15,286,540 shares and 14,685,290 shares at December 31, 2017 and 2016, respectively | 152,865 | 146,853 |
Additional paid-in capital | 40,265,282 | 39,893,919 |
Accumulated deficit | (37,246,561) | (35,879,562) |
Total stockholders' equity | 3,171,586 | 4,161,210 |
Total liabilities and stockholders' equity | $ 8,792,681 | $ 9,021,769 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) | Dec. 31, 2017 | Dec. 31, 2016 |
Assets | ||
Accounts receivable allowances | $ 582,126 | $ 507,296 |
Stockholders Equity | ||
Common stock, par value | $ 0.01 | $ 0.01 |
Common stock, authorized | 25,000,000 | 25,000,000 |
Common stock, issued | 15,286,540 | 14,685,290 |
Common stock, outstanding | 15,286,540 | 14,685,290 |
CONSOLIDATED STATEMENTS OF OPER
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Income Statement [Abstract] | ||
Net sales | $ 29,417,990 | $ 17,834,237 |
Cost of goods sold | 19,176,612 | 12,467,080 |
Gross profit | 10,241,378 | 5,367,157 |
Operating expenses: | ||
Selling | 7,244,514 | 5,187,849 |
General and administrative | 1,433,499 | 1,541,249 |
Research and development | 1,944,690 | 1,522,510 |
Sales tax expense | 831,000 | 0 |
Total | 11,453,703 | 8,251,608 |
Operating profit (loss) | (1,212,325) | (2,884,451) |
Other: | ||
Interest income | 100 | 254 |
Interest expense | (98,757) | (54,452) |
Other income (expense), net | (41,357) | 12,579 |
Total other income (expense), net | (140,014) | (41,619) |
Income (loss) before income taxes | (1,352,339) | (2,926,070) |
Income taxes | 14,660 | 7,070 |
Net income (loss) | $ (1,366,999) | $ (2,933,140) |
Other comprehensive income (loss): | ||
Basic and diluted net income (loss) per share | $ (0.09) | $ (0.21) |
Weighted average common and common equivalent shares: | ||
Basic and diluted | 14,917,301 | 13,907,957 |
CONSOLIDATED STATEMENTS OF STOC
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($) | Common Stock | Additional Paid In Capital | Accumulated Deficit | Total |
Beginning Balance, Amount at Dec. 31, 2015 | $ 134,778 | $ 37,965,230 | $ (32,946,422) | $ 5,153,586 |
Beginning Balance, Shares at Dec. 31, 2015 | 13,477,803 | 13,477,803 | ||
Net income (loss) | (2,933,140) | $ (2,933,140) | ||
Private placement offering (net of issuance costs, Amount | $ 6,192 | 1,484,726 | 1,490,918 | |
Private placement offering (net of issuance costs, Shares | 619,231 | |||
Stock option exercise | $ 5,883 | 266,005 | 271,888 | |
Stock option exercise, Shares | 588,256 | |||
Stock based compensation | 177,958 | 177,958 | ||
Ending Balance, Amount at Dec. 31, 2016 | $ 146,853 | 39,893,919 | (35,879,562) | $ 4,161,210 |
Ending Balance, Shares at Dec. 31, 2016 | 14,685,290 | 14,685,290 | ||
Net income (loss) | (1,366,999) | $ (1,366,999) | ||
Stock option exercise | $ 6,012 | 175,050 | 181,062 | |
Stock option exercise, Shares | 601,250 | |||
Stock based compensation | 196,313 | 196,313 | ||
Ending Balance, Amount at Dec. 31, 2017 | $ 152,865 | $ 40,265,282 | $ (37,246,561) | $ 3,171,586 |
Ending Balance, Shares at Dec. 31, 2017 | 15,286,540 | 15,286,540 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Operating activities: | ||
Net income (loss) | $ (1,366,999) | $ (2,933,140) |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||
Stock based compensation | 196,313 | 177,958 |
Depreciation and amortization | 500,078 | 544,694 |
Provision (recovery) for accounts receivable allowances | (677) | 7,887 |
Provision for inventory reserves | 200,357 | 32,051 |
Changes in operating assets and liabilities: | ||
Accounts receivable | 269,424 | (1,427,001) |
Inventories | (476,048) | (2,174,053) |
Prepaid expense and other current assets | 35,116 | (271,197) |
Accounts payable and accrued expenses | 1,976,896 | 1,837,680 |
Net cash provided by (used in) operating activities | 1,334,460 | (4,205,121) |
Investing activities: | ||
Purchases of plant and equipment | (99,790) | (58,163) |
Other assets | (150,000) | (473,000) |
Net cash provided by (used in) investing activities | (249,790) | (531,163) |
Financing activities: | ||
Proceeds from stock option exercise | 181,062 | 271,888 |
Proceeds from private placement offering | 0 | 1,529,501 |
Issuance costs of private placement offering | 0 | (38,583) |
Net (payments to) proceeds from bank credit lines | (1,216,360) | 1,306,620 |
Net cash provided by (used in) financing activities | (1,035,298) | 3,069,426 |
Net change in cash | 49,372 | (1,666,858) |
Cash and cash equivalents at beginning of year | 179,846 | 1,846,704 |
Cash and cash equivalents at end of year | 229,218 | 179,846 |
Cash paid during the period for: | ||
Cash paid during the period for: Interest | 98,757 | 54,452 |
Cash paid during the period for: Income taxes | $ 14,660 | $ 7,070 |
1. NATURE OF OPERATIONS
1. NATURE OF OPERATIONS | 12 Months Ended |
Dec. 31, 2017 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
NATURE OF OPERATIONS | Zoom Telephonics, Inc. and its wholly owned subsidiary MTRLC LLC (collectively the "Company"), designs, produces, markets and supports cable modems and other communication products. |
2. SUMMARY OF SIGNIFICANT ACCOU
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 12 Months Ended |
Dec. 31, 2017 | |
Notes to Financial Statements | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | (a) Basis of Presentation and Use of Estimates The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). All significant intercompany balances and transactions have been eliminated in the consolidation. The preparation of consolidated financial statements in conformity with U.S. 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 consolidated 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; 3) stock based compensation; 4) management’s assessment of going concern; 5) and estimated life of certification costs. (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 can be in excess of the insured limits. However, the Company believes that the institutions are financially sound and there is only nominal risk of loss. (c) Inventories Inventories are stated at the lower of cost, determined using the first-in, first-out method, or net realizable value. 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 $958,500 and $442,300 at December 31, 2017 and 2016, respectively. (d) Equipment Equipment is stated at cost, less accumulated depreciation. Depreciation of equipment is provided using the straight-line method over the estimated useful lives of the 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. (f) Other Assets Other assets are stated at cost, less accumulated amortization. Certain certification costs incurred that are necessary to market and sell products are capitalized and reported as “other assets” in the accompanying consolidated balance sheets when the costs are measurable, significant, and relating to products that are projected to generate revenue beyond twelve months. These costs are amortized over an eighteen-month period, beginning when the related products are available to be sold. Total certification costs capitalized during the year ended December 31, 2017 were $150,000, with related amortization expense of $386,119 in 2017. Total certification costs capitalized during the year ended December 31, 2016 were $473,000, with related amortization expense of $457,142 in 2016. (g) 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. (h) Sales Tax The Company recorded a sales tax accrual in 2017 after the Company became aware that a state sales tax liability was both probable and estimable as of December 31, 2017. The state sales tax liability stems from the Company’s ‘Fulfilled By Amazon’ sales agreement which allows Amazon to warehouse the Company’s inventory throughout a number of states. As a result, the Company recorded an expense of $831 thousand in Q4 2017. (i) Earnings (Loss) Per Common Share Basic earnings (loss) per share is calculated by dividing net income (loss) attributable to common stockholders by the weighted-average number of common shares, except for periods with a loss from operations. Diluted earnings (loss) per share reflects additional common shares that would have been outstanding if dilutive potential shares of common stock had been issued. Potential shares of common stock that may be issued by the Company include shares of common stock that may be issued upon exercise of outstanding stock options. 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 shares of common stock at the average market price during the period. Diluted earnings (loss) per common share for the years ended December 31, 2017 and 2016 exclude the effects of 1,268,295 and 1,821,784 common share equivalents, respectively, since such inclusion would be anti-dilutive. The common share equivlents consist of common shares issuable upon exercise of outstanding stock options. (j) 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 does not sell software. The Company derives its net sales primarily from the sales of hardware products to computer peripherals retailers, computer product distributors, OEMs, and direct to consumers and other channel partners via the Internet. The Company accounts for point-of-sale taxes on a net basis. The Company recognizes net hardware sales at the point when the customers take legal ownership of the delivered products. Legal ownership passes to the customer based on the contractual delivery terms specified in signed contracts and purchase orders, which are both used extensively. Many customer contracts or purchase orders specify FOB destination, which means buyer takes delivery of goods once the goods arrive at the buyers dock. When the Company consigns inventory to a retailer, sales revenue for an item in that inventory is recognized when that item is sold by the retailer to a customer. The item remains in the Company’s inventory when it is consigned, and moves out of Company inventory when the item is sold by the retailer. The Company's net sales of hardware are reduced by certain events that 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. These are 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. Product return reserves were approximately $439.2 thousand and $343.3 thousand at December 31, 2017 and 2016, respectively. 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. Price protection reserves were negligible at both December 31, 2017 and at December 31, 2016. 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. Rebate reserves were negligible at December 31, 2017 and approximately $38.4 thousand at December 31, 2016. Additionally, sales and marketing incentive reserves were approximately $127.8 thousand and $109.7 thousand at December 31, 2017 and 2016, respectively. The Company’s allowances for doubtful accounts were approximately $15.1 thousand and $16.0 thousand at December 31, 2017 and 2016, respectively. These allowances are included in allowances for accounts receivable on the accompanying consolidated balance sheets. (k) 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 ● Level 2 ● Level 3 Financial instruments consist of cash and cash equivalents, accounts receivable, bank debt, and accounts payable. Due to the short-term nature and payment terms associated with these instruments, their carrying amounts approximate fair value. (l) 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 wherein the discount rate is based on published daily treasury interest rates for zero-coupon bonds available from the US Treasury. Volatility is based on the historical volatility over a period that is commensurate with the expected life of the option granted. (m) Advertising Costs Advertising costs are expensed as incurred and reported in selling expense in the accompanying consolidated statements of operations, and include costs of advertising, production, trade shows, and other activities designed to enhance demand for the Company's products. The Company reported advertising costs of approximately $2.23 million in 2017 and $1.34 million in 2016. (n) 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 for hedging purposes. (o) 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 $27,789 and $23,310 at December 31, 2017 and 2016, respectively. (p) 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 $563.1 thousand in 2017 and $396.3 thousand in 2016. (q) Recently Issued Accounting Standards In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 May 2014 the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers,” which supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition,” and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14, which defers by one year the effective date of ASU 2014-09. Accordingly, this guidance is effective for interim and annual periods beginning after December 15, 2017 with early adoption permitted for interim and annual periods beginning after December 15, 2016. In March 2016, the FASB issued ASU 2016-08, “Principal versus Agent Considerations (Reporting Revenue Gross versus Net),” which finalizes its amendments to the guidance in the new revenue standard on assessing whether an entity is a principal or an agent in a revenue transaction. This conclusion impacts whether an entity reports revenue on a gross or net basis. In April 2016, the FASB issued ASU 2016-10, “Identifying Performance Obligations and Licensing,” which finalizes its amendments to the guidance in the new revenue standard regarding the identification of performance obligations and accounting for the license of intellectual property. In May 2016, the FASB issued ASU 2016-12, “Narrow-Scope Improvements and Practical Expedients,” which finalizes its amendments to the guidance in the new revenue standard on collectability, noncash consideration, presentation of sales tax, and transition. In December 2016, the FASB issued ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers,” which continues the FASB's ongoing project to issue technical corrections and improvements to clarify the codification or correct unintended applications of guidance. The amendments are intended to make the guidance more operable and lead to more consistent application. The amendments have the same effective date and transition requirements as the new revenue recognition standard. In September 2017, the FASB Issued ASU 2017-13, “Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842),” which provides additional implementation guidance on the previously issued ASU 2014-09. Overall, ASU No. 2014-09, as amended, provides for either full retrospective adoption or a modified retrospective adoption by which it is applied only to the most current period presented. The Company will use the modified retrospective method to adopt the provisions of this standard effective January 1, 2018, which requires us to apply the new revenue standard to (i) all new revenue contracts entered into after January 1, 2018 and (ii) all existing revenue contracts as of January 1, 2018 through a cumulative adjustment to retained earnings. In accordance with this approach, our consolidated revenues for the periods prior to January 1, 2018 will not be revised. The Company does not expect to record a significant cumulative effect adjustment to its beginning retained earnings as a result of adoption of Topic 606. 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. LIQUIDITY
3. LIQUIDITY | 12 Months Ended |
Dec. 31, 2017 | |
Notes to Financial Statements | |
LIQUIDITY | Zoom’s cash balance on December 31, 2017 was $229 thousand compared to $180 thousand on December 31, 2016. Reductions in cash due were the FY 2017 loss of $1.4 million, paydown in debt by $1.2 million, and increase in inventory of $0.3 million. Sources of cash were increased accounts payable and accrued liabilities of $2.8 million and decrease in accounts receivable of $0.3 million. On December 31, 2017, Zoom had $90 thousand in bank debt outstanding on a $3.0 million line of credit, working capital of $2.6 million, and a current ratio of 1.7. Loan availiablity is based on eligible receivables and approximately $2.5 million was available to be borrowed as of December 31, 2017. Although the Company has experienced losses in the past 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 reduction in net loss, 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. The Financing Agreement has a maturity date of November 2018, and automatically renews unless cancelled under terms of agreement. |
4. INVENTORIES
4. INVENTORIES | 12 Months Ended |
Dec. 31, 2017 | |
Notes to Financial Statements | |
INVENTORIES | Inventories, net of reserves, consist of the following at December 31: 2017 2016 Materials $ 1,524,728 $ 888,830 Work in process 1,149 27,708 Finished goods 3,676,426 4,010,074 Total $ 5,202,303 $ 4,926,612 Finished goods includes consigned inventory held by our customers of $958,500 and $442,300 at December 31, 2017 and 2016, respectively. 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 $200,357 and $32,051 for the years ended December 31, 2017 and 2016, respectively. |
5. EQUIPMENT
5. EQUIPMENT | 12 Months Ended |
Dec. 31, 2017 | |
Property, Plant and Equipment [Abstract] | |
EQUIPMENT | Equipment consists of the following at December 31: 2017 2016 Estimated Useful lives in years Computer hardware and software $ 233,705 $ 222,660 3 Machinery and equipment 280,061 274,833 5 Molds, tools and dies 362,791 279,274 5 Office furniture and fixtures 40,001 40,001 5 916,558 816,768 Accumulated depreciation (754,984 ) (641,025 ) Equipment, net $ 161,574 $ 175,743 Depreciation expense for the year ended $ 113,959 $ 87,551 |
6. COMMITMENTS AND CONTINGENCIE
6. COMMITMENTS AND CONTINGENCIES | 12 Months Ended |
Dec. 31, 2017 | |
Notes to Financial Statements | |
COMMITMENTS AND CONTINGENCIES | (a) Lease Obligations In June 2016 the Company signed a three year sub-lease agreement for 11,480 square feet on the 28th floor of 99 High Street, Boston, MA 02110, The lease for this facility expires on June 30, 2019. The Company performs most of the final assembly, testing, packaging, warehousing and distribution at a production and warehouse facility in Tijuana, Mexico. In November 2014, the Company signed a one-year lease with five one-year renewal options thereafter for an 11,390 square foot facility. In September 2015, the Company extended the term of the lease from December 1, 2015 through November 30, 2018. In September 2015, the Company also signed a new lease for additional space in the adjacent building, which doubles our existing capacity. The term of the lease is from March 1, 2016 through November 30, 2018 with early access granted as of December 1, 2015. 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 Mexico personnel to work in the Tijuana facility. Rent expense for all of the Company's leases was $512.4 thousand in 2017 and $500.0 thousand in 2016. As of December 31, 2017, the Company's estimated future minimum committed rental payments, excluding executory costs, under the operating leases described above to their expiration or the earliest possible termination date, whichever is sooner, are $526.3 thousand for 2018, and $218.1 thousand for 2019. There are no future minimum committed rental payments that extend beyond 2019. (b) Contingencies 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 which it believes are without merit. 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 least 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 the loss cannot be made. The Company expenses its legal fees as incurred. 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. (c) Commitments In May 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. In August 2016 Zoom entered into an amendment to the License Agreement with Motorola Mobility LLC (the “2016 Amendment”). The 2016 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. In August 2017 Zoom entered into an amendment to the License Agreement with Motorola Mobility LLC (the “2017 Amendment”). The 2017 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, gateways, consumer routers, WiFi range extenders, home powerline network adapters, and access points to also include MoCa adapters, and cellular sensors. The License Agreement, as amended, has a five-year term beginning January 1, 2016 through December 31, 2020 and increased the minimum royalty payments as outlined below. 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, 2018 $3,500,000 2019: $4,500,000 2020: $5,100,000 Royalty expense under the License Agreement amounted to $3,000,000 for 2017 and $2,000,000 for 2016, and is included in selling expense on the accompanying consolidated statements of operations. |
7. STOCK OPTION PLANS
7. STOCK OPTION PLANS | 12 Months Ended |
Dec. 31, 2017 | |
Notes to Financial Statements | |
STOCK OPTION PLANS | 2009 Stock Option Plan On December 10, 2009, the Company established the 2009 Stock Option Plan Number of shares Weighted average exercise price Balance as of January 1, 2016 2,536,500 $ 0.38 Granted 120,000 1.91 Exercised (573,256 ) 0.46 Expired (162,500 ) 1.89 Balance as of December 31, 2016 1,920,744 0.32 Granted 110,000 1.98 Exercised (571,250 ) 0.30 Expired --- --- Balance as of December 31, 2017 1, 459,494 $ 0.45 The weighted average grant date fair value of options granted was $1.16 in 2017. The weighted average grant date fair value of options granted was $1.10 in 2016. The aggregate intrinsic value of options outstanding was approximately $2.6 million at December 31, 2017 and approximately $3.9 million at December 31, 2016. The aggregate intrinsic value of exercisable options was approximately $2.5 million at December 31, 2017 and $3.3 million at December 31, 2016. As of December 31, 2017 there remained 2,639,500 shares available to be issued under the Option Plan. The following table summarizes information about fixed stock options under the 2009 Stock Option Plan Options Outstanding Options Exercisable Exercise Prices Number Outstanding Weighted Average Remaining Contractual Life Weighted Average Exercise Price Number Exercisable Weighted Average Exercise Price $ 0.18 to 0.25 1,255,500 1.24 $ 0.25 1,255,500 $ 0.25 $ 0.90 to 1.69 73,994 2.68 $ 1.14 63,994 $ 1.05 $ 1.94 to 2.39 130,000 4.32 $ 2.04 28,750 $ 2.17 $ 0.18 to 2.39 1,459,494 1.59 $ 0.45 1,348,244 $ 0.33 2009 Director Stock Option Plan On December 10, 2009 the Company established the 2009 Director Stock Option Plan Number of shares Weighted average exercise price Balance as of January 1, 2016 225,000 $ 0.51 Granted 60,000 2.45 Exercised (15,000 ) 0.36 Expired --- --- Balance as of December 31, 2016 270,000 0. 95 Granted 90,000 2.07 Exercised (30,000 ) 0.26 Balance as of December 31, 2017 330,000 $ 1.32 The weighted average grant date fair value of options granted was $1.12 in 2017 and $1.39 in 2016. The aggregate intrinsic value of options outstanding was approximately $0.3 million at December 31, 2017 and $0.4 million at December 31, 2016. The aggregate intrinsic value of exercisable options was approximately $0.3 million at December 31, 2017 and $0.4 million at December 31, 2016. As of December 31, 2017 there remained 295,000 shares available to be issued under the Directors Plan. The following table summarizes information about fixed stock options under the Directors Plan on December 31, 2017. Options Outstanding Options Exercisable Exercise Prices Number Outstanding Weighted Average Remaining Contractual Life Weighted Average Exercise Price Number Exercisable Weighted Average Exercise Price $ 0.12-0.20 97,500 1.1 $ 0.16 97,500 $ 0.16 $ 0.84-1.20 82,500 2.8 $ 1.05 82,500 $ 1.05 $ 2.00-2.85 150,000 3.9 $ 2.22 150,000 $ 2.22 $ 0.12-2.85 330,000 2.80 $ 1.32 330,000 $ 1.32 The Black-Scholes range of assumptions for the Option Plan and the Directors Plan are shown below: 2017 2016 Assumptions: Expected life 2.75 (yrs) - 3.5 (yrs) 2.75 (yrs) - 3.5 (yrs) Expected volatility 74.67% - 95.30% 85.75% - 91.54% Risk-free interest rate 1.44% - 1.92% 0.68% - 1.19% Expected dividend yield 0.00% 0.00% The unrecognized stock based compensation expense related to non-vested stock awards was approximately $56 thousand as of December 31, 2017. This amount will be recognized through the fourth quarter of 2019. |
8. INCOME TAXES
8. INCOME TAXES | 12 Months Ended |
Dec. 31, 2017 | |
Income Tax Disclosure [Abstract] | |
INCOME TAXES | Income tax expense consists of: Current Deferred Total Year Ended December 31, 2016: U.S. federal $ –– $ –– $ –– State and local –– –– –– Foreign 7,070 –– 7,070 $ 7,070 $ –– $ 7,070 Year Ended December 31, 2017: U.S. federal $ –– $ –– $ –– State and local –– –– –– Foreign 14,660 –– 14,660 $ 14,660 $ –– $ 14,660 A reconciliation of the expected income tax expense or benefit to actual follows: 2016 2017 Computed "expected" US tax (benefit) at Federal statutory rate $ (997,268 ) $ (287,070 ) Change resulting from: State and local income taxes, net of federal income tax benefit (185,083 ) (101,924 ) Valuation allowance 1,219,633 (6,663,556 ) Non––deductible items (162,068 ) (94,344 ) Expired Federal capital loss 127,855 –– Federal rate change –– 7,160,556 State net operating loss true up and rate change 4,001 998 Income tax expense $ 7,070 $ 14,660 Temporary differences at December 31 follow: 2016 2017 Deferred income tax assets: Inventories $ 116,776 $ 135,077 Accounts receivable 141,587 128,817 Accrued expenses 83,227 272,008 Net operating loss and tax credit carry forwards 19,562,969 12,714,278 Plant and equipment 535 8,389 Stock compensation 128,524 111,493 Other – investment impairments –– –– Total deferred income tax assets 20,033,618 13,370,062 Valuation allowance (20,033,618 ) (13,370,062 ) Net deferred tax assets $ –– $ –– On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”) that significantly revised the U.S. tax code effective January 1, 2018 by, among other things, lowering the corporate income tax rate from a top marginal rate of 35% to a flat 21%. We have recorded a tax provision of $7,160,556 due to a re-measurement of deferred tax assets and liabilities for tax rate changes due to the Tax Act, which was fully offset by a valuation allowance. As of December 31, 2017 the Company had federal net operating loss carry forwards of approximately $54,595,000 which are available to offset future taxable income. They are due to expire in varying amounts from 2018 to 2037. As of December 31, 2017, the Company had state net operating loss carry forwards of approximately $8,879,000 which are available to offset future taxable income. They are due to expire in varying amounts from 2031 through 2037. A valuation allowance has been established for the full amount of deferred income tax assets as management has concluded that it is more-likely than-not that the benefits from such assets will not be realized. The Company reviews annually the guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the financial statements. Tax positions must meet a "more-likely-than-not" recognition threshold. At December 31, 2017 and 2016, the Company did not have any uncertain tax positions. No interest and penalties related to uncertain tax positions were accrued at December 31, 2017 and 2016. The Company files income tax returns in the United States and Mexico. Tax years subsequent to 2012 remain subject to examination for both US federal and state tax reporting purposes. Tax years subsequent to 2010 remain subject to examination for Mexico tax reporting purposes. The foreign income tax reported represents tax on operations for the Company that is located in a special economic zone in Mexico. Other than the Mexico facility, the Company has no operations in a foreign location. |
9. SIGNIFICANT CUSTOMERS
9. SIGNIFICANT CUSTOMERS | 12 Months Ended |
Dec. 31, 2017 | |
Risks and Uncertainties [Abstract] | |
SIGNIFICANT CUSTOMERS | The Company sells its products primarily through high-volume distributors and retailers, internet service providers, telephone service providers, value-added resellers, PC system integrators, and OEMs. The Company supports its major accounts in their efforts to discern strategic directions in the market, to maintain appropriate inventory levels, and to offer a balanced selection of attractive products. Few customers account for a substantial portion of the Company’s revenues. In 2017, two customers accounted for 10% or greater individually and 40% in the aggregate of the Company’s total net sales. At December 31, 2017, two customers with an accounts receivable balance of 10% or greater individually accounted for a combined 71% of the Company’s accounts receivable. In 2016, two customers accounted for 10% or greater individually and 53% in the aggregate of the Company’s total net sales. At December 31, 2016 three customers with an accounts receivable balance of 10% or greater individually accounted for a combined 86% of the Company’s accounts receivable. Additionally, revenues from sales fulfilled by Amazon accounted for 51% and 29% of our total sales for the years ended December 31, 2017 and 2016, respectively, and represented 13% and 5% of the Company’s total accounts receivable balance at December 31, 2017 and 2016, respectively. |
10. SEGMENT AND GEOGRAPHIC INFO
10. SEGMENT AND GEOGRAPHIC INFORMATION | 12 Months Ended |
Dec. 31, 2017 | |
Notes to Financial Statements | |
SEGMENT AND GEOGRAPHIC INFORMATION | The Company's operations are classified as one reportable segment. Substantially all of the Company's operations and long-lived assets reside primarily in the North America. Net sales information follows: 2016 Percent 2017 Percent North America $ 17,632,535 99 % $ 29,006,661 99 % Outside North America 201,702 1 % 411,329 1 % Total $ 17,834,237 100 % $ 29,417,990 100 % |
11. DEPENDENCE ON KEY SUPPLIERS
11. DEPENDENCE ON KEY SUPPLIERS | 12 Months Ended |
Dec. 31, 2017 | |
Notes to Financial Statements | |
DEPENDENCE ON KEY SUPPLIERS | The Company participates in the PC peripherals industry, which is characterized by aggressive pricing practices, continually changing customer demand patterns and rapid technological developments. The Company's operating results could be adversely affected should the Company be unable to successfully anticipate customer demand accurately; manage its product transitions, inventory levels and manufacturing process efficiently; distribute its products quickly in response to customer demand; differentiate its products from those of its competitors or compete successfully in the markets for its new products. The Company depends on many third-party suppliers for key components contained in its product offerings. For some of these components, the Company may only use a single source supplier, in part due to the lack of alternative sources of supply. In 2017, the Company had one supplier that provided 97% of the Company's purchased inventory. In 2016, the Company had one supplier that provided 92% of the Company's purchased inventory. |
12. RETIREMENT PLAN
12. RETIREMENT PLAN | 12 Months Ended |
Dec. 31, 2017 | |
Retirement Benefits [Abstract] | |
RETIREMENT PLAN | The Company has a 401(k) retirement savings plan for employees. Under the plan, the Company matches 25% of an employee's contribution, up to a maximum of $350 per employee per year. Company matching contributions charged to expense in 2016 and 2017 were $6,705 and $6,352, respectively. |
13. BANK CREDIT LINE
13. BANK CREDIT LINE | 12 Months Ended |
Dec. 31, 2017 | |
Notes to Financial Statements | |
BANK CREDIT LINE | On December 18, 2012, the Company entered into a Financing Agreement with Rosenthal & Rosenthal, Inc. (the “Financing Agreement”). The Financing Agreement provided for up to $1.75 million of revolving credit, subject to a borrowing base formula and other terms and conditions as specified in the Financing Agreement. The Financing Agreement continued until November 30, 2014 and automatically renews from year to year thereafter, unless sooner terminated by either party as specified in the Financing Agreement. The Lender shall have the right to terminate the Financing Agreement at any time by giving the Company sixty 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 December 31, 2017, the Company was in compliance with both its working capital and tangible net worth covenants. At December 31, 2017, the Company’s tangible net worth was approximately $2.8 million, while the Company’s working capital was approximately $2.6 million. Loan availiablity is based on certain eligible receivables. Approximately $2.5 million was available to be borrowed as of December 31, 2017. |
14. STOCKHOLDERS EQUITY
14. STOCKHOLDERS EQUITY | 12 Months Ended |
Dec. 31, 2017 | |
Stockholders' Equity Note [Abstract] | |
STOCKHOLDERS EQUITY | The Company raised approximately $1.5 million from a private placement in October 2016 and incurred issuance costs of approximately $39 thousand resulting in net proceeds of approximately $1.5 million. |
15. SUBSEQUENT EVENTS
15. SUBSEQUENT EVENTS | 12 Months Ended |
Dec. 31, 2017 | |
Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | Management of the Company has reviewed subsequent events from December 31, 2017 through the date of filing and has concluded that there were no subsequent events requiring adjustment to or disclosure in these consolidated financial statements. |
2. SUMMARY OF SIGNIFICANT ACC22
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 12 Months Ended |
Dec. 31, 2017 | |
Summary Of Significant Accounting Policies Policies | |
Basis of Presentation and Use of Estimates | The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). All significant intercompany balances and transactions have been eliminated in the consolidation. The preparation of consolidated financial statements in conformity with U.S. 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 consolidated 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; 3) stock based compensation; 4) management’s assessment of going concern; 5) and estimated life of certification costs. |
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 can be 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 | Inventories are stated at the lower of cost, determined using the first-in, first-out method, or net realizable value. 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 $958,500 and $442,300 at December 31, 2017 and 2016, respectively. |
Equipment | Equipment is stated at cost, less accumulated depreciation. Depreciation of equipment is provided using the straight-line method over the estimated useful lives of the assets. |
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. |
Other Assets | Other assets are stated at cost, less accumulated amortization. Certain certification costs incurred that are necessary to market and sell products are capitalized and reported as “other assets” in the accompanying consolidated balance sheets when the costs are measurable, significant, and relating to products that are projected to generate revenue beyond twelve months. These costs are amortized over an eighteen-month period, beginning when the related products are available to be sold. Total certification costs capitalized during the year ended December 31, 2017 were $150,000, with related amortization expense of $386,119 in 2017. Total certification costs capitalized during the year ended December 31, 2016 were $473,000, with related amortization expense of $457,142 in 2016. |
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. |
Sales Tax | The Company recorded a sales tax accrual in 2017 after the Company became aware that a state sales tax liability was both probable and estimable as of December 31, 2017. The state sales tax liability stems from the Company’s ‘Fulfilled By Amazon’ sales agreement which allows Amazon to warehouse the Company’s inventory throughout a number of states. As a result, the Company recorded an expense of $831 thousand in Q4 2017. |
Earnings (Loss) Per Common Share | Basic earnings (loss) per share is calculated by dividing net income (loss) attributable to common stockholders by the weighted-average number of common shares, except for periods with a loss from operations. Diluted earnings (loss) per share reflects additional common shares that would have been outstanding if dilutive potential shares of common stock had been issued. Potential shares of common stock that may be issued by the Company include shares of common stock that may be issued upon exercise of outstanding stock options. 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 shares of common stock at the average market price during the period. Diluted earnings (loss) per common share for the years ended December 31, 2017 and 2016 exclude the effects of 1,268,295 and 1,821,784 common share equivalents, respectively, since such inclusion would be anti-dilutive. The common share equivlents consist of common shares issuable upon exercise of outstanding stock options. |
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 does not sell software. The Company derives its net sales primarily from the sales of hardware products to computer peripherals retailers, computer product distributors, OEMs, and direct to consumers and other channel partners via the Internet. The Company accounts for point-of-sale taxes on a net basis. The Company recognizes net hardware sales at the point when the customers take legal ownership of the delivered products. Legal ownership passes to the customer based on the contractual delivery terms specified in signed contracts and purchase orders, which are both used extensively. Many customer contracts or purchase orders specify FOB destination, which means buyer takes delivery of goods once the goods arrive at the buyers dock. When the Company consigns inventory to a retailer, sales revenue for an item in that inventory is recognized when that item is sold by the retailer to a customer. The item remains in the Company’s inventory when it is consigned, and moves out of Company inventory when the item is sold by the retailer. The Company's net sales of hardware are reduced by certain events that 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. These are 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. Product return reserves were approximately $439.2 thousand and $343.3 thousand at December 31, 2017 and 2016, respectively. 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. Price protection reserves were negligible at both December 31, 2017 and at December 31, 2016. 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. Rebate reserves were negligible at December 31, 2017 and approximately $38.4 thousand at December 31, 2016. Additionally, sales and marketing incentive reserves were approximately $127.8 thousand and $109.7 thousand at December 31, 2017 and 2016, respectively. The Company’s allowances for doubtful accounts were approximately $15.1 thousand and $16.0 thousand at December 31, 2017 and 2016, respectively. These allowances are included in allowances for accounts receivable on the accompanying consolidated balance sheets. |
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 ● Level 2 ● Level 3 Financial instruments consist of cash and cash equivalents, accounts receivable, bank debt, and accounts payable. Due to the short-term nature and payment terms associated with these instruments, their carrying amounts approximate fair value. |
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 wherein the discount rate is based on published daily treasury interest rates for zero-coupon bonds available from the US Treasury. Volatility is based on the historical volatility over a period that is commensurate with the expected life of the option granted. |
Advertising Costs | Advertising costs are expensed as incurred and reported in selling expense in the accompanying consolidated statements of operations, and include costs of advertising, production, trade shows, and other activities designed to enhance demand for the Company's products. The Company reported advertising costs of approximately $2.23 million in 2017 and $1.34 million in 2016. |
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 for hedging purposes. |
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 $27,789 and $23,310 at December 31, 2017 and 2016, respectively. |
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 $563.1 thousand in 2017 and $396.3 thousand in 2016. |
Recently Issued Accounting Pronouncements | In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 May 2014 the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers,” which supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition,” and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14, which defers by one year the effective date of ASU 2014-09. Accordingly, this guidance is effective for interim and annual periods beginning after December 15, 2017 with early adoption permitted for interim and annual periods beginning after December 15, 2016. In March 2016, the FASB issued ASU 2016-08, “Principal versus Agent Considerations (Reporting Revenue Gross versus Net),” which finalizes its amendments to the guidance in the new revenue standard on assessing whether an entity is a principal or an agent in a revenue transaction. This conclusion impacts whether an entity reports revenue on a gross or net basis. In April 2016, the FASB issued ASU 2016-10, “Identifying Performance Obligations and Licensing,” which finalizes its amendments to the guidance in the new revenue standard regarding the identification of performance obligations and accounting for the license of intellectual property. In May 2016, the FASB issued ASU 2016-12, “Narrow-Scope Improvements and Practical Expedients,” which finalizes its amendments to the guidance in the new revenue standard on collectability, noncash consideration, presentation of sales tax, and transition. In December 2016, the FASB issued ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers,” which continues the FASB's ongoing project to issue technical corrections and improvements to clarify the codification or correct unintended applications of guidance. The amendments are intended to make the guidance more operable and lead to more consistent application. The amendments have the same effective date and transition requirements as the new revenue recognition standard. In September 2017, the FASB Issued ASU 2017-13, “Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842),” which provides additional implementation guidance on the previously issued ASU 2014-09. Overall, ASU No. 2014-09, as amended, provides for either full retrospective adoption or a modified retrospective adoption by which it is applied only to the most current period presented. The Company will use the modified retrospective method to adopt the provisions of this standard effective January 1, 2018, which requires us to apply the new revenue standard to (i) all new revenue contracts entered into after January 1, 2018 and (ii) all existing revenue contracts as of January 1, 2018 through a cumulative adjustment to retained earnings. In accordance with this approach, our consolidated revenues for the periods prior to January 1, 2018 will not be revised. The Company does not expect to record a significant cumulative effect adjustment to its beginning retained earnings as a result of adoption of Topic 606. 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. |
4. INVENTORIES (Tables)
4. INVENTORIES (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Inventories Tables | |
Inventories | 2017 2016 Materials $ 1,524,728 $ 888,830 Work in process 1,149 27,708 Finished goods 3,676,426 4,010,074 Total $ 5,202,303 $ 4,926,612 |
5. EQUIPMENT (Tables)
5. EQUIPMENT (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Property, Plant and Equipment [Abstract] | |
Equipment | 2017 2016 Estimated Useful lives in years Computer hardware and software $ 233,705 $ 222,660 3 Machinery and equipment 280,061 274,833 5 Molds, tools and dies 362,791 279,274 5 Office furniture and fixtures 40,001 40,001 5 916,558 816,768 Accumulated depreciation (754,984 ) (641,025 ) Equipment, net $ 161,574 $ 175,743 Depreciation expense for the year ended $ 113,959 $ 87,551 |
6. COMMITMENTS AND CONTINGENC25
6. COMMITMENTS AND CONTINGENCIES (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Commitments and Contingencies Disclosure [Abstract] | |
Contractual Obligation Fiscal Year Maturity Schedule Table | 2018 $3,500,000 2019: $4,500,000 2020: $5,100,000 |
7. STOCK OPTION PLANS (Tables)
7. STOCK OPTION PLANS (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Fair value assumptions | 2017 2016 Assumptions: Expected life 2.75 (yrs) - 3.5 (yrs) 2.75 (yrs) - 3.5 (yrs) Expected volatility 74.67% - 95.30% 85.75% - 91.54% Risk-free interest rate 1.44% - 1.92% 0.68% - 1.19% Expected dividend yield 0.00% 0.00% |
2009 Stock Option Plan | |
Plan Activity | Number of shares Weighted average exercise price Balance as of January 1, 2016 2,536,500 $ 0.38 Granted 120,000 1.91 Exercised (573,256 ) 0.46 Expired (162,500 ) 1.89 Balance as of December 31, 2016 1,920,744 0.32 Granted 110,000 1.98 Exercised (571,250 ) 0.30 Expired --- --- Balance as of December 31, 2017 1, 459,494 $ 0.45 |
Schedule stock options under the Plan | Options Outstanding Options Exercisable Exercise Prices Number Outstanding Weighted Average Remaining Contractual Life Weighted Average Exercise Price Number Exercisable Weighted Average Exercise Price $ 0.18 to 0.25 1,255,500 1.24 $ 0.25 1,255,500 $ 0.25 $ 0.90 to 1.69 73,994 2.68 $ 1.14 63,994 $ 1.05 $ 1.94 to 2.39 130,000 4.32 $ 2.04 28,750 $ 2.17 $ 0.18 to 2.39 1,459,494 1.59 $ 0.45 1,348,244 $ 0.33 |
Directors Plan | |
Plan Activity | Number of shares Weighted average exercise price Balance as of January 1, 2016 225,000 $ 0.51 Granted 60,000 2.45 Exercised (15,000 ) 0.36 Expired --- --- Balance as of December 31, 2016 270,000 0. 95 Granted 90,000 2.07 Exercised (30,000 ) 0.26 Balance as of December 31, 2017 330,000 $ 1.32 |
Schedule stock options under the Plan | Options Outstanding Options Exercisable Exercise Prices Number Outstanding Weighted Average Remaining Contractual Life Weighted Average Exercise Price Number Exercisable Weighted Average Exercise Price $ 0.12-0.20 97,500 1.1 $ 0.16 97,500 $ 0.16 $ 0.84-1.20 82,500 2.8 $ 1.05 82,500 $ 1.05 $ 2.00-2.85 150,000 3.9 $ 2.22 150,000 $ 2.22 $ 0.12-2.85 330,000 2.80 $ 1.32 330,000 $ 1.32 |
8. INCOME TAXES (Tables)
8. INCOME TAXES (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Income Tax Disclosure [Abstract] | |
Schedule of income taxes | Current Deferred Total Year Ended December 31, 2016: U.S. federal $ –– $ –– $ –– State and local –– –– –– Foreign 7,070 –– 7,070 $ 7,070 $ –– $ 7,070 Year Ended December 31, 2017: U.S. federal $ –– $ –– $ –– State and local –– –– –– Foreign 14,660 –– 14,660 $ 14,660 $ –– $ 14,660 |
Schedule of income tax reconciliation | 2016 2017 Computed "expected" US tax (benefit) at Federal statutory rate $ (997,268 ) $ (287,070 ) Change resulting from: State and local income taxes, net of federal income tax benefit (185,083 ) (101,924 ) Valuation allowance 1,219,633 (6,663,556 ) Non––deductible items (162,068 ) (94,344 ) Expired Federal capital loss 127,855 –– Federal rate change –– 7,160,556 State net operating loss true up and rate change 4,001 998 Income tax expense $ 7,070 $ 14,660 |
Schedule of deferred tax assets | 2016 2017 Deferred income tax assets: Inventories $ 116,776 $ 135,077 Accounts receivable 141,587 128,817 Accrued expenses 83,227 272,008 Net operating loss and tax credit carry forwards 19,562,969 12,714,278 Plant and equipment 535 8,389 Stock compensation 128,524 111,493 Other – investment impairments –– –– Total deferred income tax assets 20,033,618 13,370,062 Valuation allowance (20,033,618 ) (13,370,062 ) Net deferred tax assets $ –– $ –– |
10. SEGMENT AND GEOGRAPHIC IN28
10. SEGMENT AND GEOGRAPHIC INFORMATION (Tables) | 12 Months Ended |
Dec. 31, 2017 | |
Segment And Geographic Information Tables | |
Company's net sales by geographic region | 2016 Percent 2017 Percent North America $ 17,632,535 99 % $ 29,006,661 99 % Outside North America 201,702 1 % 411,329 1 % Total $ 17,834,237 100 % $ 29,417,990 100 % |
4. INVENTORIES (Details)
4. INVENTORIES (Details) - USD ($) | Dec. 31, 2017 | Dec. 31, 2016 |
Inventories Details | ||
Materials | $ 1,524,728 | $ 888,830 |
Work in process | 1,149 | 27,708 |
Finished goods | 3,676,426 | 4,010,074 |
Total inventories | $ 5,202,303 | $ 4,926,612 |
4. INVENTORIES (Details Narrati
4. INVENTORIES (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Inventories Details | ||
Finished goods held by customer | $ 958,500 | $ 442,300 |
Provision for inventory reserves | $ 200,357 | $ 32,051 |
5. EQUIPMENT (Details)
5. EQUIPMENT (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Equipment | $ 916,558 | $ 816,768 |
Accumulated depreciation | (754,984) | (641,025) |
Equipment, net | 161,574 | 175,743 |
Depreciation expense for year ended | 113,959 | 87,551 |
Computer hardware and software | ||
Equipment | $ 233,705 | 222,660 |
Estimated Useful lives in years | 3 years | |
Machinery and equipment | ||
Equipment | $ 280,061 | 274,833 |
Estimated Useful lives in years | 5 years | |
Molds, tools and dies | ||
Equipment | $ 362,791 | 279,274 |
Estimated Useful lives in years | 5 years | |
Office furniture and fixtures | ||
Equipment | $ 40,001 | $ 40,001 |
Estimated Useful lives in years | 5 years |
6. COMMITMENTS AND CONTINGENC32
6. COMMITMENTS AND CONTINGENCIES (Details) | Dec. 31, 2017USD ($) |
Commitments And Contingencies Details | |
2,018 | $ 2,500,000 |
2,019 | 4,500,000 |
2,020 | $ 5,100,000 |
7. STOCK OPTION PLANS (Details)
7. STOCK OPTION PLANS (Details) - 2009 Stock Option Plan - $ / shares | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Number of shares Outstanding at beginning of period | 1,920,744 | 2,536,500 |
Granted | 110,000 | 120,000 |
Exercised | (571,250) | (573,256) |
Expired | 0 | (162,500) |
Number of shares Outstanding end of period | 1,459,494 | 1,920,744 |
Weighted average exercise price | ||
Weighted average exercise price, beginning | $ 0.32 | $ 0.38 |
Granted | 1.98 | 1.91 |
Exercised | 0.30 | 0.46 |
Expired | 0 | 1.89 |
Weighted average exercise price, ending | $ 0.45 | $ 0.32 |
7. STOCK OPTION PLANS (Details
7. STOCK OPTION PLANS (Details 1) | 12 Months Ended |
Dec. 31, 2017$ / sharesshares | |
0.18 to 0.25 | |
Number of shares Outstanding end of period | shares | 1,255,500 |
Weighted average remaining contractual life | 1 year 2 months 26 days |
Weighted average exercise price, ending | $ / shares | $ 0.25 |
Number Exercisable | shares | 1,255,500 |
Weighted average exercise price | $ / shares | $ 0.25 |
0.90 to 1.69 | |
Number of shares Outstanding end of period | shares | 73,994 |
Weighted average remaining contractual life | 2 years 8 months 5 days |
Weighted average exercise price, ending | $ / shares | $ 1.14 |
Number Exercisable | shares | 63,994 |
Weighted average exercise price | $ / shares | $ 1.05 |
1.94 to 2.39 | |
Number of shares Outstanding end of period | shares | 130,000 |
Weighted average remaining contractual life | 4 years 3 months 25 days |
Weighted average exercise price, ending | $ / shares | $ 2.04 |
Number Exercisable | shares | 28,750 |
Weighted average exercise price | $ / shares | $ 2.17 |
0.18 to 2.39 | |
Number of shares Outstanding end of period | shares | 1,459,494 |
Weighted average remaining contractual life | 1 year 7 months 2 days |
Weighted average exercise price, ending | $ / shares | $ 0.45 |
Number Exercisable | shares | 1,348,244 |
Weighted average exercise price | $ / shares | $ 0.33 |
7. STOCK OPTION PLANS (Detail35
7. STOCK OPTION PLANS (Details 2) - Directors Plan - $ / shares | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Number of shares Outstanding at beginning of period | 270,000 | 225,000 |
Granted | 90,000 | 60,000 |
Exercised | (30,000) | (15,000) |
Number of shares Outstanding end of period | 330,000 | 270,000 |
Weighted average exercise price | ||
Weighted average exercise price, beginning | $ 0.95 | $ 0.51 |
Granted | 2.07 | 2.45 |
Exercised | 0.26 | 0.36 |
Weighted average exercise price, ending | $ 1.32 | $ 0.95 |
7. STOCK OPTION PLANS (Detail36
7. STOCK OPTION PLANS (Details 3) | 12 Months Ended |
Dec. 31, 2017$ / sharesshares | |
0.12-0.20 | |
Number of shares Outstanding end of period | shares | 97,500 |
Weighted average remaining contractual life | 1 year 1 month 6 days |
Weighted average exercise price, ending | $ / shares | $ 0.16 |
Number Exercisable | shares | 97,500 |
Weighted average exercise price | $ / shares | $ 0.16 |
0.84-1.20 | |
Number of shares Outstanding end of period | shares | 82,500 |
Weighted average remaining contractual life | 2 years 9 months 18 days |
Weighted average exercise price, ending | $ / shares | $ 1.05 |
Number Exercisable | shares | 82,500 |
Weighted average exercise price | $ / shares | $ 1.05 |
2.00-2.85 | |
Number of shares Outstanding end of period | shares | 150,000 |
Weighted average remaining contractual life | 3 years 10 months 24 days |
Weighted average exercise price, ending | $ / shares | $ 2.22 |
Number Exercisable | shares | 150,000 |
Weighted average exercise price | $ / shares | $ 2.22 |
0.12-2.85 | |
Number of shares Outstanding end of period | shares | 330,000 |
Weighted average remaining contractual life | 2 years 9 months 18 days |
Weighted average exercise price, ending | $ / shares | $ 1.32 |
Number Exercisable | shares | 330,000 |
Weighted average exercise price | $ / shares | $ 1.32 |
7. STOCK OPTION PLANS (Detail37
7. STOCK OPTION PLANS (Details 4) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Expected dividend yield | 0.00% | 0.00% |
Minimum | ||
Expected life | 2 years 9 months | 2 years 9 months |
Expected volatility | 74.67% | 85.75% |
Risk-free interest rate | 1.44% | 0.68% |
Maximum | ||
Expected life | 3 years 6 months | 3 years 6 months |
Expected volatility | 95.30% | 91.54% |
Risk-free interest rate | 1.92% | 1.19% |
8. INCOME TAXES (Details)
8. INCOME TAXES (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Current tax expense | ||
US Federal | $ 0 | $ 0 |
State and local | 0 | 0 |
Foreign | 14,660 | 7,070 |
Total current tax expense | 14,660 | 7,070 |
Deferred tax expense (benefit) | ||
US Federal | 0 | 0 |
State and local | 0 | 0 |
Foreign | 0 | 0 |
Total deferred tax expense (benefit) | 0 | 0 |
Total tax expense | ||
US federal | 0 | 0 |
State and local | 0 | 0 |
Foreign | 14,660 | 7,070 |
Total | $ 14,660 | $ 7,070 |
8. INCOME TAXES (Details 1)
8. INCOME TAXES (Details 1) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Income Tax Disclosure [Abstract] | ||
Computed "expected" US tax (benefit) at Federal statutory rate | $ (287,070) | $ (997,268) |
Change resulting from: | ||
State and local income taxes, net of federal income tax benefit | (101,924) | (185,083) |
Valuation allowance | (6,663,556) | 1,219,633 |
Non-deductible items | (94,344) | (162,068) |
Expired Federal capital loss | 0 | 127,855 |
Federal rate change | 7,160,556 | 0 |
State net operating loss true up and rate change | 998 | 4,001 |
Income tax expense (benefit) | $ 14,660 | $ 7,070 |
8. INCOME TAXES (Details 2)
8. INCOME TAXES (Details 2) - USD ($) | Dec. 31, 2017 | Dec. 31, 2016 |
Deferred income tax assets: | ||
Inventories | $ 135,077 | $ 116,776 |
Accounts receivable | 128,817 | 141,587 |
Accrued expenses | 272,008 | 83,227 |
Net operating loss and tax credit carry forwards | 12,714,278 | 19,562,969 |
Plant and equipment | 8,389 | 535 |
Stock compensation | 111,493 | 128,524 |
Other - investment impairments | 0 | 0 |
Total deferred income tax assets | 13,370,062 | 20,033,618 |
Valuation allowance | (13,370,062) | (20,033,618) |
Net deferred tax assets | $ 0 | $ 0 |
9. SIGNIFICANT CUSTOMERS (Detai
9. SIGNIFICANT CUSTOMERS (Details Narrative) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Two customers percentage of total sales | ||
Percent concentration | 40.00% | 53.00% |
Two customers percentage of total accounts receivables | ||
Percent concentration | 71.00% | |
Three customers percentage of total accounts receivables | ||
Percent concentration | 86.00% | |
On-line fulfillment sales | ||
Percent concentration | 51.00% | 29.00% |
On-line fulfillment percentage of total accounts receivables | ||
Percent concentration | 13.00% | 5.00% |
10. SEGMENT AND GEOGRAPHIC IN42
10. SEGMENT AND GEOGRAPHIC INFORMATION (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Revenues from External Customers and Long-Lived Assets [Line Items] | ||
Net sales, amount | $ 29,417,990 | $ 17,834,237 |
Net sales, % of total | 100.00% | 100.00% |
North America [Member] | ||
Revenues from External Customers and Long-Lived Assets [Line Items] | ||
Net sales, amount | $ 29,006,661 | $ 17,632,535 |
Net sales, % of total | 99.00% | 99.00% |
Outside North America [Member] | ||
Revenues from External Customers and Long-Lived Assets [Line Items] | ||
Net sales, amount | $ 411,329 | $ 201,702 |
Net sales, % of total | 1.00% | 1.00% |
12. RETIREMENT PLAN (Details Na
12. RETIREMENT PLAN (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Retirement Plan Details Narrative | ||
Company matching contributions charged to expense | $ 6,352 | $ 6,705 |