Document and Entity Information
Document and Entity Information - shares | 6 Months Ended | |
Jun. 30, 2018 | Aug. 06, 2018 | |
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 | Jun. 30, 2018 | |
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 | 16,021,681 | |
Document Fiscal Period Focus | Q2 | |
Document Fiscal Year Focus | 2,018 |
Condensed Balance Sheets (Unaud
Condensed Balance Sheets (Unaudited) - USD ($) | Jun. 30, 2018 | Dec. 31, 2017 |
Current assets | ||
Cash and cash equivalents | $ 117,500 | $ 229,218 |
Accounts receivable, net | 2,647,902 | 2,229,512 |
Inventories | 6,946,935 | 5,202,303 |
Prepaid expenses and other current assets | 748,957 | 578,406 |
Total current assets | 10,461,294 | 8,239,439 |
Other assets | 274,165 | 391,668 |
Equipment, net | 157,297 | 161,574 |
Total assets | 10,892,756 | 8,792,681 |
Current liabilities | ||
Bank debt | 191,064 | 90,260 |
Accounts payable | 4,713,272 | 3,526,851 |
Accrued sales tax | 262,625 | 831,000 |
Accrued expenses | 1,740,866 | 1,172,984 |
Total liabilities | 6,907,827 | 5,621,095 |
Commitments and contingencies (Note 4) | ||
Stockholders' equity | ||
Common stock: Authorized: 25,000,000 shares at $0.01 par value Issued and outstanding: 16,006,681 shares at June 30, 2018 and 15,286,540 shares at December 31, 2017 | 160,067 | 152,865 |
Additional paid-in capital | 40,665,215 | 40,265,282 |
Accumulated deficit | (36,840,353) | (37,246,561) |
Total stockholders' equity | 3,984,929 | 3,171,586 |
Total liabilities and stockholders' equity | $ 10,892,756 | $ 8,792,681 |
Condensed Balance Sheets (Unau3
Condensed Balance Sheets (Unaudited) (Parenthetical) - $ / shares | Jun. 30, 2018 | Dec. 31, 2017 |
Stockholders Equity | ||
Common stock, par value | $ 0.01 | $ 0.01 |
Common stock, authorized | 25,000,000 | 25,000,000 |
Common stock, issued | 16,006,681 | 15,286,540 |
Common stock, outstanding | 16,006,681 | 15,286,540 |
Condensed Statement of Operatio
Condensed Statement of Operations and Comprehensive Income (Loss) (Unaudited) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Income Statement [Abstract] | ||||
Net sales | $ 7,522,246 | $ 6,828,192 | $ 15,859,113 | $ 11,974,081 |
Cost of goods sold | 4,789,651 | 4,634,148 | 9,845,128 | 8,045,766 |
Gross profit | 2,732,595 | 2,194,044 | 6,013,985 | 3,928,315 |
Operating expenses: | ||||
Selling | 2,122,799 | 1,681,786 | 4,177,356 | 3,528,318 |
General and administrative | 173,209 | 338,886 | 621,287 | 770,279 |
Research and development | 368,334 | 402,438 | 778,592 | 910,409 |
Total | 2,664,342 | 2,423,110 | 5,577,235 | 5,209,006 |
Operating profit (loss) | 68,253 | (229,066) | 436,750 | (1,280,691) |
Other: | ||||
Interest income | 87 | 15 | 191 | 37 |
Interest expense | (5,544) | (30,745) | (11,712) | (56,542) |
Other, net | (108) | (35) | (65) | (11,137) |
Total other income (expense) | (5,565) | (30,765) | (11,586) | (67,642) |
Income (loss) before income taxes | 62,688 | (259,831) | 425,164 | (1,348,333) |
Income taxes (benefit) | 15,358 | 9,138 | 18,956 | 9,138 |
Net income (loss) | $ 47,330 | $ (268,969) | $ 406,208 | $ (1,357,471) |
Net income (loss) per share: | ||||
Basic | $ .00 | $ (0.02) | $ 0.03 | $ (0.09) |
Diluted | $ .00 | $ (0.02) | $ 0.02 | $ (0.09) |
Basic weighted average common and common equivalent shares | 15,934,787 | 14,817,213 | 15,831,548 | 14,799,648 |
Diluted weighted average common and common equivalent shares | 16,750,627 | 14,817,213 | 16,647,388 | 14,799,648 |
Condensed Statements of Cash Fl
Condensed Statements of Cash Flows (Unaudited) - USD ($) | 6 Months Ended | |
Jun. 30, 2018 | Jun. 30, 2017 | |
Operating activities: | ||
Net income (loss) | $ 406,208 | $ (1,357,471) |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||
Depreciation and amortization | 181,136 | 287,808 |
Stock based compensation | 56,027 | 86,646 |
Provision for (recovery of) accounts receivable allowances | (1,750) | 540 |
Provision for inventory reserves | 0 | 126,344 |
Changes in operating assets and liabilities: | ||
Accounts receivable | (416,640) | (68,401) |
Inventories | (1,744,632) | (459,825) |
Prepaid expenses and other assets | (170,551) | (205,127) |
Accounts payable and accrued expenses | 1,185,928 | 1,283,339 |
Net cash provided by (used in) operating activities | (504,274) | (306,147) |
Investing activities: | ||
Cost of other assets | (5,560) | 0 |
Purchases of plant and equipment | (53,796) | (90,950) |
Net cash provided by (used in) investing activities | (59,356) | (90,950) |
Financing activities: | ||
Net funds received from (paid to) bank credit lines | 100,804 | 644,297 |
Proceeds from stock option exercises | 351,108 | 68,225 |
Net cash provided by (used in) financing activities | 451,912 | 712,522 |
Net change in cash | (111,718) | 315,425 |
Cash and cash equivalents at beginning of period | 229,218 | 179,846 |
Cash and cash equivalents at end of period | 117,500 | 495,271 |
Supplemental disclosures of cash flow information: | ||
Cash paid during the period for: Interest | 11,712 | 56,542 |
Cash paid during the period for: Income taxes | $ 18,956 | $ 9,138 |
1. Summary of Significant Accou
1. Summary of Significant Accounting Policies | 6 Months Ended |
Jun. 30, 2018 | |
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, 2017 was derived from audited financial statements. In the opinion of management, the accompanying financial statements include all necessary adjustments to present fairly the condensed 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 June 30, 2018 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, 2017 included in the Company's 2017 Annual Report on Form 10-K for the year ended December 31, 2017. 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, and approximated $119 thousand additional expense in Q1 2018. During Q2 2018, the Company settled its obligations with a number of states, and re-assessed its liability on the few states remaining, and determined that a reduction of approximately $203 thousand in the sales tax liability was warranted. Recently Adopted Accounting Standards Revenue Recognition In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers The Company adopted Accounting Standards Codification (“ASC”) Topic 606 using the modified retrospective method provision of this standard effective January 1, 2018, January 1, 2018 January 1, 2018 Revenue recognition is evaluated through the following five steps: (i) identification of the contract, or contracts, with a customer; (ii) identification of the performance obligations in the contract; (iii) determination of the transaction price; (iv) allocation of the transaction price to the performance obligations in the contract; and (v) recognition of revenue when or as a performance obligation is satisfied. ● Identification of the contract, or contracts, with a customer — ● Identification of the performance obligations in the contract — ● Determination of the transaction price ● Allocation of the transaction price to the performance obligations in the contract ● Recognition of revenue when, or as, the Company satisfies a performance obligation ● The Company has a present right to payment ● The customer has legal title to the goods ● The Company has transferred physical possession of the goods ● The customer has the significant risks and rewards of ownership of the goods ● The customer has accepted the goods The Company has concluded that transfer of control substantively transfers to the customer upon shipment or delivery, depending on the delivery terms of the purchase agreement. Other considerations of Topic 606 include the following: ● Warranties ● Returned Goods ● Price protection ● Volume Rebates and Promotion Programs Reclassification of accounts receivable allowances to accrued other expenses: Accounts receivable, net: June 30, 2018 December 31, 2017 Gross accounts receivable $ 2,661,245 $ 2,811,638 Allowance for doubtful accounts (13,343 ) (15,094 ) Allowance for marketing distribution funds * –– (127,821 ) Allowance for returns * –– (439,211 ) Allowance for price protection, promotions * –– –– Total allowances (13,343 ) (582,126 ) Total accounts receivable, net $ 2,647,902 $ 2,229,512 Accrued other expenses: June 30, 2018 December 31, 2017 Audit, legal, payroll $ 188,393 $ 193,394 Royalty costs 875,000 750,000 Sales allowances * 498,285 –– Other 179,188 229,590 Total accrued other expenses $ 1,740,866 $ 1,172,984 ------------------------------------------------------------------------------------------------------------------------------------------------------------ * Upon adoption of ASC 606 on January 1, 2018, certain accounts receivable allowances totaling $498,285 as of June 30, 2018 were reclassified to accrued other expenses as payable to the Company's customers and settled in cash or by credit on account. Company revenues are primarily from the selling of products that are shipped and billed. Consistent with the revenue recognition accounting standard, revenues are recognized when control is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods and services. Sales are earned at a point in time through ship-and-bill performance obligations. The impact of adopting this standard on the Company’s condensed consolidated financial statements required no cumulative transition adjustment. Regarding disaggregated revenue disclosures, as previously noted, the Company’s business is controlled as a single operating segment that consists of the manufacture and sale of Internet access and other communications-related products. Most of the Company’s transactions are very similar in nature, contract, terms, timing, and transfer of control of goods. Disaggregated revenue by distribution channel: Three Months Ended June 30, Six Months Ended June 30, Through : 2018 2017 2018 2017 Retailers $ 6,814,007 $ 6,508,636 $ 14,747,226 $ 11,279,987 Distributors 517,847 110,239 702,913 271,556 Other 190,392 209,317 408,973 422,538 Total $ 7,522,246 $ 6,828,192 $ 15,859,113 $ 11,974,081 Disaggregated revenue by product: Three Months Ended June 30, Six Months Ended June 30, 2018 2017 2018 2017 Cable Modems & gateways $ 6,794,232 $ 6,642,498 $ 14,620,396 $ 11,474,259 Other 728,014 185,694 1,238,717 499,826 Total $ 7,522,246 $ 6,828,192 $ 15,859,113 $ 11,974,081 Revenue is recognized when obligations under the terms of a contract with customers are satisfied. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring the products. Based on the nature of the Company’s products and customer contracts, the Company has not recorded any deferred revenue. Any agreements with customers that could impact revenue such as rebates or promotions are recognized in the period of agreement. In March 2018, the FASB issued ASU No. 2018-05, Income Taxes (Topic 740) – Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. Recently Issued Accounting Standards 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. “Leases (Topic 842) – Targeted Improvements,” 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. |
2. Liquidity
2. Liquidity | 6 Months Ended |
Jun. 30, 2018 | |
Notes to Financial Statements | |
Liquidity | On June 30, 2018 the Company had approximately $191 thousand in bank debt for a $3.0 million asset-based credit line, approximately $118 thousand in cash and cash equivalents, and working capital of approximately $3.6 million. The Company’s credit line has a maturity date of November 2018, and automatically renews unless cancelled under the terms of agreement. Major uses of cash during the first six months of 2018 were increases of approximately $1.74 million in inventory, and approximately $418 thousand in accounts receivable. Major contributors to cash were an increase of approximately $1.19 million in accrued expenses and accounts payable, net income of approximately $406 thousand, proceeds from stock option exercises of approximately $351 thousand, and an increase of approximately $101 thousand in bank debt. The Company continues to experience sales growth, and had operating profits for three of the last four quarters. 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 the Company’s Quarterly filing of this Form 10-Q with the Securities Exchange Commission. |
3. Inventories
3. Inventories | 6 Months Ended |
Jun. 30, 2018 | |
Notes to Financial Statements | |
Inventories | Inventories consist of : June 30, 2018 December 31, 2017 Materials $ 1,216,062 $ 1,524,728 Work in process 106,048 1,149 Finished goods 5,624,825 3,676,426 Total $ 6,946,935 $ 5,202,303 Finished goods includes consigned inventory of $1,438,900 at June 30, 2018 and $958,500 at December 31, 2017. 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 for both three months ended June 30, 2018 and 2017 respectively. |
4. Commitments and Contingencie
4. Commitments and Contingencies | 6 Months Ended |
Jun. 30, 2018 | |
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 July 11, 2018, Be Labs, Inc. ("Be Labs") filed a complaint in the U.S. District Court for the District of Delaware (U.S.D.C., D.Del.) against the Company alleging infringement of U.S. Patent Nos. 7,827,581 (“the ’581 patent”) and 9,344,183 (“the ‘183 patent”), both entitled “Wireless Multimedia System.” Be Labs alleged that the Company’s AC1900 Cable Modem/Routers, including its Model 5363 Routers, infringe both the '581 patent and the ‘183 patent. In its complaint, Be Labs sought injunctive relief and unspecified compensatory damages. The case is in its early stages and the Company’s answer to the complaint is currently due on September 4, 2018. The Company does not have any other pending or outstanding legal proceedings beyond that referenced above. (b) 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 was $875 thousand and $750 thousand for the second quarter of 2018 and 2017 respectively, and $1.75 million and $1.5 million for six months ended June 30, 2018 and 2017, respectively. Royalty expense is included in selling expense on the accompanying condensed consolidated statements of operations. The balance of the committed royalty expense for 2018 amounts to $1,750,000. The Company has agreed with North American Production Sharing, Inc. (“NAPS”) to extend the Company’s existing Tijuana facility’s lease in connection with the Production Sharing Agreement (“PSA”) entered into between the Company and NAPS. The extension goes through November 30, 2018 and also facilitates the Company’s contracting with Mexican personnel to work in our 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 was $104,577 for the second quarter of 2018 and $100,867 for the second quarter of 2017. Rent expense was $214,381 for the first six months of 2018 and $201,523 for the first six months of 2017. |
5. Customer Concentrations
5. Customer Concentrations | 6 Months Ended |
Jun. 30, 2018 | |
Notes to Financial Statements | |
Customer Concentrations | The Company sells its products primarily through high-volume retailers and distributors, Internet service providers, value-added resellers, system integrators, and original equipment manufacturers ("OEMs"), collectively, “companies.” 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 companies account for a substantial portion of the Company’s revenues. In the second quarter of 2018 two companies accounted for 10% or greater individually, and 75% in the aggregate of the Company’s total net sales. In the first six months of 2018 two companies accounted for 10% or greater individually, and 79% in the aggregate of the Company’s total net sales. At June 30, 2018, three companies with an accounts receivable balance of 10% or greater individually accounted for a combined 78% of the Company’s accounts receivable. In the second quarter of 2017 three companies accounted for 10% or greater individually, and 87% in the aggregate of the Company’s total net sales. In the first six months of 2017 three companies accounted for 10% or greater individually, and 88% in the aggregate of the Company’s total net sales. At June 30, 2017 three companies with an accounts receivable balance of 10% or greater individually accounted for a combined 89% of the Company’s 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 | 6 Months Ended |
Jun. 30, 2018 | |
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 loan covenant compliance on a quarterly basis. At June 30, 2018, the Company was in compliance with both its working capital and tangible net worth covenants. At June 30, 2018, the Company’s tangible net worth was approximately $3.7 million, above the $2 million requirement; and the Company’s working capital was approximately $3.6 million, above the $1.75 million requirement. Loan availability is based on eligible receivables less offsets, if any. Approximately $1.73 million was available on this line on June 30, 2018, consisting of $1.86 million as 75% of eligible receivables less an offset of $128 thousand for state tax liabilities. The sales tax offset will be reduced as the sales tax liability is paid down. |
7. Earnings (Loss) Per Share
7. Earnings (Loss) Per Share | 6 Months Ended |
Jun. 30, 2018 | |
Earnings Loss Per Share | |
Earnings (Loss) Per 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 per common share for the three-month period ended June 30, 2018 was $0.00, and includes the dilutive effects of 815,840 common share equivalents. Diluted loss per common share for the three-month period ended June 30, 2017 excludes the effects of 1,654,873 common share equivalents, since such inclusion would be anti-dilutive. Diluted earnings per common share for the six-month period ended June 30, 2018 was $0.02, and includes the dilutive effects of 815,840 common share equivalents. Diluted loss per common share for the six-month period ended June 30, 2017 excludes the effects of 1,654,873 common share equivalents, since such inclusion would be anti-dilutive. The common share equivalents consist of common shares issuable upon exercise of outstanding stock options. |
1. Summary of Significant Acc13
1. Summary of Significant Accounting Policies (Policies) | 6 Months Ended |
Jun. 30, 2018 | |
Summary Of Significant Accounting Policies Policies | |
Recently Adopted Accounting Standards | Revenue Recognition In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers The Company adopted Accounting Standards Codification (“ASC”) Topic 606 using the modified retrospective method provision of this standard effective January 1, 2018, January 1, 2018 January 1, 2018 Revenue recognition is evaluated through the following five steps: (i) identification of the contract, or contracts, with a customer; (ii) identification of the performance obligations in the contract; (iii) determination of the transaction price; (iv) allocation of the transaction price to the performance obligations in the contract; and (v) recognition of revenue when or as a performance obligation is satisfied. ● Identification of the contract, or contracts, with a customer — ● Identification of the performance obligations in the contract — ● Determination of the transaction price ● Allocation of the transaction price to the performance obligations in the contract ● Recognition of revenue when, or as, the Company satisfies a performance obligation ● The Company has a present right to payment ● The customer has legal title to the goods ● The Company has transferred physical possession of the goods ● The customer has the significant risks and rewards of ownership of the goods ● The customer has accepted the goods The Company has concluded that transfer of control substantively transfers to the customer upon shipment or delivery, depending on the delivery terms of the purchase agreement. Other considerations of Topic 606 include the following: ● Warranties ● Returned Goods ● Price protection ● Volume Rebates and Promotion Programs Reclassification of accounts receivable allowances to accrued other expenses: Accounts receivable, net: June 30, 2018 December 31, 2017 Gross accounts receivable $ 2,661,245 $ 2,811,638 Allowance for doubtful accounts (13,343 ) (15,094 ) Allowance for marketing distribution funds * –– (127,821 ) Allowance for returns * –– (439,211 ) Allowance for price protection, promotions * –– –– Total allowances (13,343 ) (582,126 ) Total accounts receivable, net $ 2,647,902 $ 2,229,512 Accrued other expenses: June 30, 2018 December 31, 2017 Audit, legal, payroll $ 188,393 $ 193,394 Royalty costs 875,000 750,000 Sales allowances * 498,285 –– Other 179,188 229,590 Total accrued other expenses $ 1,740,866 $ 1,172,984 ------------------------------------------------------------------------------------------------------------------------------------------------------------ * Upon adoption of ASC 606 on January 1, 2018, certain accounts receivable allowances totaling $498,285 as of June 30, 2018 were reclassified to accrued other expenses as payable to the Company's customers and settled in cash or by credit on account. Company revenues are primarily from the selling of products that are shipped and billed. Consistent with the revenue recognition accounting standard, revenues are recognized when control is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods and services. Sales are earned at a point in time through ship-and-bill performance obligations. The impact of adopting this standard on the Company’s condensed consolidated financial statements required no cumulative transition adjustment. Regarding disaggregated revenue disclosures, as previously noted, the Company’s business is controlled as a single operating segment that consists of the manufacture and sale of Internet access and other communications-related products. Most of the Company’s transactions are very similar in nature, contract, terms, timing, and transfer of control of goods. Disaggregated revenue by distribution channel: Three Months Ended June 30, Six Months Ended June 30, Through : 2018 2017 2018 2017 Retailers $ 6,814,007 $ 6,508,636 $ 14,747,226 $ 11,279,987 Distributors 517,847 110,239 702,913 271,556 Other 190,392 209,317 408,973 422,538 Total $ 7,522,246 $ 6,828,192 $ 15,859,113 $ 11,974,081 Disaggregated revenue by product: Three Months Ended June 30, Six Months Ended June 30, 2018 2017 2018 2017 Cable Modems & gateways $ 6,794,232 $ 6,642,498 $ 14,620,396 $ 11,474,259 Other 728,014 185,694 1,238,717 499,826 Total $ 7,522,246 $ 6,828,192 $ 15,859,113 $ 11,974,081 Revenue is recognized when obligations under the terms of a contract with customers are satisfied. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring the products. Based on the nature of the Company’s products and customer contracts, the Company has not recorded any deferred revenue. Any agreements with customers that could impact revenue such as rebates or promotions are recognized in the period of agreement. In March 2018, the FASB issued ASU No. 2018-05, Income Taxes (Topic 740) – Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. |
Recently Issued Accounting Standards | 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. “Leases (Topic 842) – Targeted Improvements,” 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. |
1. Summary of Significant Acc14
1. Summary of Significant Accounting Policies (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Summary Of Significant Accounting Policies Tables | |
Reclassification of accounts receivable allowances to accrued other expenses | Accounts receivable, net: June 30, 2018 December 31, 2017 Gross accounts receivable $ 2,661,245 $ 2,811,638 Allowance for doubtful accounts (13,343 ) (15,094 ) Allowance for marketing distribution funds * –– (127,821 ) Allowance for returns * –– (439,211 ) Allowance for price protection, promotions * –– –– Total allowances (13,343 ) (582,126 ) Total accounts receivable, net $ 2,647,902 $ 2,229,512 Accrued other expenses: June 30, 2018 December 31, 2017 Audit, legal, payroll $ 188,393 $ 193,394 Royalty costs 875,000 750,000 Sales allowances * 498,285 –– Other 179,188 229,590 Total accrued other expenses $ 1,740,866 $ 1,172,984 ------------------------------------------------------------------------------------------------------------------------------------------------------------ * Upon adoption of ASC 606 on January 1, 2018, certain accounts receivable allowances totaling $498,285 as of June 30, 2018 were reclassified to accrued other expenses as payable to the Company's customers and settled in cash or by credit on account. |
Disaggregation of Revenue | Disaggregated revenue by distribution channel: Three Months Ended June 30, Six Months Ended June 30, Through : 2018 2017 2018 2017 Retailers $ 6,814,007 $ 6,508,636 $ 14,747,226 $ 11,279,987 Distributors 517,847 110,239 702,913 271,556 Other 190,392 209,317 408,973 422,538 Total $ 7,522,246 $ 6,828,192 $ 15,859,113 $ 11,974,081 Disaggregated revenue by product: Three Months Ended June 30, Six Months Ended June 30, 2018 2017 2018 2017 Cable Modems & gateways $ 6,794,232 $ 6,642,498 $ 14,620,396 $ 11,474,259 Other 728,014 185,694 1,238,717 499,826 Total $ 7,522,246 $ 6,828,192 $ 15,859,113 $ 11,974,081 |
3. Inventories (Tables)
3. Inventories (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Inventories Tables | |
Inventories | Inventories consist of : June 30, 2018 December 31, 2017 Materials $ 1,216,062 $ 1,524,728 Work in process 106,048 1,149 Finished goods 5,624,825 3,676,426 Total $ 6,946,935 $ 5,202,303 |
4. Commitments and Contingenc16
4. Commitments and Contingencies (Tables) | 6 Months Ended |
Jun. 30, 2018 | |
Commitments And Contingencies Tables | |
Minimum annual royalty payments | Year ending December 31, 2018: $3,500,000 2019: $4,500,000 2020: $5,100,000 |
1. Summary of Significant Acc17
1. Summary of Significant Accounting Policies (Details) - USD ($) | Jun. 30, 2018 | Dec. 31, 2017 | |
Summary Of Significant Accounting Policies Tables | |||
Gross accounts receivable | $ 2,661,245 | $ 2,811,638 | |
Allowance for doubtful accounts | (13,343) | (15,094) | |
Allowance for marketing distribution funds | [1] | 0 | (127,821) |
Allowance for returns | [1] | 0 | (439,211) |
Allowance for price protection, promotions | [1] | 0 | 0 |
Total allowances | (13,343) | (582,126) | |
Total accounts receivable, net | 2,647,902 | 2,229,512 | |
Audit, legal, payroll | 188,393 | 193,394 | |
Royalty costs | 875,000 | 750,000 | |
Sales allowances | [1] | 498,285 | 0 |
Other | 179,188 | 229,590 | |
Total accrued other expenses | $ 1,740,866 | $ 1,172,984 | |
[1] | Upon adoption of ASC 606 on January 1, 2018, certain accounts receivable allowances totaling $498,285 as of June 30, 2018 were reclassified to accrued other expenses as payable to the Company's customers and settled in cash or by credit on account. |
1. Summary of Significant Acc18
1. Summary of Significant Accounting Policies (Details 1) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Revenues | $ 7,522,246 | $ 6,828,192 | $ 15,859,113 | $ 11,974,081 |
Cable Modems & gateways | ||||
Revenues | 6,794,232 | 6,642,498 | 14,620,396 | 11,474,259 |
Other | ||||
Revenues | 728,014 | 185,694 | 1,238,717 | 499,826 |
Retailers | ||||
Revenues | 6,814,007 | 6,508,636 | 14,747,226 | 11,279,987 |
Distributors | ||||
Revenues | 517,847 | 110,239 | 702,913 | 271,556 |
Other | ||||
Revenues | $ 190,392 | $ 209,317 | $ 408,973 | $ 422,538 |
3. Inventories (Details)
3. Inventories (Details) - USD ($) | Jun. 30, 2018 | Dec. 31, 2017 |
Inventories Details | ||
Materials | $ 1,216,062 | $ 1,524,728 |
Work in process | 106,048 | 1,149 |
Finished goods | 5,624,825 | 3,676,426 |
Total inventories | $ 6,946,935 | $ 5,202,303 |
3. Inventories (Details Narrati
3. Inventories (Details Narrative) - USD ($) | 3 Months Ended | 6 Months Ended | |||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | Dec. 31, 2017 | |
Inventories Details | |||||
Finished goods held by customer | $ 1,438,900 | $ 1,438,900 | $ 958,500 | ||
Provision for inventory reserves | $ 0 | $ 0 | $ 0 | $ 126,344 |
4. Commitments and Contingenc21
4. Commitments and Contingencies (Details) | Jun. 30, 2018USD ($) |
Future royalty payments for the year ending December 31, | |
2,018 | $ 3,500,000 |
2,019 | 4,500,000 |
2,020 | $ 5,100,000 |
5. Customer Concentrations (Det
5. Customer Concentrations (Details Narrative) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2018 | Jun. 30, 2017 | Jun. 30, 2018 | Jun. 30, 2017 | |
Two Customers Percentage of Sales | ||||
Percent concentration | 75.00% | 79.00% | 88.00% | |
Three Customers Percentage of Receivables | ||||
Percent concentration | 78.00% | 89.00% | ||
Two Customers Percentage of Receivables | ||||
Percent concentration | 87.00% |