| 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. |
