Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Sep. 30, 2018 | Nov. 05, 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 | Sep. 30, 2018 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Is Entity's Reporting Status Current? | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Emerging Growth Company | false | |
Entity Small Business | true | |
Entity Common Stock, Shares Outstanding | 16,106,681 | |
Document Fiscal Period Focus | Q3 | |
Document Fiscal Year Focus | 2,018 |
Condensed Balance Sheets (Unaud
Condensed Balance Sheets (Unaudited) - USD ($) | Sep. 30, 2018 | Dec. 31, 2017 |
Current assets | ||
Cash and cash equivalents | $ 238,172 | $ 229,218 |
Accounts receivable, net | 4,400,032 | 2,229,512 |
Inventories | 6,300,794 | 5,202,303 |
Prepaid expenses and other current assets | 680,411 | 578,406 |
Total current assets | 11,619,409 | 8,239,439 |
Other assets | 240,999 | 391,668 |
Equipment, net | 268,645 | 161,574 |
Total assets | 12,129,053 | 8,792,681 |
Current liabilities | ||
Bank debt | 1,949,850 | 90,260 |
Accounts payable | 3,529,843 | 3,526,851 |
Accrued sales tax | 240,973 | 831,000 |
Accrued expenses | 1,883,741 | 1,172,984 |
Total liabilities | 7,604,407 | 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: 16,106,681 shares at September 30, 2018 and 15,286,540 shares at December 31, 2017 | 161,067 | 152,865 |
Additional paid-in capital | 40,857,998 | 40,265,282 |
Accumulated deficit | (36,494,419) | (37,246,561) |
Total stockholders' equity | 4,524,646 | 3,171,586 |
Total liabilities and stockholders' equity | $ 12,129,053 | $ 8,792,681 |
Condensed Balance Sheets (Una_2
Condensed Balance Sheets (Unaudited) (Parenthetical) - $ / shares | Sep. 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 | 16,106,681 | 15,286,540 |
Common stock, outstanding | 16,106,681 | 15,286,540 |
Condensed Statement of Operatio
Condensed Statement of Operations and Comprehensive Income (Loss) (Unaudited) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
Income Statement [Abstract] | ||||
Net sales | $ 9,000,060 | $ 8,582,076 | $ 24,859,173 | $ 20,556,157 |
Cost of goods sold | 5,726,970 | 5,515,753 | 15,572,098 | 13,561,520 |
Gross profit | 3,273,090 | 3,066,323 | 9,287,075 | 6,994,637 |
Operating expenses: | ||||
Selling | 2,032,486 | 1,812,921 | 6,209,842 | 5,341,239 |
General and administrative | 438,326 | 383,475 | 1,059,613 | 1,153,753 |
Research and development | 420,475 | 457,309 | 1,199,067 | 1,367,718 |
Total | 2,891,287 | 2,653,705 | 8,468,522 | 7,862,710 |
Operating income (loss) | 381,803 | 412,618 | 818,553 | (868,073) |
Other income (expense): | ||||
Interest income | 39 | 22 | 230 | 59 |
Interest expense | (33,051) | (30,636) | (44,763) | (87,178) |
Other, net | (320) | 65 | (385) | (11,072) |
Total other income (expense) | (33,332) | (30,549) | (44,918) | (98,191) |
Income (loss) before income taxes | 348,471 | 382,069 | 773,635 | (966,264) |
Income taxes | 2,537 | 4,984 | 21,493 | 14,123 |
Net income (loss) | $ 345,934 | $ 377,085 | $ 752,142 | $ (980,387) |
Net income (loss) per share: | ||||
Basic | $ 0.02 | $ 0.03 | $ 0.05 | $ (0.07) |
Diluted | $ 0.02 | $ 0.02 | $ 0.05 | $ (0.07) |
Basic weighted average common and common equivalent shares | 16,050,540 | 14,953,285 | 15,905,348 | 14,851,229 |
Diluted weighted average common and common equivalent shares | 16,775,498 | 16,419,374 | 16,630,306 | 14,851,229 |
Condensed Statements of Cash Fl
Condensed Statements of Cash Flows (Unaudited) - USD ($) | 9 Months Ended | |
Sep. 30, 2018 | Sep. 30, 2017 | |
Operating activities: | ||
Net income (loss) | $ 752,142 | $ (980,387) |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||
Depreciation and amortization | 274,339 | 391,181 |
Stock based compensation | 226,160 | 170,074 |
Provision for accounts receivable allowances | 5,651 | 540 |
Provision for (recovery of) inventory reserves | (120,420) | 186,440 |
Changes in operating assets and liabilities: | ||
Accounts receivable | (2,176,171) | 393,164 |
Inventories | (978,071) | (566,490) |
Prepaid expenses and other assets | (102,005) | (327,462) |
Accounts payable and accrued expenses | 123,722 | 1,421,963 |
Net cash provided by (used in) operating activities | (1,994,653) | 689,023 |
Investing activities: | ||
Cost of other assets | (23,560) | (75,000) |
Purchases of plant and equipment | (207,181) | (93,849) |
Net cash provided by (used in) investing activities | (230,741) | (168,849) |
Financing activities: | ||
Net funds received from (paid to) bank credit lines | 1,859,590 | (711,842) |
Proceeds from stock option exercises | 374,758 | 102,675 |
Net cash provided by (used in) financing activities | 2,234,348 | (609,167) |
Net change in cash | 8,954 | (88,993) |
Cash and cash equivalents at beginning of period | 229,218 | 179,846 |
Cash and cash equivalents at end of period | 238,172 | 90,853 |
Supplemental disclosures of cash flow information: | ||
Cash paid during the period for: Interest | 44,763 | 87,178 |
Cash paid during the period for: Income taxes | $ 21,493 | $ 14,123 |
1. Summary of Significant Accou
1. Summary of Significant Accounting Policies | 9 Months Ended |
Sep. 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 September 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. During Q3 2018, the Company settled additional obligations with some of the remaining states. Additionally, there were no re-assessments to the liability during Q3 2018. As of September 30, 2018, approximately $86 thousand of the original state sales tax liability remains. 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 Impact of adoption of new revenue guidance on financial statement line items: Accounts receivable, net: September 30, 2018 December 31, 2017 Gross accounts receivable $ 4,420,776 $ 2,811,638 Allowance for doubtful accounts (20,744 ) (15,094 ) Allowance for marketing distribution funds * –– (127,821 ) Allowance for returns * –– (439,211 ) Allowance for price protection, promotions * –– –– Total allowances (20,744 ) (582,126 ) Total accounts receivable, net $ 4,400,032 $ 2,229,512 Accrued other expenses: September 30, 2018 December 31, 2017 Audit, legal, payroll $ 253,255 $ 314,504 Trademark licensing costs 875,000 750,000 Reserve for returns and allowances* 683,717 –– Other 71,769 108,480 Total accrued other expenses $ 1,883,741 $ 1,172,984 ------------------------------------------------------------------------------------------------------------------------------------------------------------ * Upon adoption of ASC 606 on January 1, 2018, certain accounts receivable allowances totaling $683,717 as of September 30, 2018 were reported as 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 September 30, Nine Months Ended September 30, Through : 2018 2017 2018 2017 Retailers $ 7,998,492 $ 8,169,316 $ 22,745,719 $ 19,449,302 Distributors 552,346 231,765 1,255,259 503,321 Other 449,222 180,995 858,195 603,534 Total $ 9,000,060 $ 8,582,076 $ 24,859,173 $ 20,556,157 Disaggregated revenue by product: Three Months Ended September 30, Nine Months Ended September 30, 2018 2017 2018 2017 Cable Modems & gateways $ 8,162,319 $ 8,328,518 $ 22,782,715 $ 19,785,177 Other 837,741 253,558 2,076,458 770,980 Total $ 9,000,060 $ 8,582,076 $ 24,859,173 $ 20,556,157 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 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. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases Targeted Improvements to Topic 842, Leases Leases (Topic 842) Leases January 1, 2019, January 1, 2019 January 1, 2018 Reclassification Certain accrued other expenses as presented in the impact of adoption of new revenue guidance on financial statement line items note above previously classified as “Other” as of December 31, 2017, have been reclassified within “Audit, legal, payroll” for consistency with current quarter presentation. This reclassification had no effect on the reported condensed consolidated balance sheet. |
2. Liquidity
2. Liquidity | 9 Months Ended |
Sep. 30, 2018 | |
Notes to Financial Statements | |
Liquidity | On September 30, 2018 the Company had approximately $1.95 million in bank debt for a $3.0 million asset-based credit line, approximately $238 thousand in cash and cash equivalents, and working capital of approximately $4.0 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 nine months of 2018 were increases of approximately $2.17 million in accounts receivable, and approximately $1.1 million in inventory. Major contributors to cash were an increase of approximately $1.86 million in bank debt and net income of approximately $752 thousand. The Company 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 | 9 Months Ended |
Sep. 30, 2018 | |
Notes to Financial Statements | |
Inventories | Inventories consist of : September 30, 2018 December 31, 2017 Materials $ 1,844,604 $ 1,524,728 Work in process 90,137 1,149 Finished goods 4,366,053 3,676,426 Total $ 6,300,794 $ 5,202,303 Finished goods includes inventory consigned to Amazon of $1,851,900 at September 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 September 30, 2018 and 2017, respectively. |
4. Commitments and Contingencie
4. Commitments and Contingencies | 9 Months Ended |
Sep. 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 was resolved in September 2018 with the entry by the judge of an Order of Dismissal with Prejudice. 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 trademark licensing 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 trademark licensing payments equal to a certain percentage of the preceding quarter’s net sales with minimum annual trademark licensing payments as follows: Year ending December 31, 2018: $ 3,500,000 2019: $ 4,500,000 2020: $ 5,100,000 Trademark licensing expense under the License Agreement was $875 thousand and $750 thousand for the third quarter of 2018 and 2017, respectively, and $2.625 million and $2.25 million for nine months ended September 30, 2018 and 2017, respectively. Trademark licensing 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 $875,000. 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 is in the processing of renewing this agreement. 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 third quarter of 2018 and $102,338 for the third quarter of 2017. Rent expense was $318,959 for the first nine months of 2018 and $303,860 for the first nine months of 2017. |
5. Customer Concentrations
5. Customer Concentrations | 9 Months Ended |
Sep. 30, 2018 | |
Notes to Financial Statements | |
Customer Concentrations | The Company sells its products primarily through high-volume retailers and distributors; and also sells through Internet service providers, value-added resellers, and system integrators. 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 third quarter of 2018 two companies accounted for 10% or greater individually, and 77% in the aggregate of the Company’s total net sales. In the first nine months of 2018 two companies accounted for 10% or greater individually, and 78% in the aggregate of the Company’s total net sales. At September 30, 2018, three companies with an accounts receivable balance of 10% or greater individually accounted for a combined 72% of the Company’s accounts receivable. In the third quarter of 2017 three companies accounted for 10% or greater individually, and 92% in the aggregate of the Company’s total net sales. In the first nine months of 2017 three companies accounted for 10% or greater individually, and 90% in the aggregate of the Company’s total net sales. At September 30, 2017 three companies with an accounts receivable balance of 10% or greater individually accounted for a combined 83% 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 | 9 Months Ended |
Sep. 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 September 30, 2018, the Company was in compliance with both its working capital and tangible net worth covenants. At September 30, 2018, the Company’s tangible net worth was approximately $4.3 million, above the $2 million requirement; and the Company’s working capital was approximately $4.0 million, above the $1.75 million requirement. The Company's maximum borrowing at any time is 75 percent of eligible receivables less offsets, if any, with the total maximum borrowing capped at $3.0 million. On September 30, 2018 there was a $1.95 million outstanding loan balance and approximately $0.96 million of unused loan availability. |
7. Earnings (Loss) Per Share
7. Earnings (Loss) Per Share | 9 Months Ended |
Sep. 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 September 30, 2018 was $0.02, and includes the dilutive effects of 724,958 common share equivalents. Diluted earnings per common share for the three-month period ended September 30, 2017 was $0.02 and includes the effects of 1,466,089 common share equivalents. Diluted earnings per common share for the nine-month period ended September 30, 2018 was $0.05, and includes the dilutive effects of 724,958 common share equivalents. Diluted loss per common share for the nine-month period ended September 30, 2017 excludes the effects of 1,466,089 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 Acc_2
1. Summary of Significant Accounting Policies (Policies) | 9 Months Ended |
Sep. 30, 2018 | |
Summary Of Significant Accounting 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 Impact of adoption of new revenue guidance on financial statement line items: Accounts receivable, net: September 30, 2018 December 31, 2017 Gross accounts receivable $ 4,420,776 $ 2,811,638 Allowance for doubtful accounts (20,744 ) (15,094 ) Allowance for marketing distribution funds * –– (127,821 ) Allowance for returns * –– (439,211 ) Allowance for price protection, promotions * –– –– Total allowances (20,744 ) (582,126 ) Total accounts receivable, net $ 4,400,032 $ 2,229,512 Accrued other expenses: September 30, 2018 December 31, 2017 Audit, legal, payroll $ 253,255 $ 314,504 Trademark licensing costs 875,000 750,000 Reserve for returns and allowances* 683,717 –– Other 71,769 108,480 Total accrued other expenses $ 1,883,741 $ 1,172,984 ------------------------------------------------------------------------------------------------------------------------------------------------------------ * Upon adoption of ASC 606 on January 1, 2018, certain accounts receivable allowances totaling $683,717 as of September 30, 2018 were reported as 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 September 30, Nine Months Ended September 30, Through : 2018 2017 2018 2017 Retailers $ 7,998,492 $ 8,169,316 $ 22,745,719 $ 19,449,302 Distributors 552,346 231,765 1,255,259 503,321 Other 449,222 180,995 858,195 603,534 Total $ 9,000,060 $ 8,582,076 $ 24,859,173 $ 20,556,157 Disaggregated revenue by product: Three Months Ended September 30, Nine Months Ended September 30, 2018 2017 2018 2017 Cable Modems & gateways $ 8,162,319 $ 8,328,518 $ 22,782,715 $ 19,785,177 Other 837,741 253,558 2,076,458 770,980 Total $ 9,000,060 $ 8,582,076 $ 24,859,173 $ 20,556,157 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 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. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases Targeted Improvements to Topic 842, Leases Leases (Topic 842) Leases January 1, 2019, January 1, 2019 January 1, 2018 |
1. Summary of Significant Acc_3
1. Summary of Significant Accounting Policies (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Summary Of Significant Accounting Policies Tables Abstract | |
Reclassification of accounts receivable allowances to accrued other expenses | September 30, 2018 December 31, 2017 Gross accounts receivable $ 4,420,776 $ 2,811,638 Allowance for doubtful accounts (20,744 ) (15,094 ) Allowance for marketing distribution funds * –– (127,821 ) Allowance for returns * –– (439,211 ) Allowance for price protection, promotions * –– –– Total allowances (20,744 ) (582,126 ) Total accounts receivable, net $ 4,400,032 $ 2,229,512 Accrued other expenses: September 30, 2018 December 31, 2017 Audit, legal, payroll $ 253,255 $ 314,504 Trademark licensing costs 875,000 750,000 Reserve for returns and allowances* 683,717 –– Other 71,769 108,480 Total accrued other expenses $ 1,883,741 $ 1,172,984 |
Disaggregation of Revenue | Three Months Ended September 30, Nine Months Ended September 30, Through : 2018 2017 2018 2017 Retailers $ 7,998,492 $ 8,169,316 $ 22,745,719 $ 19,449,302 Distributors 552,346 231,765 1,255,259 503,321 Other 449,222 180,995 858,195 603,534 Total $ 9,000,060 $ 8,582,076 $ 24,859,173 $ 20,556,157 Three Months Ended September 30, Nine Months Ended September 30, 2018 2017 2018 2017 Cable Modems & gateways $ 8,162,319 $ 8,328,518 $ 22,782,715 $ 19,785,177 Other 837,741 253,558 2,076,458 770,980 Total $ 9,000,060 $ 8,582,076 $ 24,859,173 $ 20,556,157 |
3. Inventories (Tables)
3. Inventories (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Inventories Tables Abstract | |
Inventories | Inventories consist of : September 30, 2018 December 31, 2017 Materials $ 1,844,604 $ 1,524,728 Work in process 90,137 1,149 Finished goods 4,366,053 3,676,426 Total $ 6,300,794 $ 5,202,303 |
4. Commitments and Contingenc_2
4. Commitments and Contingencies (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Commitments And Contingencies | |
Minimum annual royalty payments | Year ending December 31, 2018: $ 3,500,000 2019: $ 4,500,000 2020: $ 5,100,000 |
1. Summary of Significant Acc_4
1. Summary of Significant Accounting Policies (Details) - USD ($) | Sep. 30, 2018 | Dec. 31, 2017 | |
Summary Of Significant Accounting Policies Tables Abstract | |||
Gross accounts receivable | $ 4,420,776 | $ 2,811,638 | |
Allowance for doubtful accounts | (20,744) | (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 | (20,744) | (582,126) | |
Total accounts receivable, net | 4,400,032 | 2,229,512 | |
Audit, legal, payroll | 253,255 | 314,504 | |
Trademark licensing costs | 875,000 | 750,000 | |
Reserve for returns and allowances* | [1] | 683,717 | 0 |
Other | 71,769 | 108,480 | |
Total accrued other expenses | $ 1,883,741 | $ 1,172,984 | |
[1] | Upon adoption of ASC 606 on January 1, 2018, certain accounts receivable allowances totaling $498,285 as of June 30, 2018 were reclassified to accrued other expenses as payable to the Company's customers and settled in cash or by credit on account. |
1. Summary of Significant Acc_5
1. Summary of Significant Accounting Policies (Details 1) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
Revenues | $ 9,000,060 | $ 8,582,076 | $ 24,859,173 | $ 20,556,157 |
Cable Modems & gateways | ||||
Revenues | 8,162,319 | 8,328,518 | 22,782,715 | 19,785,177 |
Other | ||||
Revenues | 837,741 | 253,558 | 2,076,458 | 770,980 |
Retailers | ||||
Revenues | 7,998,492 | 8,169,316 | 22,745,719 | 19,449,302 |
Distributors | ||||
Revenues | 552,346 | 231,765 | 1,255,259 | 503,321 |
Other | ||||
Revenues | $ 449,222 | $ 180,995 | $ 858,195 | $ 603,534 |
3. Inventories (Details)
3. Inventories (Details) - USD ($) | Sep. 30, 2018 | Dec. 31, 2017 |
Inventories Details Narrative Abstract | ||
Materials | $ 1,844,604 | $ 1,524,728 |
Work in process | 90,137 | 1,149 |
Finished goods | 4,366,053 | 3,676,426 |
Total inventories | $ 6,300,794 | $ 5,202,303 |
3. Inventories (Details Narrati
3. Inventories (Details Narrative) - USD ($) | 9 Months Ended | ||
Sep. 30, 2018 | Sep. 30, 2017 | Dec. 31, 2017 | |
Inventories Details Narrative Abstract | |||
Finished goods held by customer | $ 1,851,900 | $ 958,500 | |
Provision for inventory reserves | $ (120,420) | $ 186,440 |
4. Commitments and Contingenc_3
4. Commitments and Contingencies (Details) | Sep. 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 | 9 Months Ended | ||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
Two Customers Percentage of Sales | ||||
Percent concentration | 77.00% | 78.00% | ||
Three Customers Percentage of Receivables | ||||
Percent concentration | 72.00% | 83.00% | ||
Three Customers Percentage of Sales | ||||
Percent concentration | 92.00% | 90.00% |