Concentrations of Credit Risk, Major Customers, Major Suppliers and Geographic Information

12 Months Ended

Jul. 31, 2012

Concentrations of Credit Risk, Major Customers, Major Suppliers and Geographic Information [Abstract]

Concentrations of Credit Risk, Major Customers, Major Suppliers and Geographic Information

3. Concentrations of Credit Risk, Major Customers, Major Suppliers and Geographic Information

Financial instruments, which potentially subject the Company to a concentration of credit risk, consist principally of cash and trade accounts receivable. The Company maintains its cash balances primarily with large regional U.S. financial institutions and has not experienced losses. The Company’s products are sold principally to dealers, distributors, value added resellers, national accounts, the U.S. government and foreign telecommunications companies. The Company’s credit risk is limited principally to trade accounts receivable. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. No additional risk beyond amounts provided for collection losses is believed inherent in the Company’s trade accounts receivable.

During fiscal years 2012 and 2011, the Company recognized revenue from the United States federal government of $407,000, or 2% of total revenue and $735,000, or 3% of total revenue, respectively. Revenue from four major distributors of Cortelco was $10,105,000 or 45% of revenue during fiscal year 2012 and $9,285,000 or 40% of revenue for the fiscal year ended July 31, 2011. Revenue from one of these distributors was $3,518,000 or 16% of total revenue for the year ended July 31, 2012 and $3,950,000 or 17% of total revenue for the year ended July 31, 2011. As of July 31, 2012 and 2011, the Company had receivables from the federal government of $185,000 and $35,000, respectively. As of July 31, 2012 and 2011, the Company had receivables from four major distributors of $1,604,000 and $2,110,000, respectively. Two of these distributors accounted for 21% and 27% of trade accounts receivable at July 31, 2012 and 2011, respectively.

The Company purchases approximately 42% of its Cortelco phones from two major suppliers. A change in suppliers could cause a delay in manufacturing and a possible loss of sales, which could adversely affect operating results. During fiscal year 2012 and 2011, purchases from these two suppliers totaled approximately $3,441,000 and $5,272,000, respectively. As of July 31, 2012 and 2011, the balances payable to these two suppliers were $227,000 and $1,364,000, respectively.