ZOOM TELEPHONICS, INC.
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(Exact name of registrant as specified in its charter)
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Delaware
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04-2621506
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(State or other jurisdiction
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(I.R.S. Employer
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of incorporation or organization)
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Identification No.)
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Large accelerated filer
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o
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Accelerated filer
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o
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Non-accelerated filer
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o
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Smaller reporting company
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þ
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(Do not check if a smaller reporting company)
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●
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our ability to generate sales of Motorola branded products sufficient to make that portion of our business profitable;
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the sufficiency of our capital resources and the availability of debt and equity financing;
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potential costs and senior management distraction associated with patent-related legal proceedings;
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our reliance on a limited number of customers for a large portion of our revenue;
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the effect of changes in cable service providers’ policy of offering discounts when customers supply their own modem;
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product liability claims related to Connected Home products could harm our competitive position, results of operation and financial condition;
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the effect of competing technologies and the potential decline in the demand for our products;
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our reliance on sole-sourced manufacturers and component producers for a substantial percentage of our products;
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fluctuations in foreign currency exchange rates that may adversely affect our business;
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the uncertainty in global economic conditions;
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our reliance on an outsourcing partner in Mexico;
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our ability to succeed in the competitive broadband modem market;
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the development of new competitive technologies, products and services to meet customer demand;
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our ability to succeed in markets outside the US;
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our ability to manage inventory levels and product returns;
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our ability to produce sufficient quantities of quality products due to reliance on third party manufacturers;
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the impact of long lead times for cable modem production;
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the impact of competition on demand for our products and services;
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the impact of changes in environmental and other regulations and on our ability to obtain necessary certifications for our products and services;
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changes in laws or governmental regulations and industry standards impacting our products;
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our reliance on the continued service of our Chief Executive Officer and other key employees; and
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our ability to protect our intellectual property and operate without infringing the intellectual property of others.
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successfully and accurately anticipate customer demand;
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manage our product transitions, inventory levels, and manufacturing processes efficiently;
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distribute or introduce our products quickly in response to customer demand and technological advances;
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differentiate our products from those of our competitors; or
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otherwise compete successfully in the markets for our products.
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Cable modem competitors: ARRIS, Belkin / Linksys, D-Link, Hon Hai Network Systems (formerly Ambit Microsystems), Netgear, SMC Networks, Technicolor, TP-Link and Ubee Interactive.
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Dial-up modem competitors: Best Data, Hiro, Lite-On, Trendnet and US Robotics.
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DSL modem competitors: ARRIS, 3Com, Actiontec, Airties, Asus, Aztech, Best Data, Belkin / Linksys, D-Link, Huawei, Netgear, Sagemcom (formerly Sagem), Siemens (formerly Efficient Networks), Techicolor, TP-Link, Westell, Xavi, and ZyXEL Communications.
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Mobile broadband competitors: Cradlepoint, D-Link, Huawei, Netgear, Novatel Wireless, Sierra Wireless, and ZTE.
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Networking competitors: Belkin / Linksys, Buffalo, D-Link, Netgear, TP-Link and Trendnet.
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product performance, features, reliability and service;
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price;
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brand image;
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product availability and lead times;
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size and stability of operations;
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breadth of product line and shelf space;
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sales and distribution capability;
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technical support and service;
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product documentation and product warranties;
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relationships with providers of broadband access services; and
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certifications evidencing compliance with various requirements.
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● The current limited retail market for broadband modems;
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● The relatively small number of cable, telecommunications and Internet service providers that make up the majority of the market for broadband modems in the US, our largest market;
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● The significant bargaining power and market dominance of these large volume purchasers;
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● The time-consuming, expensive and uncertain certification processes of the various cable and DSL service providers; and
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● The strong relationships with service providers enjoyed by some incumbent equipment providers, including ARRIS for cable modems and Huawei for DSL and mobile broadband modems.
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Name
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Age
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Position with Zoom
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||
Frank B. Manning
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67
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Chief Executive Officer, President, & Chairman of the Board
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Terry Manning
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64
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Vice President of Sales and Marketing
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Deena Randall
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62
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Vice President of Operations
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Philip Frank
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44
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Chief Financial Officer & Director
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Fiscal Year Ended December 31, 2015
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High
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Low
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||||||
First Quarter
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$
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0.25
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$
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0.16
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Second Quarter
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$
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1.07
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$
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0.16
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Third Quarter
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$
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1.54
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$
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0.70
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Fourth Quarter
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$
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2.43
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$
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1.32
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Fiscal Year Ended December 31, 2014
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High
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Low
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||||||
First Quarter
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$
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0.14
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$
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0.11
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Second Quarter
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$
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0.20
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$
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0.13
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Third Quarter
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$
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0.28
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$
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0.14
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Fourth Quarter
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$
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0.25
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$
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0.14
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●
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computer peripherals retailers,
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●
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computer product distributors,
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●
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Internet service providers, and
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●
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original equipment manufacturers.
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Years Ended December 31,
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||||||||
2014
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2015
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|||||||
Net sales
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100.0
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%
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100.0
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%
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||||
Cost of goods sold
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70.7
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68.5
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Gross profit
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29.3
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31.5
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Operating expense:
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||||||||
Selling
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12.2
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14.6
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||||||
General and administration
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8.8
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11.4
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Research and development
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9.5
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12.4
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Total operating expenses
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30.5
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38.4
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Operating profit (loss)
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(1.2
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)
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(6.9
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)
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Other income (expense):
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Other, net
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2.3
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(0.8
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)
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Total other income (expense)
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2.3
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(0.8
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)
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Income (loss) before income taxes
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1.1
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(7.7
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)
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Income taxes (benefit)
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0.1
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0.1
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||||||
Net income (loss)
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1.0
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%
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(7.7
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)%
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Year 2014
Sales $000
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Year 2015
Sales $000
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Change
$000
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Change
%
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|||||||||||||
Dial-up
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$
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1,537
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$
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1,157
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$
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(380
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)
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(24.8
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)%
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Broadband, Wireless and Other Products
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10,364
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9,633
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(731
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)
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(7.1
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)%
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||||||||||
Total Net Sales
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$
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11,901
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$
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10,790
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$
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(1,111
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)
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(9.3
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)%
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Year 2014
Sales $000
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Year 2015
Sales $000
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Change
$000
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Change
%
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|||||||||||||
North America
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$
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11,564
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$
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10,588
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$
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(976
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)
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(8.4
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)%
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Outside North America
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337
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202
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(135
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)
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(40.1
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)%
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||||||||||
Total Net Sales
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$
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11,901
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$
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10,790
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$
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(1,111
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)
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(9.3
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)%
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Operating Expense
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Year 2014
Sales $000
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% Net
Sales
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Year 2015
Sales $000
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% Net
Sales
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Change
$000
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%
Change
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||||||||||||||||||
Selling expense
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$
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1,446
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12.2
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%
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$
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1,571
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14.6
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%
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$
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125
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8.7
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%
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||||||||||||
General and administrative expense
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1,052
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8.8
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%
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1,229
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11.4
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%
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177
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16.8
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%
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|||||||||||||||
Research and development expense
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1,133
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9.5
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%
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1,342
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12.4
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%
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209
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18.5
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%
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|||||||||||||||
Total operating expense
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$
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3,631
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30.5
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%
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$
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4,142
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38.4
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%
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$
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511
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14.1
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%
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Page
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||||
Index to Consolidated Financial Statements
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F-1 | |||
Report of Independent Registered Public Accounting Firm (Marcum LLP)
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F-2 | |||
Consolidated Balance Sheets as of December 31, 2015 and 2014
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F-3 | |||
Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2015 and 2014
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F-4 | |||
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2015 and 2014
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F-5 | |||
Consolidated Statements of Cash Flows for the years ended December 31, 2015 and 2014
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F-6 | |||
Notes to Consolidated Financial Statements
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F-7 – F-18 |
Plan Category
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Number Of Securities
To Be Issued Upon Exercise Of
Outstanding Options
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Weighted-Average Exercise Price Of Outstanding Options
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Number Of Securities
Remaining Available For
Future Issuance Under Equity
Compensation Plans (excluding securities reflected in column (a))
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|||||||||
(a)
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(b)
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(c)
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||||||||||
Equity compensation plans approved by security holders(1)
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2,761,500
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$
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0.39
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3,438,500
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||||||||
Equity compensation plans not approved by security holders
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---
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---
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---
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|||||||||
Total:
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2,761,500
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$
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0.39
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3,438,500
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(1)
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Includes the 2009 Stock Option Plan and the 2009 Directors Stock Option Plan. These plans were approved by the shareholders at the 2010 annual meeting. At the 2013 annual meeting, shareholders approved an increase to the total number of shares available for issuance for the 2009 Stock Option Plan. The new number of shares is 5,500,000. At the 2013 annual meeting, shareholders approved an increase to the total number of shares available for issuance for the 2009 Directors Stock Option Plan. The new number of shares is 700,000. The purposes of the 2009 Stock Option Plan are to attract and retain employees and provide an incentive for them to assist us in achieving our long-range performance goals, and to enable such employees to participate in our long-term growth. The purposes of the 2009 Directors Stock Option Plan is to attract and retain non-employee directors and to enable such directors to participate in our long-term growth. The 2009 Stock Option Plan and the 2009 Directors Stock Option Plan are administered by the Compensation Committee of the Board of Directors. All stock options granted under the 2009 Stock Option Plan and the 2009 Directors Stock Option Plan have been granted with an exercise price equal to at least the fair market value of the common stock on the date of grant.
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FEE CATEGORY
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2014
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2015
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||||||
Audit fees (1)
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$
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116,280
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$
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117,420
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Audit-related fees (2)
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––
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14,240
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||||||
Tax fees (3)
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––
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––
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||||||
Total fees
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$
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116,280
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$
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131,660
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(1)
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Audit Fees. Consists of fees billed for professional services rendered for the audit of Zoom’s consolidated financial statements and review of the interim consolidated financial statements included in quarterly reports and services that are normally provided in connection with statutory filings and engagements.
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(2)
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Audit-Related Fees. Consists of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of Zoom’s consolidated financial statements and are not reported under "Audit Fees". For 2015, fees are related to a stock rights offering and private placement.
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(3)
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Tax Fees. Consists of fees billed for professional services for tax compliance, tax advice and tax planning. Marcum LLP has not performed tax services for the Company.
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(a)
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Consolidated Financial Statements, Schedules and Exhibits:
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(1),(2)
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The consolidated financial statements and required schedules are indexed on page F-1.
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(3)
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Exhibits required by the Exhibit Table of Item 601 of SEC Regulation S-K. (Exhibit numbers refer to numbers in the Exhibit Table of Item 601.)
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2.1
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Separation and Distribution Agreement by and between Zoom Technologies, Inc. and Zoom Telephonics, Inc. (incorporated by reference to annex B of the preliminary proxy statement filed by Zoom Technologies, Inc. May 13, 2009).*
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3.1
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Form of Amended and Restated Certificate of Incorporation of Zoom Telephonics, Inc. (incorporated by reference to Exhibit 3.1 to Zoom Telephonics, Inc. Registration Statement on Form 10, filed with the Commission on September 4, 2009). *
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3.2
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Amendment to Amended and Restated Certificate of Incorporation of Zoom Telephonics, Inc. (incorporated by the reference to Exhibit 3.1 to the Form 8-K filed by the Company on November 18, 2015)*
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3.3
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Certificate of Designation of Series A Junior Participating Preferred Stock (incorporated by reference to Exhibit 3.2 to the Form 8-K filed by the Company on November 18, 2015)*
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3.4
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By-Laws of Zoom Telephonics, Inc. (incorporated by referenced to Exhibit 3.2 to Zoom Telephonics, Inc. Registration Statement on Form 10 filed with the Commission on September 4, 2009).*
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4.1
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Section 382 Rights Agreement, dated as of November 18, 2015, between Zoom Telephonics, Inc. and Computershare Trust Company, N.A., which includes the Form of Certificate of Designation of Series A Preferred Stock as Exhibit A, the Form of Right Certificate as Exhibit B and the Summary of Rights to Purchase Preferred Stock as Exhibit C (incorporated by reference to Exhibit 4.1 to the Form 8-K filed by the Company on November 18, 2015)*
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10.1
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Zoom Telephonics, Inc. 2009 Stock Option Plan (incorporated by reference to Appendix B to the Definitive Proxy Statement filed with the Commission on April 30, 2013).* **
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10.2
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Zoom Telephonics, Inc. 2009 Directors Stock Option Plan (incorporated by reference to Appendix C to the Definitive Proxy Statement filed with the Commission on April 30, 2013).* **
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10.3
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Form of director option grant pursuant to Zoom Telephonics, Inc. 2009 Directors Stock Option Plan (incorporated by reference to Exhibit 4.3 to the Form 8-K dated December 16, 2009).* **
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10.4
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Form of incentive stock option grant pursuant to Zoom Telephonics, Inc. 2009 Stock Option Plan (incorporated by reference to Exhibit 4.4 to the Form 8-K dated December 16, 2009).* **
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10.5
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Form of non-qualified stock option grant pursuant to Zoom Telephonics, Inc. 2009 Stock Option Plan (incorporated by reference to Exhibit 4.5 to the Form 8-K dated December 16, 2009).*
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10.6
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Standard lease by and between 201-207 South Street LLC and Zoom Telephonics, Inc. on December 22, 2006 to lease space for 24 months for headquarters offices (incorporated by reference to Exhibit 10.18 to Zoom Technologies, Inc.’s Annual Report on Form 10-K on March 30, 2007)*
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10.7
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First Amendment to Lease, Surrender and Extension Agreement dated November 11, 2008 between 201-207 South Street LLC and Zoom Telephonics, Inc. (incorporated by reference to Exhibit 10.29 to Zoom Technologies, Inc.’s Annual Report on Form 10-K on March 12, 2009)*
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10.8
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Binding Lease Amendment dated May 24, 2010 (incorporated by reference to Exhibit 10.1 to the 10-Q filed on August 13, 2010)*
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10.9
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Third Amendment to Lease and Surrender Agreement, dated as of December 1, 2011, between 201-207 South Street LLC and Zoom Telephonics, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 13, 2012)*
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10.10
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Severance Agreement between Zoom Telephonics, Inc. and Frank B. Manning (incorporated by reference to Exhibit 10.1 to the 10-Q filed on May 14, 2010)* **
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10.11
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Severance Agreement between Zoom Telephonics, Inc. and Deena Randall (incorporated by reference to Exhibit 10.3 to the 10-Q filed on May 14, 2010)* **
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10.12
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Severance Agreement between Zoom Telephonics, Inc. and Terry Manning (incorporated by reference to Exhibit 10.4 to the 10-Q filed on May 14, 2010)* **
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10.13
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Financing Agreement, dated December 18, 2012, between Zoom Telephonics, Inc. and Rosenthal & Rosenthal, Inc. (incorporated by reference to Exhibit 10.1 to the Form 8-K dated December 21, 2012)*
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10.14
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Intellectual Property Security Agreement, dated December 18, 2012, between Zoom Telephonics, Inc. and Rosenthal & Rosenthal, Inc. (incorporated by reference to Exhibit 10.2 to the Form 8-K dated December 21, 2012)*
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10.15
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Amendment dated March 25, 2014, effective January 1, 2013 to Financing Agreement, dated December 18, 2012, between Zoom Telephonics, Inc. and Rosehthal & Rosenthal, Inc. (incorporated by reference to Exhibit 10.1 to the Form 8-K filed by the Company on November 3, 2015)*
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10.16
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Amendment dated October 29, 2015, effective January 1, 2013, to Financing Agreement, dated December 18, 2012, between Zoom Telephonics, Inc. and Rosenthal & Rosenthal, Inc. (incorporated by reference to Exhibit 10.1 to the Form 8-K filed by the Company on November 3, 2015)*
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10.17
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Form of Common Stock Subscription Agreement (incorporated by reference to Exhibit 10.2 to the Form 8-K filed by the Company on September 28, 2015)*
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21.1
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Subsidiaries
|
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23.1
|
Independent Registered Public Accounting Firm’s Consent
|
|
31.1
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CEO Certification, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
31.2
|
CFO Certification, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
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32.1
|
CEO Certification, Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32.1
|
CFO Certification, Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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*
|
In accordance with Rule 12b-32 under the Securities Exchange Act of 1934, as amended, reference is made to the documents previously filed with the Securities and Exchange Commission, which documents are hereby incorporated by reference.
|
|
**
|
Compensation Plan or Arrangement.
|
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(b)
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Exhibits - See Item 15 (a) (3) above for a list of Exhibits incorporated herein by reference or filed with this Report.
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ZOOM TELEPHONICS, INC.
(Registrant)
|
||
Date: March 15, 2016
|
By:
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/s/ Frank B. Manning
|
Frank B. Manning, President
(Principal Executive Officer)
|
||
Date: March 15, 2016
|
By:
|
/s/ PHILIP FRANK
|
Philip Frank, Chief Financial Officer
(Principal Financial and Accounting Officer)
|
Signature
|
Title
|
Date
|
||
President, Chief Executive Officer and Chairman of the Board
|
||||
/s/ Frank B. Manning
|
(Principal Executive Officer)
|
March 15, 2016
|
||
Frank B. Manning
|
||||
Chief Financial Officer and Director
|
||||
/s/ Philip Frank
|
(Principal Financial Officer)
|
March 15, 2016
|
||
Philip Frank
|
||||
/s/ Robert Crowley
|
Director
|
March 15, 2016
|
||
Robert Crowley
|
/s/ Joseph Donovan
|
Director
|
March 15, 2016
|
||
Joseph Donovan
|
||||
/s/ Peter R. Kramer
|
Director
|
March 15, 2016
|
||
Peter R. Kramer
|
||||
/s/ George Patterson
|
Director
|
March 15, 2016
|
||
George Patterson
|
Page
|
||||
Report of Independent Registered Public Accounting Firm (Marcum LLP)
|
F-2 | |||
Consolidated Balance Sheets as of December 31, 2015 and 2014
|
F-3 | |||
Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2015 and 2014
|
F-4 | |||
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2015 and 2014
|
F-5 | |||
Consolidated Statements of Cash Flows for the years ended December 31, 2015 and 2014
|
F-6 | |||
Notes to Consolidated Financial Statements
|
F-7 – F-18 |
/s/ Marcum LLP
|
|
MARCUM LLP
Boston, Massachusetts
March 15, 2016
|
December 31,
|
||||||||
2015
|
2014
|
|||||||
ASSETS
|
||||||||
Current assets
|
||||||||
Cash and cash equivalents
|
$
|
1,846,704
|
$
|
137,637
|
||||
Accounts receivable, net of allowances of $483,349 and $381,234 at December 31, 2015 and 2014, respectively
|
1,079,145
|
1,811,006
|
||||||
Inventories, net
|
2,784,610
|
1,724,507
|
||||||
Prepaid expenses and other current assets
|
381,205
|
270,263
|
||||||
Total current assets
|
6,091,664
|
3,943,413
|
||||||
Equipment, net
|
205,132
|
67,142
|
||||||
Other assets
|
573,049
|
––
|
||||||
Total assets
|
$
|
6,869,845
|
$
|
4,010,555
|
||||
LIABILITIES AND STOCKHOLDERS' EQUITY
|
||||||||
Current liabilities
|
||||||||
Bank credit line
|
$
|
––
|
$
|
840,585
|
||||
Accounts payable
|
1,423,503
|
726,627
|
||||||
Accrued expenses
|
292,756
|
284,736
|
||||||
Total current liabilities
|
1,716,259
|
1,851,948
|
||||||
Total liabilities
|
1,716,259
|
1,851,948
|
||||||
Commitments and contingencies (Note 6)
|
||||||||
|
|
|||||||
Stockholders' equity
Common stock: Authorized: 25,000,000 shares at $0.01 par value
|
||||||||
Issued and outstanding: 13,477,803 shares and 7,982,704 shares at December 31, 2015 and 2014, respectively
|
134,778
|
79,827
|
||||||
Additional paid-in capital
|
37,965,230
|
34,192,066
|
||||||
Accumulated deficit
|
(32,946,422
|
)
|
(32,113,286
|
)
|
||||
Total stockholders' equity
|
5,153,586
|
2,158,607
|
||||||
Total liabilities and stockholders' equity
|
$
|
6,869,845
|
$
|
4,010,555
|
2015
|
2014
|
|||||||
Net sales
|
$
|
10,790,342
|
$
|
11,901,339
|
||||
Cost of goods sold
|
7,388,075
|
8,409,665
|
||||||
Gross profit
|
3,402,267
|
3,491,674
|
||||||
|
|
|||||||
Operating expenses:
|
||||||||
Selling
|
1,571,256
|
1,446,110
|
||||||
General and administrative
|
1,229,198
|
1,052,326
|
||||||
Research and development
|
1,342,081
|
1,132,791
|
||||||
4,142,535
|
3,631,227
|
|||||||
Operating profit (loss)
|
(740,268
|
)
|
(139,553
|
)
|
||||
Other :
|
||||||||
Interest income
|
444
|
33
|
||||||
Interest expense
|
(72,360
|
)
|
(77,225
|
)
|
||||
Other income (expense), net
|
(13,589
|
)
|
346,311
|
|||||
Total other income (expense), net
|
(85,505
|
)
|
269,119
|
|||||
Income (loss) before income taxes
|
(825,773
|
)
|
129,566
|
|||||
Income taxes (benefit)
|
7,363
|
7,080
|
||||||
Net income (loss)
|
$
|
(833,136
|
)
|
$
|
122,486
|
|||
Other comprehensive income (loss):
|
||||||||
Foreign currency translation adjustments
|
––
|
(3,621
|
)
|
|||||
Foreign currency translation recognition upon reclassification from accumulated other comprehensive income
|
––
|
(360,734
|
)
|
|||||
Total comprehensive income (loss)
|
$
|
(833,136
|
)
|
$
|
(241,869
|
)
|
||
Basic and diluted net income (loss) per share
|
$
|
(0.09
|
)
|
$
|
0.02
|
|||
Weighted average common and common equivalent shares:
|
||||||||
Basic and Diluted
|
9,470,848
|
7,982,704
|
Common Stock
|
||||||||||||||||||||||||
Shares
|
Amount
|
Additional
Paid In
Capital
|
Accumulated
Deficit
|
Accumulated
Other Comprehensive Income (Loss)
|
Total
|
|||||||||||||||||||
Balance at January 1, 2014
|
7,982,704 | $ | 79,827 | $ | 34,177,779 | $ | (32,235,772 | ) | $ | 364,355 | $ | 2,386,189 | ||||||||||||
Net income (loss)
|
–– | –– | –– | 122,486 | –– | 122,486 | ||||||||||||||||||
Total other comprehensive income (loss)
|
–– | –– | –– | –– | (364,355 | ) | (364,355 | ) | ||||||||||||||||
Stock based compensation
|
–– | –– | 14,287 | –– | –– | 14,287 | ||||||||||||||||||
Balance at December 31, 2014
|
7,982,704 | $ | 79,827 | $ | 34,192,066 | $ | (32,113,286 | ) | $ | –– | $ | 2,158,607 | ||||||||||||
Net income (loss)
|
–– | –– | –– | (833,136 | ) | –– | (833,136 | ) | ||||||||||||||||
Private placement offering (net of issuance costs of $16,000)
|
4,909,999 | 49,100 | 3,371,901 | –– | –– | 3,421,001 | ||||||||||||||||||
Stock rights offering (net of issuance costs of $39,780)
|
298,600 | 2,986 | 225,974 | –– | –– | 228,960 | ||||||||||||||||||
Stock option exercise
|
286,500 | 2,865 | 99,755 | 102,620 | ||||||||||||||||||||
Stock based compensation
|
–– | –– | 75,534 | –– | –– | 75,534 | ||||||||||||||||||
Balance at December 31, 2015
|
13,477,803 | $ | 134,778 | $ | 37,965,230 | $ | (32,946,422 | ) | $ | –– | $ | 5,153,586 |
2015
|
2014
|
|||||||
Operating activities:
|
||||||||
Net income (loss)
|
$
|
(833,136
|
)
|
$
|
122,486
|
|||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
||||||||
Stock based compensation
|
75,534
|
14,287
|
||||||
Depreciation and amortization
|
121,027
|
9,048
|
||||||
Provision (recovery) for accounts receivable allowances
|
(3,915
|
)
|
574
|
|||||
Provision for inventory reserves
|
18,078
|
81,843
|
||||||
Reclassification out of accumulated other comprehensive income (loss)
|
––
|
(360,734
|
)
|
|||||
Changes in operating assets and liabilities:
|
||||||||
Accounts receivable
|
735,776
|
(136,768
|
)
|
|||||
Inventories
|
(1,078,181
|
)
|
(92,269
|
)
|
||||
Prepaid expense and other current assets
|
(110,942
|
)
|
(45,111
|
)
|
||||
Accounts payable and accrued expenses
|
704,896
|
(4,593
|
)
|
|||||
Net cash provided by (used in) operating activities
|
(370,863
|
)
|
(411,237
|
)
|
||||
Investing activities:
|
||||||||
Purchases of plant and equipment
|
(177,066
|
)
|
(25,165
|
)
|
||||
Other assets
|
(655,000
|
)
|
––
|
|||||
Net cash provided by (used in) investing activities
|
(832,066
|
)
|
(25,165
|
)
|
||||
Financing activities:
|
||||||||
Proceeds from stock option exercise
|
102,620
|
––
|
||||||
Proceeds from private placement offering
|
3,437,001
|
––
|
||||||
Issuance costs of private placement offering
|
(16,000
|
)
|
––
|
|||||
Proceeds from stock rights offering
|
268,740
|
––
|
||||||
Issuance costs of stock rights offering
|
(39,780
|
)
|
––
|
|||||
Net funds (to) from bank credit lines
|
(840,585
|
)
|
522,267
|
|||||
Net cash provided by (used in) financing activities
|
2,911,996
|
522,267
|
||||||
Effect of exchange rate changes on cash
|
––
|
(3,621
|
)
|
|||||
Net change in cash
|
1,709,067
|
82,244
|
|
|||||
Cash and cash equivalents at beginning of year
|
137,637
|
55,393
|
||||||
Cash and cash equivalents at end of year
|
$
|
1,846,704
|
$
|
137,637
|
||||
Supplemental disclosures of cash flow information:
|
||||||||
Cash paid during the period for:
|
||||||||
Interest
|
$
|
72,360
|
$
|
77,225
|
||||
Income taxes
|
$
|
7,363
|
$
|
7,080
|
2015
|
2014
|
|||||||
Weighted average shares outstanding – used to compute basic earnings (loss) per share
|
9,470,848
|
7,982,704
|
||||||
Net effect of dilutive potential common shares outstanding, based on the treasury stock method
|
––
|
––
|
||||||
Weighted average shares outstanding – used to compute diluted earnings (loss) per share
|
9,470,848
|
7,982,701
|
·
|
Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.
|
·
|
Level 2 - Inputs are inputs (other than quoted prices included within Level 1) that are observable for the asset or liability, either directly or indirectly.
|
·
|
Level 3 - Inputs include unobservable inputs for the asset or liability and rely on management's own assumptions about the assumptions that market participants would use in pricing the asset or liability. (The unobservable inputs should be developed based on the best information available in the circumstances and may include the Company’s own data.)
|
2015
|
2014
|
|||||||
Materials
|
$
|
477,929
|
$
|
300,739
|
||||
Finished goods
|
2,306,681
|
1,423,768
|
||||||
Total
|
$
|
2,784,610
|
$
|
1,724,507
|
2015
|
2014
|
Estimated
Useful lives
in years
|
||||||||||
Computer hardware and software
|
$
|
209,517
|
$
|
196,070
|
3
|
|||||||
Machinery and equipment
|
265,446
|
258,446
|
5
|
|||||||||
Molds, tools and dies
|
244,192
|
96,557
|
5
|
|||||||||
Office furniture and fixtures
|
39,451
|
38,938
|
5
|
|||||||||
758,606
|
590,011
|
|||||||||||
Accumulated depreciation
|
(553,474
|
)
|
(522,869
|
)
|
||||||||
Equipment, net
|
$
|
205,132
|
$
|
67,142
|
||||||||
Depreciation expense for year ended
|
$
|
39,076
|
$
|
9,048
|
Year ending December 31,
|
|
2016:
|
$2,000,000
|
2017:
|
$2,400,000
|
2018:
|
$2,600,000
|
2019:
|
$2,600,000
|
2020:
|
$2,600,000
|
Number of
shares
|
Weighted
average
exercise price
|
|||||||
Balance as of January 1, 2014
|
2,315,000
|
$
|
0.35
|
|||||
Granted
|
50,000
|
0.12
|
||||||
Exercised
|
––
|
––
|
||||||
Expired
|
(674,500
|
)
|
0.49
|
|||||
Balance as of December 31, 2014
|
1,690,500
|
$
|
0.29
|
|||||
Granted
|
1,155,000
|
0.49
|
||||||
Exercised
|
(256,500
|
)
|
0.36
|
|||||
Expired
|
(52,500
|
)
|
0.16
|
|||||
Balance as of December 31, 2015
|
2,536,500
|
$
|
0.38
|
Options Outstanding
|
Options Exercisable
|
|||||||||||||||||||||
Exercise
Prices
|
Number
Outstanding
|
Weighted Average Remaining Contractual Life
|
Weighted Average Exercise Price
|
Number
Exercisable
|
Weighted Average Exercise Price
|
|||||||||||||||||
$
|
0.18 to 0.25
|
2,115,000
|
2.55
|
$
|
0.25
|
1,421,250
|
$
|
0.22
|
||||||||||||||
$
|
0.48 to 1.85
|
421,500
|
0.41
|
$
|
1.03
|
226,500
|
$
|
0.07
|
||||||||||||||
$
|
0.18 to 1.85
|
2,536,500
|
2.96
|
$
|
0.38
|
1,647,750
|
$
|
0.29
|
Number of
shares
|
Weighted
average
exercise price
|
|||||||
Balance as of January 1, 2014
|
270,000
|
0.31
|
||||||
Granted
|
60,000
|
0.13
|
||||||
Exercised
|
––
|
––
|
||||||
Expired
|
(165,000
|
)
|
––
|
|||||
Balance as of December 31, 2014
|
165,000
|
0.24
|
||||||
Granted
|
105,000
|
0.87
|
||||||
Exercised
|
(30,000
|
)
|
0.31
|
|||||
Expired
|
(15,000
|
)
|
0.41
|
|||||
Balance as of December 31, 2015
|
225,000
|
$
|
0.51
|
Options Outstanding
|
Options Exercisable
|
|||||||||||||||||||||
Exercise Prices
|
Number
Outstanding
|
Weighted Average
Remaining Contractual Life
|
Weighted Average
Exercise Price
|
Number
Exercisable
|
Weighted Average
Exercise Price
|
|||||||||||||||||
$
|
0.12-0.14
|
45,000
|
3.3
|
$
|
0.13
|
45,000
|
$
|
0.13
|
||||||||||||||
$
|
0.16-0.20
|
30,000
|
2.0
|
$
|
0.18
|
30,000
|
$
|
0.18
|
||||||||||||||
$
|
0.25-0.26
|
30,000
|
1.3
|
$
|
0.26
|
30,000
|
$
|
0.26
|
||||||||||||||
$
|
0.35-0.36
|
15,000
|
.6
|
$
|
0.36
|
15,000
|
$
|
0.36
|
||||||||||||||
$
|
0.18-1.20
|
105,000
|
4.6
|
$
|
0.87
|
105,000
|
$
|
0.87
|
||||||||||||||
$
|
0.12-1.20
|
225,000
|
3.30
|
$
|
0.51
|
225,000
|
$
|
0.51
|
2015
|
2014
|
|||||||
Assumptions
|
||||||||
Expected life
|
2.75 (yrs) - 3.5 (yrs)
|
2.75 (yrs) - 3.5 (yrs)
|
||||||
Expected volatility
|
41.69% - 45.52 | % | 46.40% - 48.71 | % | ||||
Risk-free interest rate
|
0.67% - 1.57 | % | 0.57% - 1.32 | % | ||||
Expected dividend yield
|
0.00 | % | 0.00 | % |
Current
|
Deferred
|
Total
|
||||||||||
Year Ended December 31, 2014:
|
||||||||||||
U.S. federal
|
$
|
––
|
$
|
––
|
$
|
––
|
||||||
State and local
|
––
|
––
|
––
|
|||||||||
Foreign
|
7,080
|
––
|
7,080
|
|||||||||
$
|
7,080
|
$
|
––
|
$
|
7,080
|
|||||||
Year Ended December 31, 2015:
|
||||||||||||
U.S. federal
|
$
|
––
|
$
|
––
|
$
|
––
|
||||||
State and local
|
––
|
––
|
––
|
|||||||||
Foreign
|
7,363
|
––
|
7,363
|
|||||||||
$
|
7,363
|
$
|
––
|
$
|
7,363
|
2015
|
2014
|
|||||||
Computed "expected" US tax (benefit) at Federal statutory rate
|
$
|
(283,266
|
)
|
$
|
41,645
|
|||
Change resulting from:
|
||||||||
State and local income taxes, net of federal income tax benefit
|
(55,828
|
)
|
––
|
|||||
Valuation allowance
|
414,612
|
(281,039
|
)
|
|||||
Non––deductible items
|
(68,155
|
)
|
12,063
|
|||||
Expired State Net Operating Losses
|
––
|
234,411
|
||||||
Income tax expense (benefit)
|
$
|
7,363
|
$
|
7,080
|
2015
|
2014
|
|||||||
Deferred income tax assets:
|
||||||||
Inventories
|
$
|
90,879
|
$
|
132,511
|
||||
Accounts receivable
|
181,223
|
143,780
|
||||||
Accrued expenses
|
43,668
|
36,621
|
||||||
Net operating loss and tax credit carry forwards
|
18,272,306
|
17,863,473
|
||||||
Plant and equipment
|
590
|
4,629
|
||||||
Stock compensation
|
97,464
|
90,504
|
||||||
Other – investment impairments
|
127,855
|
127,855
|
||||||
Total deferred income tax assets
|
18,813,985
|
18,399,373
|
||||||
Valuation allowance
|
(18,813,985
|
)
|
(18,399,373
|
)
|
||||
Net deferred tax assets
|
$
|
––
|
$
|
––
|
2014
|
Percent
|
2015
|
Percent
|
|||||||||||||
North America
|
$
|
11,563,956
|
97
|
%
|
$
|
10,558,167
|
98
|
%
|
||||||||
Outside North America
|
337,383
|
3
|
%
|
202,175
|
2
|
%
|
||||||||||
Total
|
$
|
11,901,339
|
100
|
%
|
$
|
10,790,342
|
100
|
%
|
2015
|
2014
|
|||||||
Accumulated Other Comprehensive Income (Loss) Components :
|
||||||||
Foreign currency translations:
|
||||||||
Balance at beginning of period
|
$
|
––
|
$
|
364,355
|
||||
Current period currency translation adjustments
|
––
|
(3,621
|
)
|
|||||
Amounts reclassified on closing of U.K. branch in 2014
|
––
|
(360,734
|
)
|
|||||
Balance at end of period
|
$
|
––
|
$
|
––
|
||||
Accumulated Other Comprehensive Income (Loss) end of period
|
$
|
––
|
$
|
––
|
Management of the Company has reviewed subsequent events from December 31, 2015 through the date of filing and has concluded that, except as noted below, there were no subsequent events requiring adjustment to or disclosure in these consolidated financial statements. The Company was required to pay a one-time setup fee of $100,000, which was paid on January 4, 2016 under a licensing agreement.
|
1)
|
I have reviewed this report on Form 10-K of Zoom Telephonics, Inc.;
|
2)
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3)
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4)
|
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
5)
|
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial data; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date: March 15, 2016
|
By:
|
/s/ Frank B. Manning
|
Frank B. Manning, President
(Principal Executive Officer)
|
||
1)
|
I have reviewed this report on Form 10-K of Zoom Telephonics, Inc.;
|
2)
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3)
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4)
|
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
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5)
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The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
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a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial data; and
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b)
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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Date: March 15, 2016
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By:
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/s/ PHILIP FRANK
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Philip Frank, Chief Financial Officer
(Principal Financial and Accounting Officer)
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(1)
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the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
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(2)
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the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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Date: March 15, 2016
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By:
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/s/ Frank B. Manning
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Frank B. Manning, President
(Principal Executive Officer)
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||
Date: March 15, 2016
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By:
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/s/ PHILIP FRANK
|
Philip Frank, Chief Financial Officer
(Principal Financial and Accounting Officer)
|
Document and Entity Information - USD ($) |
12 Months Ended | ||
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Dec. 31, 2015 |
Feb. 29, 2016 |
Jun. 30, 2015 |
|
Document And Entity Information | |||
Entity Registrant Name | Zoom Telephonics, Inc. | ||
Entity Central Index Key | 0001467761 | ||
Document Type | 10-K | ||
Document Period End Date | Dec. 31, 2015 | ||
Amendment Flag | false | ||
Current Fiscal Year End Date | --12-31 | ||
Is Entity a Well-known Seasoned Issuer? | No | ||
Is Entity a Voluntary Filer? | No | ||
Is Entity's Reporting Status Current? | Yes | ||
Entity Filer Category | Smaller Reporting Company | ||
Entity Public Float | $ 10,642,122 | ||
Entity Common Stock, Shares Outstanding | 13,580,303 | ||
Document Fiscal Period Focus | FY | ||
Document Fiscal Year Focus | 2015 |
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) |
Dec. 31, 2015 |
Dec. 31, 2014 |
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Assets | ||
Accounts receivable allowances | $ 483,349 | $ 381,234 |
Stockholders Equity | ||
Common stock, par value | $ 0.01 | $ 0.01 |
Common stock, authorized | 25,000,000 | 25,000,000 |
Common stock, issued | 13,477,803 | 7,982,704 |
Common stock, outstanding | 13,477,803 | 7,982,704 |
1. NATURE OF OPERATIONS |
12 Months Ended |
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Dec. 31, 2015 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
NATURE OF OPERATIONS | Zoom Telephonics, Inc. and its wholly owned subsidiary MTRLC LLC (collectively the "Company"), designs, produces, markets and supports cable modems and other communication products. |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||
Notes to Financial Statements | |||||||||||||||||||||||||||||||||||||||||||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | (a) Basis of Presentation and Use of Estimates
The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). All significant intercompany balances and transactions have been eliminated in the consolidation
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expense during the reporting period. Actual results may differ from those estimates. Significant estimates made by the Company include: 1) allowance for doubtful accounts for accounts receivable (collectability and sales returns) and asset valuation allowance for deferred income tax assets; 2) write-downs of inventory for slow-moving and obsolete items, and market valuations; 3) stock based compensation; 4) management plan forecast; 5) and estimated life of certification costs.
(b) Cash and Cash Equivalents
All highly liquid investments with original maturities of less than 90 days from the date of purchase are classified as cash equivalents. Cash equivalents consist exclusively of money market funds. The Company has deposits at a limited number of financial institutions with federally insured limits. Balances of cash and cash equivalents at these institutions can be in excess of the insured limits. However, the Company believes that the institutions are financially sound and there is only nominal risk of loss.
(c) Inventories
Inventories are stated at the lower of cost, determined using the first-in, first-out method, or market. Consigned inventory is held at third-party locations. The Company retains title to the inventory until purchased by the third-party. Consigned inventory, consisting of finished goods, was approximately $119,000 and $86,000 at December 31, 2015 and 2014, respectively.
(d) Equipment
Equipment is stated at cost, less accumulated depreciation. Depreciation of equipment is provided using the straight-line method over the estimated useful lives of the assets.
(e) Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset or asset group to undiscounted future net cash flows expected to be generated by the asset or asset group. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds their fair value. Assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell.
(f) Income Taxes
Deferred income taxes are provided on the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and on net operating loss and tax credit carry forwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided for that portion of deferred tax assets not expected to be realized.
(g) Earnings (Loss) Per Common Share
Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares and dilutive potential common shares outstanding during the period. 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 common shares at the average market price during the period. A summary of the denominators used to compute basic and diluted earnings (loss) per share follow:
Potential common shares for which inclusion would have the effect of increasing diluted earnings per share (i.e., anti-dilutive) are excluded from the computation. Options to purchase 2,761,500 shares of common stock at December 31, 2015 and 1,855,500 shares of common stock as of December 31, 2014 were outstanding, but not included in the computation of diluted earnings per share as their effect would be anti-dilutive.
(h) Revenue Recognition
The Company primarily sells hardware products to its customers. The hardware products include dial-up modems, DSL modems, cable modems, embedded modems, ISDN modems, telephone dialers, and wireless and wired networking equipment. The Company does not sell software.
The Company derives its net sales primarily from the sales of hardware products to computer peripherals retailers, computer product distributors, OEMs, and direct to consumers and other channel partners via the Internet.
The Company recognizes net hardware sales at the point when the customers take legal ownership of the delivered products. Legal ownership passes to the customer based on the contractual delivery terms specified in signed contracts and purchase orders, which are both used extensively. Many customer contracts or purchase orders specify FOB destination, which means buyer takes delivery of goods once the goods arrive at the buyers dock.
When the Company consigns inventory to a retailer, sales revenue for an item in that inventory is recognized when that item is sold by the retailer to a customer. The item remains in the Companys inventory when it is consigned, and moves out of Company inventory when the item is sold by the retailer.
The Company's net sales of hardware are reduced by certain events that are characteristic of the sales of hardware to retailers of computer peripherals. These events are product returns, certain sales and marketing incentives, price protection refunds, and consumer and in-store mail-in rebates. These are accounted for as a reduction of net sales based on management estimates, which are reconciled to actual customer or end-consumer credits on a monthly or quarterly basis.
The estimates for product returns are based on recent historical trends plus estimates for returns prompted by announced stock rotations, announced customer store closings, etc. Management analyzes historical returns, current economic trends, and changes in customer demand and acceptance of the Company's products when evaluating the adequacy of sales return allowances. Product return reserves were approximately $322.0 thousand and $354.0 thousand at December 31, 2015 and 2014, respectively. The Company's estimates for price protection refunds require a detailed understanding and tracking by customer, by sales program. Estimated price protection refunds are recorded in the same period as the announcement of a pricing change. Information from customer inventory-on-hand reports or from direct communications with the customers is used to estimate the refund, which is recorded as a reserve against accounts receivable and a reduction of current period revenue. Price protection reserves were approximately $131.3 and $0 thousand at December 31, 2015 and 2014, respectively. The increase in price protection reserve was driven by a decrease in price for certain products in response to a competitors decrease in price for similar products. The Company's estimates for consumer mail-in rebates are comprised of actual rebate claims processed by the rebate redemption centers plus an accrual for an estimated lag in processing. The Company's estimates for store rebates are comprised of actual credit requests from the eligible customers. Rebate reserves were $0 at both December 31, 2015 and 2014. Additionally, sales and marketing incentive reserves were approximately $22.0 thousand and $15.2 thousand at December 31, 2015 and 2014, respectively. The Companys allowances for doubtful accounts were approximately $8.1 thousand and $12.0 thousand at December 31, 2015 and 2014, respectively. These allowances are included in allowances for accounts receivable on the accompanying consolidated balance sheets.
The Company accounts for point-of-sale taxes on a net basis.
(i) Fair Value of Financial Instruments
The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels:
Financial instruments consist of cash and cash equivalents, accounts receivable, bank debt, accounts payable, and accrued expenses. Due to the short-term nature and payment terms associated with these instruments, their carrying amounts approximate fair value.
(j) Stock-Based Compensation
Compensation cost for awards is generally recognized over the required service period based on the estimated fair value of the awards on their grant date. Fair value is determined using the Black-Scholes option-pricing model wherein the discount rate is based on published daily treasury interest rates for zero-coupon bonds available from the US Treasury. When not available for expected option lives, the Company has used implied zero-coupon yields available from sources such as Bloomberg. Volatility is based on the historical volatility over a period that is commensurate with the expected life of the option granted.
(k) Advertising Costs
Advertising costs are expensed as incurred and reported in selling expense in the accompanying statements of operations and comprehensive income (loss), and include costs of advertising, production, trade shows, and other activities designed to enhance demand for the Company's products. There are no deferred advertising costs in the accompanying balance sheets. The Company reported advertising costs of approximately $459.5 thousand in 2015 and $255.0 thousand in 2014.
(l) Foreign Currencies
The Company generates a portion of its revenues in markets outside North America principally in transactions denominated in foreign currencies, which exposes the Company to risks of foreign currency fluctuations. Foreign currency transaction gains and losses are reflected in operations and were not material for any period presented. The Company does not use derivative financial instruments.
(m) Warranty Costs
The Company provides for the estimated costs that may be incurred under its standard warranty obligations, based on actual historical repair costs. The reserve for the provision for warranty costs was $21,475 and $25,069 at December 31, 2015 and 2014, respectively.
(n) Shipping and Freight Costs
The Company records the expense associated with customer-delivery shipping and freight costs in selling expense. The Company reported shipping and freight costs of $247.1 thousand in 2015 and $232.1 thousand in 2014.
(o) Recently Issued Accounting Pronouncements
In August 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-15, "Presentation of Financial Statements Going Concern." This standard requires management to evaluate for each annual and interim reporting period whether it is probable that the reporting entity will not be able to meet its obligations as they become due within one year after the date that the financial statements are issued. If the entity is in such a position, the standard provides for certain disclosures depending on whether or not the entity will be able to successfully mitigate its going concern status. This guidance is effective for annual periods ending after December 15, 2016 and interim periods within annual periods beginning after December 15, 2016. Early application is permitted. The Company does not expect a material impact to the Companys financial condition, results from operations, or cash flows from the adoption of this guidance.
In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. Currently, all inventory is measured at the lower of cost or market. ASU 2015-11 changes the measurement principle for inventory from the lower of cost or market to the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less reasonably predictable costs of completion, disposal and transportation. The standard is effective for annual reporting periods beginning after December 15, 2015, which for the Company will commence with the year beginning January 1, 2016. Prospective application is required. The Company does not believe the implementation of this standard will have a material impact on the Companys consolidated financial statements.
In August 2015, the FASB issued ASU No. 2015-14 Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. The amendments in this Update defer the effective date of ASU 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASC 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is assessing the impact to the Company's financial condition, results of operations or cash flows from the adoption of this guidance.
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. The adoption of this standard is not expected to have a material impact on the Companys consolidated financial condition, results of operations and cash flows.
(p) Other Assets
Other assets are stated at cost, less accumulated amortization. Certain certification costs incurred that are necessary to market and sell products are capitalized and reported as other assets in the accompanying consolidated balance sheets when the costs are measurable, significant, and whose related products are projected to generate revenue beyond twelve months. These costs are amortized over an eighteen-month period, beginning when the related products are available to be sold. Total certification costs capitalized through December 31, 2015 were $655,000, accumulated amortization was $81,951 at December 31, 2015, and amortization expense was $81,951 in 2015. There were no certification costs capitalized through December 31, 2014 and therefore no related accumulated amortization at December 31, 2014 and no amortization expense in 2014. Expected amortization expense is $238,331 in 2016, $271,384 in 2017, and $63,334 in 2018. |
3. LIQUIDITY |
12 Months Ended |
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Dec. 31, 2015 | |
Notes to Financial Statements | |
LIQUIDITY | On December 31, 2015 the Company had working capital of $4.4 million including $1.8 million in cash and cash equivalents. On December 31, 2014 the Company had working capital of $2.1 million including $138 thousand in cash and cash equivalents. The Companys current ratio at December 31, 2015 was 3.6 compared to 2.1 at December 31, 2014.
The Company raised $3.65 million in 2015 from a $3.42 million private placement in September and a $229 thousand rights offering in July. The Companys cash balance was also augmented by a $697 thousand increase in accounts payable, a $732 thousand decrease in net accounts receivable. These increases were offset by a pay-down in the outstanding bank debt of $840 thousand, a $1.1 million increase in net inventory and a 12-month loss of $833 thousand. As of December 31, 2015 the Company had no bank debt, a maximum available line of credit of $1.25 million, working capital of $4.4 million, and a current ratio of 3.6. In 2014, the Companys operating activities used $411 thousand in cash, primarily due to $361 thousand recognized foreign currency gains previously reported in Accumulated Other Comprehensive Income on the Consolidated Balance Sheets, and $137 thousand increase in accounts receivable.
On May 18, 2015, the Company announced licensing of the Motorola trademark for cable modems and gateways for the US and Canada for 5 years starting January 2016. In order to support anticipated sales growth, the Company raised approximately $3.65 million net, as described above. The Company believes that its existing financial resources along with its existing line of credit, with the potential to increase the maximum credit limit, will be sufficient to fund operations for the foreseeable future if the Company management's sales and operating profit expectations are met. |
4. INVENTORIES |
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||
Notes to Financial Statements | |||||||||||||||||||||||||||||||||||||
INVENTORIES | Inventories, net of reserves, consist of the following at December 31:
Finished goods includes consigned inventory held by our customers of $119,100 and $85,600 at December 31, 2015 and 2014, respectively. The Company reviews inventory for obsolete and slow moving products each quarter and makes provisions based on its estimate of the probability that the material will not be consumed or that it will be sold below cost. The provision for inventory reserves was $18,078 and $81,843 for the years ending December 31, 2015 and 2014, respectively. |
5. EQUIPMENT |
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Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EQUIPMENT | Equipment consists of the following at December 31:
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6. COMMITMENTS AND CONTINGENCIES |
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Dec. 31, 2015 | |||||||||||||
Notes to Financial Statements | |||||||||||||
COMMITMENTS AND CONTINGENCIES | (a) Lease Obligations
In December 2011 the Company signed a lease amendment for 10,600 square feet effective June 1, 2012 at the Companys headquarters in Boston, Massachusetts. This lease expires on April 30, 2016.
The Company performs most of the final assembly, test, packaging, warehousing and distribution at a production and warehouse facility in Tijuana, Mexico. In November 2014, the Company signed a one-year lease with five one-year renewal options thereafter for an 11,390 square foot facility. In September 2015, the Company extended the term of the lease from December 1, 2015 through November 30, 2018. In September 2015, the Company also signed a new lease for additional space in the adjacent building, which doubles our existing capacity. The term of the lease is from March 1, 2016 through November 30, 2018 with early access granted as of December 1, 2015.
In order to facilitate the Companys current and planned increase in production demand, driven in part by the launch of Motorola branded products, the Company has committed with North American Production Sharing, Inc. (NAPS) to extend its existing lease used in connection with the Production Sharing Agreement (PSA) entered into between the Company and NAPS. The extension term is December 1, 2015 through November 30, 2018 and allows the Company to contract additional Mexico personnel to work in the Tijuana facility.
The Company closed the UK sales office in October 2014 and now has an independent sales representative for the U.K. and Ireland.
Rent expense for all of the Company's leases was $363.8 thousand in 2015 and $313.4 thousand in 2014.
As of December 31, 2014, the Company's estimated future minimum committed rental payments, excluding executory costs, under the operating leases described above to their expiration or the earliest possible termination date, whichever is sooner, are $177.1 thousand for 2016, $104.6 thousand for 2017, and $95.8 thousand for 2018. There are no future minimum committed rental payments that extend beyond 2018.
(b) Contingencies
The Company is party to various lawsuits and administrative proceedings arising in the ordinary course of business. The Company evaluates such lawsuits and proceedings on a case-by-case basis, and its policy is to vigorously contest any such claims which it believes are without merit.
The Company reviews the status of its legal proceedings and records a provision for a liability when it is considered probable that both a liability has been incurred and the amount of the loss can be reasonably estimated. This review is updated periodically as additional information becomes available. If either or both of the criteria are not met, the Company reassesses whether there is at least a reasonable possibility that a loss, or additional losses, may be incurred. If there is a reasonable possibility that a loss may be incurred, the Company discloses the estimate of the amount of the loss or range of losses, that the amount is not material, or that an estimate of the loss cannot be made. The Company expenses its legal fees as incurred.
On January 30, 2015, Wetro LAN LLC ("Wetro LAN") filed a complaint against the Company alleging infringement of U.S. Patent No. 6,795,918 (the 918 patent). The 918 patent is titled Service Level Computer Security. Wetro LAN alleges that the Companys wireless routers, including its Model 4501 Wireless-N Router, infringe the '918 patent. The case is in its early stages and on March 15th, 2016 the trial date was set by the judge for April 17, 2017.
On November 14, 2014, Concinnitas, LLC and Mr. George W. Hindman (collectively "Concinnitas") filed a complaint against the Company alleging infringement of U.S. Patent No. 7,805,542 (the 542 patent) titled "Mobile United Attached in a Mobile Environment that Fully Restricts Access to Data Received via Wireless Signal to a Separate Computer in the Mobile Environment. The Complaint asserts that the Company sells "products and/or systems (including at least the [wireless router model no.] 4530)" that infringe the '542 patent. Concinnitas and the Company have executed a settlement agreement. On August 13, 2015, this case was closed following an order of dismissal with prejudice pursuant to a resolution of the dispute between Zoom and Concinnitas, LLC.
(c) Commitments
On May 13, 2015 the Company entered into a non-cancellable licensing agreement (the Agreement) to use certain trademarks in connection with the manufacture, sale, marketing, and distribution of cable modem equipment. The Agreement commences on January 1, 2016 and terminates on December 31, 2020. Additionally, the Company has committed to reserving a certain percentage of wholesale prices for use in advertising, merchandising and promotion of the related products. In conjunction with the Agreement, the Company is required to make quarterly royalty payments equal to a certain percentage of the preceding quarters net sales with minimum annual royalty payments as follows:
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7. STOCK OPTION PLANS |
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STOCK OPTION PLANS | 2009 Stock Option Plan
On December 10, 2009, the Company established the 2009 Stock Option Plan (the Option Plan) for officers and certain full-time and part-time employees of the Company. Non-employee directors of the Company are not entitled to participate under this plan. The Option Plan provides for 5,500,000 shares of common stock for issuance upon the exercise of stock options granted under the plan. Under this plan, stock options are granted at the discretion of the Compensation Committee of the Board of Directors at an option price not less than the fair market value of the stock on the date of grant. The options are exercisable in accordance with terms specified by the Compensation Committee not to exceed ten years from the date of grant. Option activity under this plan follows.
The weighted average grant date fair value of options granted was $0.04 in 2014. The weighted average grant date fair value of options granted was $0.13 in 2015. The aggregate intrinsic value of options outstanding was approximately $4.9 million at December 31, 2015 and $0 at December 31, 2014. The aggregate intrinsic value of exercisable options was approximately $3.4 million at December 31, 2015 and $0 at December 31, 2014. As of December 31, 2015 there remained 5,243,500 shares available to be issued under the Option Plan.
The following table summarizes information about fixed stock options under the 2009 Stock Option Plan outstanding on December 31, 2015.
2009 Director Stock Option Plan
On December 10, 2009 the Company established the 2009 Director Stock Option Plan (the "Directors Plan"). The Directors Plan was established for all Directors of the Company except for any Director who is a full-time employee or full-time officer of the Company. The option price is the fair market value of the common stock on the date the option is granted. There are 700,000 shares authorized for issuance under the Directors Plan. Each option expires five years from the grant date. Option activity under this plan follows.
The weighted average grant date fair value of options granted was $0.04 in 2014 and $0.26 in 2015. The aggregate intrinsic value of options outstanding was approximately $0.4 million at December 31, 2015 and $0 at December 31, 2014. The aggregate intrinsic value of exercisable options was approximately $0.4 million at December 31, 2015 and $0 at December 31, 2014. As of December 31, 2015 there remained 670,000 shares available to be issued under the Directors Plan.
The following table summarizes information about fixed stock options under the Directors Plan on December 31, 2015.
The Black-Scholes range of assumptions for the Option Plan and the Directors Plan are shown below:
The unrecognized stock based compensation expense related to non-vested stock awards was approximately $79 thousand as of December 31, 2015. This amount will be recognized through the fourth quarter of 2017. |
8. INCOME TAXES |
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Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INCOME TAXES | Income tax expense (benefit) consists of:
A reconciliation of the expected income tax expense or benefit to actual follows:
Temporary differences at December 31 follow:
As of December 31, 2015 the Company had federal net operating loss carry forwards of approximately $50,691,000 which are available to offset future taxable income. They are due to expire in varying amounts from 2018 to 2035. As of December 31, 2015, the Company had Massachusetts state net operating loss carry forwards of approximately $5,097,000 which are available to offset future taxable income. They are due to expire in varying amounts from 2031 through 2035. A valuation allowance has been established for the full amount of deferred income tax assets as management has concluded that it is more-likely than-not that the benefits from such assets will not be realized
The Company reviews annually the guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the financial statements. Tax positions must meet a "more-likely-than-not" recognition threshold. At December 31, 2015 and 2014, the Company did not have any uncertain tax positions. No interest and penalties related to uncertain tax positions were accrued at December 31, 2015 and 2014.
The Company files income tax returns in the US and also filed returns in the UK through 2014. The Company no longer files returns in the UK. For returns filed in the US for all years prior to 2011 to the extent the net operating losses were generated, if and when the net operating losses are used, the Internal Revenue Service has the opportunity to then review the underlying returns which created the net operating loss. |
9. SIGNIFICANT CUSTOMERS |
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Risks and Uncertainties [Abstract] | |
SIGNIFICANT CUSTOMERS | The Company sells its products primarily through high-volume distributors and retailers, internet service providers, telephone service providers, value-added resellers, PC system integrators, and OEMs. The Company supports its major accounts in their efforts to discern strategic directions in the market, to maintain appropriate inventory levels, and to offer a balanced selection of attractive products.
Relatively few customers account for a substantial portion of the Companys revenues. In 2015 three customers accounted for 77% of the Companys total net sales with our largest customer accounting for 46% of our net sales. At December 31, 2015, three customers accounted for 93% of our gross accounts receivable, with our largest customer representing 67% of our gross accounts receivable. In 2014 three customers accounted for 74% of our total net sales, with our largest customer accounting for 53% of our net sales. At December 31, 2014, three customers accounted for 92% of our gross accounts receivable, with our largest customer representing 64% of our gross accounts receivable. |
10. SEGMENT AND GEOGRAPHIC INFORMATION |
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SEGMENT AND GEOGRAPHIC INFORMATION | The Company's operations are classified as one reportable segment. Substantially all of the Company's operations and long-lived assets reside primarily in the North America. Net sales information follows:
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11. DEPENDENCE ON KEY SUPPLIERS |
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Notes to Financial Statements | |
DEPENDENCE ON KEY SUPPLIERS | The Company participates in the PC peripherals industry, which is characterized by aggressive pricing practices, continually changing customer demand patterns and rapid technological developments. The Company's operating results could be adversely affected should the Company be unable to successfully anticipate customer demand accurately; manage its product transitions, inventory levels and manufacturing process efficiently; distribute its products quickly in response to customer demand; differentiate its products from those of its competitors or compete successfully in the markets for its new products.
The Company depends on many third-party suppliers for key components contained in its product offerings. For some of these components, the Company may only use a single source supplier, in part due to the lack of alternative sources of supply. However, in 2015, the Company had two suppliers that provided 85% of the Company's purchased inventory. In 2014 the Company had one supplier that provided 86% of the Company's purchased inventory. |
12. RETIREMENT PLAN |
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Compensation and Retirement Disclosure [Abstract] | |
RETIREMENT PLAN | The Company has a 401(k) retirement savings plan for employees. Under the plan, the Company matches 25% of an employee's contribution, up to a maximum of $350 per employee per year. Company matching contributions charged to expense in 2014 and 2015 were $4,682 and $4,523, respectively. |
13. BANK CREDIT LINES |
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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 provided for up to $1.75 million of revolving credit, subject to a borrowing base formula and other terms and conditions as specified in the Financing Agreement. The Financing Agreement continued until November 30, 2014 and automatically renews from year to year thereafter, unless sooner terminated by either party as specified in the Financing Agreement. The Lender shall have the right to terminate the Financing Agreement at any time by giving the Company sixty days prior written notice. Borrowings are secured by all of the Company assets including intellectual property. The Loan Agreement contained several covenants, including a requirement that the Company maintain tangible net worth of not less than $2.5 million and working capital of not less than $2.5 million. 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%.
The Company is required to calculate its covenant compliance on a quarterly basis. As of December 31, 2015, the Company was in compliance with both its working capital and tangible net worth covenants. At December 31, 2015, the Companys tangible net worth was approximately $4.6 million, while the Companys working capital was approximately $4.4 million. |
14. STOCKHOLDERS EQUITY |
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Stockholders' Equity Note [Abstract] | |
STOCKHOLDERS EQUITY |
The Company raised approximately $3.4 million from a private placement in September, 2015 and incurred issuance costs of approximately $16 thousand resulting in net proceeds of approximately $3.4 million. The Company also raised approximately $269 thousand from a stock rights offering in July 2015 and incurred issuance costs of approximately $40 thousand resulting in net proceeds of approximately $229 thousand. |
15. RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) |
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RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) |
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16. SUBSEQUENT EVENTS |
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Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | Management of the Company has reviewed subsequent events from December 31, 2015 through the date of filing and has concluded that, except as noted below, there were no subsequent events requiring adjustment to or disclosure in these consolidated financial statements. The Company was required to pay a one-time setup fee of $100,000, which was paid on January 4, 2016 under a licensing agreement. |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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Summary Of Significant Accounting Policies Policies | |||||||||||||||||||||||||||||||||||||
Basis of Presentation and Use of Estimates | The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). All significant intercompany balances and transactions have been eliminated in the consolidation
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expense during the reporting period. Actual results may differ from those estimates. Significant estimates made by the Company include: 1) allowance for doubtful accounts for accounts receivable (collectability and sales returns) and asset valuation allowance for deferred income tax assets; 2) write-downs of inventory for slow-moving and obsolete items, and market valuations; 3) stock based compensation; 4) management plan forecast; 5) and estimated life of certification costs. |
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Cash and Cash Equivalents | All highly liquid investments with original maturities of less than 90 days from the date of purchase are classified as cash equivalents. Cash equivalents consist exclusively of money market funds. The Company has deposits at a limited number of financial institutions with federally insured limits. Balances of cash and cash equivalents at these institutions can be in excess of the insured limits. However, the Company believes that the institutions are financially sound and there is only nominal risk of loss. |
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Inventories | Inventories are stated at the lower of cost, determined using the first-in, first-out method, or market. Consigned inventory is held at third-party locations. The Company retains title to the inventory until purchased by the third-party. Consigned inventory, consisting of finished goods, was approximately $119,000 and $86,000 at December 31, 2015 and 2014, respectively. |
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Equipment | Equipment is stated at cost, less accumulated depreciation. Depreciation of equipment is provided using the straight-line method over the estimated useful lives of the assets. |
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Impairment of Long-Lived Assets | Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset or asset group to undiscounted future net cash flows expected to be generated by the asset or asset group. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds their fair value. Assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell. |
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Income Taxes | Deferred income taxes are provided on the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and on net operating loss and tax credit carry forwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided for that portion of deferred tax assets not expected to be realized. |
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Earnings (Loss) Per Common Share | Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares and dilutive potential common shares outstanding during the period. 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 common shares at the average market price during the period. A summary of the denominators used to compute basic and diluted earnings (loss) per share follow:
Potential common shares for which inclusion would have the effect of increasing diluted earnings per share (i.e., anti-dilutive) are excluded from the computation. Options to purchase 2,761,500 shares of common stock at December 31, 2015 and 1,855,500 shares of common stock as of December 31, 2014 were outstanding, but not included in the computation of diluted earnings per share as their effect would be anti-dilutive. |
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Revenue Recognition | The Company primarily sells hardware products to its customers. The hardware products include dial-up modems, DSL modems, cable modems, embedded modems, ISDN modems, telephone dialers, and wireless and wired networking equipment. The Company does not sell software.
The Company derives its net sales primarily from the sales of hardware products to computer peripherals retailers, computer product distributors, OEMs, and direct to consumers and other channel partners via the Internet.
The Company recognizes net hardware sales at the point when the customers take legal ownership of the delivered products. Legal ownership passes to the customer based on the contractual delivery terms specified in signed contracts and purchase orders, which are both used extensively. Many customer contracts or purchase orders specify FOB destination, which means buyer takes delivery of goods once the goods arrive at the buyers dock.
When the Company consigns inventory to a retailer, sales revenue for an item in that inventory is recognized when that item is sold by the retailer to a customer. The item remains in the Companys inventory when it is consigned, and moves out of Company inventory when the item is sold by the retailer.
The Company's net sales of hardware are reduced by certain events that are characteristic of the sales of hardware to retailers of computer peripherals. These events are product returns, certain sales and marketing incentives, price protection refunds, and consumer and in-store mail-in rebates. These are accounted for as a reduction of net sales based on management estimates, which are reconciled to actual customer or end-consumer credits on a monthly or quarterly basis.
The estimates for product returns are based on recent historical trends plus estimates for returns prompted by announced stock rotations, announced customer store closings, etc. Management analyzes historical returns, current economic trends, and changes in customer demand and acceptance of the Company's products when evaluating the adequacy of sales return allowances. Product return reserves were approximately $322.0 thousand and $354.0 thousand at December 31, 2015 and 2014, respectively. The Company's estimates for price protection refunds require a detailed understanding and tracking by customer, by sales program. Estimated price protection refunds are recorded in the same period as the announcement of a pricing change. Information from customer inventory-on-hand reports or from direct communications with the customers is used to estimate the refund, which is recorded as a reserve against accounts receivable and a reduction of current period revenue. Price protection reserves were approximately $131.3 and $0 thousand at December 31, 2015 and 2014, respectively. The increase in price protection reserve was driven by a decrease in price for certain products in response to a competitors decrease in price for similar products. The Company's estimates for consumer mail-in rebates are comprised of actual rebate claims processed by the rebate redemption centers plus an accrual for an estimated lag in processing. The Company's estimates for store rebates are comprised of actual credit requests from the eligible customers. Rebate reserves were $0 at both December 31, 2015 and 2014. Additionally, sales and marketing incentive reserves were approximately $22.0 thousand and $15.2 thousand at December 31, 2015 and 2014, respectively. The Companys allowances for doubtful accounts were approximately $8.1 thousand and $12.0 thousand at December 31, 2015 and 2014, respectively. These allowances are included in allowances for accounts receivable on the accompanying consolidated balance sheets.
The Company accounts for point-of-sale taxes on a net basis. |
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Fair Value of Financial Instruments | (i) Fair Value of Financial Instruments
The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels:
Financial instruments consist of cash and cash equivalents, accounts receivable, bank debt, accounts payable, and accrued expenses. Due to the short-term nature and payment terms associated with these instruments, their carrying amounts approximate fair value. |
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Stock-Based Compensation | Compensation cost for awards is generally recognized over the required service period based on the estimated fair value of the awards on their grant date. Fair value is determined using the Black-Scholes option-pricing model wherein the discount rate is based on published daily treasury interest rates for zero-coupon bonds available from the US Treasury. When not available for expected option lives, the Company has used implied zero-coupon yields available from sources such as Bloomberg. Volatility is based on the historical volatility over a period that is commensurate with the expected life of the option granted. |
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Advertising Costs | Advertising costs are expensed as incurred and reported in selling expense in the accompanying statements of operations and comprehensive income (loss), and include costs of advertising, production, trade shows, and other activities designed to enhance demand for the Company's products. There are no deferred advertising costs in the accompanying balance sheets. The Company reported advertising costs of approximately $459.5 thousand in 2015 and $255.0 thousand in 2014. |
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Foreign Currencies | The Company generates a portion of its revenues in markets outside North America principally in transactions denominated in foreign currencies, which exposes the Company to risks of foreign currency fluctuations. Foreign currency transaction gains and losses are reflected in operations and were not material for any period presented. The Company does not use derivative financial instruments. |
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Warranty Costs | The Company provides for the estimated costs that may be incurred under its standard warranty obligations, based on actual historical repair costs. The reserve for the provision for warranty costs was $21,475 and $25,069 at December 31, 2015 and 2014, respectively. |
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Shipping and Freight Costs | The Company records the expense associated with customer-delivery shipping and freight costs in selling expense. The Company reported shipping and freight costs of $247.1 thousand in 2015 and $232.1 thousand in 2014. |
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Recently Issued Accounting Pronouncements | In August 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-15, "Presentation of Financial Statements Going Concern." This standard requires management to evaluate for each annual and interim reporting period whether it is probable that the reporting entity will not be able to meet its obligations as they become due within one year after the date that the financial statements are issued. If the entity is in such a position, the standard provides for certain disclosures depending on whether or not the entity will be able to successfully mitigate its going concern status. This guidance is effective for annual periods ending after December 15, 2016 and interim periods within annual periods beginning after December 15, 2016. Early application is permitted. The Company does not expect a material impact to the Companys financial condition, results from operations, or cash flows from the adoption of this guidance.
In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. Currently, all inventory is measured at the lower of cost or market. ASU 2015-11 changes the measurement principle for inventory from the lower of cost or market to the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less reasonably predictable costs of completion, disposal and transportation. The standard is effective for annual reporting periods beginning after December 15, 2015, which for the Company will commence with the year beginning January 1, 2016. Prospective application is required. The Company does not believe the implementation of this standard will have a material impact on the Companys consolidated financial statements.
In August 2015, the FASB issued ASU No. 2015-14 Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. The amendments in this Update defer the effective date of ASU 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASC 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is assessing the impact to the Company's financial condition, results of operations or cash flows from the adoption of this guidance.
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. The adoption of this standard is not expected to have a material impact on the Companys consolidated financial condition, results of operations and cash flows. |
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Other Assets | Other assets are stated at cost, less accumulated amortization. Certain certification costs incurred that are necessary to market and sell products are capitalized and reported as other assets in the accompanying consolidated balance sheets when the costs are measurable, significant, and whose related products are projected to generate revenue beyond twelve months. These costs are amortized over an eighteen-month period, beginning when the related products are available to be sold. Total certification costs capitalized through December 31, 2015 were $655,000, accumulated amortization was $81,951 at December 31, 2015, and amortization expense was $81,951 in 2015. There were no certification costs capitalized through December 31, 2014 and therefore no related accumulated amortization at December 31, 2014 and no amortization expense in 2014. Expected amortization expense is $238,331 in 2016, $271,384 in 2017, and $63,334 in 2018. |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) |
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4. INVENTORIES (Tables) |
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5. EQUIPMENT (Tables) |
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equipment |
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6. COMMITMENTS AND CONTINGENCIES (Tables) |
12 Months Ended | ||||||||||||
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Dec. 31, 2015 | |||||||||||||
Commitments and Contingencies Disclosure [Abstract] | |||||||||||||
Contractual Obligation Fiscal Year Maturity Schedule Table |
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7. STOCK OPTION PLANS (Tables) |
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule stock options under the Stock Option Plan |
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2009 Stock Option Plan | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Plan Activity |
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Schedule stock options under the Plan |
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Directors Plan | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Plan Activity |
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Schedule stock options under the Plan |
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8. INCOME TAXES (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of income taxes |
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Schedule of income tax reconciliation |
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Schedule of deferred tax assets |
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10. SEGMENT AND GEOGRAPHIC INFORMATION (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment And Geographic Information Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Company's net sales by geographic region |
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15. RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) |
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - shares |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Summary Of Significant Accounting Policies Tables | ||
Weighted average shares outstanding - used to compute basic earnings (loss) per share | 9,470,848 | 7,982,704 |
Net effect of dilutive potential common shares outstanding, based on the treasury stock method | 0 | 0 |
Weighted average shares outstanding - used to compute diluted earnings (loss) per share | 9,470,848 | 7,982,704 |
4. INVENTORIES (Details) - USD ($) |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Inventories Details | ||
Materials | $ 477,929 | $ 300,739 |
Finished goods | 2,306,681 | 1,423,768 |
Total inventories | $ 2,784,610 | $ 1,724,507 |
4. INVENTORIES (Details Narrative) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Inventories Details | ||
Finished goods held by customer | $ 119,100 | $ 85,600 |
Provision for inventory reserves | $ 18,078 | $ 81,843 |
5. EQUIPMENT (Details) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Equipment | $ 758,606 | $ 590,011 |
Accumulated depreciation | (553,474) | (522,869) |
Equipment, net | 205,132 | 67,142 |
Depreciation expense for year ended | 39,076 | 9,048 |
Computer hardware and software | ||
Equipment | $ 209,517 | 196,070 |
Estimated Useful lives in years | 3 years | |
Machinery and equipment | ||
Equipment | $ 265,446 | 258,446 |
Estimated Useful lives in years | 5 years | |
Molds, tools and dies | ||
Equipment | $ 244,192 | 96,557 |
Estimated Useful lives in years | 5 years | |
Office furniture and fixtures | ||
Equipment | $ 39,451 | $ 38,938 |
Estimated Useful lives in years | 5 years |
6. COMMITMENTS AND CONTINGENCIES (Details) |
Dec. 31, 2015
USD ($)
|
---|---|
Commitments And Contingencies Details | |
2016: | $ 2,000,000 |
2017: | 2,400,000 |
2018: | 2,600,000 |
2019: | 2,600,000 |
2020: | $ 2,600,000 |
7. STOCK OPTION PLANS (Details) - 2009 Stock Option Plan - $ / shares |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Number of shares Outstanding at beginning of period | 1,690,500 | 2,315,000 |
Granted | 1,155,000 | 50,000 |
Exercised | (256,500) | 0 |
Expired | (52,500) | (674,500) |
Number of shares Outstanding end of period | 2,536,500 | 1,690,500 |
Weighted average exercise price | ||
Weighted average exercise price, beginning | $ 0.29 | $ 0.35 |
Granted | 0.49 | 0.12 |
Exercised | 0.36 | 0.00 |
Expired | 0.16 | 0.49 |
Weighted average exercise price, ending | $ 0.38 | $ 0.29 |
7. STOCK OPTION PLANS (Details 2) - Directors Plan - $ / shares |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Number of shares Outstanding at beginning of period | 165,000 | 270,000 |
Granted | 105,000 | 60,000 |
Exercised | (30,000) | 0 |
Expired | (15,000) | (165,000) |
Number of shares Outstanding end of period | 225,000 | 165,000 |
Weighted average exercise price | ||
Weighted average exercise price, beginning | $ 0.24 | $ 0.31 |
Granted | 0.87 | 0.13 |
Exercised | 0.31 | 0.00 |
Expired | 0.41 | 0.00 |
Weighted average exercise price, ending | $ 0.51 | $ 0.24 |
7. STOCK OPTION PLANS (Details 4) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Expected dividend yield | 0.00% | 0.00% |
Minimum | ||
Expected life | 2 years 9 months | 2 years 9 months |
Expected volatility | 41.69% | 46.40% |
Risk-free interest rate | 0.67% | 0.57% |
Maximum | ||
Expected life | 3 years 6 months | 3 years 6 months |
Expected volatility | 45.52% | 48.71% |
Risk-free interest rate | 1.57% | 1.32% |
8. INCOME TAXES (Details) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Current tax expense | ||
US Federal | $ 0 | $ 0 |
State and local | 0 | 0 |
Foreign | 7,363 | 7,080 |
Total current tax expense | 7,363 | 7,080 |
Deferred tax expense (benefit) | ||
US Federal | 0 | 0 |
State and local | 0 | 0 |
Foreign | 0 | 0 |
Total deferred tax expense (benefit) | 0 | 0 |
Total tax expense | ||
US federal | 0 | 0 |
State and local | 0 | 0 |
Foreign | 7,363 | 7,080 |
Total | $ 7,363 | $ 7,080 |
8. INCOME TAXES (Details 1) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Income Tax Disclosure [Abstract] | ||
Computed "expected" US tax (benefit) at Federal statutory rate | $ (283,266) | $ 41,645 |
Change resulting from: | ||
State and local income taxes, net of federal income tax benefit | (55,828) | |
Valuation allowance | 414,612 | (281,039) |
Non-deductible items | (68,155) | 12,063 |
Expired State Net Operating Losses | 0 | 234,411 |
Income tax expense (benefit) | $ 7,363 | $ 7,080 |
8. INCOME TAXES (Details 2) - USD ($) |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Deferred income tax assets: | ||
Inventories | $ 90,879 | $ 132,511 |
Accounts receivable | 181,223 | 143,780 |
Accrued expenses | 43,668 | 36,621 |
Net operating loss and tax credit carry forwards | 18,272,306 | 17,863,473 |
Plant and equipment | 590 | 4,629 |
Stock compensation | 97,464 | 90,504 |
Other - investment impairments | 127,855 | 127,855 |
Total deferred income tax assets | 18,813,985 | 18,399,373 |
Valuation allowance | (18,813,985) | (18,399,373) |
Net deferred tax assets | $ 0 | $ 0 |
9. SIGNIFICANT CUSTOMERS (Details Narrative) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Three customers percentage of total sales | ||
Percent concentration | 77.00% | 74.00% |
One customer percentage of total sales | ||
Percent concentration | 46.00% | 53.00% |
Three customers percentage of total accounts receivables | ||
Percent concentration | 93.00% | 92.00% |
One customer percentage of total accounts receivables | ||
Percent concentration | 67.00% | 64.00% |
10. SEGMENT AND GEOGRAPHIC INFORMATION (Details) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Revenues from External Customers and Long-Lived Assets [Line Items] | ||
Net sales, amount | $ 10,790,342 | $ 11,901,339 |
Net sales, % of total | 100.00% | 100.00% |
North America [Member] | ||
Revenues from External Customers and Long-Lived Assets [Line Items] | ||
Net sales, amount | $ 10,558,167 | $ 11,563,956 |
Net sales, % of total | 98.00% | 97.00% |
Outside North America [Member] | ||
Revenues from External Customers and Long-Lived Assets [Line Items] | ||
Net sales, amount | $ 202,175 | $ 337,383 |
Net sales, % of total | 2.00% | 3.00% |
12. RETIREMENT PLAN (Details Narrative) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Retirement Plan Details Narrative | ||
Company matching contributions charged to expense | $ 4,682 | $ 4,523 |
15. RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Details Narrative) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Foreign currency translations: | ||
Balance at beginning of period | $ 0 | $ 364,355 |
Current period currency translation adjustments | 0 | (3,621) |
Amounts reclassified on closing of U.K. branch in 2014 | 0 | (360,734) |
Balance at end of period | 0 | 0 |
Accumulated Other Comprehensive Income (Loss) end of period | $ 0 | $ 0 |
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