Concentrations, Commitments and Contingencies

3 Months Ended

Oct. 31, 2013

Commitments and Contingencies [Abstract]

Concentrations, Commitments and Contingencies

8. Concentrations, Commitments and Contingencies

(a) Customer Concentrations

At October 31, 2013, five customers accounted for approximately 39% of total accounts receivable and individually 10%, 10%, 7%, 7% and 5% of the total accounts receivable. At October 31, 2012, five customers accounted for approximately 52% of total accounts receivable and individually 22%, 10%, 7%, 7% and 6% of the total accounts receivable. For the three months ended October 31, 2013, four customers accounted for approximately 40% of total revenue and individually 12%, 11%, 9%, and 8% of total revenue. For the three months ended October 31, 2012, four customers accounted for approximately 44% of total revenue and individually 19%, 14%, 7%, and 4% of total revenue.

(b) Commitments

At October 31, 2013, the Company had outstanding commitments for inventory purchases under open purchase orders of approximately $1,603,000.

Cortelco has a line of credit with available borrowings based on an asset formula involving accounts receivable and inventories up to a maximum of $1,000,000, none of which was drawn on in the current or prior fiscal year. The line of credit is secured by substantially all of Cortelco’s assets and expires December 15, 2013. The loan’s interest rate, with a floor of 4%, is floating based on LIBOR.

CSPR has a $800,000 revolving line of credit, none of which was drawn on as of October 31, 2013, secured by trade accounts receivable and inventories which bears interest at 2% over Citibank’s base rate. The agreement has certain covenant requirements and expires January 31, 2014.

(c) Litigation

 

The Company is involved in various matters of litigation, claims, and assessments arising in the ordinary course of business. In the opinion of management, the eventual disposition of these matters will not have a material adverse effect on the financial statements.

The Municipal Revenue Collection Center of Puerto Rico (“CRIM”) conducted a personal property tax audit for the years 1999 and 2000, which resulted in assessments of approximately $320,000 (approximately $551,000 as of August 21, 2013, including interest and penalties). The assessments arose from CRIM’s disallowances of certain credits for overpayments from 1999 and 2000, claimed in the 2001 through 2003 personal property tax returns. During the audit process, CRIM alleged that some components of the inventory reported as exempt should be taxable. The parties met several times and an informal administrative hearing was held on September 27, 2006. CSPR submitted its position in writing within the time period provided by CRIM. CSPR believes it has strong arguments to support its position that the components of inventory qualify as raw material. Management believes a settlement may be reached for an amount less than the assessment.  Accordingly, the Company has recorded a liability of $96,000 as of July 31, 2013 and October 31, 2013.