| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | Principles
of Consolidation The
consolidated financial statements include the accounts of the Company and a subsidiary with a majority voting interest of 51.8%
(48.2% is owned by non-controlling interests) as of March 31, 2017 and June 30, 2016. In the preparation of consolidated financial
statements of the Company, intercompany transactions and balances are eliminated and net earnings are reduced by the portion of
the net earnings of the subsidiary applicable to non-controlling interests. Non-controlling
Interest in a Consolidated Subsidiary As
of March 31, 2017, the non-controlling interest was $992,216, which represents a $111,705 decrease from $1,103,921 as of June
30, 2016. The decrease was due to the net loss of subsidiary of $231,562 for the nine months ended March 31, 2017, of which 48.2%
was attributable to the non-controlling interests. Segment
Reporting Accounting
Standards Codification (“ASC”) 280, “Segment Reporting,” requires public companies to report financial
and descriptive information about their reportable operating segments. We identify our operating segments based on how our chief
operating decision maker internally evaluates separate financial information, business activities and management responsibility.
We have one reportable segment, consisting of the sale of wireless access products. We
generate revenues from four geographic areas, consisting of the United States, the Caribbean and South America, EMEA and Asia.
The following enterprise-wide disclosure is prepared on a basis consistent with the preparation of the consolidated financial
statements. The following table contains certain financial information by geographic area:
Three Months Ended Nine Months Ended
March
31, March
31,
Net sales: 2017 2016 2017 2016
United States $ 9,407,328 $ 14,145,611 $ 35,943,763 $ 39,616,528
Caribbean and South America 94,500 699 252,000 100,699
Europe, the Middle East and Africa (“EMEA”) 219,064 – 508,078 6,485,441
Asia 28,018 – 102,505 55,589
Totals $ 9,748,910 $ 14,146,310 $ 36,806,346 $ 46,258,257
Long-lived assets, net (property
and equipment and intangible assets): March
31, 2017 June
30, 2016
United States $ 1,092,174 $ 1,113,746
Asia 167,709 330,905
Totals $ 1,259,883 $ 1,444,651 Estimates The
preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United
States of America 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 financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could materially differ from those estimates. Fair Value of Financial Instruments The
carrying amounts of financial instruments such as cash equivalents, accounts receivable, accounts payable and debt approximate
the related fair values due to the short-term maturities of these instruments. We invest our excess cash into financial instruments
which management believes are readily convertible into cash, such as money market funds and certificates of deposit. Allowance
for Doubtful Accounts Based
upon our review of our collection history as well as the current balances associated with all significant customers and associated
invoices, we do not believe an allowance for doubtful accounts was necessary as of March 31, 2017 and June 30, 2016. Revenue
Recognition We
recognize revenue in accordance with Accounting Standards Codification ("ASC") 605, “Revenue Recognition,”
when persuasive evidence of an arrangement exists, the price is fixed or determinable, collection is reasonably assured and delivery
of products has occurred or services have been rendered. Accordingly, we recognize revenues from product sales upon shipment of
the products to customers or when the products are received by the customers in accordance with shipping or delivery terms. We
provide a warranty for one year from the shipment date, which is covered by our vendors pursuant to purchase agreements. Any net
warranty related expenditures made by us have not historically been material. Under our sales return policy, customers may generally
return products that are under warranty for repair or replacement. Cost of
Goods Sold All
costs associated with our contract manufacturers, as well as distribution, fulfillment and repair services are included in our
cost of goods sold. Cost of goods sold also includes amortization expense associated with capitalized product development costs
associated with complete technology. Capitalized Product Development
Costs ASC
Topic 350, “Intangibles – Goodwill and Other” includes software that is part of a product or process to be sold
to a customer and shall be accounted for under Subtopic 985-20. Our products contain embedded software internally developed
by FTI, which is an integral part of these products because it allows the various components of the products to communicate with
each other and the products are clearly unable to function without this coding. The
costs of product development that are capitalized once technological feasibility is determined (noted as Technology in progress
in the Intangible Assets table) include certifications, licenses, payroll, employee benefits, and other headcount-related expenses
associated with product development. We determine that technological feasibility for our products is reached after all high-risk
development issues have been resolved. Once the products are available for general release to our customers, we cease capitalizing
the product development costs and any additional costs, if any, are expensed. The capitalized product development costs are amortized
on a product-by-product basis using the greater of straight-line amortization or the ratio of the current gross revenues to the
current and anticipated future gross revenues. The amortization begins when the products are available for general release to
our customers. As
of March 31, 2017 and June 30, 2016, capitalized product development costs in progress were $232,154 and $157,492, respectively,
and these amounts are included in intangible assets in our consolidated balance sheets. During the three and nine months ended
March 31, 2017, we incurred $56,532 and $180,578, respectively, in capitalized product development costs, and such amounts are
primarily comprised of certifications and licenses. All costs incurred before technological feasibility is reached are expensed
and included in our consolidated statements of comprehensive income. Research and Development Costs Costs
associated with research and development are expensed as incurred. Research and development costs were $892,430 and $693,540 for
the three months ended March 31, 2017 and 2016, respectively, and $2,589,889 and $2,209,718 for the nine months ended March 31,
2017 and 2016, respectively. Warranties We
provide a warranty for one year which is covered by our vendors and manufacturers under purchase agreements between the Company
and the vendors. As a result, we believe we do not have any net warranty exposure and do not accrue any warranty expenses. Historically,
the Company has not experienced any material net warranty expenditures. Shipping and Handling Costs Costs
associated with product shipping and handling are expensed as incurred. Shipping and handling costs, which are included
in selling, general and administrative expenses on the consolidated statements of comprehensive income, were $220,998 and $435,500
for the three months ended March 31, 2017 and 2016, respectively, and $1,100,610 and $1,106,928 for the nine months ended March
31, 2017 and 2016, respectively. Cash and Cash Equivalents For
purposes of the consolidated statements of cash flow, we consider all highly liquid investments purchased with original maturities
of three months or less to be cash equivalents. Inventories Our
inventories consist of finished goods and are stated at the lower of cost or market, cost being determined on a first-in, first-out
basis. We assess the inventory carrying value and reduce it, if necessary, to its net realizable value based on customer orders
on hand, and internal demand forecasts using management’s best estimates given information currently available. Our customer
demand is highly unpredictable, and can fluctuate significantly caused by factors beyond the control of the Company. We may write
down our inventory value for potential obsolescence and excess inventory. As of March 31, 2017 and June 30, 2016, we have
recorded an inventory reserve in the amounts of $92,049 and $88,907, respectively, for inventories that we have identified as
obsolete or slow-moving. Property and Equipment Property
and equipment are recorded at cost. Significant additions or improvements extending useful lives of assets are capitalized. Maintenance
and repairs are charged to expense as incurred. Depreciation is computed using the straight-line method over the estimated useful
lives as follows:
Machinery 6 years
Office equipment 5 years
Molds 3 years
Vehicles 5 years
Computers and software 5 years
Furniture and fixtures 7 years
Facilities improvements 5 years or life of the lease, whichever is shorter Goodwill and Intangible Assets Goodwill
and certain intangible assets were recorded in connection with the FTI acquisition in October 2009, and are accounted for in accordance
with ASC 805, “Business Combinations.” Goodwill represents the excess of the purchase price over the fair
value of the tangible and intangible net assets acquired. Intangible assets are recorded at their fair value at the
date of acquisition. Goodwill and other intangible assets are accounted for in accordance with ASC 350, “Goodwill and Other
Intangible Assets.” Goodwill and other intangible assets are tested for impairment at least annually and any
related impairment losses are recognized in earnings when identified. No impairment was recognized during the periods ended March
31, 2017 and June 30, 2016. The
definite lived intangible assets consisted of the following as of March 31, 2017:
Definite lived intangible assets: Expected Life Average Remaining life Gross Intangible Assets Accumulated Amortization Net
Intangible Assets
Complete technology 3 years – $ 3,799,617 $ 3,799,617 $ –
Complete technology 3 years 1.0
years 2,402 1,801 601
Complete technology 3 years 1.3
years 6,405 4,270 2,135
Complete technology 3 years 3.0
years 18,397 – 18,397
Supply and development agreement 8 years 0.7
years 1,121,000 1,050,938 70,062
Technology in progress Not Applicable – 232,154 – 232,154
Software 3 years 2.9
years 239,398 214,745 24,653
Patents 10 years 9.2
years 58,391 4,197 54,194
Certifications and licenses 3 years 1.5
years 2,609,936 2,001,375 608,561
Total as of March 31, 2017 $ 8,087,700 $ 7,076,943 $ 1,010,757 The
definite lived intangible assets consisted of the following as of June 30, 2016:
Definite lived intangible assets: Expected Life Average Remaining life Gross Intangible Assets Accumulated Amortization Net
Intangible Assets
Complete technology 3 years – $ 3,734,617 $ 3,734,617 $ –
Complete technology 3 years 0.8
years 65,000 48,750 16,250
Complete technology 3 years 1.5
years 2,402 1,201 1,201
Complete technology 3 years 1.8
years 6,405 2,669 3,736
Complete technology 3 years 3.0
years 18,397 – 18,397
Supply and development agreement 8 years 1.2
years 1,121,000 945,844 175,156
Technology in progress Not Applicable – 157,492 – 157,492
Software 5 years 1.3
years 214,398 203,941 10,457
Patents 10 years 7.0
years 58,391 2,705 55,686
Certifications and licenses 3 years 2.0
years 2,472,359 1,783,847 688,512
Total as of June 30, 2016 $ 7,850,461 $ 6,723,574 $ 1,126,887 Amortization
expense recognized during the three months ended March 31, 2017 and 2016 was $112,031 and $174,488, respectively, and during the
nine months ended March 31, 2017 and 2016 was $353,369 and $658,535, respectively. Long-lived
Assets In
accordance with ASC 360, "Property, Plant, and Equipment," we review for impairment of long-lived assets and certain
identifiable intangibles whenever events or circumstances indicate that the carrying amount of assets may not be recoverable.
We consider the carrying value of assets may not be recoverable based upon our review of the following events or changes in circumstances:
the asset’s ability to continue to generate income from operations and positive cash flow in future periods; loss of legal
ownership or title to the asset; significant changes in our strategic business objectives and utilization of the asset; or significant
negative industry or economic trends. An impairment loss would be recognized when estimated future cash flows expected to result
from the use of the asset are less than its carrying amount. As
of March 31, 2017, we are not aware of any events or changes in circumstances that would indicate that the long-lived assets are
impaired. Stock-based
Compensation The
Company’s employee share-based awards result in a cost that is measured at fair value on an award’s grant date, based
on the estimated number of awards that are expected to vest. Stock-based compensation is recognized on a straight-line basis over
the award’s vesting period. The Company estimates the fair value of stock options using a Black-Scholes option pricing model.
Transactions with non-employees in which goods or services are the consideration received for the issuance of equity instruments
are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever
is more reliably measurable. The measurement date of the fair value of the equity instrument issued is the earlier of the date
on which the counterparty's performance is complete or the date on which it is probable that performance will occur. Stock-based
compensation costs are reflected in the accompanying consolidated statements of comprehensive income based upon the underlying
recipients' roles within the Company. Income
Taxes The
Company uses the asset and liability method of accounting for income taxes. Accordingly, deferred tax assets and liabilities are
determined based on the difference between the financial statement and income tax bases of assets and liabilities, using enacted
tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is recorded to reduce
the carrying amount of deferred tax assets, unless it is more likely than not such assets will be realized. Current income taxes
are based on the year’s taxable income for federal and state income tax reporting purposes and the annual change in deferred
taxes. The
Company assesses its income tax positions and records tax benefits based upon management’s evaluation of the facts, circumstances,
and information available at the reporting date. For those tax positions where it is more likely than not that a tax benefit will
be sustained, the Company records the largest amount of tax benefit with a greater than 50% likelihood of being realized upon
ultimate settlement with a taxing authority having full knowledge of all relevant information. For those income tax positions
where it is not more likely than not that a tax benefit will be sustained, no tax benefit is recognized in the financial statements.
The Company classifies interest and penalties associated with such uncertain tax positions as a component of income tax expense. As
of March 31, 2017, we have no material unrecognized tax benefits. We recorded an income tax benefit of $54,730 for the three months
ended March 31, 2017 and an income tax provision of $340,450 for the nine months ended March 31, 2017. We also recorded a decrease
in income tax payable of $40,805 for the three months ended March 31, 2017 and an increase in income tax payable of $355,380 for
the nine months ended March 31, 2017. Earnings
per Share Attributable to Common Stockholders Earnings
per share is calculated by dividing the net income by the weighted-average number of common shares that were outstanding for the
period, without consideration for potential common shares. Diluted earnings per share is calculated by dividing the net income
by the sum of the weighted-average number of dilutive potential common shares outstanding for the period determined using the
treasury-stock method or the as-converted method. Potentially dilutive shares are comprised of common stock options outstanding
under our stock plan. Concentrations We
extend credit to our customers and perform ongoing credit evaluations of such customers. We evaluate our accounts receivable on
a regular basis for collectability and provide for an allowance for potential credit losses as deemed necessary. No reserve was
required or recorded for any of the periods presented. Substantially
all of our revenues are derived from sales of wireless data products. Any significant decline in market acceptance of our products
or in the financial condition of our existing customers could impair our ability to operate effectively. A
significant portion of our revenue is derived from a small number of customers. For the nine months ended March 31, 2017, sales
to our two largest customers accounted for 67% and 30% of our consolidated net sales and 78% and 15% of our accounts receivable
balance, as of March 31, 2017. In the same period in 2016, sales to our three largest customers accounted for 68%, 14% and 13%
of our consolidated net sales and 45%, 46% and 1% of our accounts receivable balance as of March 31, 2016. No other customers
accounted for more than ten percent of total net sales for the nine months ended March 31, 2017 and 2016 and no other customers
accounted for more than ten percent of total accounts receivable as of March 31, 2017 and 2016. For
the nine months ended March 31, 2017, we purchased the majority of our wireless data products from one manufacturing company located
in Asia. If this manufacturing company were to experience delays, capacity constraints or quality control problems, product shipments
to our customers could be delayed, or our customers could consequently elect to cancel the underlying product purchase order,
which would negatively impact the Company's revenue. For the nine months ended March 31, 2017, we purchased wireless data products
from this manufacturer in the amount of $27,336,612, or 97% of total purchases, and had related accounts payable of $6,381,423
as of March 31, 2017. For the nine months ended March 31, 2016, we purchased wireless data products from one manufacturing company
in the amount of $38,325,448, or 99% of total purchases, and had related accounts payable of $11,837,603 as of March 31, 2016. We
maintain our cash accounts with established commercial banks. Such cash deposits exceed the Federal Deposit Insurance Corporation
insured limit of $250,000 for each financial institution. However, we do not anticipate any losses on excess deposits. Recently
Issued Accounting Pronouncements In
July 2015, the Financial Accounting Standards Board (“FASB”) issued ASU 2015-11, Inventory—Simplifying the Measurement
of Inventory. ASU 2015-11 requires inventory to be subsequently measured using the lower of cost and net realizable value, thereby
eliminating the market value approach. Net realizable value is defined as the “estimated selling prices in the ordinary
course of business, less reasonably predictable costs of completion, disposal and transportation.” ASU 2015-11 will be effective
for us on July 1, 2017, and is applied prospectively. Early adoption is permitted. We are currently evaluating the impact that
this guidance will have on our consolidated financial statements and disclosure. In
November 2015, the FASB issued Accounting Standards Update No. 2015-17, Balance Sheet Classification of Deferred Taxes (Topic
740) (ASU 2015-17), which amends existing standards for deferred taxes to present all deferred tax assets and liabilities as noncurrent.
ASU 2015-17 will be effective for us beginning in our first quarter of fiscal 2018. Management does not expect that adoption of
this update to materially impact the Company's consolidated financial statements given the limited current deferred tax items
reported by the Company. In
March 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (ASU 2016-02), which amends existing standards
for leases to increase transparency and comparability among organizations by requiring recognition of lease assets and liabilities
on the balance sheet and requiring disclosure of key information about such arrangements. ASU 2016-02 will be effective for us
beginning in our first quarter of fiscal 2020, and early adoption is permitted. We are currently evaluating the impact of adopting
the new standard on our consolidated financial statements and the timing and presentation of our adoption. In
March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation-Stock Compensation (Topic 718) (ASU 2016-09),
which provides guidance improvements to employee share-based payment accounting. The standard amends several aspects of current
employee share-based payment accounting including income taxes, forfeitures, and statutory tax withholding requirements, as well
as classification in the statement of cash flows. ASU 2016-09 will be effective for us beginning in our first quarter of fiscal
2018, and early adoption is permitted. Management does not expect the adoption of this update to materially impact the Company's
consolidated financial statements given the Company's limited use of stock options. In
April 2016, the FASB issued Accounting Standards Update No. 2016-10, Revenue from Contracts with Customers (Topic 606)(ASU 2016-10),
which amends and adds clarity to certain aspects of the guidance set forth in the upcoming revenue standard (ASU 2014-09) related
to identifying performance obligations and licensing. In May 2016, the FASB issued Accounting Standards Update No. 2016-11, Revenue
Recognition (Topic 605), which amends and rescinds certain revenue recognition guidance previously released within ASU 2014-09.
In May 2016 the FASB issued Accounting Standards Update No. 2016-12, Revenue from Contracts with Customers (Topic 606) (ASU 2016-12),
which provides narrow scope improvements and practical expedients related to ASU 2014-09. We are currently evaluating the impact
of adopting these new standards on our consolidated financial statements. All of these new standards will be effective for us
concurrently with ASU 2014-09, beginning in our first quarter of fiscal 2019, as early adoption is not permitted. |
