| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 3 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES Principles of Consolidation The consolidated financial
statements include the accounts of the Company and its subsidiary with a majority voting interest of 66.3% (33.7% is owned by non-controlling
interests) as of September 30, 2020 and June 30, 2020. 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 September 30, 2020,
the non-controlling interest was $ 1,039,103 782,015
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 two geographic areas, consisting
of North America 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
September 30,
Net sales: 2020 2019
North America $ 62,569,138 $ 8,862,647
Asia 312 7,628
Totals $ 62,569,450 $ 8,870,275
Long-lived assets, net (property and equipment and intangible assets): September 30, 2020 June 30, 2020
North America $ 1,235,764 $ 1,302,353
Asia 45,215 43,688
Totals $ 1,280,979 $ 1,346,041 Use of 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, short-term investments, 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 are readily convertible into cash, such as money market funds and certificates of deposit. Allowance for Doubtful Accounts Revenue Recognition 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 original 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. On July 1, 2018, we adopted
ASU 2014-09 using the modified retrospective method applied to those contracts that were not completed or substantially complete
as of June 30, 2018. Results for the reporting period beginning after July 1, 2018 are presented under Topic 606. We recorded no
change in retained earnings as of July 1, 2018 as a result of the cumulative impact of adopting Topic 606. Contracts with Customers Revenue for sales of products
and services is derived from contracts with customers. The products and services promised in contracts primarily consist of hotspot
routers. Contracts with each customer generally state the terms of the sale, including the description, quantity and price of each
product or service. Payment terms are stated in the contract, primarily in the form of a purchase order. Since the customer typically
agrees to a stated rate and price in the purchase order that does not vary over the life of the contract, the majority of our contracts
do not contain variable consideration. We establish a provision for estimated warranty and returns. Using historical averages,
that provision for the quarter ended September 30, 2020 was not material. Disaggregation of Revenue In accordance with Topic
606, we disaggregate revenue from contracts with customers into geographical regions and by the timing of when goods and services
are transferred. We determined that disaggregating revenue into these categories meets the disclosure objective in Topic 606, which
is to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by regional economic factors. Contract Balances We perform our obligations
under a contract with a customer by transferring products in exchange for consideration from the customer. We typically invoice
our customers as soon as control of an asset is transferred, and a receivable is established. We, however, recognize a contract
liability when a customer prepays for goods and/or services, or we have not delivered goods under the contract since we have not
yet transferred control of the goods and/or services. The balances of our trade
receivables are as follows:
September 30, 2020 June 30, 2020
Accounts Receivable $ 27,782,709 $ 15,973,537 The balance of contract
assets was immaterial as we did not have a significant amount of un-invoiced receivables in the periods ended September 30, 2020
and June 30, 2020. Our contract liabilities
are as follows:
September 30, 2020 June 30, 2020
Undelivered products $ 140, 000 $ 140,000 Performance Obligations A performance obligation
is a promise in a contract to transfer a distinct good or service to the customer and is the unit of measurement in Topic 606.
At contract inception, we assess the products and services promised in our contracts with customers. We then identify performance
obligations to transfer distinct products or services to the customer. In order to identify performance obligations, we consider
all the products or services promised in the contract regardless of whether they are explicitly stated or are implied by customary
business practices. Our performance obligations
are primarily satisfied at a point in time. Revenue from products transferred to customers at a single point in time accounted
for 99.9% of net sales for the three months ended September 30, 2020. Revenue recognized over a period of time for non-recurring
engineering projects is based on the percent complete of a project and accounted for 0.1% of net sales for the three months ended
September 30, 2020. The majority of our revenue recognized at a point in time is for the sale of hotspot router products. Revenue
from these contracts is recognized when the customer is able to direct the use of and obtain substantially all of the benefits
from the product which generally coincides with title transfer at completion of the shipping process. As of September 30, 2020,
our contracts do not contain any unsatisfied performance obligations, except for undelivered products. 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 expenses of approximately $114,000 and $70,000 associated with capitalized product development
costs associated with complete technology for the three months ended September 30, 2020 and 2019, respectively. Capitalized Product Development Costs Accounting Standards Codification
(“ASC”) Topic 350, “Intangibles - Goodwill and Other” includes software that is part of a product or process
to be sold to a customer and is 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
in Note 3 to Notes to Consolidated Financial Statements) include related licenses, certification costs, 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 September 30, 2020,
and June 30, 2020, capitalized product development costs in progress was $140,193, and the amounts are included in intangible assets
in our consolidated balance sheets. During the three months ended September 30, 2020 and 2019, we incurred $78,342 and $348,668,
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 $978,392 and $895,512 for the three months ended
September 30, 2020 and 2019, 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 $282,066 and $173,108 for the three months ended September
30, 2020 and 2019, 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. We invest our excess cash into financial instruments which management believes are readily convertible into
cash, such as money market funds that are readily convertible to cash. Short Term Investments We have invested excess
funds in short term liquid assets, such as certificates of deposit. Inventories Our inventories consist
of finished goods and are stated at the lower of cost or net realizable value, 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 September 30, 2020, and June 30, 2020, we have
recorded an inventory reserve in the amounts of $399,437, 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 deemed necessary as of September 30, 2020 or
June 30, 2020. The definite lived intangible
assets consisted of the following as of September 30, 2020:
Definite lived intangible assets: Expected Life Average Remaining life Gross Intangible Assets Less Accumulated Amortization Net Intangible Assets
Complete technology 3 years 1.6 years 18,397 10,732 7,665
Technology in progress Not Applicable – 140,192 – 140,192
Software 5 years 2.7 years 526,868 347,473 179,395
Patents 10 years 6.8 years 20,734 11,344 9,390
Certifications & licenses 3 years 2.1 years 4,117,106 3,376,956 740,150
Total as of September 30, 2020 $ 4,823,297 $ 3,746,505 $ 1,076,792 The definite lived intangible
assets consisted of the following as of June 30, 2020:
Definite lived intangible assets: Expected Life Average Remaining life Gross Intangible Assets Less Accumulated Amortization Net Intangible Assets
Complete technology 3 years 1.8 years 18,397 7,666 10,731
Technology in progress Not Applicable – 140,192 – 140,192
Software 5 years 2.9 years 525,930 338,593 187,337
Patents 10 years 7.0 years 20,734 10,821 9,913
Certifications & licenses 3 years 1.9 years 4,038,764 3,261,785 776,979
Total as of June 30, 2020 $ 4,744,017 $ 3,618,865 $ 1,125,152 Amortization expense recognized
during the three months ended September 30, 2020 and 2019 was $127,640 and $86,136, respectively. Long-lived Assets 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 September 30, 2020,
and June 30, 2020, we were 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.
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 September 30, 2020,
we have no material unrecognized tax benefits. We recorded income tax provisions of $2,000,734 and $60,974 for the three months
ended September 30, 2020 and 2019, respectively. We also recorded a decrease in deferred tax asset, non-current, of $84,871 and
$11,175 for the three months ended September 30, 2020 and 2019. 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 three months ended September 30, 2020, sales to our two largest
customers accounted for 48% and 43% of our consolidated net sales, and 4% and 91% of our accounts receivable balance as of September
30, 2020. In the same period of 2019, sales to our three largest customers accounted for 65%, 11%, and 11% of our consolidated
net sales and 65%, 10%, and 2% of our accounts receivable balance as of September 30, 2019. No other customers accounted for more
than ten percent of total net sales for the three months ended September 30, 2020 and 2019. For the three months ended
September 30, 2020, we purchased the majority of our wireless data products from two manufacturing companies located in Asia. If
these manufacturing companies 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 three months ended September 30, 2020, we purchased wireless
data products from these manufacturers in the amount of $41,210,624, or 98% of total purchases, and had related accounts payable
of $44,081,107 as of September 30, 2020. In the same period of 2019, we purchased the majority of our wireless data products from
two manufacturing companies located in Asia, and we purchased wireless data products from these manufacturers in the amount of
$7,598,831, or 92% of total purchases, and had related accounts payable of $7,994,460 as of September 30, 2019. 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
February 2018, the FASB issued Accounting Standards Update (ASU) 2018-02, Income Statement—Reporting Comprehensive Income
(Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. Under
the amendments in ASU 2018-02, an entity may elect to reclassify the income tax effects of the Tax Cuts and Jobs Act on items within
AOCI to retained earnings. We do not expect that the adoption of this update will impact the Company’s consolidated financial
statements. |
