Document and Entity Information
Document and Entity Information - USD ($) | 12 Months Ended | ||
Jun. 30, 2019 | Sep. 30, 2019 | Dec. 31, 2018 | |
Document And Entity Information | |||
Entity Registrant Name | FRANKLIN WIRELESS CORP | ||
Entity Central Index Key | 0000722572 | ||
Document Type | 10-K | ||
Document Period End Date | Jun. 30, 2019 | ||
Amendment Flag | false | ||
Current Fiscal Year End Date | --06-30 | ||
Is Entity a Well-known Seasoned Issuer? | No | ||
Is Entity a Voluntary Filer? | No | ||
Is Entity's Reporting Status Current? | Yes | ||
Entity Filer Category | Non-accelerated Filer | ||
Entity Emerging Growth Company | false | ||
Entity Small Business | true | ||
Entity Ex Transition Period | false | ||
Entity Incorporation, State or Country Code | NV | ||
Entity File Number | 001-14891 | ||
Entity Interactive Data Current | Yes | ||
Entity Shell Company | false | ||
Entity Public Float | $ 10,410,000 | ||
Entity Common Stock, Shares Outstanding | 10,570,203 | ||
Document Fiscal Period Focus | FY | ||
Document Fiscal Year Focus | 2019 |
Consolidated Balance Sheets
Consolidated Balance Sheets - USD ($) | Jun. 30, 2019 | Jun. 30, 2018 |
Current assets: | ||
Cash and cash equivalents | $ 6,447,505 | $ 11,975,944 |
Certificates of deposit account | 5,380,226 | 0 |
Accounts receivable | 4,138,469 | 7,907,117 |
Other receivables, net | 40,807 | 125,144 |
Inventories, net | 1,052,740 | 1,615,332 |
Prepaid expenses and other current assets | 28,042 | 19,034 |
Prepaid income taxes | 0 | 28,240 |
Advance payments to vendors | 51,340 | 78,696 |
Total current assets | 17,139,129 | 21,749,507 |
Property and equipment, net | 131,879 | 124,072 |
Intangible assets, net | 1,109,911 | 996,708 |
Deferred tax assets, non-current | 2,282,975 | 1,853,429 |
Goodwill | 273,285 | 273,285 |
Other assets | 258,097 | 139,637 |
TOTAL ASSETS | 21,195,276 | 25,136,638 |
Current liabilities: | ||
Accounts payable | 5,672,514 | 7,609,585 |
Income tax payable | 654 | 3,750 |
Advance payments from customers | 0 | 228,598 |
Accrued liabilities | 247,658 | 259,348 |
Total current liabilities | 5,920,826 | 8,101,281 |
Total liabilities | 5,920,826 | 8,101,281 |
Parent Company stockholders' equity: | ||
Preferred stock, par value $0.001 per share, authorized 10,000,000 shares; No preferred stock issued and outstanding as of June 30, 2019 and 2018 | 0 | 0 |
Common stock, par value $0.001 per share, authorized 50,000,000 shares; 10,570,203 shares issued and outstanding as of June 30, 2019 and 2018, respectively | 13,972 | 13,972 |
Additional paid-in capital | 7,442,272 | 7,442,272 |
Retained earnings | 12,477,441 | 13,753,565 |
Treasury stock, 3,472,286 shares as of June 30, 2019 and 2018 | (4,513,479) | (4,513,479) |
Accumulated other comprehensive loss | (634,802) | (581,983) |
Total Parent Company stockholders' equity | 14,785,404 | 16,114,347 |
Non-controlling interests | 489,046 | 921,010 |
Total stockholders' equity | 15,274,450 | 17,035,357 |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ 21,195,276 | $ 25,136,638 |
Consolidated Balance Sheets (Pa
Consolidated Balance Sheets (Parenthetical) - $ / shares | Jun. 30, 2019 | Jun. 30, 2018 |
Statement of Financial Position [Abstract] | ||
Preferred stock par value (in Dollars per share) | $ 0.001 | $ 0.001 |
Preferred stock Authorized | 10,000,000 | 10,000,000 |
Preferred stock Issued | 0 | 0 |
Preferred stock Outstanding | 0 | 0 |
Common stock par value (in Dollars per share) | $ 0.001 | $ 0.001 |
Common stock Authorized | 50,000,000 | 50,000,000 |
Common stock Issued | 10,570,203 | 10,570,203 |
Common stock Outstanding | 10,570,203 | 10,570,203 |
Treasury stock shares | 3,472,286 | 3,472,286 |
Consolidated Statements of Comp
Consolidated Statements of Comprehensive Income - USD ($) | 12 Months Ended | |
Jun. 30, 2019 | Jun. 30, 2018 | |
Income Statement [Abstract] | ||
Net sales | $ 36,468,900 | $ 30,065,833 |
Cost of goods sold | 30,729,411 | 24,874,119 |
Gross profit | 5,739,489 | 5,191,714 |
Operating expenses: | ||
Selling, general, and administrative | 4,891,365 | 4,511,568 |
Research and development | 2,955,581 | 3,372,016 |
Total operating expenses | 7,846,946 | 7,883,584 |
Loss from operations | (2,107,457) | (2,691,870) |
Other income, net: | ||
Interest income | 138,462 | 10,007 |
Income from governmental subsidy | 64,201 | 330,856 |
Other income, net | 2,291 | (8,541) |
Total other income, net | 204,954 | 332,322 |
Loss before provision (benefit) for income taxes | (1,902,503) | (2,359,548) |
Income tax benefit | (428,745) | (186,973) |
Net loss | (1,473,758) | (2,172,575) |
Non-controlling interests in net loss of subsidiary 48.2% | 55,564 | 80,118 |
Non-controlling interests in net loss of subsidiary at 35.8% | 142,070 | 0 |
Net loss attributable to Parent Company | $ (1,276,124) | $ (2,092,457) |
Basic earnings (loss) per share attributable to Parent Company stockholders | $ (0.12) | $ (0.20) |
Diluted earnings (loss) per share attributable to Parent Company stockholders | $ (0.12) | $ (0.20) |
Weighted average common shares outstanding - basic | 10,570,203 | 10,538,610 |
Weighted average common shares outstanding - diluted | 10,570,203 | 10,538,610 |
Comprehensive loss | ||
Net loss | $ (1,473,758) | $ (2,172,575) |
Translation adjustments | (52,819) | 31,822 |
Comprehensive loss | (1,526,577) | (2,140,753) |
Comprehensive loss attributable to non-controlling interest | 197,634 | 80,118 |
Comprehensive loss attributable to controlling interest | $ (1,328,943) | $ (2,060,635) |
Consolidated Statements of Co_2
Consolidated Statements of Comprehensive Income (Parenthetical) | Jun. 30, 2019 | Jun. 30, 2018 |
Noncontrolling Interest [Member] | ||
Non-controlling interests in net loss of subsidiary | 35.80% | 48.20% |
Consolidated Statements of Stoc
Consolidated Statements of Stockholders' Equity - USD ($) | Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Income (Loss) | Noncontrolling Interest | Total |
Beginning balace, shares at Jun. 30, 2017 | 10,520,203 | ||||||
Beginning balace, value at Jun. 30, 2017 | $ 13,922 | $ 7,375,322 | $ 15,846,022 | $ (4,513,479) | $ (613,805) | $ 1,001,128 | $ 19,109,110 |
Net loss attributable to Parent Company | (2,092,457) | (2,092,457) | |||||
Foreign exchange translation | 31,822 | 31,822 | |||||
Comprehensive income (loss) attributable to non-controlling interest | (80,118) | (80,118) | |||||
Issuance of stock related to stock options exercised, shares | 50,000 | ||||||
Issuance of stock related to stock options exercised, value | $ 50 | 66,950 | 67,000 | ||||
Ending balance, shares at Jun. 30, 2018 | 10,570,203 | ||||||
Ending balance, value at Jun. 30, 2018 | $ 13,972 | 7,442,272 | 13,753,565 | (4,513,479) | (581,983) | 921,010 | 17,035,357 |
Net loss attributable to Parent Company | (1,276,124) | (1,276,124) | |||||
Foreign exchange translation | (52,819) | (52,819) | |||||
Comprehensive income (loss) attributable to non-controlling interest | (197,634) | (197,634) | |||||
Purchases of shares of a subsidiary | (234,330) | (234,330) | |||||
Ending balance, shares at Jun. 30, 2019 | 10,570,203 | ||||||
Ending balance, value at Jun. 30, 2019 | $ 13,972 | $ 7,442,272 | $ 12,477,441 | $ (4,513,479) | $ (634,802) | $ 489,046 | $ 15,274,450 |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows - USD ($) | 12 Months Ended | |
Jun. 30, 2019 | Jun. 30, 2018 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | ||
Net loss | $ (1,473,758) | $ (2,172,575) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||
Depreciation | 92,961 | 119,773 |
Amortization of intangible assets | 422,183 | 488,049 |
Reserve for obsolete inventory | 257,779 | 150,000 |
Deferred tax | (429,546) | (191,523) |
Forgiveness of accounts payable | 0 | (2,382) |
Increase (decrease) in cash due to change in: | ||
Accounts receivable | 3,852,985 | 3,039,951 |
Inventories | 304,813 | 1,613,733 |
Prepaid expenses and other current assets | (9,008) | 101 |
Prepaid income taxes | 28,240 | 0 |
Advance payments to vendors | 27,356 | 48,404 |
Other assets | (118,460) | (2,985) |
Accounts payable | (1,937,071) | (5,250,597) |
Income tax payable | (3,096) | 3,750 |
Advance payments from customers | (228,598) | 176,601 |
Accrued liabilities | (11,690) | (28,994) |
Net cash provided by (used in) operating activities | 775,090 | (2,008,694) |
CASH FLOWS FROM INVESTING ACTIVITIES: | ||
Purchases of short-term investments | (5,380,226) | 0 |
Purchases of shares of a subsidiary | (234,330) | 0 |
Purchases of property and equipment | (100,768) | (23,903) |
Payments for capitalized development costs | (465,352) | (291,386) |
Purchases of intangible assets | (70,034) | (83,896) |
Net cash used in investing activities | (6,250,710) | (399,185) |
CASH FLOWS FROM FINANCING ACTIVITIES: | ||
Cash received from exercise of stock options | 0 | 67,000 |
Net cash provided by financing activities | 0 | 67,000 |
Effect of foreign currency translation | (52,819) | 31,822 |
Net decrease in cash and cash equivalents | (5,528,439) | (2,309,057) |
Cash and cash equivalents, beginning of year | 11,975,944 | 14,285,001 |
Cash and cash equivalents, end of year | 6,447,505 | 11,975,944 |
Supplemental disclosure of cash flow information: | ||
Cash paid during the periods for: Income taxes | $ (801) | $ (800) |
1. BUSINESS OVERVIEW
1. BUSINESS OVERVIEW | 12 Months Ended |
Jun. 30, 2019 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
BUSINESS OVERVIEW | NOTE 1 - BUSINESS OVERVIEW We are a provider of intelligent wireless solutions including mobile hotspots, routers and modems as well as innovative hardware and software products that support machine-to-machine (M2M) applications and the Internet of Things (IoT). Our M2M and IoT solutions include embedded modules, modems and gateways built to deliver reliable always-on connectivity supporting a broad spectrum of applications. These products are designed to solve wireless connectivity challenges in a variety of vertical markets including video surveillance, digital signage, home security, oil and gas exploration, kiosks, fleet management, smart grid, vehicle diagnostics, telematics and many more. We have a majority ownership position in Franklin Technology Inc. ("FTI"), a research and development company located in Seoul, South Korea. FTI primarily provides design and development services to us for our wireless products. Our products are generally marketed and sold directly to wireless operators, and indirectly through strategic partners and distributors. Our global customer base extends primarily from the United States to countries in South America, the Caribbean, Europe, the Middle East and Africa ("EMEA") and Asia. |
2. SUMMARY OF SIGNIFICANT ACCOU
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 12 Months Ended |
Jun. 30, 2019 | |
Accounting Policies [Abstract] | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 2 - 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 64.2% (35.8% is owned by non-controlling interests) as of June 30, 2019 and 51.8% (48.2% is owned by non-controlling interests) as of June 30, 2018. 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. The increase in the majority voting interest in percentage from 51.8% to 64.2% for the year ended June 30, 2019 was due to the purchase of an additional 246,663 shares of the subsidiary, at $0.95 per share, by the parent company from three shareholders of the subsidiary. As consolidated financial statements are based on the assumption that they represent the financial position and operating results of a single economic entity, the retained earnings or deficit of the subsidiary at the date of acquisition, October 1, 2009, by the parent are excluded from consolidated retained earnings. When a subsidiary is consolidated, the consolidated financial statements include the subsidiary’s revenues, expenses, gains, and losses only from the date the subsidiary is initially consolidated, and the non-controlling interest is reported in the consolidated statement of financial position within equity, separately from the parent’s equity. There are no shares of the Company held by any subsidiaries as of June 30, 2019 or June 30, 2018. Non-controlling Interest in a Consolidated Subsidiary As of June 30, 2019, the non-controlling interest was $489,046, which represents a $431,964 decrease from $921,010 as of June 30, 2018. The decrease in the non-controlling interest of $431,964 was comprised of two components: (1) losses in the subsidiary of $511,622 incurred for the year ended June 30, 2019 and (2) a reduction in the ownership percentage of the non-controlling interests due to the repurchase by the Company of 246,663 shares of the subsidiary for $234,330 ($0.95 per share) from three non-controlling shareholders. This decreased the non-controlling interests’ ownership percentage from 48.2% to 35.8%. 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: Fiscal Year Ended June 30, Net sales: 2019 2018 United States $ 36,217,387 $ 29,235,011 Caribbean and South America – 238,970 Europe, the Middle East and Africa (“EMEA”) 224,427 335,845 Asia 27,086 256,007 Totals $ 36,468,900 $ 30,065,833 Long-lived assets, net (property and equipment and intangible assets): June 30, 2019 June 30, 2018 United States $ 1,209,159 $ 1,073,640 Asia 32,631 47,140 Totals $ 1,241,790 $ 1,120,780 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 (see Note 3). 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. 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 June 30, 2019 and June 30, 2018. Revenue Recognition Through June 30, 2018, we recognized 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 recognized revenues from product sales upon shipment of the products to the customers or when the products are received by the customers in accordance with shipping or delivery terms. We provided a warranty for one year from the shipment or delivery date, which was covered by our vendors pursuant to purchase agreements. Any net warranty related expenditures made by us have historically not been material. Under our sales return policy, customers may generally return products that are under warranty for repair or replacement. 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, while prior period amounts have not been adjusted and continue to be reported in accordance with our historic accounting under Topic 605. 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 hot spot 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 year ended June 30, 2019 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: June 30, 2019 June 30, 2018 Accounts Receivable $ 4,138,470 $ 7,907,117 The balance of contract assets was immaterial as we did not have a significant amount of un-invoiced receivables in the periods ended June 30, 2019 and June 30, 2018. Our contract liabilities are as follows: June 30, 2019 June 30, 2018 Advance payments from customers $ – $ 228,598 Undelivered products 140,000 140,000 Totals $ 140,000 $ 368,598 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 satisfied at a point in time. Revenue from products transferred to customers at a single point in time accounted for 99% of net sales for the year ended June 30, 2019. Revenue for non-recurring engineering projects is based on the percent complete of a project and accounted for 1.0% of net sales for the year ended June 30, 2019. The majority of our revenue recognized at a point in time is for the sale of hot-spot 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 June 30, 2019, 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 expense associated with capitalized product development costs associated with complete technology. 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 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 in Note 2 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 June 30, 2019, and June 30, 2018, capitalized product development costs in progress were $465,352 and $100,000, respectively, and these amounts are included in intangible assets in our consolidated balance sheets. During the year ended June 30, 2019, we incurred $465,352 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 $2,955,581 and $3,372,016 for the years ended June 30, 2019 and 2018, respectively. Advertising and Promotion Costs Costs associated with advertising and promotions are expensed as incurred. Advertising and promotion costs were $6,105 and $16,488 for the years ended June 30, 2019 and 2018, 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 statement of comprehensive income, were $1,140,229 and $814,926 for the years ended June 30, 2019 and 2018, 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 and short-term government bonds mutual funds that are readily convertible to cash and have a $1.00 net asset value. Short Term Investments We have invested excess funds in short term liquid assets of certificates of deposit. 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 our control. We may write down our inventory value for potential obsolescence and excess inventory. As of June 30, 2019, and 2018, we have recorded inventory reserves in the amount of $553,281 and $295,502, 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 years ended June 30, 2019 and 2018. Intangible Assets The definite lived intangible assets consisted of the following as of June 30, 2019: Definite lived intangible assets: Expected Life Average Remaining life Gross Intangible Assets Accumulated Amortization Net Intangible Assets Complete technology 3 years 3.0 years 18,397 - 18,397 Technology in progress Not Applicable - 465,352 - 465,352 Software 5 years 2.7 years 423,436 278,266 145,170 Patents 10 years 6.3 years 58,884 8,729 50,155 Certifications & licenses 3 years 0.8 years 3,319,461 2,888,624 430,837 Total as of June 30, 2019 $ 4,285,530 $ 3,175,619 $ 1,109,911 The definite lived intangible assets consisted of the following as of June 30, 2018: Definite lived intangible assets: Expected Life Average Remaining life Gross Intangible Assets Accumulated Amortization Net Intangible Assets Complete technology 3 years 3.0 years 18,397 - 18,397 Technology in progress Not Applicable - 100,000 - 100,000 Software 5 years 2.7 years 323,295 238,487 84,808 Patents 10 years 7.0 years 58,391 6,683 51,708 Certifications & licenses 3 years 1.9 years 3,250,061 2,508,266 741,795 Total as of June 30, 2018 $ 3,750,144 $ 2,753,436 $ 996,708 Amortization expense recognized during the years ended June 30, 2019 and 2018 was $422,183 and $488,049, respectively. The amortization expenses of the definite lived intangible assets for the next five years and thereafter are as follows: FY2020 FY2021 FY2022 FY2023 FY2024 Thereafter Total $ 303,890 $ 114,452 $ 47,465 $ 26,827 $ 16,745 $ 20,786 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 assets; 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. We are not aware of any events or changes in circumstances during the year ended June 30, 2019 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. Earnings per Share Attributable to Common Stockholders Basic 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 of Credit Risk 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 year ended June 30, 2019, net sales to our two largest customers represented 57% and 24% of our consolidated net sales, respectively, and 56% and 26% of our accounts receivable balance as of June 30, 2019. For the year ended June 30, 2018, net sales to our three largest customers represented 54%, 21%, and 11% of our consolidated net sales, respectively, and 48%, 36%, and 9% of our accounts receivable balance as of June 30, 2018. No other customer accounted for more than ten percent of total net sales for the years ended June 30, 2019 and 2018. For the year ended June 30, 2019, sales to Verizon and Sprint each comprised more the 10% of our net sales. For the year ended June 30, 2018, sales to Verizon, Sprint, and Anydata Corp. each comprised more the 10% of our net sales. For the year ended June 30, 2019, we purchased the majority of our wireless data products from two manufacturing companies 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 our revenue. For the year ended June 30, 2019, we purchased wireless data products from these suppliers in the amount of $28,858,171, or 97% of total purchases, and had related accounts payable of $4,401,501 as of June 30, 2019. For the year ended June 30, 2018, we purchased wireless data products from this supplier in the amount of $19,507,215, or 87% of total purchases, and had related accounts payable of $5,834,383 as of June 30, 2018. 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 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. However, we do not expect that the adoption of this update will materially impact the Company’s consolidated financial statements. 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 TCJA 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. |
3. FAIR VALUE MEASUREMENTS
3. FAIR VALUE MEASUREMENTS | 12 Months Ended |
Jun. 30, 2019 | |
Fair Value Disclosures [Abstract] | |
FAIR VALUE MEASUREMENTS | NOTE 3 - FAIR VALUE MEASUREMENTS Fair value accounting is applied for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis (at least annually). Assets and liabilities recorded at fair value in the financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels, which are directly related to the amount of subjectivity, associated with the inputs to the valuation of these assets or liabilities are as follows: - Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company can access at the measurement date. - Level 2 inputs are observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. - L evel 3 inputs are unobservable inputs for the asset or liability. The carrying values of the Company’s financial instruments, including cash and cash equivalents, short-term investments, accounts receivable, and accounts payable, approximate their fair values due to the short period of time to maturity or repayment. 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. |
4. PROPERTY AND EQUIPMENT
4. PROPERTY AND EQUIPMENT | 12 Months Ended |
Jun. 30, 2019 | |
Property, Plant and Equipment [Abstract] | |
PROPERTY AND EQUIPMENT | NOTE 4 - PROPERTY AND EQUIPMENT Property and equipment consisted of the following as of: June 30, 2019 June 30, 2018 Machinery and facility $ 363,022 $ 306,335 Office equipment 396,222 385,913 Molds 784,170 984,720 1,543,414 1,676,968 Less accumulated depreciation (1,411,535 ) (1,552,896 ) Total $ 131,879 $ 124,072 Depreciation expense associated with property and equipment was $92,961 and $119,773 for the fiscal years ended June 30, 2019 and 2018, respectively, and is included in selling, general, and administrative expenses on the consolidated statements of comprehensive income. Due to the disposal of molds in the amount of $234,321 with no remaining net value, the associated accumulated depreciation was decreased by the same amount for the year ended June 30, 2019. |
5. ACCRUED LIABILITIES
5. ACCRUED LIABILITIES | 12 Months Ended |
Jun. 30, 2019 | |
Payables and Accruals [Abstract] | |
ACCRUED LIABILITIES | NOTE 5 - ACCRUED LIABILITIES Accrued liabilities consisted of the following as of: June 30, 2019 June 30, 2018 Accrued salaries, payroll deductions owed to government entities $ 44,752 $ 38,855 Accrued vacation 56,335 54,506 Accrued undelivered inventory 140,000 140,000 Taxes 408 1,332 Other accrued liabilities 6,163 24,655 Total $ 247,658 $ 259,348 |
6. INCOME TAXES
6. INCOME TAXES | 12 Months Ended |
Jun. 30, 2019 | |
Income Tax Disclosure [Abstract] | |
INCOME TAXES | NOTE 6 - INCOME TAXES Income tax provision for the years ended June 30, 2019 and 2018 consists of the following: Year Ended June 30, 2019 2018 Current income tax expense (benefit): Federal $ – $ 3,750 State 801 800 801 4,550 Deferred income tax expense (benefit): Federal (345,083 ) (27,460 ) State – – Foreign (84,463 ) (164,063 ) (429,546 ) (191,523 ) Benefit for income taxes $ (428,745 ) $ (186,973 ) The provision (benefit) for income taxes reconciles to the amount computed by applying the effective federal statutory income tax rate to the income before provision for income taxes as follows: Year Ended June 30, 2019 2018 Federal tax benefit, at statutory rate of 21% for the year ended June 30, 2019 and 34% for the year ended June 30, 2018 $ (438,706 ) $ (799,696 ) State tax, net of federal tax benefit (50,881 ) (54,642 ) Nondeductible expenses 4,129 6,753 R&D credits (36,127 ) (36,733 ) Foreign rate difference 40,660 (54,332 ) Other 666 34,878 Rate reduction 51,514 661,629 Change in valuation allowance – 55,170 Benefit for income taxes $ (428,745 ) $ (186,973 ) Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets are as follows: June 30, 2019 June 30, 2018 Deferred tax asset: Net operating losses $ 1,767,365 $ 1,417,549 State tax 169 169 Intangibles 22,678 44,200 Tax credits 666,380 589,206 Inventory reserve 165,160 76,663 Other, net 44,853 48,687 Total deferred tax assets 2,666,605 2,176,474 Deferred tax liabilities: Fixed asset (25,100 ) (17,123 ) Total deferred tax liabilities (25,100 ) (17,123 ) Less valuation allowance (358,530 ) (305,922 ) Net deferred tax asset $ 2,282,975 $ 1,853,429 Deferred income tax assets and liabilities are recorded for differences between the financial statement and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. We have evaluated the available evidence supporting the realization of our gross deferred tax assets, including the amount and timing of forecasted future taxable income. Management determined it is more likely than not that the federal deferred tax assets will be fully realized, and no valuation allowance is necessary as of June 30, 2019. Management also determined that certain state deferred tax assets required a partial valuation allowance as of June 30, 2019. As of June 30, 2019, we have federal net operating loss carryforwards of approximately $5.6 million and no state net operating loss carryforwards. Under the Tax Cuts and Jobs Act (the “Act”), which was signed into law on December 22, 2017, the federal net operating loss recognized on or after January 1, 2018 will carry forward indefinitely. The federal net operating loss of $2.5 million, which recognized on or before December 31, 2017, will expire through 2035, and the federal net operating loss of $3.1 million recognized on or after January 1, 2018 will carry forward indefinitely. The utilization of net operating loss carryforwards may be subject to limitations under provisions of the Internal Revenue Code Section 382 and similar state provisions. We apply the provisions of ASC 740 related to accounting for uncertain tax positions, which prescribes a recognition threshold and measurement process for recording in the financial statements uncertain tax positions taken or expected to be taken in a tax return. Under this provision, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. Tax benefits of an uncertain tax position will not be recognized if it has less than a 50% likelihood of being sustained based on technical merits. A reconciliation of the beginning and ending balance of unrecognized tax benefits, which have been considered in the Company's computation of its deferred tax assets, is as follows: Balance as of June 30, 2017 $ 221,145 Gross increase 35,894 Relief of ASC 740 reserve/adjustment (14,852 ) Balance as of June 30, 2018 242,187 Gross increase 33,075 Balance as of June 30, 2019 $ 275,262 We do not anticipate any material change in the total amount of unrecognized tax benefits to occur within the next twelve months. ASC 740 requires us to accrue interest and penalties where there is an underpayment of taxes based on our best estimate of the amount ultimately to be paid. Our policy is to recognize interest accrued related to unrecognized tax benefits and penalties as income tax expense. We have not recorded any interest or penalties as the liability associated with the unrecognized tax benefits is immaterial. We are subject to taxation in the U.S., and various state and foreign jurisdictions. The Tax Cuts and Jobs Act (the “Act”) was signed into law on December 22, 2017. The Act includes a provision to reduce federal corporate income tax rate to a flat 21% effective for a taxable year beginning on or after January 1, 2018. ASC 740 provides that deferred tax assets and liabilities be measured at the enacted tax rate expected to apply when the related temporary differences are to be realized or settled, and the related tax impact is recognized through continuing operation in the period in which tax legislation is enacted. Accordingly, the Company remeasures its deferred tax assets and liabilities as of June 30, 2018 and provides income tax provision of $661,629 through continuing operation section of the income statement. The SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the Tax Act. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record and provisional estimate in the financial statements. The Company has recognized the provisional tax impacts related to the Tax Act in its financial statements for the year ended June 30, 2018. |
7. EARNINGS PER SHARE
7. EARNINGS PER SHARE | 12 Months Ended |
Jun. 30, 2019 | |
Earnings Per Share [Abstract] | |
EARNINGS PER SHARE | NOTE 7 - EARNINGS PER SHARE We report earnings per share in accordance with ASC 260, “Earnings Per Share.” Basic earnings (loss) per share are computed using the weighted average number of shares outstanding during the period. Diluted earnings per share represent basic earnings per share adjusted to include the potentially dilutive effect of outstanding stock options. For the year ended June 30, 2019, we were in a net loss position and have excluded 299,000 stock options from the calculation of diluted net loss per share because these securities are anti-dilutive. The weighted average number of shares outstanding used to compute loss per share is as follows: Year Ended June 30, 2019 2018 Net loss attributable to Parent Company $ (1,276,124 ) $ (2,092,457 ) Weighted-average shares of common stock outstanding: Basic 10,570,203 10,538,610 Dilutive effect of common stock equivalents arising from stock options – – Diluted Outstanding shares 10,570,203 10,538,610 Basic loss per share $ (0.12 ) $ (0.20 ) Diluted loss per share $ (0.12 ) $ (0.20 ) |
8. COMMITMENTS AND CONTINGENCIE
8. COMMITMENTS AND CONTINGENCIES | 12 Months Ended |
Jun. 30, 2019 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES | NOTE 8 - COMMITMENTS AND CONTINGENCIES Leases On September 9, 2015, we signed a lease for new office space consisting of approximately 12,775 square feet, located in San Diego, California, at a monthly rent of $23,115, which commenced on October 28, 2015. In addition to monthly rent, the new lease includes payment for certain common area costs. The term of the lease for the new office space was four years from the lease commencement date and was then extended by an additional fifty months, to December 31, 2023. Our facility is covered by an appropriate level of insurance and we believe it to be suitable for our use and adequate for our present needs. FTI leases approximately 10,000 square feet of office space, located in Seoul, Korea, at a monthly rent of approximately $8,000 that expires on August 31, 2021. Beginning on June 12, 2015, FTI leased additional office space consisting of approximately 2,682 square feet, also located in Seoul, Korea, at a monthly rent of approximately $2,700 that expires on August 31, 2021. We lease one corporate housing facility primarily for our employees who travel, under a non-cancelable operating lease that expires on September 4, 2020. Rent expense for the years ended June 30, 2019 and 2018 was $415,443 and $414,252, respectively. Future minimum payments under operating leases are as follows: Payments Due by June 30, 2020 2021 2022 2023 2024 Total Administrative office, San Diego, CA $ 313,243 $ 321,930 $ 321,930 $ 321,930 $ 160,965 $ 1,439,998 Administrative office, Korea 128,400 128,400 21,400 – – 278,200 Corporate housing facility 9,913 2,478 – – – 12,391 Total Obligations $ 451,556 $ 452,808 $ 343,330 $ 321,930 $ 160,965 $ 1,730,589 Litigation We are from time to time involved in certain legal proceedings and claims arising in the ordinary course of business. Management does not expect any material adverse outcome. We entered into a Professional Services Agreement with Anydata Corp. (“Anydata”) for the productACT233F Smart Link OBD device on May 5, 2017, for a minimum purchase commitment of 250,000 units, which is associated with Anydata’s irrevocable purchase orders received from its customer. We have delivered approximately 25,000 units and 7,000 units during our second and fourth quarters of fiscal 2018, respectively, and an additional 18,000 units during our first quarter of fiscal 2019. Sales to Anydata were approximately $1.8 million for the year ended June 30, 2019. We have received information that Anydata may not be able to fulfill the entire purchase commitment for which parts have already been ordered with our main vendor, Quanta. Management believes that the Company will be able to supply some of the products to another customer and has received personal guarantees from the ownership group of Anydata. As of June 30, 2019, the remaining purchase commitment unfulfilled by Anydata to the Company was approximately $3.1 million. The total preliminary product purchase commitment with Quanta was approximately $1.9 million. This amount is subject to further changes depending on the ability of Quanta to repurpose some of the component parts to its other customers. We have not recorded a receivable from Anydata, nor a liability owed to Quanta. Management believes, at this time, a loss contingency is reasonably possible but not estimable as to how much ultimately would be paid to Quanta. For the year ended June 30, 2019, we paid $100,000 for the right to call on inventory and has recorded this amount as a prepaid. Additionally, we have agreed pricing adjustments with Quanta for other products to ensure demand is met and have recorded an additional $22,000 as a prepaid related to pricing adjustments. As of June 30, 2019, there is a reasonable possibility we may incur a loss, however, the amount is not estimable at this time. Change of Control Agreements On September 21, 2009, we entered into Change of Control Agreements with OC Kim, our President, and Yun J. (David) Lee, our Chief Operating Officer. Each Change of Control Agreement provides for a lump sum payment to the officer in case of a change of control of the Company. The term includes the acquisition of Common Stock of the Company resulting in one person or company owning more than 50% of the outstanding shares, a significant change in the composition of the Board of Directors of the Company during any 12-month period, a reorganization, merger, consolidation or similar transaction resulting in the transfer of ownership of more than fifty percent (50%) of the Company's outstanding Common Stock, or a liquidation or dissolution of the Company or sale of substantially all of the Company's assets. The Change of Control Agreement with Mr. Kim calls for a payment of $5 million upon a change of control, and the agreement with Mr. Lee calls for a payment of $2 million upon a change of control. The Board of Directors has approved extension of the Change of Control Agreements with Mr. Kim and Mr. Lee, through September 30, 2021. Chinese Tariffs We believe that our products are currently exempt from Chinese tariffs. If this were to change at any point, a tariff of 10%-25% of the purchase price would be imposed. If such tariffs are imposed, they could have a materially adverse effect on sales and operating results Customer Indemnification Under purchase orders and contracts for the sale of our products we may provide indemnification to our customers for potential intellectual property infringement claims for which we may have no corresponding recourse against our third-party licensors. This potential liability, if realized, could materially adversely affect our business, operating results and financial condition. |
9. LONG-TERM INCENTIVE PLAN AWA
9. LONG-TERM INCENTIVE PLAN AWARDS | 12 Months Ended |
Jun. 30, 2019 | |
Share-based Payment Arrangement [Abstract] | |
LONG-TERM INCENTIVE PLAN AWARDS | NOTE 9 - LONG-TERM INCENTIVE PLAN AWARDS We apply the provisions of ASC 718, “Compensation - Stock Compensation,” using a modified prospective application, and the Black-Scholes model. Under this application, we are required to record compensation expense for all awards granted after the date of adoption and for the unvested portion of previously granted awards that remain outstanding at the date of adoption. Compensation costs will be recognized over the period that an employee provides service in exchange for the award. We adopted the 2009 Stock Incentive Plan (“2009 Plan”) on June 11, 2009, which provided for the grant of incentive stock options and non-qualified stock options to our employees and directors. Options granted under the 2009 Plan generally have a term of ten years and generally vest and become exercisable at the rate of 33% after one year and 33% on the second and third anniversaries of the option grant dates. Historically, some stock option grants have included shorter vesting periods ranging from one to two years. The estimated forfeiture rate considers historical turnover rates stratified into employee pools in comparison with an overall employee turnover rate, as well as expectations about the future. We periodically revise the estimated forfeiture rate in subsequent periods if actual forfeitures differ from those estimates. There was no compensation expense recorded under this method for the year ended June 30, 2019. A summary of the status of our stock options is presented below: Weighted- Average Weighted- Remaining Average Contractual Aggregate Exercise Life Intrinsic Options Shares Price (In Years) Value Outstanding as of June 30, 2017 399,000 $ 1.12 4.05 $ 451,820 Granted – – – – Exercised (50,000 ) (1.34 ) (3.95 ) (92,500 ) Cancelled – – – – Forfeited or Expired (50,000 ) (1.34 ) (3.96 ) (92,500 ) Outstanding as of June 30, 2018 299,000 $ 1.04 2.75 $ 241,220 Granted – – – – Exercised – – – – Cancelled – – – – Forfeited or Expired – – – – Outstanding as of June 30, 2019 299,000 $ 1.04 2.75 $ 420,620 Exercisable as of June 30, 2019 299,000 $ 1.04 2.75 $ 420,620 The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based upon the Company’s closing stock price of 2.45 as of June 30, 2019, which would have been received by the option holders had all option holders exercised their options as of that date. The weighted-average grant-date fair value of stock options outstanding as of June 30, 2019 in the amount of 299,000 shares was $0.92 per share. As of June 30, 2019, there was no unrecognized compensation cost related to non-vested stock options granted. |
10. SUBSEQUENT EVENTS
10. SUBSEQUENT EVENTS | 12 Months Ended |
Jun. 30, 2019 | |
Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | NOTE 10 - SUBSEQUENT EVENTS Management considered subsequent events in the preparation of the Company's financial statements through the date this Form 10-K was filed. |
2. SUMMARY OF SIGNIFICANT ACC_2
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 12 Months Ended |
Jun. 30, 2019 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Principles of Consolidation | Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiary with a majority voting interest of 64.2% (35.8% is owned by non-controlling interests) as of June 30, 2019 and 51.8% (48.2% is owned by non-controlling interests) as of June 30, 2018. 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. The increase in the majority voting interest in percentage from 51.8% to 64.2% for the year ended June 30, 2019 was due to the purchase of an additional 246,663 shares of the subsidiary, at $0.95 per share, by the parent company from three shareholders of the subsidiary. As consolidated financial statements are based on the assumption that they represent the financial position and operating results of a single economic entity, the retained earnings or deficit of the subsidiary at the date of acquisition, October 1, 2009, by the parent are excluded from consolidated retained earnings. When a subsidiary is consolidated, the consolidated financial statements include the subsidiary’s revenues, expenses, gains, and losses only from the date the subsidiary is initially consolidated, and the non-controlling interest is reported in the consolidated statement of financial position within equity, separately from the parent’s equity. There are no shares of the Company held by any subsidiaries as of June 30, 2019 or June 30, 2018. |
Non-controlling Interest in a Consolidated Subsidiary | Non-controlling Interest in a Consolidated Subsidiary As of June 30, 2019, the non-controlling interest was $489,046, which represents a $431,964 decrease from $921,010 as of June 30, 2018. The decrease in the non-controlling interest of $431,964 was comprised of two components: (1) losses in the subsidiary of $511,622 incurred for the year ended June 30, 2019 and (2) a reduction in the ownership percentage of the non-controlling interests due to the repurchase by the Company of 246,663 shares of the subsidiary for $234,330 ($0.95 per share) from three non-controlling shareholders. This decreased the non-controlling interests’ ownership percentage from 48.2% to 35.8%. |
Segment Reporting | 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: Fiscal Year Ended June 30, Net sales: 2019 2018 United States $ 36,217,387 $ 29,235,011 Caribbean and South America – 238,970 Europe, the Middle East and Africa (“EMEA”) 224,427 335,845 Asia 27,086 256,007 Totals $ 36,468,900 $ 30,065,833 Long-lived assets, net (property and equipment and intangible assets): June 30, 2019 June 30, 2018 United States $ 1,209,159 $ 1,073,640 Asia 32,631 47,140 Totals $ 1,241,790 $ 1,120,780 |
Fair Value of Financial Instruments | 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 (see Note 3). |
Estimates | 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. |
Allowance for Doubtful Accounts | 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 June 30, 2019 and June 30, 2018. |
Revenue Recognition | Revenue Recognition Through June 30, 2018, we recognized 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 recognized revenues from product sales upon shipment of the products to the customers or when the products are received by the customers in accordance with shipping or delivery terms. We provided a warranty for one year from the shipment or delivery date, which was covered by our vendors pursuant to purchase agreements. Any net warranty related expenditures made by us have historically not been material. Under our sales return policy, customers may generally return products that are under warranty for repair or replacement. 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, while prior period amounts have not been adjusted and continue to be reported in accordance with our historic accounting under Topic 605. 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 hot spot 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 year ended June 30, 2019 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: June 30, 2019 June 30, 2018 Accounts Receivable $ 4,138,470 $ 7,907,117 The balance of contract assets was immaterial as we did not have a significant amount of un-invoiced receivables in the periods ended June 30, 2019 and June 30, 2018. Our contract liabilities are as follows: June 30, 2019 June 30, 2018 Advance payments from customers $ – $ 228,598 Undelivered products 140,000 140,000 Totals $ 140,000 $ 368,598 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 satisfied at a point in time. Revenue from products transferred to customers at a single point in time accounted for 99% of net sales for the year ended June 30, 2019. Revenue for non-recurring engineering projects is based on the percent complete of a project and accounted for 1.0% of net sales for the year ended June 30, 2019. The majority of our revenue recognized at a point in time is for the sale of hot-spot 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 June 30, 2019, our contracts do not contain any unsatisfied performance obligations, except for undelivered products. |
Cost of Goods Sold | 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 | 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 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 in Note 2 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 June 30, 2019, and June 30, 2018, capitalized product development costs in progress were $465,352 and $100,000, respectively, and these amounts are included in intangible assets in our consolidated balance sheets. During the year ended June 30, 2019, we incurred $465,352 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 | Research and Development Costs Costs associated with research and development are expensed as incurred. Research and development costs were $2,955,581 and $3,372,016 for the years ended June 30, 2019 and 2018, respectively. |
Advertising and Promotion Costs | Advertising and Promotion Costs Costs associated with advertising and promotions are expensed as incurred. Advertising and promotion costs were $6,105 and $16,488 for the years ended June 30, 2019 and 2018, respectively. |
Warranties | 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 | 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 statement of comprehensive income, were $1,140,229 and $814,926 for the years ended June 30, 2019 and 2018, respectively. |
Cash and Cash Equivalents | 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 and short-term government bonds mutual funds that are readily convertible to cash and have a $1.00 net asset value. |
Short Term Investments | Short Term Investments We have invested excess funds in short term liquid assets of certificates of deposit. |
Inventories | 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 our control. We may write down our inventory value for potential obsolescence and excess inventory. As of June 30, 2019, and 2018, we have recorded inventory reserves in the amount of $553,281 and $295,502, respectively, for inventories that we have identified as obsolete or slow-moving. |
Property and Equipment | 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 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 years ended June 30, 2019 and 2018. |
Intangible Assets | Intangible Assets The definite lived intangible assets consisted of the following as of June 30, 2019: Definite lived intangible assets: Expected Life Average Remaining life Gross Intangible Assets Accumulated Amortization Net Intangible Assets Complete technology 3 years 3.0 years 18,397 - 18,397 Technology in progress Not Applicable - 465,352 - 465,352 Software 5 years 2.7 years 423,436 278,266 145,170 Patents 10 years 6.3 years 58,884 8,729 50,155 Certifications & licenses 3 years 0.8 years 3,319,461 2,888,624 430,837 Total as of June 30, 2019 $ 4,285,530 $ 3,175,619 $ 1,109,911 The definite lived intangible assets consisted of the following as of June 30, 2018: Definite lived intangible assets: Expected Life Average Remaining life Gross Intangible Assets Accumulated Amortization Net Intangible Assets Complete technology 3 years 3.0 years 18,397 - 18,397 Technology in progress Not Applicable - 100,000 - 100,000 Software 5 years 2.7 years 323,295 238,487 84,808 Patents 10 years 7.0 years 58,391 6,683 51,708 Certifications & licenses 3 years 1.9 years 3,250,061 2,508,266 741,795 Total as of June 30, 2018 $ 3,750,144 $ 2,753,436 $ 996,708 Amortization expense recognized during the years ended June 30, 2019 and 2018 was $422,183 and $488,049, respectively. The amortization expenses of the definite lived intangible assets for the next five years and thereafter are as follows: FY2020 FY2021 FY2022 FY2023 FY2024 Thereafter Total $ 303,890 $ 114,452 $ 47,465 $ 26,827 $ 16,745 $ 20,786 |
Long-lived Assets | 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 assets; 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. We are not aware of any events or changes in circumstances during the year ended June 30, 2019 that would indicate that the long-lived assets are impaired. |
Stock-based Compensation | 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 | 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. |
Earnings per Share Attributable to Common Stockholders | Earnings per Share Attributable to Common Stockholders Basic 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 of Credit Risk | Concentrations of Credit Risk 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 year ended June 30, 2019, net sales to our two largest customers represented 57% and 24% of our consolidated net sales, respectively, and 56% and 26% of our accounts receivable balance as of June 30, 2019. For the year ended June 30, 2018, net sales to our three largest customers represented 54%, 21%, and 11% of our consolidated net sales, respectively, and 48%, 36%, and 9% of our accounts receivable balance as of June 30, 2018. No other customer accounted for more than ten percent of total net sales for the years ended June 30, 2019 and 2018. For the year ended June 30, 2019, sales to Verizon and Sprint each comprised more the 10% of our net sales. For the year ended June 30, 2018, sales to Verizon, Sprint, and Anydata Corp. each comprised more the 10% of our net sales. For the year ended June 30, 2019, we purchased the majority of our wireless data products from two manufacturing companies 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 our revenue. For the year ended June 30, 2019, we purchased wireless data products from these suppliers in the amount of $28,858,171, or 97% of total purchases, and had related accounts payable of $4,401,501 as of June 30, 2019. For the year ended June 30, 2018, we purchased wireless data products from this supplier in the amount of $19,507,215, or 87% of total purchases, and had related accounts payable of $5,834,383 as of June 30, 2018. 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 | Recently Issued Accounting Pronouncements 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. However, we do not expect that the adoption of this update will materially impact the Company’s consolidated financial statements. 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 TCJA 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. |
2. SUMMARY OF SIGNIFICANT ACC_3
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) | 12 Months Ended |
Jun. 30, 2019 | |
Accounting Policies [Abstract] | |
Segment information by geographic areas | The following table contains certain financial information by geographic area: Fiscal Year Ended June 30, Net sales: 2019 2018 United States $ 36,217,387 $ 29,235,011 Caribbean and South America – 238,970 Europe, the Middle East and Africa (“EMEA”) 224,427 335,845 Asia 27,086 256,007 Totals $ 36,468,900 $ 30,065,833 |
Long lived assets by geographic area | Long-lived assets, net (property and equipment and intangible assets): June 30, 2019 June 30, 2018 United States $ 1,209,159 $ 1,073,640 Asia 32,631 47,140 Totals $ 1,241,790 $ 1,120,780 |
Schedule of receivables | The balances of our trade receivables are as follows: June 30, 2019 June 30, 2018 Accounts Receivable $ 4,138,470 $ 7,907,117 |
Schedule of contract liabilities | Our contract liabilities are as follows: June 30, 2019 June 30, 2018 Advance payments from customers $ – $ 228,598 Undelivered products 140,000 140,000 Totals $ 140,000 $ 368,598 |
Useful lives of property and equipment | 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 |
Intangible Assets | The definite lived intangible assets consisted of the following as of June 30, 2019: Definite lived intangible assets: Expected Life Average Remaining life Gross Intangible Assets Accumulated Amortization Net Intangible Assets Complete technology 3 years 3.0 years 18,397 - 18,397 Technology in progress Not Applicable - 465,352 - 465,352 Software 5 years 2.7 years 423,436 278,266 145,170 Patents 10 years 6.3 years 58,884 8,729 50,155 Certifications & licenses 3 years 0.8 years 3,319,461 2,888,624 430,837 Total as of June 30, 2019 $ 4,285,530 $ 3,175,619 $ 1,109,911 The definite lived intangible assets consisted of the following as of June 30, 2018: Definite lived intangible assets: Expected Life Average Remaining life Gross Intangible Assets Accumulated Amortization Net Intangible Assets Complete technology 3 years 3.0 years 18,397 - 18,397 Technology in progress Not Applicable - 100,000 - 100,000 Software 5 years 2.7 years 323,295 238,487 84,808 Patents 10 years 7.0 years 58,391 6,683 51,708 Certifications & licenses 3 years 1.9 years 3,250,061 2,508,266 741,795 Total as of June 30, 2018 $ 3,750,144 $ 2,753,436 $ 996,708 |
Schedule of Expected Amortization Expense | The amortization expenses of the definite lived intangible assets for the next five years and thereafter are as follows: FY2020 FY2021 FY2022 FY2023 FY2024 Thereafter Total $ 303,890 $ 114,452 $ 47,465 $ 26,827 $ 16,745 $ 20,786 |
4. PROPERTY AND EQUIPMENT (Tabl
4. PROPERTY AND EQUIPMENT (Tables) | 12 Months Ended |
Jun. 30, 2019 | |
Property, Plant and Equipment [Abstract] | |
Schedule of property and equipment | Property and equipment consisted of the following as of: June 30, 2019 June 30, 2018 Machinery and facility $ 363,022 $ 306,335 Office equipment 396,222 385,913 Molds 784,170 984,720 1,543,414 1,676,968 Less accumulated depreciation (1,411,535 ) (1,552,896 ) Total $ 131,879 $ 124,072 |
5. ACCRUED LIABILITIES (Tables)
5. ACCRUED LIABILITIES (Tables) | 12 Months Ended |
Jun. 30, 2019 | |
Payables and Accruals [Abstract] | |
Schedule of accrued liabilities | Accrued liabilities consisted of the following as of: June 30, 2019 June 30, 2018 Accrued salaries, payroll deductions owed to government entities $ 44,752 $ 38,855 Accrued vacation 56,335 54,506 Accrued undelivered inventory 140,000 140,000 Taxes 408 1,332 Other accrued liabilities 6,163 24,655 Total $ 247,658 $ 259,348 |
6. INCOME TAXES (Tables)
6. INCOME TAXES (Tables) | 12 Months Ended |
Jun. 30, 2019 | |
Income Tax Disclosure [Abstract] | |
Schedule of Income tax provision from continuing operations | Income tax provision for the years ended June 30, 2019 and 2018 consists of the following: Year Ended June 30, 2019 2018 Current income tax expense (benefit): Federal $ – $ 3,750 State 801 800 801 4,550 Deferred income tax expense (benefit): Federal (345,083 ) (27,460 ) State – – Foreign (84,463 ) (164,063 ) (429,546 ) (191,523 ) Benefit for income taxes $ (428,745 ) $ (186,973 ) |
Schedule of effective income tax rate | The provision (benefit) for income taxes reconciles to the amount computed by applying the effective federal statutory income tax rate to the income before provision for income taxes as follows: Year Ended June 30, 2019 2018 Federal tax benefit, at statutory rate of 21% for the year ended June 30, 2019 and 34% for the year ended June 30, 2018 $ (438,706 ) $ (799,696 ) State tax, net of federal tax benefit (50,881 ) (54,642 ) Nondeductible expenses 4,129 6,753 R&D credits (36,127 ) (36,733 ) Foreign rate difference 40,660 (54,332 ) Other 666 34,878 Rate reduction 51,514 661,629 Change in valuation allowance – 55,170 Benefit for income taxes $ (428,745 ) $ (186,973 ) |
Schedule of deferred tax assets | Significant components of our deferred tax assets are as follows: June 30, 2019 June 30, 2018 Deferred tax asset: Net operating losses $ 1,767,365 $ 1,417,549 State tax 169 169 Intangibles 22,678 44,200 Tax credits 666,380 589,206 Inventory reserve 165,160 76,663 Other, net 44,853 48,687 Total deferred tax assets 2,666,605 2,176,474 Deferred tax liabilities: Fixed asset (25,100 ) (17,123 ) Total deferred tax liabilities (25,100 ) (17,123 ) Less valuation allowance (358,530 ) (305,922 ) Net deferred tax asset $ 2,282,975 $ 1,853,429 |
Schedule of unrecognized tax benefits | A reconciliation of the beginning and ending balance of unrecognized tax benefits, which have been considered in the Company's computation of its deferred tax assets, is as follows: Balance as of June 30, 2017 $ 221,145 Gross increase 35,894 Relief of ASC 740 reserve/adjustment (14,852 ) Balance as of June 30, 2018 242,187 Gross increase 33,075 Balance as of June 30, 2019 $ 275,262 |
7. EARNINGS PER SHARE (Tables)
7. EARNINGS PER SHARE (Tables) | 12 Months Ended |
Jun. 30, 2019 | |
Earnings Per Share [Abstract] | |
Schedule of earnings per share | The weighted average number of shares outstanding used to compute loss per share is as follows: Year Ended June 30, 2019 2018 Net loss attributable to Parent Company $ (1,276,124 ) $ (2,092,457 ) Weighted-average shares of common stock outstanding: Basic 10,570,203 10,538,610 Dilutive effect of common stock equivalents arising from stock options – – Diluted Outstanding shares 10,570,203 10,538,610 Basic loss per share $ (0.12 ) $ (0.20 ) Diluted loss per share $ (0.12 ) $ (0.20 ) |
8. COMMITMENTS AND CONTINGENC_2
8. COMMITMENTS AND CONTINGENCIES (Tables) | 12 Months Ended |
Jun. 30, 2019 | |
Commitments and Contingencies Disclosure [Abstract] | |
Schedule of Future Minimum Rental Payments for Operating Leases | Future minimum payments under operating leases are as follows: Payments Due by June 30, 2020 2021 2022 2023 2024 Total Administrative office, San Diego, CA $ 313,243 $ 321,930 $ 321,930 $ 321,930 $ 160,965 $ 1,439,998 Administrative office, Korea 128,400 128,400 21,400 – – 278,200 Corporate housing facility 9,913 2,478 – – – 12,391 Total Obligations $ 451,556 $ 452,808 $ 343,330 $ 321,930 $ 160,965 $ 1,730,589 |
9. LONG-TERM INCENTIVE PLAN A_2
9. LONG-TERM INCENTIVE PLAN AWARDS (Tables) | 12 Months Ended |
Jun. 30, 2019 | |
Share-based Payment Arrangement [Abstract] | |
Schedule of Stock Option Activity | A summary of the status of our stock options is presented below: Weighted- Average Weighted- Remaining Average Contractual Aggregate Exercise Life Intrinsic Options Shares Price (In Years) Value Outstanding as of June 30, 2017 399,000 $ 1.12 4.05 $ 451,820 Granted – – – – Exercised (50,000 ) (1.34 ) (3.95 ) (92,500 ) Cancelled – – – – Forfeited or Expired (50,000 ) (1.34 ) (3.96 ) (92,500 ) Outstanding as of June 30, 2018 299,000 $ 1.04 2.75 $ 241,220 Granted – – – – Exercised – – – – Cancelled – – – – Forfeited or Expired – – – – Outstanding as of June 30, 2019 299,000 $ 1.04 2.75 $ 420,620 Exercisable as of June 30, 2019 299,000 $ 1.04 2.75 $ 420,620 |
2. Summary of Significant Acc_4
2. Summary of Significant Accounting Policies (Details - Segments) - USD ($) | 12 Months Ended | |
Jun. 30, 2019 | Jun. 30, 2018 | |
Net sales | $ 36,468,900 | $ 30,065,833 |
United States [Member] | ||
Net sales | 36,217,387 | 29,235,011 |
Caribbean and South America [Member] | ||
Net sales | 0 | 238,970 |
EMEA [Member] | ||
Net sales | 224,427 | 335,845 |
Asia [Member] | ||
Net sales | $ 27,086 | $ 256,007 |
2. Summary of Significant Acc_5
2. Summary of Significant Accounting Policies (Details - Segments Long-Lived Assets) - USD ($) | Jun. 30, 2019 | Jun. 30, 2018 |
Long-lived assets, net (property and equipment and intangible assets) | $ 1,241,790 | $ 1,120,780 |
United States [Member] | ||
Long-lived assets, net (property and equipment and intangible assets) | 1,209,159 | 1,073,640 |
Asia [Member] | ||
Long-lived assets, net (property and equipment and intangible assets) | $ 32,631 | $ 47,140 |
2. Summary of Significant Acc_6
2. Summary of Significant Accounting Policies (Details - Receivables) - USD ($) | Jun. 30, 2019 | Jun. 30, 2018 |
Accounting Policies [Abstract] | ||
Accounts Receivable | $ 4,138,469 | $ 7,907,117 |
2. Summary of Significant Acc_7
2. Summary of Significant Accounting Policies (Details - Contract liabilities) - USD ($) | Jun. 30, 2019 | Jun. 30, 2018 |
Accounting Policies [Abstract] | ||
Advance payments from customers | $ 0 | $ 228,598 |
Accrued undelivered inventory | 140,000 | 140,000 |
Contract liabilities | $ 140,000 | $ 368,598 |
2. Summary of Significant Acc_8
2. Summary of Significant Accounting Policies (Details - Useful lives) | 12 Months Ended |
Jun. 30, 2019 | |
Machinery [Member] | |
Estimated useful lives | 6 years |
Office Equipment [Member] | |
Estimated useful lives | 5 years |
Molds [Member] | |
Estimated useful lives | 3 years |
Vehicles[Member] | |
Estimated useful lives | 5 years |
Computers and software [Member] | |
Estimated useful lives | 5 years |
Furniture and fixtures [Member] | |
Estimated useful lives | 7 years |
Facilities [Member] | |
Estimated useful lives | 5 years or life of the lease, whichever is shorter |
2. Summary of Significant Acc_9
2. Summary of Significant Accounting Policies (Details - Intangibles) - USD ($) | 12 Months Ended | |
Jun. 30, 2019 | Jun. 30, 2018 | |
Intangible Assets, Gross | $ 4,285,530 | $ 3,750,144 |
Accumulated Amortization | 3,175,619 | 2,753,436 |
Intangible Assets, Net | $ 1,109,911 | $ 996,708 |
Complete Technology [Member] | ||
Expected Life | 3 years | 3 years |
Remaining Life | 3 years | 3 years |
Intangible Assets, Gross | $ 18,397 | $ 18,397 |
Accumulated Amortization | 0 | 0 |
Intangible Assets, Net | 18,397 | 18,397 |
Technology in progress [Member] | ||
Intangible Assets, Gross | 465,352 | 100,000 |
Accumulated Amortization | 0 | 0 |
Intangible Assets, Net | $ 465,352 | $ 100,000 |
Software [Member] | ||
Expected Life | 5 years | 5 years |
Remaining Life | 2 years 8 months 12 days | 2 years 8 months 12 days |
Intangible Assets, Gross | $ 423,436 | $ 323,295 |
Accumulated Amortization | 278,266 | 238,487 |
Intangible Assets, Net | $ 145,170 | $ 84,808 |
Patents [Member] | ||
Expected Life | 10 years | 10 years |
Remaining Life | 6 years 3 months 19 days | 7 years |
Intangible Assets, Gross | $ 58,884 | $ 58,391 |
Accumulated Amortization | 8,729 | 6,683 |
Intangible Assets, Net | $ 50,155 | $ 51,708 |
Certifications And Licenses [Member] | ||
Expected Life | 3 years | 3 years |
Remaining Life | 9 months 18 days | 1 year 10 months 25 days |
Intangible Assets, Gross | $ 3,319,461 | $ 3,250,061 |
Accumulated Amortization | 2,888,624 | 2,508,266 |
Intangible Assets, Net | $ 430,837 | $ 741,795 |
2. Summary of Significant Ac_10
2. Summary of Significant Accounting Policies (Details - Amortization) | Jun. 30, 2019USD ($) |
Goodwill and Intangible Assets Disclosure [Abstract] | |
FYE 2020 | $ 303,890 |
FYE 2021 | 114,452 |
FYE 2022 | 47,465 |
FYE 2023 | 26,827 |
FYE 2024 | 16,745 |
Thereafter | $ 20,786 |
2. Summary of Significant Ac_11
2. Summary of Significant Accounting Policies (Details Narrative) - USD ($) | 12 Months Ended | |
Jun. 30, 2019 | Jun. 30, 2018 | |
Noncontrolling interest percentage | 35.80% | 48.20% |
Noncontrolling interest | $ 489,046 | $ 921,010 |
Increase (decrease) in noncontrolling interest | (431,964) | |
Net income (loss) of subsidiary | (511,622) | |
Allowance for doubtful accounts | 0 | 0 |
Capitalized product development costs | 465,352 | 100,000 |
Product development costs incurred | 465,352 | 291,386 |
Research and development costs | 2,955,581 | 3,372,016 |
Advertising costs | 6,105 | 16,488 |
Warranty expense | 0 | 0 |
Shipping and handling expense | 4,891,365 | 4,511,568 |
Inventory reserve | 553,281 | 295,502 |
Goodwill impairment | 0 | 0 |
Amortization expense | 422,183 | 488,049 |
Products purchased | 30,729,411 | 24,874,119 |
Accounts payable | 5,672,514 | 7,609,585 |
Shipping and Handling [Member] | ||
Shipping and handling expense | $ 1,140,229 | $ 814,926 |
Sales [Member] | Transferred At Point In Time [Member] | ||
Concentration of credit risk | 99.00% | |
Sales [Member] | Transferred Over Time [Member] | ||
Concentration of credit risk | 1.00% | |
Sales [Member] | Customer 1 [Member] | ||
Concentration of credit risk | 57.00% | 54.00% |
Sales [Member] | Customer 2 [Member] | ||
Concentration of credit risk | 24.00% | 21.00% |
Sales [Member] | Customer 3 [Member] | ||
Concentration of credit risk | 11.00% | |
Sales [Member] | Verizon and Sprint [Member] | ||
Concentration of credit risk | More than 10% | |
Sales [Member] | Verizon, Sprint, Anydata [Member] | ||
Concentration of credit risk | More than 10% | |
Accounts Receivable [Member] | Customer 1 [Member] | ||
Concentration of credit risk | 56.00% | 48.00% |
Accounts Receivable [Member] | Customer 2 [Member] | ||
Concentration of credit risk | 26.00% | 36.00% |
Accounts Receivable [Member] | Customer 3 [Member] | ||
Concentration of credit risk | 9.00% | |
Purchases [Member] | Supplier Concentration Risk [Member] | ||
Concentration of credit risk | 97.00% | 87.00% |
Products purchased | $ 28,858,171 | $ 19,507,215 |
Accounts payable | $ 4,401,501 | $ 5,834,383 |
4. Property and Equipment (Deta
4. Property and Equipment (Details) - USD ($) | Jun. 30, 2019 | Jun. 30, 2018 |
Property and equipment, gross | $ 1,543,414 | $ 1,676,968 |
Less accumulated depreciation | (1,411,535) | (1,552,896) |
Total | 131,879 | 124,072 |
Machinery and Facility [Member] | ||
Property and equipment, gross | 363,022 | 306,335 |
Office Equipment [Member] | ||
Property and equipment, gross | 396,222 | 385,913 |
Molds [Member] | ||
Property and equipment, gross | $ 784,170 | $ 984,720 |
4. Property and Equipment (De_2
4. Property and Equipment (Details Narrative) - USD ($) | 12 Months Ended | |
Jun. 30, 2019 | Jun. 30, 2018 | |
Property, Plant and Equipment [Abstract] | ||
Depreciation | $ 92,961 | $ 119,773 |
Disposal of molds | $ 234,321 |
5. Accrued Liabilities (Details
5. Accrued Liabilities (Details) - USD ($) | Jun. 30, 2019 | Jun. 30, 2018 |
Payables and Accruals [Abstract] | ||
Accrued salaries, payroll deductions owed to government entities | $ 44,752 | $ 38,855 |
Accrued vacation | 56,335 | 54,506 |
Accrued undelivered inventory | 140,000 | 140,000 |
Taxes | 408 | 1,332 |
Other accrued liabilities | 6,163 | 24,655 |
Total | $ 247,658 | $ 259,348 |
6. Income Taxes (Details - Prov
6. Income Taxes (Details - Provision for Income Taxes) - USD ($) | 12 Months Ended | |
Jun. 30, 2019 | Jun. 30, 2018 | |
Current income tax expense (benefit): | ||
Federal | $ 0 | $ 3,750 |
State | 801 | 800 |
Total Current income tax expense (benefit) | 801 | 4,550 |
Deferred income tax expense (benefit): | ||
Federal | (345,083) | (27,460) |
State | 0 | 0 |
Foreign | (84,463) | (164,063) |
Total deferred income tax expense (benefit) | (429,546) | (191,523) |
Benefit for income taxes | $ (428,745) | $ (186,973) |
6. Income Taxes (Details - Reco
6. Income Taxes (Details - Reconciliation of Tax Rate) - USD ($) | 12 Months Ended | |
Jun. 30, 2019 | Jun. 30, 2018 | |
Income Tax Expense (Benefit), Continuing Operations, Income Tax Reconciliation | ||
Federal tax benefit, at statutory rate of 21% for the year ended June 30, 2019 and 34% for the year ended June 30, 2018 | $ (438,706) | $ (799,696) |
State tax, net of federal tax benefit | (50,881) | (54,642) |
Nondeductible expenses | 4,129 | 6,753 |
R&D Credits | (36,127) | (36,733) |
Foreign rate difference | 40,660 | (54,332) |
Other | 666 | 34,878 |
Rate reduction | 51,514 | 661,629 |
Change in valuation allowance | 0 | 55,170 |
Benefit for income taxes | $ (428,745) | $ (186,973) |
6. Income Taxes (Details - Defe
6. Income Taxes (Details - Deferred Income Taxes) - USD ($) | Jun. 30, 2019 | Jun. 30, 2018 |
Deferred tax asset: | ||
Net operating losses | $ 1,767,365 | $ 1,417,549 |
State tax | 169 | 169 |
Intangibles | 22,678 | 44,200 |
Tax credits | 666,380 | 589,206 |
Inventory reserve | 165,160 | 76,663 |
Other, net | 44,853 | 48,687 |
Total deferred tax assets | 2,666,605 | 2,176,474 |
Deferred tax liabilities: | ||
Fixed asset | (25,100) | (17,123) |
Total deferred tax liabilities | (25,100) | (17,123) |
Less valuation allowance | (358,530) | (305,922) |
Net deferred tax asset | $ 2,282,975 | $ 1,853,429 |
6. Income Taxes (Details - Unre
6. Income Taxes (Details - Unrecognized tax benefits) - USD ($) | 12 Months Ended | |
Jun. 30, 2019 | Jun. 30, 2018 | |
Reconciliation of unrecognized tax benefits | ||
Beginning Balance | $ 242,187 | $ 221,145 |
Gross increase | 33,075 | 35,894 |
Relief of ASC 740 reserve/adjustment | (14,852) | |
Ending Balance | $ 275,262 | $ 242,187 |
6. Income Taxes (Details Narrat
6. Income Taxes (Details Narrative) - Federal [Member] - USD ($) | 12 Months Ended | |
Jun. 30, 2019 | Jun. 30, 2018 | |
Operating loss carryforward | $ 5,600,000 | |
Carryforward expiration dates | Dec. 31, 2035 | |
Effective income tax | 21.00% | 34.00% |
Deferred tax assets and liabilities | $ 661,629 |
7. Earnings Per Share (Details)
7. Earnings Per Share (Details) - USD ($) | 12 Months Ended | |
Jun. 30, 2019 | Jun. 30, 2018 | |
Earnings Per Share [Abstract] | ||
Net income attributable to parent company | $ (1,276,124) | $ (2,092,457) |
Weighted-average shares of common stock outstanding: | ||
Basic | 10,570,203 | 10,538,610 |
Dilutive effect of common stock equivalents arising from stock options | 0 | 0 |
Diluted Outstanding shares | 10,570,203 | 10,538,610 |
Basic earnings (loss) per share | $ (0.12) | $ (0.20) |
Diluted earnings (loss) per share | $ (0.12) | $ (0.20) |
7. Earnings (Loss) Per Share (D
7. Earnings (Loss) Per Share (Details Narrative) | 12 Months Ended |
Jun. 30, 2019shares | |
Earnings Per Share [Abstract] | |
Anti-dilutive shares excluded from EPS | 299,000 |
8. Commitments and Contingenc_3
8. Commitments and Contingencies (Details) | Jun. 30, 2019USD ($) |
Payments Due by June 30, | |
2020 | $ 451,556 |
2021 | 452,808 |
2022 | 343,330 |
2023 | 321,930 |
2024 | 160,965 |
Total | 1,730,589 |
Administrative office, San Diego, CA [Member] | |
Payments Due by June 30, | |
2020 | 313,243 |
2021 | 321,930 |
2022 | 321,930 |
2023 | 321,930 |
2024 | 160,965 |
Total | 1,439,998 |
Administrative office, Korea [Member] | |
Payments Due by June 30, | |
2020 | 128,400 |
2021 | 128,400 |
2022 | 21,400 |
2023 | 0 |
2024 | 0 |
Total | 278,200 |
Corporate housing facility [Member] | |
Payments Due by June 30, | |
2020 | 9,913 |
2021 | 2,478 |
2022 | 0 |
2023 | 0 |
2024 | 0 |
Total | $ 12,391 |
8. Commitments and Contingenc_4
8. Commitments and Contingencies (Details Narrative) - USD ($) | 12 Months Ended | |
Jun. 30, 2019 | Jun. 30, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | ||
Rent Expense | $ 415,443 | $ 414,252 |
9. Long-Term Incentive Plan A_3
9. Long-Term Incentive Plan Awards (Details - Option Activity) - Options [Member] - USD ($) | 12 Months Ended | ||
Jun. 30, 2019 | Jun. 30, 2018 | Jun. 30, 2017 | |
Shares | |||
Number of Options Outstanding, Beginning | 299,000 | 399,000 | |
Number of Options Granted | 0 | 0 | |
Number of Options Exercised | 0 | (50,000) | |
Number of Options Cancelled | 0 | 0 | |
Number of Options Forfeited or Expired | 0 | (50,000) | |
Number of Options Outstanding, Ending | 299,000 | 299,000 | 399,000 |
Number of Options Exercisable | 299,000 | ||
Weighted-Average Exercise Price | |||
Weighted Average Exercise Price Outstanding, Beginning | $ 1.04 | $ 1.12 | |
Weighted Average Exercise Price Granted | |||
Weighted Average Exercise Price Exercised | (1.34) | ||
Weighted Average Exercise Price Canceled | |||
Weighted Average Exercise Price Forfeited or Expired | (1.34) | ||
Weighted Average Exercise Price Outstanding, Ending | 1.04 | $ 1.04 | $ 1.12 |
Weighted Average Exercise Price Exercisable | $ 1.04 | ||
Weighted-Average Remaining Contractual Life (In Years) | |||
Weighted Average Remaining Contractual Life (in years) Outstanding | 2 years 9 months | 2 years 9 months | 4 years 18 days |
Weighted Average Remaining Contractual Life (in years) Exercised | 3 years 11 months 12 days | ||
Weighted Average Remaining Contractual Life (in years) Forfeited or Expired | 3 years 11 months 15 days | ||
Weighted Average Remaining Contractual Life (in years) Exercisable | 2 years 9 months | ||
Aggregate Intrinsic Value | |||
Aggregate Intrinsic Value Outstanding, Beginning | $ 241,220 | $ 451,820 | |
Aggregate Intrinsic Value Granted | $ 0 | $ 0 | |
Aggregate Intrinsic Value Exercised | $ 0 | $ (92,500) | |
Aggregate Intrinsic Value Cancelled | $ 0 | $ 0 | |
Aggregate Intrinsic Value Forfeited or Expired | $ 0 | $ (92,500) | |
Aggregate Intrinsic Value Outstanding, Ending | $ 420,620 | $ 241,220 | $ 451,820 |
Aggregate Intrinsic Value Exercisable | $ 420,620 |
9. Long-Term Incentive Plan A_4
9. Long-Term Incentive Plan Awards (Details Narrative) | 12 Months Ended |
Jun. 30, 2019USD ($)$ / sharesshares | |
Share-based Payment Arrangement [Abstract] | |
Share based compensation expense | $ 0 |
Weighted average grant-date fair value of stock options | shares | 299,000 |
Weighted average grant-date fair value of stock options, per share price | $ / shares | $ 0.92 |
Unrecognized compensation cost related to non-vested options | $ 0 |