3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Dec. 31, 2013

Accounting Policies [Abstract]

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and a subsidiary with a majority voting interest of 51.8% (48.2% is owned by non-controlling interests) as of December 31, 2013 and June 30, 2013. 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 subsidiaries applicable to non-controlling interests.

Non-controlling Interest in a Consolidated Subsidiary

As of December 31, 2013, the non-controlling interest was $253,018, which represents a $16,518 increase from $236,500 as of June 30, 2013. The increase was due to the net income of subsidiary of $34,241 for the six months ended December 31, 2013, of which 48.2% was attributable to the non-controlling interests.

Segment Reporting

Accounting Standards Codification (“ASC”) Topic 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 management 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, Europe, the Middle East and Africa (“EMEA”) and Asia. The following enterprise wide disclosure is prepared on a basis consistent with the preparation of the consolidated financial statements.  The following table contains certain financial information by geographic area: 

	Three Months Ended				Six Months Ended
	December 31,				December 31,
Net sales:	2013		2012		2013		2012
United States	$	4,002,728	$	5,063,619	$	5,082,241	$	17,015,711
Caribbean and South America		1,836,500		628		1,839,080		746,928
Europe, the Middle East and Africa (“EMEA”)		461,521		–		760,137		–
Asia		1,253,096		291,122		1,279,490		729,808
Totals	$	7,553,845	$	5,355,369	$	8,960,948	$	18,492,447

Long-lived assets, net:	December 31, 2013		June 30, 2013
United States	$	2,574,736	$	2,595,094
Asia		971,070		1,109,876
Totals	$	3,545,806	$	3,704,970

Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates.

Fair Value of Financial Instruments

The carrying amounts of financial instruments such as assets, cash equivalents, accounts receivable, accounts payable and debt approximate the related fair values due to the short-term maturities of these instruments. We invest our excess cash into financial instruments which are readily convertible into cash, such as money market funds.

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 December 31, 2013 and June 30, 2013.

Revenue Recognition

We recognize revenue in accordance with ASC 605, “Revenue Recognition,” when persuasive evidence of an arrangement exists, the price is fixed or determinable, collection is reasonably assured and delivery of products has occurred or services have been rendered. Accordingly, we recognize revenues from product sales upon shipment of the products to the customers or when the products are received by the customers in accordance with shipping or delivery terms.

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 completed 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 is accounted for under Subtopic 985-20. Our products contain embedded software internally developed by our Korea-based subsidiary, Franklin Technology Inc. (“FTI”), which is an integral part of these products because it allows the various components of the products to communicate with each other and the products are clearly unable to function without this coding.

The costs of product development that are capitalized once technological feasibility is determined (noted as Technology in progress in the Intangible Assets table) include 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 the Company’s customers.

As of December 31, 2013 and June 30, 2013, capitalized product development costs in progress were $65,000 and $32,500, respectively, and these amounts are included in intangible assets in our consolidated balance sheets. During the three and six months ended December 31, 2013, we incurred $139,000 and $521,068, respectively, in capitalized product development costs, and such amounts are primarily comprised of certifications and licenses. All expenses incurred before technological feasibility is reached are expensed and included in our consolidated statements of comprehensive income (loss).

Research and Development Costs

Costs associated with research and development are expensed as incurred. Research and development costs were $700,534 and $818,466 for the three months ended December 31, 2013 and 2012, respectively, and $1,379,143 and $1,528,022 for the six months ended December 31, 2013 and 2012, respectively.

Warranties

We provide a factory warranty for one year which is covered by our vendors and manufacturers under purchase agreements between the Company and the vendors. In general, these products are shipped directly from our vendors to our customers. As a result, we do not have warranty exposure and do not accrue any warranty expenses. Historically, the Company has not experienced any material net warranty expenditures.

Shipping and Handling Costs

Costs associated with product shipping and handling are expensed as incurred.  Shipping and handling costs, which are included in selling, general and administrative expenses on the consolidated statements of comprehensive income (loss), were $112,026 and $51,279 for the three months ended December 31, 2013 and 2012, respectively, and $133,162 and $171,690 for the six months ended December 31, 2013 and 2012, respectively.

Cash and Cash Equivalents

For purposes of the consolidated statements of cash flow, we consider all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.

Inventories

Our inventories consist of finished goods and are stated at the lower of cost or market, cost being determined on a first-in, first-out basis. We assess the inventory carrying value and reduce it, if necessary, to its net realizable value based on customer orders on hand, and internal demand forecasts using management’s best estimates given information currently available. Our customer demand is highly unpredictable, and can fluctuate significantly caused by factors beyond the control of the Company. We may write down our inventory value for potential obsolescence and excess inventory.  However, as of December 31, 2013 and June 30, 2013, we believe our inventory needs no such reserves and have recorded no inventory reserves.

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	5 years

Goodwill and Intangible Assets

Goodwill and certain intangible assets were recorded in connection with the FTI acquisition 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 noted as of December 31, 2013 and June 30, 2013.

The definite lived intangible assets consisted of the following as of December 31, 2013:

Definite lived intangible assets:	Expected Life	Average Remaining Life	Gross Intangible Assets		Accumulated Amortization		Net Intangible Assets
Complete technology	3 years	-	$	490,000	$	490,000	$	–
Complete technology	3 years	-		1,517,683		1,517,683		–
Complete technology	3 years	1.0 years		281,714		198,216		83,498
Complete technology	3 years	1.5 years		361,249		210,741		150,508
Complete technology	3 years	1.8 years		174,009		72,504		101,505
Complete technology	3 years	2.0 years		909,962		278,044		631,918
Supply and development agreement	8 years	3.8 years		1,121,000		595,531		525,469
Technology In progress	Not Applicable	–		65,000		–		65,000
Software	5 years	2.6 years		196,795		93,680		103,115
Patent	10 years	8.3 years		51,025		641		50,384
Certifications & licenses	3 years	1.9 years		1,818,398		568,171		1,250,227
Total as of December 31, 2013			$	6,986,835	$	4,025,211	$	2,961,624

The definite lived intangible assets consisted of the following as of June 30, 2013:

Definite lived intangible assets:	Expected Life	Average Remaining life	Gross Intangible Assets		Accumulated Amortization		Net Intangible Assets
Complete technology	3 years	-	$	490,000	$	490,000	$	–
Complete technology	3 years	-		1,517,683		1,517,683		–
Complete technology	3 years	1.5 years		281,714		151,264		130,450
Complete technology	3 years	2.0 years		361,249		150,532		210,717
Complete technology	3 years	2.3 years		174,009		43,502		130,507
Complete technology	3 years	2.5 years		909,962		126,384		783,578
Supply and development agreement	8 years	4.3 years		1,121,000		525,469		595,531
Technology In progress	Not Applicable	-		32,500		–		32,500
Software	5 years	2.9 years		169,595		75,965		93,630
Patent	10 years	8.7 years		50,482		517		49,965
Certifications & licenses	3 years	2.2 years		1,379,830		332,963		1,046,867
Total as of June 30, 2013			$	6,488,024	$	3,414,279	$	3,073,745

Amortization expense recognized during the three months ended December 31, 2013 and 2012 was $312,630 and $280,806, respectively, and during the six months ended December 31, 2013 and 2012 was $610,932 and $658,743, respectively.

Long-lived Assets

In accordance with ASC 360, “Property, Plant, and Equipment,” we review for impairment of long-lived assets and certain identifiable intangibles whenever events or circumstances indicate that the carrying amount of assets may not be recoverable.  We consider the carrying value of assets may not be recoverable based upon our review of the following events or changes in circumstances: the asset’s ability to continue to generate income from operations and positive cash flow in future periods; loss of legal ownership or title to the asset; significant changes in our strategic business objectives and utilization of the asset; or significant negative industry or economic trends. An impairment loss would be recognized when estimated future cash flows expected to result from the use of the asset are less than its carrying amount.

As of December 31, 2013, we are not aware of any events or changes in circumstances that would indicate that the long-lived assets are impaired.

Income Taxes

We follow ASC 740, Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax 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.

Based on the assessment, management believes that the Company is more likely than not to fully realize our deferred tax assets. As such, no valuation allowance has been established for the Company’s deferred tax assets. However, the Company may need to establish a valuation allowance should it incur taxable losses in the future.

We adopted ASC 740-10-25 on January 1, 2007, which provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax position. We must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. We did not recognize any additional liabilities for uncertain tax positions as a result of the implementation of ASC 740-10-25.

As of December 31, 2013, we have no material unrecognized tax benefits. We recorded an income tax benefit and an increase in deferred tax assets of $7,000 for the three months ended December 31, 2013 and an income tax benefit and an increase in deferred tax assets of $460,000 for the six months ended December 31, 2013.

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 six months ended December 31, 2013, sales to our five largest customers accounted for 21%, 18%, 14%, 13% and 12% of our consolidated net sales and 0%, 42%, 21%, 5%, and 27% of our accounts receivable balance as of December 31, 2013. In the same period in 2012, sales to our two largest customers accounted for 43% and 35% of our consolidated net sales and 81% and 0% of our accounts receivable balance as of December 31, 2012. No other customers accounted for more than ten percent of total net sales for the six months ended December 31, 2013 and 2012.

For the six months ended December 31, 2013, we purchased the majority of our wireless data products from two manufacturing companies located in Asia. If these manufacturing companies were to experience delays, capacity constraints or quality control problems, product shipments to our customers could be delayed, or our customers could consequently elect to cancel the underlying product purchase order, which would negatively impact the Company's revenue.  For the six months ended December 31, 2013, we purchased wireless data products from these suppliers in the amount of $5,010,027, or 77% of total purchases, and had related accounts payable of $2,364,079 as of December 31, 2013. For the six months ended December 31, 2012, we purchased wireless data products from one supplier in the amount of $10,603,422, or 83% of total purchases, and had related accounts payable of $2,356,744 as of December 31, 2012.

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 account.  However, the Company does not anticipate any losses on excess deposits.