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3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

3 Months Ended

Sep. 30, 2018

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 a subsidiary with a majority voting interest of 51.8% (48.2% is owned by non-controlling interests) as of September 30, 2018 and 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.

Non-controlling Interest in a Consolidated Subsidiary

Non-controlling Interest in a Consolidated Subsidiary

As of September 30, 2018, the non-controlling interest was $865,446, which represents a $55,564 decrease from $921,010 as of June 30, 2018. The decrease was due to the net loss of subsidiary of $115,182 for the three months ended September 30, 2018, of which 48.2% was attributable to the non-controlling interests.

Segment Reporting

Segment Reporting

Public companies are required to report financial and descriptive information about their reportable operating segments. We identify our operating segments based on how our chief operating decision maker internally evaluates separate financial information, business activities and management responsibility. We have one reportable segment, consisting of the sale of wireless access products.

We generate revenues from four geographic areas, consisting of the United States, the Caribbean and South America, EMEA and Asia. The following enterprise-wide disclosure is prepared on a basis consistent with the preparation of the consolidated financial statements. The following table contains certain financial information by geographic area:

		Three Months Ended
		September 30,
Net sales:		2018				2017
United States		$	13,318,837			$	7,262,745
Caribbean and South America			–				85,000
Europe, the Middle East and Africa (“EMEA”)			4,759				191,886
Asia			5,340				105,298
Totals		$	13,328,936			$	7,644,929

Long-lived assets, net (property and equipment and intangible assets):		September 30, 2018				June 30, 2018
United States		$	968,460			$	1,073,640
Asia			37,837				47,140
Totals		$	1,006,297			$	1,120,780

Use of Estimates

Use of Estimates

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

Fair Value of Financial Instruments

Fair Value of Financial Instruments

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

Allowance for Doubtful Accounts

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 September 30, 2018 and June 30, 2018.

Revenue Recognition

Revenue Recognition

On July 1, 2018, the Company 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 June 30, 2018 are presented under Topic 606, while prior period amounts have not been adjusted and continue to be reported in accordance with the Company’s historic accounting under Topic 605. The Company recorded no net reduction to opening retained earnings of $13,328,936 as of September 30, 2018 as a result of the cumulative impact of adopting Topic 606.

Contracts with Customers

Contracts with Customers

Revenue for sales of products and services is derived from contracts with customers. The products and services promised in contracts include the sale of primarily 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 the Company's contracts do not contain variable consideration. The Company establishes a provision for estimated warranty and returns. Using historical averages, that provision for the quarter ending September 30, 2018 is not material.

Disaggregation of Revenue

Disaggregation of Revenue

In accordance with Topic 606, the Company disaggregates revenue from contracts with customers into geographical regions and by the timing of when goods and services are transferred. The Company 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

Contract Balances

The Company performs its obligations under a contract with a customer by transferring products in exchange for consideration from the customer. The Company typically invoices its customers as soon as control of an asset is transferred and a receivable for the Company is established. The Company, however, recognizes a contract liability when a customer prepays for goods and/or services and the Company has not transferred control of the goods and/or services.

The opening and closing balances of the Company's receivables are as follows:

		September 30, 2018				June 30, 2018
Accounts Receivable		$	8,738,473			$	7,907,117

The balance of contract assets was immaterial as the Company did not have a significant amount of un-invoiced receivables in the period ended September 30, 2018 and June 30, 2018.

The amount of revenue recognized in the period that was included in the opening contract liability balance was $5,951.

Performance Obligations

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, the Company assesses the products and services promised in its contracts with customers. The Company then identifies performance obligations to transfer distinct products or services to the customer. In order to identify performance obligations, the Company considers all of the products or services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices.

The Company's performance obligations are satisfied at a point in time. Revenue from products transferred to customers at a single point in time accounted for 100% of net sales for the three-month period ended September 30, 2018. The majority of the Company's 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 September 30, 2018, the Company’s contracts do not contain any unsatisfied performance obligations.

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

Our products contain embedded software internally developed by FTI, which is an integral part of these products because it allows the various components of the products to communicate with each other and the products are clearly unable to function without this coding.

The costs of product development that are capitalized once technological feasibility is determined (noted as Technology in progress in the Intangible Assets table) include certifications, licenses, payroll, employee benefits, and other headcount-related expenses associated with product development. We determine that technological feasibility for our products is reached after all high-risk development issues have been resolved. Once the products are available for general release to our customers, we cease capitalizing the product development costs and any additional costs, if any, are expensed. The capitalized product development costs are amortized on a product-by-product basis using the greater of straight-line amortization or the ratio of the current gross revenues to the current and anticipated future gross revenues. The amortization begins when the products are available for general release to our customers.

As of September 30, 2018, and June 30, 2018, capitalized product development costs in progress were $133,905 and $100,000, respectively, and these amounts are included in intangible assets in our consolidated balance sheets. During the three months ended September 30, 2018 and 2017, we incurred $33,905 and $194,932, respectively, in capitalized product development costs, and such amounts are primarily comprised of certifications and licenses. All costs incurred before technological feasibility is reached are expensed and included in our consolidated statements of comprehensive income.

Research and Development Costs

Research and Development Costs

Costs associated with research and development are expensed as incurred. Research and development costs were $757,216 and $946,980 for the three months ended September 30, 2018 and 2017, 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

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 $352,091 and $192,366 for the three months ended September 30, 2018 and 2017, 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.

Inventories

Our inventories consist of finished goods and are stated at the lower of cost or market, cost being determined on a first-in, first-out basis. We assess the inventory carrying value and reduce it, if necessary, to its net realizable value based on customer orders on hand, and internal demand forecasts using management’s best estimates given information currently available. Our customer demand is highly unpredictable and can fluctuate significantly caused by factors beyond the control of the Company. We may write down our inventory value for potential obsolescence and excess inventory. As of September 30, 2018, and June 30, 2018, we have recorded an inventory reserve in the amounts of $295,682 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 deemed necessary as of September 30, 2018 or June 30, 2018.

The definite lived intangible assets consisted of the following as of September 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			–				133,905				–				133,905
Software		5 years			2.5 years				323,053				249,064				73,989
Patents		10 years			6.8 years				58,522				7,185				51,337
Certifications & licenses		3 years			1.7 years				3,251,270				2,620,992				630,278
Total as of September 30, 2018								$	3,785,147				2,877,241				907,906

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 three months ended September 30, 2018 and 2017 was $123,805 and $123,406, respectively.

Long-lived Assets

Long-lived Assets

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

As of September 30, 2018, and June 30, 2018, we were not aware of any events or changes in circumstances 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 (loss) based upon the underlying recipients' roles within the Company.

Income Taxes

The Company uses the asset and liability method of accounting for income taxes. Accordingly, deferred tax assets and liabilities are determined based on the difference between the financial statement and income tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is recorded to reduce the carrying amount of deferred tax assets, unless it is more likely than not such assets will be realized. Current income taxes are based on the year’s taxable income for federal and state income tax reporting purposes and the annual change in deferred taxes.

The Company assesses its income tax positions and records tax benefits based upon management’s evaluation of the facts, circumstances, and information available at the reporting date. For those tax positions where it is more likely than not that a tax benefit will be sustained, the Company records the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information. For those income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit is recognized in the financial statements. The Company classifies interest and penalties associated with such uncertain tax positions as a component of income tax expense.

As of September 30, 2018, we have no material unrecognized tax benefits. We recorded an income tax provision of $41,970 for the three months ended September 30, 2018 and an income tax benefit of $136,001 for the three months ended September 30, 2017. We also recorded a decrease in deferred tax asset, non-current, of $41,970 for the three months ended September 30, 2018.

Earnings per Share Attributable to Common Stockholders

Earnings per Share Attributable to Common Stockholders

Earnings per share is calculated by dividing the net income by the weighted-average number of common shares that were outstanding for the period, without consideration for potential common shares. Diluted earnings per share is calculated by dividing the net income by the sum of the weighted-average number of dilutive potential common shares outstanding for the period determined using the treasury-stock method or the as-converted method. Potentially dilutive shares are comprised of common stock options outstanding under our stock plan.

Concentrations

We extend credit to our customers and perform ongoing credit evaluations of such customers. We evaluate our accounts receivable on a regular basis for collectability and provide for an allowance for potential credit losses as deemed necessary. No reserve was required or recorded for any of the periods presented.

Substantially all of our revenues are derived from sales of wireless data products. Any significant decline in market acceptance of our products or in the financial condition of our existing customers could impair our ability to operate effectively.

A significant portion of our revenue is derived from a small number of customers. For the three months ended September 30, 2018, sales to our four largest customers accounted for 40%, 16%, 14%, and 13% of our consolidated net sales and 56%, 0%, 2%, and 20% of our accounts receivable balance, as of September 30, 2018. In the same period in 2017, sales to our two largest customers accounted for 65% and 19% of our consolidated net sales and 67% and 20% of our accounts receivable balance, as of September 30, 2017. No other customers accounted for more than ten percent of total net sales for the three months ended September 30, 2018 and 2017, and no other customers accounted for more than ten percent of total accounts receivable as of September 30, 2018 and 2017.

For the three months ended September 30, 2018, we purchased the majority of our wireless data products from one manufacturing company located in Asia. If this manufacturing company were to experience delays, capacity constraints or quality control problems, product shipments to our customers could be delayed, or our customers could consequently elect to cancel the underlying product purchase order, which would negatively impact the Company's revenue. For the three months ended September 30, 2018, we purchased wireless data products from this manufacturer in the amount of $8,850,932, or 78% of total purchases, and had related accounts payable of $10,050,080 as of September 30, 2018. For the three months ended September 30, 2017, we purchased wireless data products from this manufacturer in the amount of $3,793,336, or 84% of total purchases, and had related accounts payable of $4,542,021 as of September 30, 2017.

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.

In February 2018, the FASB issued Accounting Standards Update No. 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220) (ASU 2018-02), which amends existing standards for income statement-reporting comprehensive income to allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from Tax Cuts and Jobs Act and improve the usefulness of information reported to financial statements users. ASU 2018-02 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.