What changed in this filing

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Item 7. Management’s Discussion and Analysis

2020-09-17 compared with 2019-09-30 · 159 added, 95 removed, 229 unchanged (53% of the section changed)

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related notes included elsewhere in this report.

This report contains certain forward-looking statements relating to

future events or our future financial performance.

These statements are subject to risks and uncertainties which could

cause actual results to differ materially from those discussed in this report.

You are cautioned not to place undue

reliance on this information which speaks only as of the date of this report.

We are not obligated to publicly update

this information, whether as a result of new information, future events or otherwise, except to the extent we are required to do

so in connection with our obligation to file reports with the SEC.

For a discussion of the important risks to our business and

future operating performance, see the discussion under the caption “Item 1A.

This report contains certain forward-looking statements relating to future events

or our future financial performance.

These statements are subject to risks and uncertainties which could cause actual results to

differ materially from those discussed in this report.

You are cautioned not to place undue reliance on this information which

speaks only as of the date of this report.

We are not obligated to publicly update this information, whether as a result of new

information, future events or otherwise, except to the extent we are required to do so in connection with our obligation to file

reports with the SEC.

For a discussion of the important risks to our business and future operating performance, see the discussion

under the caption “Item 1A.

Risk Factors”

and under the caption “Factors

That May Influence Future Results of Operations”

In light of these risks, uncertainties and assumptions,

the forward-looking events discussed in this report might not occur.

and under the caption “Factors That May Influence Future Results of

Operations”

In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this report

might not occur.

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.

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 are a leading provider

of intelligent wireless solutions including mobile hotspots, routers, trackers, and other devices.

Our designs integrate innovative

hardware and software enabling 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

based on 5G/4G wireless technology.

We have a majority

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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.

base extends primarily from the United States to countries in the Middle East and Africa ("EMEA") and Asia.

FACTORS THAT MAY INFLUENCE FUTURE RESULTS

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Revenue Recognition

In April 2016, the

FASB issued Accounting Standards Update No.

2016-10, Revenue from Contracts with Customers (Topic 606) (ASU 2016-10), which amends

and adds clarity to certain aspects of the guidance set forth in the upcoming revenue standard (ASU 2014-09) related to identifying

performance obligations and licensing.

In May 2016, the FASB issued Accounting Standards Update No.

2016-11, Revenue Recognition

(Topic 605), which amends and rescinds certain revenue recognition guidance previously released within ASU 2014-09.

the FASB issued Accounting Standards Update No.

2016-12, Revenue from Contracts with Customers (Topic 606) (ASU 2016-12), which

provides narrow scope improvements and practical expedients related to ASU 2014-09.

Through June 30, 2018,

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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

We provided a warranty for one year from the shipment or delivery date, which was covered by our vendors pursuant to purchase

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

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.

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

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Our contract liabilities,

are as follows:

which are included in accrued liabilities on our balance sheet, are as follows:

June 30, 2020

June 30, 2019

Advance payments from customers

Undelivered products

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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.

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

Our performance obligations

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of a project and accounted for 1% of net sales for the year ended June 30, 2020.

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.

Most of our revenue that is recognized at a point

in time is for the sale of hot-spot router products.

Revenue from these contracts is recognized when the customer can 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, 2020,

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All costs incurred

before technological feasibility is reached are expensed and included in our consolidated statements of comprehensive income.

before technological feasibility is reached are expensed and included in our consolidated statements of comprehensive income (loss).

Deferred income tax

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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 carryforward

indefinitely.

The federal net operating loss of $2.5 million, which was 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 carryforward 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.

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 $1.2 million, which was recognized on or before December 31, 2017, will

expire through 2035, and the federal net operating loss recognized on or after January 1, 2018, which 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.

Under the provision

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The following table

sets forth, for the years ended June 30, 2019 and 2018, our statements of operations including data expressed as a percentage of

sets forth, for the years ended June 30, 2020, 2019, and 2018, our statements of operations including data expressed as a percentage

(as a percentage of sales)

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Operating expenses

Loss from operations

Income (loss) from operations

Other income (expense), net

Net income (loss) before income taxes

Income tax provision (benefit)

Net income (loss)

non-controlling interest in net income (loss) of subsidiary

Net income (loss) attributable to Parent Company stockholders

YEAR ENDED JUNE 30, 2020 COMPARED TO YEAR ENDED JUNE 30,

Net sales increased by $38,603,398, or 105.9%, to $75,072,298 for the year ended June 30, 2020 from $36,468,900 for the corresponding

period of 2019.

For the year ended June 30, 2020, net sales by geographic regions, consisting of the United States, EMEA

(Europe, the Middle East and Africa) and Asia were $74,839,778 (99.7% of net sales), $0 (0.0% of net sales), and $232,520 (0.3%

of net sales), respectively.

For the year ended June 30, 2019, net sales by geographic regions, consisting of the United States,

EMEA (Europe, the Middle East and Africa) and Asia were $36,217,387 (99.3% of net sales), $224,427 (0.6% of net sales) and $27,086

(0.1% of net sales), respectively.

Net sales in the United

States increased by $38,622,391, or 106.6%, to $74,839,778 for the year ended June 30, 2020, from $36,217,387 for the corresponding

period of 2019.

The increase in net sales in the United States resulted primarily from increased demand for wireless connectivity

due to people working and attending school remotely.

High volume sales to school districts rapidly rolling out remote learning

programs was a significant driver for increased sales through our primary customers during the Covid-19 Pandemic period.

also increased due to a newly launched product and the timing of orders placed by a new carrier customer, from which a significant

portion of our revenue was derived.

(46% of our consolidated net sales for the year ended June 30, 2020).

Net sales in EMEA decreased

by $224,427, or 100.0%, to $0 for the year ended June 30, 2020, from $224,427 for the corresponding period of 2019.

in net sales was due to the discontinued orders for a product placed by a carrier customer in Africa compared to the corresponding

period of 2019.

Net sales in Asia increased by $205,434, or 105.9%, to $232,520 for the year ended June 30, 2020, from $27,086

for the corresponding period of 2019.

The increase in net sales was primarily due to product development service revenue generated

by FTI, which typically varies from period to period.

GROSS PROFIT -

Gross profit increased by $8,784,996, or 153.1%, to $14,524,485 for the year ended June 30, 2020, from $5,739,489 for the corresponding

period of 2019.

The gross profit in terms of net sales percentage was 19.3% for the year ended June 30, 2020, compared to 15.7%

for the corresponding period of 2019.

The increase in gross profit was primarily due to the change in net sales as described

The increase in gross profit and gross profit in terms of net sales percentage was primarily due to a newly launched product,

with a higher selling price, as well as the product development service revenues generated by Franklin and FTI, which involve lower

costs of goods sold.

OPERATING EXPENSES

- Operating expenses decreased by $400,585, or 5.1%, to $7,446,361 for the year ended June 30, 2020, from $7,846,946 for the corresponding

period of 2019.

Selling, general, and administrative decreased by $1,191,506 to $3,699,859 for the year ended June 30, 2020,

from $4,891,365.

The decrease in selling, general, and administrative was primarily due to the decreased payroll expense for employees

involved in selling, general, and administrative by approximately $700,000 as well as the significant decrease in shipping and

handling costs within selling, general, and administrative costs by $497,298, resulting from the positively restructured shipping

terms with a major vendor despite the increased volume of product shipments.

Research and development increased by $790,921 to

$3,746,502 for the year ended June 30, 2020, from $2,955,581.

The increase in research and development was primarily due to the

increased reimbursement in payroll expense for employees involved in research and development.

OTHER INCOME, NET

Net loss before income taxes

Income tax benefit

Non-controlling interest in net loss of subsidiary

Net loss attributable to Parent Company stockholders

- Other income, net increased by $15,810, or 7.71%, to $220,764 for the year ended June 30, 2020, from $204,954 for the corresponding

period of 2019.

The increase was primarily due to the increased interest income earned from money market accounts and certificates

of deposit, as well as the gain from appreciation on favorable foreign currency change, which is partially offset by the decreased

product development funding received by FTI from a government entity.

YEAR ENDED JUNE 30, 2019 COMPARED TO YEAR ENDED JUNE 30,

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$0 for the year ended June 30, 2019, from $238,970 for the corresponding period of 2018.

The decrease was primarily

due to the general nature of sales in these regions, which often fluctuate significantly from period to period due to timing of

orders placed by a relatively small number of customers.

Net sales in EMEA decreased by $111,418, or 33.2%, to $224,427 for the

year ended June 30, 2019, from $335,845 for the corresponding period of 2018.

The decrease in net sales was due to the discontinued

orders of a product placed by a carrier customer in Africa.

Net sales in Asia decreased by $228,921, or 89.4%, to $27,086 for the

year ended June 30, 2019, from $256,007 for the corresponding period of 2018.

The decrease in net sales was primarily due to lower

component sales generated by FTI, which typically vary from period to period in connection with its customers’

The decrease was primarily due to the

general nature of sales in these regions, which often fluctuate significantly from period to period due to timing of orders placed

by a relatively small number of customers.

Net sales in EMEA decreased by $111,418, or 33.2%, to $224,427 for the year ended June

30, 2019, from $335,845 for the corresponding period of 2018.

The decrease in net sales was due to the discontinued orders of a

product placed by a carrier customer in Africa.

Net sales in Asia decreased by $228,921, or 89.4%, to $27,086 for the year ended

June 30, 2019, from $256,007 for the corresponding period of 2018.

The decrease in net sales was primarily due to lower component

sales generated by FTI, which typically vary from period to period in connection with its customers’

production schedule.

GROSS PROFIT -

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for the corresponding period of 2018.

The increase in gross profit was primarily due to the change in net sales as described

The decrease in gross profit in terms of net sales percentage was primarily due to variations in customer and product mix,

competitive selling prices and product costs which generally vary from period to period and region to region.

The increase in gross profit was primarily due to the change in net sales as described above.

The decrease in gross profit in terms of net sales percentage was primarily due to variations in customer and product mix, competitive

selling prices and product costs which generally vary from period to period and region to region.

OPERATING EXPENSES

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June 30, 2020.

For purposes of liquidity disclosures, we assess the likelihood that we have sufficient available working

capital and other principal sources of liquidity to fund our operating activities and obligations as they become due.

For purposes of liquidity disclosures, we assess the likelihood that we have sufficient available working capital

and other principal sources of liquidity to fund our operating activities and obligations as they become due.

Our principal source

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OPERATING ACTIVITIES

Net cash provided by operating activities for year ended June 30, 2019 was $775,090, and net cash used in operating activities

for year ended June 30, 2018 was $2,008,694.

Net cash provided by operating activities for year ended June 30, 2020 and 2019 was $22,004,304 and $775,090, respectively.

The $22,004,304 in

net cash provided by operating activities for the year ended June 30, 2020 was primarily due to the increase in accounts payable

of $36,410,741, caused by a sudden increase in Wi-Fi hotspot production, as well as our operating results (net loss adjusted for

depreciation, amortization and other non-cash charges), which were partially offset by an increase in accounts receivable of $11,855,351

as well as the increase in inventory of $10,730,663.

The $775,090 in net

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of $1,937,071.

The $2,008,694 in

net cash used in operating activities for the year ended June 30, 2018 was primarily due to the decrease in accounts payable of

$5,250,597 as well as our operating results (net loss adjusted for depreciation, amortization and other non-cash charges), which

were partially offset by the decrease in accounts receivable of $3,039,951 and the decrease in inventory of $1,613,733.

INVESTING ACTIVITIES

Net cash used in investing activities for the years ended June 30, 2020 and 2019 was $794,969 and $6,250,710, respectively.

The $794,969 in net

cash used in investing activities for the year ended June 30, 2020 was primarily due to the purchases of capitalized product development,

intangible asset, and property and equipment of $343,360, $193,171 and $181,746, respectively, as well as the payments for additional

shares of a subsidiary of $75,000.

The $6,250,710 in

net cash used in investing activities for nine months ended June 30, 2019 was primarily due to the payments for purchase of short-term

net cash used in investing activities for the year ended June 30, 2019 was primarily due to the payments for purchase of short-term

investments of $5,380,226 and additional shares of the subsidiary of $234,330 as well as the purchases of capitalized product development,

intangible assets, and property and equipment of $465,352, $70,034, and $100,768, respectively.

The $399,185 in net

cash used in investing activities for the year ended June 30, 2018 was primarily due to the payments for capitalized product development

of $291,386 and purchases of intangible assets and property and equipment of $83,896 and $23,903, respectively.

FINANCING ACTIVITIES

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The $520,418 in net

cash provided by financing activities for the years ended June 30, 2018 was due to the cash received from the exercise of stock

cash provided by financing activities for the years ended June 30, 2020 was due to the cash received from a loan under the Payroll

Protection Program and the exercise of stock options of $487,300 and $33,128, respectively.

OFF-BALANCE SHEET ARRANGEMENTS

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For the next twelve

months, we may require in excess of $5.0 million for capital expenditures, software licenses and for testing and certifying new

months, we may require in excess of $5 million for capital expenditures, software licenses and for testing and certifying new products.

We believe we will be

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issuance of equity securities.

We believe these sources of funds will be sufficient to continue our operations and planned

capital expenditures.

However, we will be required to raise additional debt or equity capital if we are unable to generate

sufficient cash flow from operations to fund the expansion of our sales and to satisfy the related working capital requirements

for the next twelve months.

Our ability to satisfy such obligations also depends upon our future performance, which

in turn is subject to general economic conditions and regional risks, and to financial, business and other factors affecting our

operations, including factors beyond our control.

We believe these sources of funds will be sufficient to continue our operations and planned capital

expenditures.

However, we will be required to raise additional debt or equity capital if we are unable to generate sufficient cash

flow from operations to fund the expansion of our sales and to satisfy the related working capital requirements for the next twelve

Our ability to satisfy such obligations also depends upon our future performance, which in turn is subject to general economic

conditions and regional risks, and to financial, business and other factors affecting our operations, including factors beyond

See Item 1A, “Risk Factors”

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis