UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended: March 31, 2008
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ____________ to _____________
Commission file number 0-11616
Nevada 95-3733534
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES [ ] NO [X]
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:
TITLE OF EACH CLASS OF COMMON STOCK OUTSTANDING AT MAY 13, 2008 ---------------------------------------- -------------------------- Common Stock, par value $0.001 per share 13,231,491 |
Transitional Small Business Disclosure format (Check one): YES [ ] NO [X]
FRANKLIN WIRELESS CORP.
INDEX
PAGE NO.
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PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
Statements of Operations for the Three and Nine
Months Ended March 31, 2008 and 2007 (Unaudited) ......... 3
Balance Sheets at March 31, 2008 (Unaudited) and
June 30, 2007 ............................................ 4
Statements of Cash Flows for the Nine Months Ended
March 31, 2008 and 2007 (Unaudited) ...................... 5
Notes to Unaudited Financial Statements .................... 6
Item 2: Management's Discussion and Analysis or Plan of Operations.... 14
Item 3A(T): Controls and Procedures ...................................... 23
PART II - OTHER INFORMATION
Item 1: Legal Proceedings ............................................ 23
Item 2: Unregistered Sales of Equity Securities and Use of
Proceeds ................................................... 23
Item 3: Defaults Upon Senior Securities .............................. 23
Item 4: Submission of Matters to a Vote of Security Holders .......... 23
Item 5: Other Information ............................................ 24
Item 6: Exhibits ..................................................... 24
Signatures ................................................... 25
Certifications ............................................... 54
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FRANKLIN WIRELESS CORP.
STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
-------------------------------- --------------------------------
2008 2007 2008 2007
-------------- -------------- -------------- --------------
Net sales $ 7,395,200 $ 3,226,915 $ 23,898,442 $ 5,997,065
Cost of goods sold 5,619,995 2,253,540 18,248,534 4,248,140
-------------- -------------- -------------- --------------
Gross profits 1,775,205 973,375 5,649,908 1,748,925
-------------- -------------- -------------- --------------
Operating expenses:
Selling, general, and administrative 873,869 582,595 2,333,239 1,057,309
-------------- -------------- -------------- --------------
Total operating expenses 873,869 582,595 2,333,239 1,057,309
-------------- -------------- -------------- --------------
Income from operations 901,336 390,780 3,316,669 691,616
Other income:
Interest income 33,513 10,760 108,230 22,989
Other income 256 846 18,935 1,164
Other expenses - (5) - (5)
Loss on impairment of intangible assets - (19,167) - (19,167)
-------------- -------------- -------------- --------------
Net other income (expense) 33,769 (7,566) 127,165 4,981
-------------- -------------- -------------- --------------
Net income before income taxes 935,105 383,214 3,443,834 696,597
Provision for income taxes 203,638 - 259,842 800
-------------- -------------- -------------- --------------
Net income $ 731,467 $ 383,214 $ 3,183,992 $ 695,797
============== ============== ============== ==============
Basic earnings per share $ 0.06 $ 0.03 $ 0.24 $ 0.06
Diluted earnings per share $ 0.06 $ 0.03 $ 0.24 $ 0.06
Weighted average common shares outstanding -
basic 13,231,491 12,814,858 13,231,491 12,729,613
Weighted average common shares outstanding -
diluted 13,231,491 12,814,858 13,231,491 12,729,613
See accompanying notes to unaudited financial statements.
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FRANKLIN WIRELESS CORP.
BALANCE SHEETS
(UNAUDITED)
MARCH 31, JUNE 30,
2008 2007
-------------- --------------
ASSETS
Current assets:
Cash and cash equivalents $ 5,552,736 $ 2,477,593
Accounts receivable 2,291,045 44,915
Inventories 16,698 10,830
Prepaid expenses 657 6,649
-------------- --------------
Total current assets 7,861,136 2,539,987
Property and equipment, net 68,932 26,218
Intangible assets, net 87,444 130,264
Other assets 5,161 5,161
-------------- --------------
TOTAL ASSETS $ 8,022,673 $ 2,701,630
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,740,110 $ 68,064
Advance payment from customers - 354,500
Accrued liabilities 87,135 179,025
Note payable 334,000 434,000
-------------- --------------
Total current liabilities 3,161,245 1,035,589
-------------- --------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, par value of $0.001 per share,
authorized 10,000,000 shares; No preferred
stock issued and outstanding as of March 31,
2008 and June 30, 2007 - -
Common stock, par value of $0.001 per share,
authorized 50,000,000 shares; Common stock of
13,241,491 issued and outstanding as of
March 31, 2008 and June 30, 2007 13,242 13,242
Additional paid-in capital 5,016,151 5,016,151
Stock subscription receivable - (11,395)
Accumulated deficit (167,965) (3,351,957)
-------------- --------------
Total stockholders' equity 4,861,428 1,666,041
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,022,673 $ 2,701,630
============== ==============
See accompanying notes to unaudited financial statements.
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FRANKLIN WIRELESS CORP.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
MARCH 31,
--------------------------------
2008 2007
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 3,183,992 $ 695,797
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 6,901 4,800
Amortization of intangible assets 42,820 59,714
Bad debt 2,200 -
Loss on impairment of intangible assets - 19,167
Increase (decrease) in cash due to change in:
Accounts receivable (2,248,330) (39,659)
Inventory (5,868) (13,370)
Prepaid expenses 5,992 -
Accounts payable 2,672,046 1,683
Advance payment from customers (354,500) -
Accrued liabilities (91,890) (57,834)
-------------- --------------
Net cash provided by operating activities 3,213,363 670,298
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (49,615) (19,418)
Purchases of intangible assets - (53,780)
-------------- --------------
Net cash used in investing activities (49,615) (73,198)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of note payable (100,000) (100,000)
Additional borrowings from stockholders - 400,000
Receipt of stock subscription receivable 11,395 -
-------------- --------------
Net cash used by financing activities (88,605) 300,000
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Net increase in cash and cash equivalents 3,075,143 897,100
Cash and cash equivalents, beginning of period 2,477,593 568,387
-------------- --------------
Cash and cash equivalents, end of period $ 5,552,736 $ 1,465,487
============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ - $ -
Income taxes $ 259,842 $ 800
See accompanying notes to unaudited financial statements.
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FRANKLIN WIRELESS CORP.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS
Franklin Wireless Corp. designs and sells broadband high speed wireless data communication products such as 3G wireless modules and modems. The Company focuses on wireless broadband USB modems, which provides a flexible way for wireless subscribers to connect to the wireless broadband network with any laptop, table PC or desktop USB port without a PC card slot. The broadband wireless data communication products are positioned at the convergence of wireless communications, mobile computing and the Internet, each of which the Company believes represents a growing market.
The Company's wireless products are based on Evolution Data Optimized technology ("EV-DO technology") of Code Division Multiple Access ("CDMA") and High-Speed Packet Access technology ("HSPA technology") of Wideband Code Division Multiple Access ("WCDMA"), which are wireless radio broadband data standards adopted by many CDMA and WCDMA mobile service providers, and enable end users to send and receive email with large file attachments, play interactive games, receive, send and download high resolution picture, video, and music contents.
The Company's wireless products are purchased through Original Equipment Manufacturers ("OEMs") and marketed through distributors, as well as directly to operators and end users. The Company's customer base extends from the United States, Caribbean, and South American Countries to African countries; these customers consist of major carriers / operators, distributors and end users. The Company's USB modems are certified by Sprint, Alltel, Cellular South, NTELOS, and ACS in the United States, by IUSACELL in Mexico, by Telefonica and Movilnet in Venezuela and by TSTT in Trinidad and Tobago.
In the middle of 2007, the Company launched three new products, CDMA Revision A USB modem CDU-680, CDMA Revision 0 CDU-650 USB modem, and CDMA Revision 0 CDX-650 Express card modem, to North and South American countries. The Company also unveiled its CGU-628 Mobile Broadband USB modem, which provides a flexible way for users to connect to high-speed downlink packet access ("HSDPA") network. The Company anticipates that the sales of these new products will be a key to the Company's future growth through its brand recognition and an increase in marketing effort, leveraging sales to its existing customers.
The Company believes that the demand for wireless broadband data products will continue to grow and expand worldwide. However, to be successful in this market, the Company will need to continue to keep up with technology changes and continue to invest and launch new products on a timely basis.
NOTE 2 - DISCONTINUED OPERATIONS
On October 30, 2007, the Board of Directors approved the dissolution of its only subsidiary, ARG, which has been inactive since August 2003. As a part of the dissolution, the Company assumed the liability of ARG of $434,000, a note payable. During the three months ended March 31, 2008, the Company repaid $100,000, and the remaining note amounted to $334,000 as of March 31, 2008. The subsidiary did not have revenue, expense, asset or component of stockholders' equity as of March 31, 2008 and June 30, 2007, and for the nine months ended March 31, 2008 and 2007.
NOTE 3 - BASIS OF PRESENTATION
The accompanying unaudited financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial information and are presented in accordance with the requirements of Form 10-QSB. The balance sheet is unaudited as of March 31, 2008 and audited as of June 30, 2007. The statements of operations are unaudited for the three and nine months ended March 31, 2008 and 2007, and the statements of cash flows are unaudited for the nine months ended March 31, 2008 and 2007. In the opinion of management, the unaudited financial statements included herein contain all adjustments, including normal recurring adjustments, considered necessary to present fairly the financial position, the results of operations and cash flows of the Company for the periods presented. These unaudited financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended June 30, 2007 included in the Company's Form 10-KSB, filed on September 19, 2007.
The operating results or cash flows of the interim periods presented herein are not necessarily indicative of the results to be expected for any other interim period or the full year.
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SEGMENT REPORTING
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information," requires public companies to report financial and descriptive information about their reportable operating segments. The Company identifies its operating segments based on how management internally evaluates separate financial information, business activities and management responsibility. The Company operates in a single business segment consisting of sale of wireless access products.
USE OF ESTIMATES
The preparation of financial statements 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 revenue and expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates include useful lives of intangible and long-lived assets.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flow, the Company considers all highly liquid investments purchased with original maturities of six months or less to be cash equivalents.
REVENUE RECOGNITION
The Company recognizes revenue 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, the Company recognizes revenues from product sales upon shipment of the product to the customers. The Company does not allow the right of return on product sales but warrant the products over one year from the shipment. Allowance for doubtful accounts is estimated based on estimates of losses related to customer receivable balances. Estimates are developed by using standard quantitative measures based on historical losses, adjusting for current economic conditions and, in some cases, evaluating specific customer accounts for risk of loss. The establishment of reserves requires the use of judgment and assumptions regarding the potential for losses on receivable balances. Though the Company considers these balances adequate and proper, changes in economic conditions in specific markets in which the Company operates could have a material effect on reserve balances required.
SHIPPING AND HANDLING COST
Most of shipping and handling costs are paid by the customers directly to the shipping companies. The Company does not collect and incur shipping and handling costs, except for two customers. The shipping and handling costs totaled $18,111 and $11,678 for the nine and three months ended March 31, 2008.
INVENTORIES
The Company's inventories are made up of finished goods and are stated at the lower of cost or market, cost being determined on a first-in, first-out basis. The Company assesses the inventory carrying value and reduces 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. The Company's customer demand is highly unpredictable, and can fluctuate significantly caused by factors beyond the control of the Company. The Company may maintain an allowance for inventories for potentially excess and obsolete inventories and inventories that are carried at costs that are higher than their estimated net realizable values.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. The Company provides for depreciation using the straight-line method over the estimated useful lives as follows:
Computers and software 5 years Machinery and equipment 5 years Furniture and fixtures 7 years |
Expenditures for maintenance and repairs are charged to operations as incurred while renewals and betterments are capitalized. Gains or losses on the sale of property and equipment are reflected in the statements of operations.
INTANGIBLE ASSETS - LICENSES
Licenses are stated at cost and are amortized using the straight-line method over the license periods of five years or life of the license. Certifications are stated at cost and are amortized using the straight-line method over the certification periods of three years or life of the certifications.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards No. 144, "Accounting for Impairment on Disposal of Long-lived Assets", the Company reviews 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. The Company considers the carrying value of assets may not be recoverable based upon its 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 the Company's 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 is less than its carrying amount.
As of March 31, 2008, the Company is not aware of any events or changes in circumstances that would indicate that the long-lived assets are impaired.
WARRANTIES
The Company does not allow the right of return on product sales but provides a factory warranty for one year from the shipment, which is covered by its vendor. These products are shipped directly from its vendor to customers. As a result, the Company does not accrue any warranty expenses.
INCOME TAXES
The Company accounts for income taxes under the asset and liability method of accounting. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is required when it is less likely than not that the Company will be able to realize all or a portion of its deferred tax assets. The Company incurred significant losses in the previous years. These losses have been carried over to off-set any future taxable income.
The components of the income tax provision for the nine months ended March 31, 2008 and 2007 are as follows:
(UNAUDITED) (UNAUDITED)
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MARCH 31, MARCH 31,
2008 2007
-------------- --------------
Current income taxes expense:
Federal $ 179,602 $ -
State 80,240 800
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Deferred income taxes expense (benefits): 259,842 800
- -
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PROVISION FOR INCOME TAXES $ 259,842 $ 800
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Provision for income taxes for the nine months ended March 31, 2008 consists of alternative minimum taxes of $56,204 and regular taxes of $203,638. Provision for income taxes for the corresponding period of 2007 was minimum state taxes of $800. Since the Company recorded a valuation allowance to fully offset the amount of net deferred tax assets, no deferred expenses or benefits were recorded. The significant component of the deferred tax asset at March 31, 2008 and June 30, 2007 was the federal net operating loss carry-forwards. At March 31, 2008 and June 30, 2007, the effect on the deferred tax asset from the federal net operating loss carry-forwards amounted to approximately $2,034,000 and $2,935,000, respectively, based on federal tax rate of 34%.
SFAS No. 109 requires a valuation allowance to be recorded when it is more likely than not that some or all of the deferred tax assets will not be realized. At March 31, 2008 and June 30 2007, valuation allowances for the full amount of the net deferred tax asset were established due to the uncertainties as to the amount of the taxable income that would be generated in future years. There are no other temporary differences or carry-forward tax effects that would significantly affect the Company's deferred tax asset or liability.
EARNINGS PER SHARE
The Company reports earnings per share in accordance with Statement of Financial Accounting Standards No. 128, "Earnings Per Share". Basic earnings per share are computed using the weighted average number of shares outstanding during the year. Diluted earnings per share include the potentially dilutive effect of outstanding common stock options and warrants which are convertible to common shares.
CONCENTRATION OF RISK
The Company extends credit to its customers and performs ongoing credit evaluations of such customers. The Company evaluates its accounts receivable on a regular basis for collectability and provides for an allowance for potential credit losses as deemed necessary.
Substantially all of the Company's revenues are derived from sales of wireless data products. Any significant decline in market acceptance of its products or in the financial condition of its existing customers could impair the Company's ability to operate effectively. A significant portion of the Company's revenue is derived from a small number of customers. Three customers accounted for 43.7%, 22.6%, and 19.3% of revenues for the nine months ended March 31, 2008, and had related accounts receivable in the total amount of $1,705,000, or 74.4% of total accounts receivable at March 31, 2008.
The Company purchases its wireless products from C-Motech Co. Ltd., a design and manufacturing company located in South Korea. If the design and manufacturing company were to experience delays, capacity constraints or quality control problems, product shipments to the Company's customers could be delayed, or its customers could consequently elect to cancel the underlying product purchase order, which would negatively impact the Company's revenue. However, there were no significant delays, capacity constraints, or quality control problems that negatively impacted the Company's revenue for the nine months ended March 31, 2008 and 2007. For those periods, the Company purchased approximately $18,254,402 and $2,877,450, respectively, and had related accounts payable of $2,394,700 and $2,250 at March 31, 2008 and 2007 respectively.
The Company maintains its cash accounts with established commercial banks. Such cash deposits periodically exceed the Federal Deposit Insurance Corporation insured limit of $100,000 for each account. However, the Company does not anticipate any loss on excess deposits.
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment at March 31, 2008 and June 30, 2007 consisted of the following:
(UNAUDITED)
-------------- --------------
MARCH 31, JUNE 30,
2008 2007
-------------- --------------
Computers and software $ 46,130 $ 38,084
Furniture and fixtures 52,894 11,325
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99,024 49,409
Less accumulated depreciation (30,092) (23,191)
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TOTAL $ 68,932 $ 26,218
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Depreciation expense associated with property and equipment was $6,901 and $4,800 for the nine months ended March 31, 2008 and 2007, respectively.
NOTE 6 - INTANGIBLE ASSETS
Intangible assets at March 31, 2008 and June 30, 2007 consisted of the following:
(UNAUDITED)
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MARCH 31, JUNE 30,
2008 2007
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Certifications: CDG test licenses $ 171,280 $ 171,280
Less accumulated amortization (83,836) (41,016)
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TOTAL $ 87,444 $ 130,264
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Certifications have life of 3 years or the life of the CDG test based on the life of the CDMA wireless data product. CDG test certifications are required to launch and market new CDMA wireless data products with carriers in North, Caribbean and South American countries. Certifications are issued as being a qualifier of CDG1 (CDMA Development Group Stage 1), CDG 2 and CDG 3. Amortization expense associated with intangible assets was $42,820 and $59,714 for the nine months ended March 31, 2008 and 2007, respectively.
NOTE 7 - ACCRUED LIABILITIES
Accrued liabilities at March 31, 2008, and June 30, 2007 consisted of the following:
(UNAUDITED)
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MARCH 31, JUNE 30,
2008 2007
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Salaries payable $ 55,918 $ 94,418
Accrued professional fees payable 31,217 50,217
Tax payable - 34,390
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TOTAL $ 87,135 $ 179,025
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NOTE 8 - NOTE PAYABLE
On August 20, 2002, the Company's wholly owned subsidiary, ARG issued a promissory note to a stockholder of the Company in the amount of $550,000 including 10% interest due on March 20, 2004. ARG has been in active since August 2003, and as a result, the Company and the stockholder agreed to assume the liability in the amounts of $550,000 including 10% interest for the year ended June 30, 2004. The Company repaid $10,000 and $100,000 during the 2006 and 2007 fiscal years respectively, and an additional $6,000 was offset by the stock subscription receivable from the stockholder during the 2007 fiscal year. During the three months ended March 31, 2008, the Company repaid $100,000, and the remaining note amounted $334,000 as of March 31, 2008.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
The Company had the following off-balance sheet obligations and other commitments at March 31, 2008
OPERATING LEASES
The Company leases its administrative facilities under a non-cancelable operating lease that expires on June 30, 2008, and its principal future obligations and commitments as of the expiration date is $15,627. In addition to the minimum annual rental commitments, the lease provides for periodic cost of living increases in the base rent and payment of common area costs. Rent expense related to the operating lease was $47,221 and $49,355 for the nine months ended March 31, 2008 and 2007, respectively.
The Company leases its corporate housing facility under a non-cancelable operating lease that expires on September 30, 2008 for its vendors, and its principal future obligations and commitments as of the expiration date is $8,952. Rent expense related to the operating lease was $13,203 and $0 for the nine months ended March 31, 2008 and 2007, respectively.
The Company leases one automobile under an operating lease that expires on July 22, 2009. Lease expense was $4,839 and $5,182 for the nine months ended March 31, 2008 and 2007, respectively.
LITIGATION
The Company may be involved in certain legal proceedings and claims which arise in the normal course of business. Management does not believe that the outcome of these matters will have any material adverse effect on its financial condition.
CO-DEVELOPMENT, CO-OWNERSHIP AND SUPPLY AGREEMENT
In January 2005, the Company entered into a Co-development, Co-ownership, and Supply Agreement (the "Agreement") with C-Motech Co. Ltd., located in South Korea. The Agreement provides exclusive rights to market and sell its CDMA wireless data products in North, Central and South American countries. Furthermore, the Agreement provides that the Company is responsible for marketing, sales, field testing, and certifications of these products to wireless service operators and other commercial buyers within a designated territory and C-Motech Co. Ltd. is responsible for design, development, testing, certification, and completion of these products. Under the Agreement, products include all access devices designed with Qualcomm's MSM 5100, 5500 and 6500 chipset solutions provided or designed by C-Motech Co. Ltd. or both companies. Both companies own the rights to the products: USB modems, Card Bus, PCI Bus and Module designed with MSM 5500 dual band products. The term of the Agreement commenced on January 5, 2005, with automatic renewal terms of additional one year. The Agreement may be terminated by either party by providing a written notice to terminate at least ninety days prior to the end of the term.
NOTE 10 - EARNINGS PER SHARE
Basic earnings per share ("EPS") excludes dilution and is computed by dividing net income attributable to common shareholders by the weighted-average number of common shares outstanding for the period. As of March 31, 2008 and June 30, 2007, the Company did not have any dilutive securities outstanding.
NOTE 11 - RECENT ACCOUNTING PRONOUNCEMENTS
On September 15, 2006, the Financial Accounting Standards Board ("FASB") issued FASB Statement No. 157, "Fair Value Measurements" ("SFAS No. 157"), which addresses how companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes under generally accepted accounting principles ("GAAP"). As a result of SFAS No. 157 there is now a common definition of fair value to be used throughout GAAP. The FASB believes that the new standard will make the measurement of fair value more consistent and comparable and improve disclosures about those measures. The Board has agreed to consider delaying the original effective date of fiscal years beginning after November 15, 2007. Since the delay is not assured, the Company is currently evaluating the effect that the adoption of SFAS No. 157 will have on its results of operations and financial position as of January 1, 2008.
In February 2007, FASB issued FASB Statement No. 159, "Fair Value Option for Financial Assets and Financial Liabilities" ("SFAS No. 159"), which permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The objective of SFAS No. 159 is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The Company will need to adopt SFAS No. 159 for financial statements issued for fiscal years beginning after November 15, 2007. The Company is currently evaluating the effect that the adoption of SFAS No. 159 will have on its results of operations and financial position.
In December 2007, the FASB issued Statement No. 141 (revised), Business Combinations (SFAS No. 141(R)). The standard changes the accounting for business combinations including the measurement of acquirer shares issued in consideration for a business combination, the recognition of contingent consideration, the accounting for pre-acquisition gain and loss contingencies, the recognition of capitalized in-process research and development, the accounting for acquisition-related restructuring cost accruals, the treatment of acquisition related transaction costs and the recognition of changes in the acquirer's income tax valuation allowance. SFAS No. 141(R) is effective for fiscal years beginning after December 15, 2008, with early adoption prohibited. The Company does not expect this to have a material impact on the Company's financial statements.
In December 2007, the FASB issued Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (SFAS No. 160). The standard changes the accounting for noncontrolling (minority) interests in consolidated financial statements including the requirements to classify noncontrolling interests as a component of consolidated stockholders' equity, and the elimination of "minority interest" accounting in results of operations with earnings attributable to noncontrolling interests reported as part of consolidated earnings. Additionally, SFAS No. 160 revises the accounting for both increases and decreases in a parent's controlling ownership interest. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008, with early adoption prohibited. The Company does not expect this to have a material impact on the Company's financial statements.
There are no other accounting standards issued as of May 9, 2008 that are expected to have a material impact on the Company's financial statements.
NOTE 12 - RELATED PARTY TRANSACTIONS
The Company purchased CDMA wireless data products in the amount of $18,254,402, or 100% of total inventory purchases, from C-Motech Co. Ltd., for the nine months ended March 31, 2008 and had related accounts payable of $2,394,700 at March 31, 2008. C-Motech Co. Ltd owns 3,370,356 shares of the Company's Common Stock, or approximately 25% of the outstanding Common Stock, after acquiring 1,460,577 shares of Common Stock during the three months ended March 31, 2008. Jaeman Lee, Chief Executive Officer of C-Motech Co. Ltd., has served as a director of the Company since September 2006.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with the financial statements and notes thereto included in Item 1 of this filing and the financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition or Plan of Operations contained in the Company's Form 10-KSB filed on September 19, 2007 for the year ended June 30, 2007.
BUSINESS OVERVIEW
Franklin Wireless Corp. designs and sells broadband high speed wireless data communication products such as 3G wireless modules and modems. The Company focuses on wireless broadband USB modems, which provides a flexible way for wireless subscribers to connect to the wireless broadband network with any laptop, table PC or desktop USB port without a PC card slot. The broadband wireless data communication products are positioned at the convergence of wireless communications, mobile computing and the Internet, each of which the Company believes represents a growing market.
The Company's wireless products are based on Evolution Data Optimized technology ("EV-DO technology") of Code Division Multiple Access ("CDMA") and High-Speed Packet Access technology ("HSPA technology") of Wideband Code Division Multiple Access ("WCDMA"), which are wireless radio broadband data standards adopted by many CDMA and WCDMA mobile service providers, and enable end users to send and receive email with large file attachments, play interactive games, receive, send and download high resolution picture, video, and music contents.
The Company's wireless products are marketed through Original Equipment Manufacturers ("OEMs") and distributors, as well as directly to operators and end users. The Company's customer base extends from the United States, Caribbean, and South American Countries to African countries; these customers consist of major carriers / operators, distributors and end users. The Company's USB modems are certified by Sprint, Alltel, Cellular South, NTELOS, and ACS in the United States, by IUSACELL in Mexico, by Telefonica and Movilnet in Venezuela and by TSTT in Trinidad and Tobago.
In the middle of 2007, the Company launched three new products, CDMA Revision A USB modem CDU-680, CDMA Revision 0 CDU-650 USB modem, and CDMA Revision 0 CDX-650 Express card modem, to North and South American countries. The Company also unveiled its CGU-628 Mobile Broadband USB modem, which provides a flexible way for users to connect to high-speed downlink packet access ("HSDPA") network. The Company anticipates that the sales of these new products will be a key to the Company's future growth through its brand recognition and an increase in marketing effort, leveraging sales to its existing customers.
The Company believes that the demand for wireless broadband data products will continue to grow and expand worldwide. However, to be successful in this market, the Company will need to continue to keep up with technology changes and continue to invest and launch new products on a timely basis.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company believes the following critical accounting policies affect the Company's more significant judgments and estimates used in the preparation of the financial statements.
SEGMENT REPORTING
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information," requires public companies to report financial and descriptive information about their reportable operating segments. The Company identifies its operating segments based on how management internally evaluates separate financial information, business activities and management responsibility. The Company operates in a single business segment consisting of the sale of wireless access products.
USE OF ESTIMATES
The preparation of financial statements 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 revenue and expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates include useful lives of intangible and long-lived assets.
REVENUE RECOGNITION
The Company recognizes revenue 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, the Company recognizes revenues from product sales upon shipment of the product to the customers. The Company does not allow the right of return on product sales but warrant the products over one year from the shipment. Allowance for doubtful accounts is estimated based on estimates of losses related to customer receivable balances. Estimates are developed by using standard quantitative measures based on historical losses, adjusting for current economic conditions and, in some cases, evaluating specific customer accounts for risk of loss. The establishment of reserves requires the use of judgment and assumptions regarding the potential for losses on receivable balances. Though the Company considers these balances adequate and proper, changes in economic conditions in specific markets in which the Company operates could have a material effect on reserve balances required.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards No. 144, "Accounting for Impairment on Disposal of Long-lived Assets", the Company reviews 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. The Company considers the carrying value of assets may not be recoverable based upon its 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 the Company's 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 is less than its carrying amount.
As of March 31, 2008, the Company is not aware of any events or changes in circumstances that would indicate that the long-lived assets are impaired.
INCOME TAXES
The Company accounts for income taxes under the asset and liability method of accounting. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is required when it is less likely than not that the Company will be able to realize all or a portion of its deferred tax assets. The Company incurred significant losses in the previous years. These losses have been carried over to off-set any future taxable income.
The components of the income tax provision for the nine months ended March 31, 2008 and 2007 are as follows:
(UNAUDITED) (UNAUDITED)
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MARCH 31, MARCH 31,
2008 2007
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Current income taxes expense:
Federal $ 179,602 $ -
State 80,240 800
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Deferred income taxes expense (benefits): 259,842 800
- -
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PROVISION FOR INCOME TAXES $ 259,842 $ 800
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Provision for income taxes for the nine months ended March 31, 2008 consists of alternative minimum taxes of $56,204 and regular taxes of $203,638. Provision for income taxes for the corresponding period of 2007 was minimum state taxes of $800. Since the Company recorded a valuation allowance to fully offset the amount of net deferred tax assets, no deferred expenses or benefits were recorded. The significant component of the deferred tax asset at March 31, 2008 and June 30, 2007 was the federal net operating loss carry-forwards. At March 31, 2008 and June 30, 2007, the effect on the deferred tax asset from the federal net operating loss carry-forwards amounted to approximately $2,034,000 and $2,935,000, respectively, based on federal tax rate of 34%.
SFAS No. 109 requires a valuation allowance to be recorded when it is more likely than not that some or all of the deferred tax assets will not be realized. At March 31, 2008 and June 30 2007, valuation allowances for the full amount of the net deferred tax asset were established due to the uncertainties as to the amount of the taxable income that would be generated in future years. There are no other temporary differences or carry-forward tax effects that would significantly affect the Company's deferred tax asset or liability.
RESULTS OF OPERATIONS
The following table sets forth, for the three and nine months ended March 31, 2008 and 2007, selected statements of operations data expressed as a percentage of sales:
THREE MONTHS ENDED NINE MONTHS ENDED
MARC 31, MARCH 31,
------------------------ ------------------------
2008 2007 2008 2007
---------- ---------- ---------- ----------
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 76.0% 69.8% 76.4% 70.8%
---------- ---------- ---------- ----------
Gross profit 24.0% 30.2% 23.6% 29.2%
---------- ---------- ---------- ----------
Operating expenses:
Selling, general and administrative expenses 11.8% 18.1% 9.7% 17.7%
---------- ---------- ---------- ----------
Total operating expenses 11.8% 18.1% 9.7% 17.7%
---------- ---------- ---------- ----------
Income from operations 12.2% 12.1% 13.9% 11.5%
Other income 0.5% (0.2)% 0.5% 0.1%
---------- ---------- ---------- ----------
Net income before income taxes 12.7% 11.9% 14.4% 11.6%
Provision for income taxes 2.8% - 1.1% -
---------- ---------- ---------- ----------
Net income 9.9% 11.9% 13.3% 11.6%
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The results of the interim periods are not necessarily indicative of results for the entire fiscal year.
THREE MONTHS ENDED MARCH 31, 2008
COMPARED TO THREE MONTHS ENDED MARCH 31, 2007
NET SALES
Net sales increased by $4,168,285, or 129.2%, to $7,395,200 for the three months ended March 31, 2008 from $3,226,915 for the corresponding period of 2007. The overall increase in sales was primarily due to strong demand for the Company's new data products of CDU-680, CDU-650, and CDX-650, which were introduced in the middle of 2007. The overall increase was also due to the increase in sales volume in the United States as well as in Caribbean and South American countries, in the amount of $1,445,841 and $5,949,322 respectively, for the three months ended March 31, 2008, compared to $615,794 and $2,608,635 for the corresponding period of 2007, an increase of 134.8% and 128.1%, respectively.
GROSS PROFIT
Gross profit increased by $801,830, or 82.4% to $1,775,205 for the three months ended March 31, 2008 from $973,375 for the corresponding period of 2007. The increase was primarily due to the increase in sales volume in the United States as well as in Caribbean and South American countries. The gross profit in terms of net sales percentage was 24.0% for the three months ended March 31, 2008 compared to 30.2% for the corresponding period of 2007. The overall decrease in gross profit as a percentage of net sales was primarily due to the negative impact of competitive pricing pressures on the Company's sales prices in the overall market.
SELLING, GENERAL, AND ADMINISTRATIVE
Selling, general, and administrative expenses increased by $291,274, or 50.0%, to $873,869 for the three months ended March 31, 2008 from $582,595 for the corresponding period of 2007. The increase was primarily due to an increase in sales and marketing efforts, which included hiring new personnel to expand our marketing and customer support functions, which increased salary and related expenses. For the three months ended March 31, 2008, the Company had an increase in promotion and marketing expense of $122,572, an increase in travel expense of $5,936, and an increase in payroll expense of $275,459, compared to the corresponding period of 2007. Payroll expenses were increased due to not only the hiring new personnel but also the bonus payment of $40,000 to share profits with the management and employees for the three months ended March 31, 2008.
OTHER INCOME (EXPENSE), NET
The net of other income (expense) increased by $41,336, or 546.3%, to $33,769 for the three months ended March 31, 2008 from the negative net of $7,566 for the corresponding period of 2007. The overall increase is primarily due to the interest income of $33,513 for the three months ended March 31, 2008.
NINE MONTHS ENDED MARCH 31, 2008
COMPARED TO NINE MONTHS ENDED MARCH 31, 2007
NET SALES
Net sales increased by $17,901,377, or 298.5%, to $23,898,442 for the nine months ended March 31, 2008 from $5,997,965 for the corresponding period of 2007. The overall increase in sales was primarily due to strong demand for the Company's new data products of CDU-680, CDU-650, and CDX-650, which were introduced in the middle of 2007. The overall increase was also due to the increase in sales volume in the United States as well as in Caribbean and South American countries, in the amount of $7,612,133 and $16,283,302 respectively, for the nine months ended March 31, 2008, compared to $881,394 and $5,113,730 for the corresponding period of 2007, an increase of 763.6% and 218.4% respectively.
GROSS PROFIT
Gross profit increased by $3,900,983, or 223.1% to $5,649,908 for the nine months ended March 31, 2008 from $1,748,925 for the corresponding period of 2007. The increase was primarily due to the increase in sales volume of the Company's data products in the United States as well as in Caribbean and South American countries. The gross profit in terms of net sales percentage was 23.6% for the nine months ended March 31, 2008 compared to 29.2% for the corresponding period of 2007. The overall decrease in gross profit as a percentage of net sales was primarily due to the negative impact of competitive pricing pressures on the Company's sales prices in the United States. Net sales recognized for CDMA data products in the United States was $7,612,133, or 31.9% of total sales, for the nine months ended March 31, 2008, compared to $881,394, or 14.7% of total sales, for the corresponding period of 2007, an increase of $6,730,739, or 763.6%.
SELLING, GENERAL, AND ADMINISTRATIVE
Selling, general, and administrative expenses increased by $1,275,930, or 120.7%, to $2,333,239 for the nine months ended March 31, 2008 from $1,057,309 for the corresponding period of 2007. The increase was primarily due to an increase in sales and marketing efforts, which included hiring new personnel to expand our marketing and customer support functions, which increased salary and related expenses. For the nine months ended March 31, 2008, the Company had an increase in promotion and marketing expense of $733,273, an increase in travel expense of $20,459, and an increase in payroll expense of $442,648, compared to the corresponding period of 2007. Payroll expenses were increased due to not only the hiring new personnel but also the bonus payment of $157,000 to share profits with the management and employees for the nine months ended March 31, 2008.
OTHER INCOME (EXPENSE), NET
Other income increased by $122,184, or 2,453.1%, to $127,165 for the nine months ended March 31, 2008 from $4,981 for the corresponding period of 2007. The overall increase is due to the interest income of $108,230 and the legal settlement income of $16,304 for the nine months ended March 31, 2008.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased by $3,075,143 to $5,552,736 at March 31, 2008, compared to $2,477,593 at June 30, 2007. The increase was primarily from the net income of $3,183,992.
OPERATING ACTIVITIES
Net cash provided by operating activities was $3,213,363 and $670,298 for the nine months ended March 31, 2008, and 2007, respectively. The increase from the prior period is primarily due to the increase in net sales and net income.
INVESTING ACTIVITIES
Net cash used in investing activities was $49,615 and $73,198 the nine months ended March 31, 2008 and 2007, respectively, consisting of capital expenditures.
FINANCING ACTIVITIES
Net cash used by financing activities was $88,605 for the nine months ended March 31, 2008, consisting of payment of note payable and receipt of stock subscription receivable. Net cash provided by financing activities was $300,000 for the nine months ended March 31, 2007, consisting of proceeds from a Common Stock issuance.
CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS
The Company had the following off-balance sheet obligations and other commitments at March 31, 2008:
OPERATING LEASES
The Company leases its administrative facilities under a non-cancelable operating lease that expires on June 30, 2008, and its principal future obligations and commitments as of the expiration date is $15,627. In addition to the minimum annual rental commitments, the lease provides for periodic cost of living increases in the base rent and payment of common area costs. Rent expense related to the operating lease was $47,221 and $49,355 for the nine months ended March 31, 2008 and 2007, respectively.
The Company leases its corporate housing facility under a non-cancelable operating lease that expires on September 30, 2008 for its vendors, and its principal future obligations and commitments as of the expiration date is $8,952. Rent expense related to the operating lease was $13,203 and $0 for the nine months ended March 31, 2008 and 2007, respectively.
The Company leases one automobile under an operating lease that expires on July 22, 2009. Lease expense was $4,839 and $5,182 for the nine months ended March 31, 2008 and 2007, respectively.
LITIGATION
The Company may be involved in certain legal proceedings and claims which arise in the normal course of business. Management does not believe that the outcome of these matters will have any material adverse effect on its financial condition.
CO-DEVELOPMENT, CO-OWNERSHIP AND SUPPLY AGREEMENT
In January 2005, the Company entered into a Co-development, Co-ownership, and Supply Agreement (the "Agreement") with C-Motech Co. Ltd., located in South Korea. The Agreement provides exclusive rights to market and sell its CDMA wireless data products in North, Central and South American countries. Furthermore, the Agreement provides that the Company is responsible for marketing, sales, field testing, and certifications of these products to wireless service operators and other commercial buyers within a designated territory and C-Motech Co. Ltd. is responsible for design, development, testing, certification, and completion of these products. Under the Agreement, products include all access devices designed with Qualcomm's MSM 5100, 5500 and 6500 chipset solutions provided or designed by C-Motech Co. Ltd. or both companies. Both companies own the rights to the products: USB modems, Card Bus, PCI Bus and Module designed with MSM 5500 dual band products. The term of the Agreement commenced on January 5, 2005 with automatic renewals of additional one year. The Agreement may be terminated by either party by providing a written notice to terminate at least ninety days prior to the end of the term.
RISK FACTORS RELATED TO OUR BUSINESS
An investment in the Company's shares is highly speculative and involves a significant degree of risk. Prospective investors should carefully consider the following risk factors, in addition to the other information set forth herein or in the material accompanying this report, prior to purchasing any of the Company's shares. The following risk factors do not purport to be a complete explanation of the risks involved in its business.
THE COMPANY HAS HAD A HISTORY OF LOSSES
The Company experienced significant operating losses and negative cash flows from operating activities for the 2005 and 2006 fiscal years. If the Company's sales do not continue to improve and operating expenses are not reduced and monitored, it may incur additional significant net losses and negative cash flows from operations.
THE COMPANY OPERATES IN AN INTENSIVELY COMPETITIVE MARKET
The wireless broadband data access market is highly competitive, and the Company may be unable to compete effectively. The Company's primary competitors are Sierra Wireless, Novatel Wireless, and Option International. Many of the Company's competitors or potential competitors have significantly greater financial, technical and marketing resources than the Company does. To survive and be competitive, the Company will need to continuously invest in research and development, sales and marketing, and customer support. Increased competition could result in price reduction and smaller customer orders. The Company's failure to compete effectively could seriously impair its business.
THE COMPANY OPERATES IN THE HIGH-RISK TELECOM SECTOR
The Company is in a volatile industry. In addition, its revenue model is evolving and relies substantially on the assumption that the Company will be able to successfully complete the development and sales of its products and services in the marketplace. The Company's prospects must be considered in the light of the risks, uncertainties, expenses and difficulties frequently encountered by companies in the early stages of development and marketing. In order to be successful in the market the Company must, among other things:
o Complete development and introduction of functional and attractive
products and services;
o Attract and maintain customer loyalty;
o Establish and increase awareness of its brand and develop customer
loyalty;
o Provide desirable products and services to customers at attractive
prices;
o Establish and maintain strategic relationships with strategic
partners and affiliates;
o Rapidly respond to competitive and technological developments;
o Build operations and customer service infrastructure to support
its business; and
o Attract, retain, and motivate qualified personnel.
The Company cannot guarantee that it will be able to achieve the above goals, and its failure to achieve them could adversely affect its business, results of operations, and financial condition. Moreover, there can be no assurance that the Company will be able to obtain additional funding if its financial resources are depleted. The Company expects that revenues and operating results will fluctuate in the future. There is no assurance that any or all of its efforts will produce a successful outcome. If its efforts are unsuccessful or other unexpected events occur, purchasers of our shares could lose their entire investment.
THE COMPANY OPERATES IN A FIELD WITH RAPIDLY CHANGING TECHNOLOGY
Since the Company's products and services are new, it cannot be certain that these products and services will function as anticipated or be desirable to its intended markets. The Company's current or future products and services may fail to function properly, and if its products and services do not achieve and sustain market acceptance, its business, results of operations and profitability may suffer. If the Company are unable to predict and comply with evolving wireless standards, its ability to introduce and sell new products will be adversely affected. If the Company fails to develop and introduce products on time, it may lose customers and potential product orders.
THE COMPANY DEPENDS ON THE DEMAND FOR WIRELESS NETWORK CAPACITY
The demand for the Company's products is completely dependent on the demand for broadband wireless access to networks. If wireless operators do not deliver acceptable wireless service, its product sales may dramatically decline. Thus, if wireless operators experience financial or network difficulties, it will likely reduce demand for the Company's products.
THE COMPANY DEPENDS ON COLLABORATIVE ARRANGEMENTS
The development and commercialization of the Company's products and services depend in large part upon its ability to selectively enter into and maintain collaborative arrangements with developers, distributors, service providers, network systems providers, core wireless communications technology providers and manufacturers, among others.
THE COMPANY RELIES ON A SINGLE SOURCE FOR THE MANUFACTURE OF ITS PRODUCTS
The Company relies on a single source to design, manufacture and supply its products, which exposes the Company to a number of risks and uncertainties outside its control. Due to its lack of working capital, the Company relies on C-Motech Co., Ltd to manufacture and deliver all its products. Any significant changes in C-Motech Co., Ltd., such as a change in ownership, operations or financial status may cause difficulties in its ability to deliver products to customers on a timely basis.
THE LOSS OF ANY OF THE COMPANY'S MATERIAL CUSTOMERS COULD ADVERSELY AFFECT ITS REVENUES AND PROFITABILITY, AND THEREFORE SHAREHOLDER VALUE.
The Company depends on a small number of customers for a significant portion of its revenues. During the nine months ended March 31, 2008, three customers accounted for 43.7%, 22.6%, and 19.3% of revenues. If any of these customers reduce their business with the Company or suffer from business failure, the Company's revenues and profitability could decline, perhaps materially.
THE COMPANY'S PRODUCT DELIVERIES ARE SUBJECT TO LONG LEAD TIMES
Due to its limited capital resources, the Company is experiencing long lead times to ship products to its customers, often in excess of 45 days. This could cause the Company to lose customers, who may be able to secure faster delivery times from its competitors, and require the Company to maintain higher levels of working capital.
AS THE COMPANY'S BUSINESS EXPANDS INTERNATIONALLY, IT WILL BE EXPOSED TO ADDITIONAL RISKS RELATING TO INTERNATIONAL OPERATIONS
The Company's expansion into international operations exposes the Company to additional risks unique to such international markets, including the following:
o Increased credit management risks and greater difficulties in
collecting accounts receivable;
o Unexpected changes in regulatory requirements, wireless
communications standards, exchange rates, trading policies,
tariffs and other barriers;
o Uncertainties of laws and enforcement relating to the protection
of intellectual property;
o Language barriers; and
o Potential adverse tax consequences.
Furthermore, if the Company is unable to further develop distribution channels in countries in North and South America and Africa, it may not be able to grow its international operations, and its ability to increase revenue will be negatively impacted.
THE COMPANY'S PRODUCTS MAY INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS
The industry in which the Company operates has many participants that own, or claim to own, proprietary intellectual property. In the past the Company has received, and in the future may receive, claims from third parties alleging that it, and possibly its customers, violate their intellectual property rights. Rights to intellectual property can be difficult to verify and litigation may be necessary to establish whether or not the Company has infringed the intellectual property rights of others. In many cases, these third parties are companies with substantially greater resources than the Company, and they may be able to, and may choose to, pursue complex litigation to a greater degree than the Company could. Regardless of whether these infringement claims have merit or not, the Company may be subject to the following:
o The Company may be liable for potentially substantial damages,
liabilities and litigation costs, including attorneys' fees;
o The Company may be prohibited from further use of the intellectual
property and may be required to cease selling its products that
are subject to the claim;
o The Company may have to license the third party intellectual
property, incurring royalty fees that may or may not be on
commercially reasonable terms. In addition, there is no assurance
that it will be able to successfully negotiate and obtain such a
license from the third party;
o The Company may have to develop a non-infringing alternative,
which could be costly and delay or result in the loss of sales. In
addition, there is no assurance that it will be able to develop
such a non-infringing alternative;
o The diversion of management's attention and resources;
o The Company's relationships with customers may be adversely
affected; and
o The Company may be required to indemnify its customers for certain
costs and damages they incur in such a claim.
In the event of an unfavorable outcome in such a claim and the Company's inability to either obtain a license from the third party or develop a non-infringing alternative, then its business, operating results and financial condition may be materially adversely affected, and the Company may have to restructure its business. Absent a specific claim for infringement of intellectual property, from time to time, the Company has and expects to continue to license technology, intellectual property and software from third parties. There is no assurance that the Company will be able to maintain its third party licenses or obtain new licenses when required, and this inability could materially adversely affect its business and operating results and the quality and functionality of its products. In addition, there is no assurance that third party licenses the Company executes will be on commercially reasonable terms. Under purchase orders and contracts for the sale of its products, the Company may provide indemnification to its customers for potential intellectual property infringement claims for which the Company may have no corresponding recourse against its third party licensors. This potential liability, if realized, could materially adversely affect its business, operating results and financial condition.
GOVERNMENT REGULATION COULD RESULT IN INCREASED COSTS AND INABILITY TO SELL THE COMPANY'S PRODUCTS
The Company's products are subject to certain mandatory regulatory approvals in the United States and other regions in which it operates. In the United States, the Federal Communications Commission regulates many aspects of communications devices. Although the Company has obtained all the necessary Federal Communications Commission and other required approvals for the products it currently sells, the Company may not obtain approvals for future products on a timely basis, or at all. In addition, regulatory requirements may change or the Company may not be able to obtain regulatory approvals from countries other than the United States in which it may desire to sell products in the future.
THE COMPANY MAY NEED ADDITIONAL FINANCING DUE TO LIMITED RESOURCES
The Company's financial resources are limited, and the amount of funding that is required to develop and commercialize its products and technologies is highly uncertain. Adequate funds may not be available when needed or on terms satisfactory to the Company. Lack of funds may cause the Company to delay, reduce and/or abandon certain or all aspects of its development and commercialization programs. The Company may seek additional financing through the issuance of equity or convertible debt securities. The percentage ownership of its stockholders would be reduced, stockholders could experience additional dilution, and such securities may have rights, preferences and privileges senior to those of the Company's Common Stock. There can be no assurance that additional financing will be available on terms favorable to the Company or at all. If adequate funds are not available or are not available on acceptable terms, the Company may not be able to fund its expansion, take advantage of desirable acquisition opportunities, develop or enhance services or products or respond to competitive pressures. Such inability could have a materially adverse effect on its business, results of operations and financial conditions.
ITEM 3A(T). CONTROLS AND PROCEDURES
The Company did not carry out a full evaluation of the effectiveness of the design and operation of its disclosure controls and procedures at the end of the period covered by this Form 10-QSB pursuant to Rule 13a-15 of the Exchange Act. The Company has retained a consultant to design procedures for such evaluation, and plans to have such procedures in place for the next fiscal quarter.
Notwithstanding the lack of a full evaluation at the end of the quarter, our Chief Executive Officer and Acting Chief Financial Officer concluded that our disclosure controls and procedures were effective to insure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 (i) is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Acting Chief Financial Officer, as appropriate, to allow timely decision regarding required disclosure.
There has been no change in our internal control over financial reporting during the three months ended March 31, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
2.1 Articles of Merger and Agreement and Plan of Reorganization, filed January
4, 2008 with the Nevada Secretary of State
3.1 Articles of Incorporation
3.2 By-Laws
10.1 Co-Development, Co-Ownership and Supply Agreement, dated January 5, 2005
between the Company and C-Motech Co., Ltd. (1)
10.2 Lease, dated March 16, 2005, between the Company and MP Sorrento Mesa, LLC
(1)
10.3 First Amendment to Lease, between the Company and MP Sorrento Mesa,
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LLC, dated May 23, 2006 (2).
31.1 Certificate of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certificate of Acting Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certificate of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(1) Incorporated by reference from Annual Report on Form 10-KSB for the year ended June 30, 2005, filed on May 23, 2006
(2) Incorporated by reference from Annual Report on Form 10-KSB for the year ended June 30, 2006, filed on September 28, 2006
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Franklin Wireless Corp.
By: /s/ OC Kim
-----------------------------
OC Kim
President and Acting Chief Financial Officer
Dated: May 14, 2008
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EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of January 2, 2008 (the "Plan"), by and between Franklin Wireless Corp., a California corporation ("Franklin-California") and Franklin Wireless Corp., a Nevada corporation and wholly-owned subsidiary of Franklin-California ("Franklin-Nevada");
RECITALS:
A. Franklin-California and Franklin-Nevada desire to enter into this Plan providing for the merger of Franklin-California into Franklin-Nevada;
B. The authorized capital stock of Franklin-Nevada consists of fifty million (50,000,000) shares of Common Stock, par value $.001 per share (the "Franklin-Nevada Shares"), one hundred (100) of which are owned of record and beneficially by Franklin-California, and ten million shares of Preferred Stock, par value $.001 per share, none of which are issued or outstanding;
C. The authorized capital stock of Franklin-California consists of 1,200,000,000 shares of Common Stock, without par value (the "Franklin-California Shares"), of which 926,040,050 shares are outstanding on the date hereof, and ten million shares of Preferred Stock, without par value, none of which are issued or outstanding; and
D. The merger will have no effect or change on the nature of the business or management of the resulting business operating through the surviving corporation.
NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties do hereby covenant and agree as follows:
SECTION 1. THE MERGER.
1.1 The Merger. (i) On the Effective Date (as defined below), Franklin-California shall be merged (the "Merger") with and into Franklin-Nevada in accordance with the California General Corporation Law and the Nevada Revised Statutes, whereupon the separate existence of Franklin-California shall cease, and Franklin-Nevada shall be the surviving corporation (the "Surviving Corporation".
1.2. Filing. As soon as practicable after the execution of this Plan, Franklin-California and Franklin-Nevada will file a copy of this plan of merger with the Secretary of State of the State of Nevada and make all other filings or recordings required by Nevada and California law in connection with the Merger. Following such filing, the Merger shall become effective on January 17, 2008, the effective date specified in the Articles of Merger (the "Effective Date").
1.3 Effect of Merger. From and after the Effective Date, the Surviving Corporation shall possess all the rights, powers, privileges and franchises and be subject to all of the obligations, liabilities, restrictions and disabilities of Franklin-California and Franklin-Nevada, all as provided under the General Corporation Law of the State of Nevada.
1.4. Common Stock. On the Effective Date, by virtue of the Merger and
without any further action on the part of the corporation or their shareholders,
(i) each share of Common Stock of Franklin-California issued and outstanding
immediately prior thereto shall be converted into shares of fully paid and
nonassesssable shares of the Common Stock of Franklin-Nevada at a ratio of 1
share of Franklin-Nevada for each 70 shares of Franklin-California, and (ii)
each share of Common Stock of Franklin-Nevada issued and outstanding immediately
prior thereto shall be canceled and returned to the status of authorized but
unissued shares.
1.5. Stock Certificates. On and after the Effective Date, all of the outstanding certificates which prior to that time represented shares of the Common Stock of Franklin-California shall be deemed for all purposes to evidence ownership of and to represent the shares of Franklin-Nevada into which the shares of Franklin-California represented by such certificates have been converted as herein provided and shall be so registered on the books and records of the Surviving Corporation or its transfer agents. The registered owner of any such outstanding stock certificate shall, until such certificate shall have been surrendered for transfer or conversion or otherwise accounted for to the Surviving Corporation or its transfer agent, have and be entitled to exercise any voting and other rights with respect to and to receive any dividend and other distributions upon the shares of Franklin-Nevada evidenced by such outstanding certificate as above provided.
1.6 Tax-Free Reorganization. It is intended by the Parties hereto that the Merger shall constitute a tax-free reorganization within the meaning of Section 368 of the Internal Revenue Code of 1986, as amended, and that this Plan shall constitute a plan of reorganization within the meaning of the regulations thereunder.
SECTION 2. THE SURVIVING CORPORATION.
2.1 Articles Of Incorporation. The Articles of Incorporation of Franklin-Nevada shall be the Articles of Incorporation of the Surviving Corporation.
2.2 By-Laws. The By-Laws of Franklin-Nevada in effect on the Effective Date shall be the By-Laws of the Surviving Corporation until amended in accordance with applicable law.
2.3 Directors And Officers. From and after the Effective Date, until successors are duly elected or appointed and qualified in accordance with applicable law, (i) the directors of Franklin-California as of the Effective Date shall be the directors of the Surviving Corporation and (ii) the officers of Franklin-California as of the Effective Date shall be the officers of the Surviving Corporation.
SECTION 3. MISCELLANEOUS
3.1 Amendments; No Waivers. Any provision of this Plan may be amended or waived prior to the Effective Date if, but only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by each party to this Plan or, in the case of a waiver, by each party against whom the waiver is to be effective. No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any right or remedies provided by law.
3.2 Successors And Assigns. The provisions of this Plan shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, provided that no party may assign, delegate or otherwise transfer any of its rights or obligations under this Plan without the prior written consent of the other parties hereto.
3.3 Governing Law. This Plan shall be governed by and construed in accordance with the internal laws of the State of Nevada.
3.4 Entire Agreement. This Plan constitutes the entire agreement among the Parties with respect to the subject matter of this Plan and supersedes all prior agreements and understandings, both oral and written, among the parties with respect to the subject matter of this Plan.
3.5 Severability. If any term, provision, covenant or restriction of this Plan is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Plan shall remain in full force and effect and shall in no way be affected, impaired or invalidated. Upon such a determination, the Parties shall negotiate in good faith to modify this Plan so as to effect the original intent of the Parties as closely as possible in an acceptable manner so that the transactions contemplated hereby shall be consummated as originally contemplated to the fullest extent possible.
3.6 Conditions to Merger. The obligations of the Parties to effect the transactions contemplated hereby is subject to satisfaction of the following conditions (any or all of which may be waived by either of the Parties in its sole discretion to the extent permitted by law): the Merger shall have been approved by the shareholders of Franklin-California in accordance with applicable provisions of the California General Corporation Law; and Franklin-California, as sole shareholder of Franklin-Nevada, shall have approved the Merger in accordance with the Nevada Revised Statutes, and any and all consents, permits, authorizations, approvals, and orders deemed in the sole discretion of Franklin-California to be material to consummation of the Merger shall have been obtained.
3.7 Abandonment or Deferral. At any time before the Effective Date, this Plan may be terminated and the Merger may be abandoned by the Board of Directors of either Franklin-California or Franklin-Nevada or both, notwithstanding the approval of this Plan by the shareholders of Franklin-Nevada, or the consummation of the Merger may be deferred for a reasonable period of time if, in the opinion of the Boards of Directors of Franklin-California and Franklin-Nevada, such action would be in the best interest of such corporations. In the event of termination of this Plan, this Plan shall become void and of no effect and there shall be no liability on the part of either Party or its Board of Directors or shareholders with respect thereto or Franklin-Nevada.
IN WITNESS WHEREOF, each of the parties has caused this Plan to be executed by an authorized signature as of the date first written above.
Franklin Wireless Corp., a California corporation
Franklin Wireless Corp.,
a Nevada corporation
EXHIBIT 3.1
FILED 10/25/2007
SECRETARY OF STATE
STATE OF NEVADA
ARTICLES OF INCORPORATION
OF
FRANKLIN WIRELESS CORP.
The undersigned, being the original incorporator herein named, for the purpose of forming a corporation under the general corporation laws of the State of Nevada, does make and file these Articles declaring and certifying that the facts herein stated are true.
ARTICLE I: NAME
The name of the corporation shall be "Franklin Wireless Corp."
ARTICLE II: TERM
The term of the corporation shall be perpetual.
ARTICLE III: RESIDENT AGENT & REGISTERED OFFICE
The registered agent for service of process is GKL Resident Agents/Filings, Inc., 1000 East William Street, Suite 204, Carson City, NV 89701. The corporation may maintain offices for the transaction of any business at such places within or without the State of Nevada as it may from time to time determine. Corporate business of every kind and nature may be conducted, and meetings of directors and stockholders held, outside the State of Nevada with the same effect as if within the State of Nevada.
ARTICLE IV: CAPITAL STOCK
The amount of the total authorized capital stock of the corporation Fifty Million (50,000,000) shares of Common Stock, par value $.001 per share, and Ten Million (10,000,000) shares of Preferred Stock, par value $.001 per share. The characteristics distinguishing Preferred Stock from Common Stock shall be described in a resolution or resolutions of the Board of Directors adopted prior to issuance of any Preferred Stock. All stock shall be fully paid and nonassessable, and shall be issued for such consideration as may be fixed from time to time by the Board of Directors. The Board of Directors may issue such shares of Common Stock and Preferred Stock in one or more series, at such price and in such number of each series as may be stated in the resolution(s) adopted by the Board. No stockholder of the corporation shall have preemptive rights.
ARTICLE V: BOARD OF DIRECTORS
The Board of Directors shall initially be comprised of four members. The specific number of directors may from time to time be increased or decreased in accordance with the bylaws of the corporation; provided, however, that the number of directors shall in no event be less than one nor more than fifteen. The initial directors, and their addresses, are as follows:
Name Address
---- -------
OC Kim 9823 Pacific Heights Blvd. Suite J
San Diego, Ca 92121
Gary Nelson 9823 Pacific Heights Blvd. Suite J
San Diego, Ca 92121
David Kim 9823 Pacific Heights Blvd. Suite J
San Diego, Ca 92121
Taejin Kim 9823 Pacific Heights Blvd. Suite J
San Diego, Ca 92121
|
No stockholder of the corporation shall be entitled to cumulative voting of his or her shares for the election of directors or otherwise.
ARTICLE VI: DIRECTORS' AND OFFICERS' LIABILITY
The personal liability of the directors of the Corporation is hereby eliminated to the fullest extent permitted under the Nevada Revised Statutes, as amended or supplemented ("NRS"). No amendment or repeal of this Article VI shall deprive a director of the benefits hereof with respect to any act or omission occurring prior to such amendment or repeal.
ARTICLE VII: INDEMNITY
The Corporation shall indemnify each person who at any time is, or shall have been, a director or officer of the Corporation, and is threatened to be or is made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is, or was, a director or officer of the Corporation, or served at the request of the Corporation as a director, officer, employee, trustee, or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement incurred in connection with any such action, suit or proceeding to the maximum extent permitted by the NRS as the same exists or hereafter may be amended. The foregoing right of indemnification shall in no way be exclusive of any other rights of indemnification to which any such director or officer may be entitled, under any bylaw, agreement, vote of directors or stockholders or otherwise.
ARTICLE VIII: REPEAL AND CONFLICTS
Any repeal or modification of Articles VI or VII above approved by the stockholders of the corporation shall be prospective only, and shall not adversely affect any limitation on the liability of a director or officer of the corporation existing as of the time of such repeal or modification. In the event of any conflict between Articles VI or VII and any other Article of the corporation's Articles of Incorporation, the terms and provisions of Articles VI or VII shall control.
ARTICLE IX: AMENDMENT
This corporation reserves the right to amend, alter, change or repeal any provision contained in these Articles of Incorporation in the manner provided by statute, and all rights conferred upon the stockholders are granted subject to the foregoing reservation.
ARTICLE X: ADDITIONAL POWERS
10.1 Subject to the limitations and exceptions, if any, contained in the bylaws of the Corporation (the "Bylaws"), the Bylaws may be adopted, amended or repealed by the Board.
10.2 Elections of directors need not be by written ballot.
10.3 Subject to any applicable requirements of law, the books of the Corporation may be kept outside the State of Nevada at such location as may be designated by the Board or in the Bylaws.
IN WITNESS WHEREOF, these Articles of Incorporation have been duly executed this 24th day of October, 2007.
/s/ Robert J. Zepfel -------------------- Robert J. Zepfel, Incorporator 500 Newport Center Drive, Suite 580 Newport Beach, CA 92660 |
EXHIBIT 3.2
BYLAWS
OF
FRANKLIN WIRELESS CORP.
ARTICLE I
OFFICES
The principal office of the corporation shall be designated from time to time by the corporation and may be within or outside of Nevada.
The corporation may have such other offices, either within or outside Nevada, as the board of directors may designate or as the business of the corporation may require from time to time.
The registered office of the corporation required by the Nevada General Corporation Law to be maintained in Nevada may be, but need not be, identical with the principal office, and the address of the registered office may be changed from time to time by the board of directors.
ARTICLE II
SHAREHOLDERS
Section 1. ANNUAL MEETING. The annual meeting of the shareholders shall be held each year on a date and at a time fixed by the board of directors of the corporation (or by the president in the absence of action by the board of directors) for the purpose of electing directors and for the transaction of such other business as may come before the meeting. If the election of directors is not held on the day fixed as provided herein for any annual meeting of the shareholders, or any adjournment thereof, the board of directors shall cause the election to be held at a special meeting of the shareholders as soon thereafter as it may conveniently be held.
A shareholder may apply to the district court in the county in Nevada where the corporation's principal office is located or, if the corporation has no principal office in Nevada, to the district court of the county in which the corporation's registered office is located to seek an order that a shareholder meeting be held (i) if an annual meeting was not held within six months after the close of the corporation's most recently ended fiscal year or fifteen months after its last annual meeting, whichever is earlier, or (ii) if the shareholder participated in a proper call of or proper demand for a special meeting and notice of the special meeting was not given within thirty days after the date of the call or the date the last of the demands necessary to require calling of the meeting was received by the corporation pursuant to Nevada corporate law, or the special meeting was not held in accordance with the notice.
Section 2. SPECIAL MEETINGS. Unless otherwise prescribed by statute, special meetings of the shareholders may be called for any purpose by the president or by the board of directors. The president shall call a special meeting of the shareholders if the corporation receives one or more written demands for the meeting, stating the purpose or purposes for which it is to be held, signed and dated by holders of shares representing at least ten percent of all the votes entitled to be cast on any issue proposed to be considered at the meeting.
Section 3. PLACE OF MEETING. The board of directors may designate any place, either within or outside Nevada, as the place for any annual meeting or any special meeting called by the board of directors. A waiver of notice signed by all shareholders entitled to vote at a meeting may designate any place, either within or outside Nevada, as the place for such meeting. If no designation is made, or if a special meeting is called other than by the board, the place of meeting shall be the principal office of the corporation.
Section 4. NOTICE OF MEETING. Written notice stating the place, date, and hour of the meeting shall be given not less than ten nor more than sixty days before the date of the meeting, except that (i) if the number of authorized shares is to be increased, at least thirty days' notice shall be given, or (ii) any other longer notice period is required by the Nevada General Corporation Law. The secretary shall be required to give such notice only to shareholders entitled to vote at the meeting except as otherwise required by the Nevada General Corporation Law.
Notice of a special meeting shall include a description of the purpose or purposes of the meeting. Notice of an annual meeting need not include a description of the purpose or purposes of the meeting except the purpose or purposes shall be stated with respect to (i) an amendment to the articles of incorporation of the corporation, (ii) a merger or share exchange in which the corporation is a party and, with respect to a share exchange, in which the corporation's shares will be acquired, (iii) a sale, lease, exchange or other disposition, other than in the usual and regular course of business, of all or substantially all of the property of the corporation or of another entity which this corporation controls, in each case with or without the goodwill, (iv) a dissolution of the corporation, (v) restatement of the articles of incorporation, or (vi) any other purpose for which a statement of purpose is required by the Nevada General Corporation Law. Notice shall be given personally or by mail, private carrier, telegraph, electronically transmitted facsimile or other form of wire or wireless communication by or at the direction of the president, the secretary, or the officer or persons calling the meeting, to each shareholder of record entitled to vote at such meeting. If mailed and if in a comprehensible form, such notice shall be deemed to be given and effective when deposited in the United States mail, properly addressed to the shareholder at his address as it appears in the corporation's current record of shareholders, with first class postage prepaid. If notice is given other than by mail, and provided that such notice is in a comprehensible form, the notice is given and effective on the date actually received by the shareholder.
If requested by the person or persons lawfully calling such meeting, the secretary shall give notice thereof at corporate expense. No notice need be sent to any shareholder if three successive notices mailed to the last known address of such shareholder have been returned as undeliverable until such time as another address for such shareholder is made known to the corporation by such shareholder. In order to be entitled to receive notice of any meeting, a shareholder shall advise the corporation in writing of any change in such shareholder's mailing address as shown on the corporation's books and records.
When a meeting is adjourned to another date, time or place, notice need not be given of the new date, time or place if the new date, time or place of such meeting is announced before adjournment at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business which may have been transacted at the original meeting. If the adjournment is for more than 120 days, or if a new record date is fixed for the adjourned meeting, a new notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting as of the new record date.
A shareholder may waive notice of a meeting before or after the time and date of the meeting by a writing signed by such shareholder. Such waiver shall be delivered to the corporation for filing with the corporate records, but this delivery and filing shall not be conditions to the effectiveness of the waiver. Further, by attending a meeting either in person or by proxy, a shareholder waives objection to lack of notice or defective notice of the meeting unless the shareholder objects at the beginning of the meeting to the holding of the meeting or the transaction of business at the meeting because of lack of notice or defective notice. By attending the meeting, the shareholder also waives any objection to consideration at the meeting of a particular matter not within the purpose or purposes described in the meeting notice unless the shareholder objects to considering the matter when it is presented.
Section 5. FIXING OF RECORD DATE. For the purpose of determining shareholders entitled to (i) notice of or vote at any meeting of shareholders or any adjournment thereof, (ii) receive distributions or share dividends, (iii) demand a special meeting, or (iv) make a determination of shareholders for any other proper purpose, the board of directors may fix a future date as the record date for any such determination of shareholders, such date in any case to be not more than seventy days, and, in case of a meeting of shareholders, not less than ten days, prior to the date on which the particular action requiring such determination of shareholders is to be taken. If no record date is fixed by the directors, the record date shall be the day before the notice of the meeting is given to shareholders, or the date on which the resolution of the board of directors providing for a distribution is adopted, as the case may be. When a determination of shareholders entitled to vote at any meeting of shareholders is made as provided in this section, such determination shall apply to any adjournment thereof unless the board of directors fixes a new record date, which it must do if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting. Unless otherwise specified when the record date is fixed, the time of day for such determination shall be as of the corporation's close of business on the record date.
Notwithstanding the above, the record date for determining the shareholders entitled to take action without a meeting or entitled to be given notice of action so taken shall be the date a writing upon which the action is taken is first received by the corporation. The record date for determining shareholders entitled to demand a special meeting shall be the date of the earliest of any of the demands pursuant to which the meeting is called.
Section 6. VOTING LISTS. After a record date is fixed for a shareholders' meeting, the secretary shall make, at the earlier of ten days before such meeting or two business days after notice of the meeting has been given, a complete list of the shareholders entitled to be given notice of such meeting or any adjournment thereof. The list shall be arranged by voting groups and within each voting group by class or series of shares, shall be in alphabetical order within each class or series, and shall show the address of and the number of shares of each class or series held by each shareholder. For the period beginning the earlier of ten days prior to the meeting or two business days after notice of the meeting is given and continuing through the meeting and any adjournment thereof, this list shall be kept on file at the principal office of the corporation, or at a place (which shall be identified in the notice) in the city where the meeting will be held. Such list shall be available for inspection on written demand by any shareholder (including for the purpose of this Section 6 any holder of voting trust certificates) or his agent or attorney during regular business hours and during the period available for inspection. The original stock transfer books shall be prima facie evidence as to who are the shareholders entitled to examine such list or transfer books or to vote at any meeting of shareholders.
Any shareholder, his agent or attorney may copy the list during regular
business hours and during the period it is available for inspection, provided
(i) the shareholder has been a shareholder for at least three months immediately
preceding the demand or holds at least five percent of all outstanding shares of
any class of shares as of the date of the demand, (ii) the demand is made in
good faith and for a purpose reasonably related to the demanding shareholder's
interest as a shareholder, (iii) the shareholder describes with reasonable
particularity the purpose and the records the shareholder desires to inspect,
(iv) the records are directly connected with the described purpose, and (v) the
shareholder pays a reasonable charge covering the costs of labor and material
for such copies, not to exceed the estimated cost of production and
reproduction.
Section 7. RECOGNITION PROCEDURE FOR BENEFICIAL OWNERS. The board of directors may adopt by resolution a procedure whereby a shareholder of the corporation may certify in writing to the corporation that all or a portion of the shares registered in the name of such shareholder are held for the account of a specified person or persons. The resolution may set forth (i) the types of nominees to which it applies, (ii) the rights or privileges that the corporation will recognize in a beneficial owner, which may include rights and privileges other than voting, (iii) the form of certification and the information to be contained therein, (iv) if the certification is with respect to a record date, the time within which the certification must be received by the corporation, (v) the period for which the nominee's use of the procedure is effective, and (vi) such other provisions with respect to the procedure as the board deems necessary or desirable. Upon receipt by the corporation of a certificate complying with the procedure established by the board of directors, the persons specified in the certification shall be deemed, for the purpose or purposes set forth in the certification, to be the registered holders of the number of shares specified in place of the shareholder making the certification.
Section 8. QUORUM AND MANNER OF ACTING. A majority of the votes entitled to be cast on a matter by a voting group represented in person or by proxy, shall constitute a quorum of that voting group for action on the matter. If less than a majority of such votes are represented at a meeting, a majority of the votes so represented may adjourn the meeting from time to time without further notice, for a period not to exceed 120 days for any one adjournment. If a quorum is present at such adjourned meeting, any business may be transacted which might have been transacted at the meeting as originally noticed. The shareholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum, unless the meeting is adjourned and a new record date is set for the adjourned meeting.
If a quorum exists, action on a matter other than the election of directors by a voting group is approved if the votes cast within the voting group favoring the action exceed the votes cast within the voting group opposing the action, unless the vote of a greater number or voting by classes is required by law or the articles of incorporation.
Section 9. PROXIES. At all meetings of shareholders, a shareholder may vote by proxy by signing an appointment form or similar writing, either personally or by his duly authorized attorney-in-fact. A shareholder may also appoint a proxy by transmitting or authorizing the transmission of a telegram, or other electronic transmission providing a written statement of the appointment to the proxy, a proxy solicitor, proxy support service organization, or other person duly authorized by the proxy to receive appointments as agent for the proxy, or to the corporation. The transmitted appointment shall set forth or be transmitted with written evidence from which it can be determined that the shareholder transmitted or authorized the transmission of the appointment. The proxy appointment form or similar writing shall be filed with the secretary of the corporation before or at the time of the meeting. The appointment of a proxy is effective when received by the corporation and is valid for eleven months unless a different period is expressly provided in the appointment form or similar writing.
Any complete copy, including an electronically transmitted facsimile, of an appointment of a proxy may be substituted for or used in lieu of the original appointment for any purpose for which the original appointment could be used.
Revocation of a proxy does not affect the right of the corporation to accept the proxy's authority unless (i) the corporation had notice that the appointment was coupled with an interest and notice that such interest is extinguished is received by the secretary or other officer or agent authorized to tabulate votes before the proxy exercises his authority under the appointment, or (ii) other notice of the revocation of the appointment is received by the secretary or other officer or agent authorized to tabulate votes before the proxy exercises his authority under the appointment. Other notice of revocation may, in the discretion of the corporation, be deemed to include the appearance at a shareholders' meeting of the shareholder who granted the proxy and his voting in person on any matter subject to a vote at such meeting.
The death or incapacity of the shareholder appointing a proxy does not affect the right of the corporation to accept the proxy's authority unless notice of the death or incapacity is received by the secretary or other officer or agent authorized to tabulate votes before the proxy exercises his authority under the appointment.
The corporation shall not be required to recognize an appointment made irrevocable if it has received a writing revoking the appointment signed by the shareholder (including a shareholder who is a successor to the shareholder who granted the proxy) either personally or by his attorney-in-fact, notwithstanding that the revocation may be a breach of an obligation of the shareholder to another person not to revoke the appointment.
Subject to Section 11 and any express limitation on the proxy's authority appearing on the appointment form, the corporation is entitled to accept the proxy's vote or other action as that of the shareholder making the appointment.
Section 10. VOTING OF SHARES. Each outstanding share, regardless of class, shall be entitled to one vote, except in the election of directors, and each fractional share shall be entitled to a corresponding fractional vote on each matter submitted to a vote at a meeting of shareholders, except to the extent that the voting rights of the shares of any class or classes are limited or denied by the articles of incorporation as permitted by the Nevada Business Corporation Code. Cumulative voting shall not be permitted in the election of directors or for any other purpose. Each record holder of stock shall be entitled to vote in the election of directors and shall have as many votes for each of the shares owned by him as there are directors to be elected and for whose election he has the right to vote.
At each election of directors, that number of candidates equaling the number of directors to be elected, having the highest number of votes cast in favor of their election, shall be elected to the board of directors.
Except as otherwise ordered by a court of competent jurisdiction upon a finding that the purpose of this Section would not be violated in the circumstances presented to the court, the shares of the corporation are not entitled to be voted if they are owned, directly or indirectly, by a second corporation, domestic or foreign, and the first corporation owns, directly or indirectly, a majority of the shares entitled to vote for directors of the second corporation except to the extent the second corporation holds the shares in a fiduciary capacity.
Redeemable shares are not entitled to be voted after notice of redemption is mailed to the holders and a sum sufficient to redeem the shares has been deposited with a bank, trust company or other financial institution under an irrevocable obligation to pay the holders the redemption price on surrender of the shares.
Section 11. CORPORATION'S ACCEPTANCE OF VOTES. If the name signed on a vote, consent, waiver, proxy appointment, or proxy appointment revocation corresponds to the name of a shareholder, the corporation, if acting in good faith, is entitled to accept the vote, consent, waiver, proxy appointment or proxy appointment revocation and give it effect as the act of the shareholder. If the name signed on a vote, consent, waiver, proxy appointment or proxy appointment revocation does not correspond to the name of a shareholder, the corporation, if acting in good faith, is nevertheless entitled to accept the vote, consent, waiver, proxy appointment or proxy appointment revocation and to give it effect as the act of the shareholder if:
(i) the shareholder is an entity and the name signed purports to be that of an officer or agent of the entity;
(ii) the name signed purports to be that of an administrator, executor, guardian or conservator representing the shareholder and, if the corporation requests, evidence of fiduciary status acceptable to the corporation has been presented with respect to the vote, consent, waiver, proxy appointment or proxy appointment revocation;
(iii) the name signed purports to be that of a receiver or trustee in bankruptcy of the shareholder and, if the corporation requests, evidence of this status acceptable to the corporation has been presented with respect to the vote, consent, waiver, proxy appointment or proxy appointment revocation;
(iv) the name signed purports to be that of a pledgee, beneficial owner or attorney-in-fact of the shareholder and, if the corporation requests, evidence acceptable to the corporation of the signatory's authority to sign for the shareholder has been presented with respect to the vote, consent, waiver, proxy appointment or proxy appointment revocation;
(v) two or more persons are the shareholder as co-tenants or fiduciaries and the name signed purports to be the name of at least one of the co-tenants or fiduciaries, and the person signing appears to be acting on behalf of all the co-tenants or fiduciaries; or
(vi) the acceptance of the vote, consent, waiver, proxy appointment or proxy appointment revocation is otherwise proper under rules established by the corporation that are not inconsistent with this Section 11.
The corporation is entitled to reject a vote, consent, waiver, proxy appointment or proxy appointment revocation if the secretary or other officer or agent authorized to tabulate votes, acting in good faith, has reasonable basis for doubt about the validity of the signature on it or about the signatory's authority to sign for the shareholder.
Neither the corporation nor its officers nor any agent who accepts or rejects a vote, consent, waiver, proxy appointment or proxy appointment revocation in good faith and in accordance with the standards of this Section is liable in damages for the consequences of the acceptance or rejection.
Section 12. ACTION BY SHAREHOLDERS BY WRITTEN CONSENT. Any action required or permitted to be taken at a meeting of the shareholders may be taken without a meeting if before or after the action, a written consent (or counterparts thereof) that sets forth the action so taken is signed by shareholders holding at least a majority of the voting power entitled to vote with respect to the subject matter thereof except if a different proportion of voting power is required for such an action at a meeting, then that proportion of written consents is required. Such consent shall have the same force and effect as a vote of the shareholders and may be stated as such in any document. Action taken under this Section 12 is effective as of the date the last writing necessary to effect the action is received by the corporation, unless all of the writings specify a different effective date, in which case such specified date shall be the effective date for such action. The record date for determining shareholders entitled to take action without a meeting is the date the corporation first receives a writing upon which the action is taken.
Any shareholder who has signed a writing describing and consenting to action taken pursuant to this Section 12 may revoke such consent by a writing signed by the shareholder describing the action and stating that the shareholder's prior consent thereto is revoked, if such writing is received by the corporation before the effectiveness of the action.
In no instance where action is authorized by written consent need a meeting of shareholders be called or notice given.
Section 13. MEETINGS BY TELECOMMUNICATION. Any or all of the shareholders may participate in an annual or special shareholders' meeting by, or the meeting may be conducted through the use of, any means of communication by which all persons participating in the meeting may hear or otherwise communicate with each other during the meeting. A shareholder participating in a meeting by this means is deemed to be present in person at the meeting.
ARTICLE III
BOARD OF DIRECTORS
Section 1. GENERAL POWERS. All corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation shall be managed under the direction of, its board of directors, except as otherwise provided in the Nevada General Corporation Law or the articles of incorporation.
Section 2. NUMBER, QUALIFICATIONS AND TENURE. The number of directors of the corporation shall be fixed from time to time by the board of directors, within a range of no less than two and no more than fifteen, but no decrease in the number of directors shall have the effect of shortening the term of any incumbent director. A director shall be a natural person who is eighteen years of age or older. A director need not be a resident of Nevada or a shareholder of the corporation.
Directors shall be elected at each annual meeting of shareholders. Each director shall hold office until the next annual meeting of shareholders following his election and thereafter until his successor shall have been elected and qualified. Directors shall be removed in the manner provided by the Nevada General Corporation Law. Any director may be removed by the shareholders of the voting group that elected the director, with or without cause, at a meeting called for that purpose. The notice of the meeting shall state that the purpose or one of the purposes of the meeting is removal of the director. A director may be removed only if the number of votes cast in favor of removal exceeds the number of votes cast against removal.
Section 3. VACANCIES. Any director may resign at any time by giving written notice to the secretary. Such resignation shall take effect at the time the notice is received by the secretary unless the notice specifies a later effective date. Unless otherwise specified in the notice of resignation, the corporation's acceptance of such resignation shall not be necessary to make it effective. Any vacancy on the board of directors may be filled by the affirmative vote of a majority of the shareholders at a special meeting called for that purpose or by the board of directors. If the directors remaining in office constitute fewer than a quorum of the board, the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. If elected by the directors, the director shall hold office until the next annual shareholders' meeting at which directors are elected. If elected by the shareholders, the director shall hold office for the unexpired term of his predecessor in office; except that, if the director's predecessor was elected by the directors to fill a vacancy, the director elected by the shareholders shall hold office for the unexpired term of the last predecessor elected by the shareholders.
Section 4. REGULAR MEETINGS. A regular meeting of the board of directors shall be held without notice immediately after and at the same place as the annual meeting of shareholders. The board of directors may provide by resolution the time and place, either within or outside Nevada, for the holding of additional regular meetings without other notice.
Section 5. SPECIAL MEETINGS. Special meetings of the board of directors may be called by or at the request of the president or any one (1) of the directors. The person or persons authorized to call special meetings of the board of directors may fix any place, either within or outside Nevada, as the place for holding any special meeting of the board of directors called by them.
Section 6. NOTICE. Notice of the date, time and place of any special
meeting shall be given to each director at least two days prior to the meeting
by written notice either personally delivered or mailed to each director at his
business address, or by notice transmitted by private courier, telegraph,
electronically transmitted facsimile or other form of wire or wireless
communication. If mailed, such notice shall be deemed to be given and to be
effective on the earlier of (i) five days after such notice is deposited in the
United States mail, properly addressed, with first class postage prepaid, or
(ii) the date shown on the return receipt, if mailed by registered or certified
mail return receipt requested, provided that the return receipt is signed by the
director to whom the notice is addressed. If notice is given by telex,
electronically transmitted facsimile or other similar form of wire or wireless
communication, such notice shall be deemed to be given and to be effective when
sent, and with respect to a telegram, such notice shall be deemed to be given
and to be effective when the telegram is delivered to the telegraph company. If
a director has designated in writing one or more reasonable addresses or
facsimile numbers for delivery of notice to him, notice sent by mail, telegraph,
electronically transmitted facsimile or other form of wire or wireless
communication shall not be deemed to have been given or to be effective unless
sent to such addresses or facsimile numbers, as the case may be.
A director may waive notice of a meeting before or after the time and date of the meeting by a writing signed by such director. Such waiver shall be delivered to the secretary for filing with the corporate records, but such delivery and filing shall not be conditions to the effectiveness of the waiver. Further, a director's attendance at or participation in a meeting waives any required notice to him of the meeting unless at the beginning of the meeting, or promptly upon his later arrival, the director objects to holding the meeting or transacting business at the meeting because of lack of notice or defective notice and does not thereafter vote for or assent to action taken at the meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the board of directors need be specified in the notice or waiver of notice of such meeting.
Section 7. QUORUM. A majority of the number of directors fixed by the board of directors pursuant to Article III, Section 2 or, if no number is fixed, a majority of the number in office immediately before the meeting begins, shall constitute a quorum for the transaction of business at any meeting of the board of directors.
Section 8. MANNER OF ACTING. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors.
Section 9. COMPENSATION. By resolution of the board of directors, any director may be paid any one or more of the following: his expenses, if any, of attendance at meetings, a fixed sum for attendance at each meeting, a stated salary as director, or such other compensation as the corporation and the director may reasonably agree upon. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor.
Section 10. PRESUMPTION OF ASSENT. A director of the corporation who is present at a meeting of the board of directors or committee of the board at which action on any corporate matter is taken shall be presumed to have assented to all action taken at the meeting unless (i) the director objects at the beginning of the meeting, or promptly upon his arrival, to the holding of the meeting or the transaction of business at the meeting and does not thereafter vote for or assent to any action taken at the meeting, (ii) the director contemporaneously requests that his dissent or abstention as to any specific action taken be entered in the minutes of the meeting, or (iii) the director causes written notice of his dissent or abstention as to any specific action to be received by the presiding officer of the meeting before its adjournment or by the secretary promptly after the adjournment of the meeting. A director may dissent to a specific action at a meeting, while assenting to others. The right to dissent to a specific action taken at a meeting of the board of directors or a committee of the board shall not be available to a director who voted in favor of such action.
Section 11. COMMITTEES. By resolution adopted by a majority of all the directors in office when the action is taken, the board of directors may designate from among its members an executive committee and one or more other committees, and appoint one or more members of the board of directors to serve on them. To the extent provided in the resolution, each committee shall have all the authority of the board of directors, except that no such committee shall have the authority to (i) authorize distributions, (ii) approve or propose to shareholders actions or proposals required by the Nevada General Corporation Law to be approved by shareholders, (iii) fill vacancies on the board of directors or any committee thereof, (iv) amend articles of incorporation, (v) adopt, amend or repeal the bylaws, (vi) approve a plan of merger not requiring shareholder approval, (vii) authorize or approve the reacquisition of shares unless pursuant to a formula or method prescribed by the board of directors, or (viii) authorize or approve the issuance or sale of shares, or contract for the sale of shares or determine the designations and relative rights, preferences and limitations of a class or series of shares, except that the board of directors may authorize a committee or officer to do so within limits specifically prescribed by the board of directors. The committee shall then have full power within the limits set by the board of directors to adopt any final resolution setting forth all preferences, limitations and relative rights of such class or series and to authorize an amendment of the articles of incorporation stating the preferences, limitations and relative rights of a class or series for filing with the Secretary of State under the Nevada General Corporation Law.
Sections 4, 5, 6, 7, 8 or 12 of Article III, which govern meetings, notice, waiver of notice, quorum, voting requirements and action without a meeting of the board of directors, shall apply to committees and their members appointed under this Section 11.
Neither the designation of any such committee, the delegation of authority to such committee, nor any action by such committee pursuant to its authority shall alone constitute compliance by any member of the board of directors or a member of the committee in question with his responsibility to conform to the standard of care set forth in Article III, Section 14 of these bylaws.
Section 12. ACTION BY DIRECTORS BY WRITTEN CONSENT. Any action required or permitted to be taken at a meeting of the directors or any committee designated by the board of directors may be taken without a meeting if a written consent (or counterparts thereof) that sets forth the action so taken is signed by all of the directors entitled to vote with respect to the action taken. Such consent shall have the same force and effect as a unanimous vote of the directors or committee members and may be stated as such in any document. Unless the consent specifies a different effective time or date, action taken under this Section 12 is effective at the time or date the last director signs a writing describing the action taken, unless, before such time, any director has revoked his consent by a writing signed by the director and received by the president or the secretary of the corporation.
Section 13. TELEPHONIC MEETINGS. The board of directors may permit any director (or any member of a committee designated by the board) to participate in a regular or special meeting of the board of directors or a committee thereof through the use of any means of communication by which all directors participating in the meeting can hear or otherwise communicate with each other during the meeting. A director participating in a meeting in this manner is deemed to be present in person at the meeting.
Section 14. STANDARD OF CARE. A director shall perform his duties as a director, including without limitation his duties as a member of any committee of the board, in good faith, in a manner he reasonably believes to be in the best interests of the corporation, and with the care an ordinarily prudent person in a like position would exercise under similar circumstances. In performing his duties, a director shall be entitled to rely on information, opinions, reports or statements, including financial statements and other financial data, in each case prepared or presented by the persons herein designated. However, he shall not be considered to be acting in good faith if he has knowledge concerning the matter in question that would cause such reliance to be unwarranted. A director shall not be liable to the corporation or its shareholders for any action he takes or omits to take as a director if, in connection with such action or omission, he performs his duties in compliance with this Section 14.
The designated persons on whom a director is entitled to rely are (i) one or more officers or employees of the corporation whom the director reasonably believes to be reliable and competent in the matters presented, (ii) legal counsel, public accountant, or other person as to matters which the director reasonably believes to be within such person's professional or expert competence, or (iii) a committee of the board of directors on which the director does not serve if the director reasonably believes the committee merits confidence.
ARTICLE IV
OFFICERS AND AGENTS
Section 1. GENERAL. The officers of the corporation shall be a president, a secretary and a treasurer, and may also include one or more vice presidents, each of which officer shall be appointed by the board of directors and shall be a natural person eighteen years of age or older. One person may hold more than one office. The board of directors or an officer or officers so authorized by the board may appoint such other officers, assistant officers, committees and agents, including a chairman of the board, assistant secretaries and assistant treasurers, as they may consider necessary. Except as expressly prescribed by these bylaws, the board of directors or the officer or officers authorized by the board shall from time to time determine the procedure for the appointment of officers, their authority and duties and their compensation, provided that the board of directors may change the authority, duties and compensation of any officer who is not appointed by the board.
Section 2. APPOINTMENT AND TERM OF OFFICE. The officers of the corporation
to be appointed by the board of directors shall be appointed at each annual
meeting of the board held after each annual meeting of the shareholders. If the
appointment of officers is not made at such meeting or if an officer or officers
are to be appointed by another officer or officers of the corporation, such
appointments shall be made as determined by the board of directors or the
appointing person or persons. Each officer shall hold office until the first of
the following occurs: his successor shall have been duly appointed and
qualified, his death, his resignation, or his removal in the manner provided in
Section 3.
Section 3. RESIGNATION AND REMOVAL. An officer may resign at any time by giving written notice of resignation to the president, secretary or other person who appoints such officer. The resignation is effective when the notice is received by the corporation unless the notice specifies a later effective date.
Any officer or agent may be removed at any time with or without cause by the board of directors or an officer or officers authorized by the board. Such removal does not affect the contract rights, if any, of the corporation or of the person so removed. The appointment of an officer or agent shall not in itself create contract rights.
Section 4. VACANCIES. A vacancy in any office, however occurring, may be filled by the board of directors, or by the officer or officers authorized by the board, for the unexpired portion of the officer's term. If an officer resigns and his resignation is made effective at a later date, the board of directors, or officer or officers authorized by the board, may permit the officer to remain in office until the effective date and may fill the pending vacancy before the effective date if the board of directors or officer or officers authorized by the board provide that the successor shall not take office until the effective date. In the alternative, the board of directors, or officer or officers authorized by the board of directors, may remove the officer at any time before the effective date and may fill the resulting vacancy.
Section 5. PRESIDENT. The president shall preside at all meetings of shareholders and all meetings of the board of directors unless the board of directors has appointed a chairman, vice chairman, or other officer of the board and has authorized such person to preside at meetings of the board of directors. Subject to the direction and supervision of the board of directors, the president shall be the chief executive officer of the corporation, and shall have general and active control of its affairs and business and general supervision of its officers, agents and employees. Unless otherwise directed by the board of directors, the president shall attend in person or by substitute appointed by him, or shall execute on behalf of the corporation written instruments appointing a proxy or proxies to represent the corporation, at all meetings of the stockholders of any other corporation in which the corporation holds any stock. On behalf of the corporation, the president may in person or by substitute or by proxy execute written waivers of notice and consents with respect to any such meetings. At all such meetings and otherwise, the president, in person or by substitute or proxy, may vote the stock held by the corporation, execute written consents and other instruments with respect to such stock, and exercise any and all rights and powers incident to the ownership of said stock, subject to the instructions, if any, of the board of directors. The president shall have custody of the treasurer's bond, if any. The president shall have such additional authority and duties as are appropriate and customary for the office of president and chief executive officer, except as the same may be expanded or limited by the board of directors from time to time.
Section 6. VICE PRESIDENTS. The vice presidents shall assist the president and shall perform such duties as may be assigned to them by the president or by the board of directors. In the absence of the president, the vice president, if any (or, if more than one, the vice presidents in the order designated by the board of directors, or if the board makes no such designation, then the vice president designated by the president, or if neither the board nor the president makes any such designation, the senior vice president as determined by first election to that office), shall have the powers and perform the duties of the president.
Section 7. SECRETARY. The secretary shall (i) prepare and maintain as permanent records the minutes of the proceedings of the shareholders and the board of directors, a record of all actions taken by the shareholders or board of directors without a meeting, a record of all actions taken by a committee of the board of directors in place of the board of directors on behalf of the corporation, and a record of all waivers of notice of meetings of shareholders and of the board of directors or any committee thereof, (ii) see that all notices are duly given in accordance with the provisions of these bylaws and as required by law, (iii) serve as custodian of the corporate records and of the seal of the corporation and affix the seal to all documents when authorized by the board of directors, (iv) keep at the corporation's registered office or principal place of business a record containing the names and addresses of all shareholders in a form that permits preparation of a list of shareholders arranged by voting group and by class or series of shares within each voting group, that is alphabetical within each class or series and that shows the address of, and the number of shares of each class or series held by, each shareholder, unless such a record shall be kept at the office of the
corporation's transfer agent or registrar, (v) maintain at the corporation's principal office the originals or copies of the corporation's articles of incorporation, bylaws, minutes of all shareholders' meetings and records of all action taken by shareholders without a meeting for the past three years, all written communications within the past three years to shareholders as a group or to the holders of any class or series of shares as a group, a list of the names and business addresses of the current directors and officers, a copy of the corporation's most recent corporate report filed with the Secretary of State, and financial statements showing in reasonable detail the corporation's assets and liabilities and results of operations for the last three years, (vi) have general charge of the stock transfer books of the corporation, unless the corporation has a transfer agent, (vii) authenticate records of the corporation, and (viii) in general, perform all duties incident to the office of secretary and such other duties as from time to time may be assigned to him by the president or by the board of directors. Assistant secretaries, if any, shall have the same duties and powers, subject to supervision by the secretary. The directors and/or shareholders may however respectively designate a person other than the secretary or assistant secretary to keep the minutes of their respective meetings.
Any books, records, or minutes of the corporation may be in written form or in any form capable of being converted into written form within a reasonable time.
Section 8. TREASURER. The treasurer shall be the principal financial officer of the corporation, shall have the care and custody of all funds, securities, evidences of indebtedness and other personal property of the corporation and shall deposit the same in accordance with the instructions of the board of directors. Subject to the limits imposed by the board of directors, he shall receive and give receipts and acquittances for money paid in on account of the corporation, and shall pay out of the corporation's funds on hand all bills, payrolls and other just debts of the corporation of whatever nature upon maturity. He shall perform all other duties incident to the office of the treasurer and, upon request of the board, shall make such reports to it as may be required at any time. He shall, if required by the board, give the corporation a bond in such sums and with such sureties as shall be satisfactory to the board, conditioned upon the faithful performance of his duties and for the restoration to the corporation of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation. He shall have such other powers and perform such other duties as may from time to time be prescribed by the board of directors or the president. The assistant treasurers, if any, shall have the same powers and duties, subject to the supervision of the treasurer.
The treasurer shall also be the principal accounting officer of the corporation. He shall prescribe and maintain the methods and systems of accounting to be followed, keep complete books and records of account as required by the Nevada General Corporation Law, prepare and file all local, state and federal tax returns, prescribe and maintain an adequate system of internal audit and prepare and furnish to the president and the board of directors statements of account showing the financial position of the corporation and the results of its operations.
ARTICLE V
STOCK
Section 1. CERTIFICATES. The board of directors shall be authorized to issue any of its classes of shares with or without certificates. The fact that the shares are not represented by certificates shall have no effect on the rights and obligations of shareholders. If the shares are-represented by certificates, such shares shall be represented by consecutively numbered certificates signed, either manually or by facsimile, in the name of the corporation by the president. In case any officer who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such officer before such certificate is issued, such certificate may nonetheless be issued by the corporation with the same effect as if he were such officer at the date of its issue. All certificates shall be consecutively numbered, and the names of the owners, the number of shares, and the date of issue shall be entered on the books of the corporation. Each certificate representing shares shall state upon its face:
(i) That the corporation is organized under the laws of Nevada;
(ii) The name of the person to whom issued;
(iii) The number and class of the shares and the designation of the series, if any, that the certificate represents;
(iv) The par value, if any, of each share represented by the certificate;
(v) Any restrictions imposed by the corporation upon the transfer of the shares represented by the certificate.
If shares are not represented by certificates, within a reasonable time following the issue or transfer of such shares, the corporation shall send the shareholder a complete written statement of all of the information required to be provided to holders of uncertificated shares by the Nevada General Corporation Law.
Section 2. CONSIDERATION FOR SHARES. Certificated or uncertificated shares shall not be issued until the shares represented thereby are fully paid. The board of directors may authorize the issuance of shares for consideration consisting of any tangible or intangible property or benefit to the corporation, including cash, promissory notes, services performed or other securities of the corporation. Future services shall not constitute payment or partial payment for shares of the corporation. The promissory note of a subscriber or an affiliate of a subscriber shall not constitute payment or partial payment for shares of the corporation unless the note is negotiable and is secured by collateral, other than the shares being purchased, having a fair market value at least equal to the principal amount of the note. For purposes of this Section 2, "promissory note" means a negotiable instrument on which there is an obligation to pay independent of collateral and does not include a non-recourse note.
Section 3. LOST CERTIFICATES. In case of the alleged loss, destruction or mutilation of a certificate of stock, the board of directors may direct the issuance of a new certificate in lieu thereof upon such terms and conditions in conformity with law as the board may prescribe. The board of directors may in its discretion require an affidavit of lost certificate and/or a bond in such form and amount and with such surety as it may determine before issuing a new certificate.
Section 4. TRANSFER OF SHARES. Upon surrender to the corporation or to a transfer agent of the corporation of a certificate of stock duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, and receipt of such documentary stamps as may be required by law and evidence of compliance with all applicable securities laws and other restrictions, the corporation shall issue a new certificate to the person entitled thereto, and cancel the old certificate. Every such transfer of stock shall be entered on the stock books of the corporation which shall be kept at its principal office or by the person and at the place designated by the board of directors.
Except as otherwise expressly provided in Article II, Sections 7 and 11, and except for the assertion of dissenters' rights to the extent provided in Article 113 of the Nevada General Corporation Law, the corporation shall be entitled to treat the registered holder of any shares of the corporation as the owner thereof for all purposes, and the corporation shall not be bound to recognize any equitable or other claim to, or interest in, such shares or rights deriving from such shares on the part of any person other than the registered holder, including without limitation any purchaser, assignee or transferee of such shares or rights deriving from such shares, unless and until such other person becomes the registered holder of such shares, whether or not the corporation shall have either actual or constructive notice of the claimed interest of such other person.
Section 5. TRANSFER AGENT, REGISTRARS AND PAYING AGENTS. The board may at its discretion appoint one or more transfer agents, registrars and agents for making payment upon any class of stock, bond, debenture or other security of the corporation. Such agents and registrars may be located either within or outside Nevada. They shall have such rights and duties and shall be entitled to such compensation as may be agreed.
ARTICLE VI
INDEMNIFICATION OF CERTAIN PERSONS
Section 1. INDEMNIFICATION. For purposes of Article VI, a "Proper Person" means any person (including the estate or personal representative of a director) who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, and whether formal or informal, by reason of the fact that he is or was a director, officer, employee, fiduciary or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, partner, trustee, employee, fiduciary or agent of any foreign or domestic profit or nonprofit corporation or of any partnership, joint venture, trust, profit or nonprofit unincorporated association, limited liability company, or other enterprise or employee benefit plan. The corporation shall indemnify any Proper Person against reasonably incurred expenses (including attorneys' fees), judgments, penalties, fines (including any excise tax assessed with respect to an employee benefit plan) and amounts paid in
settlement reasonably incurred by him in connection with such action, suit or
proceeding if it is determined by the groups set forth in Section 4 of this
Article that he conducted himself in good faith and that he reasonably believed
(i) in the case of conduct in his official capacity with the corporation, that
his conduct was in the corporation's best interests, or (ii) in all other cases
(except criminal cases), that his conduct was at least not opposed to the
corporation's best interests, or (iii) in the case of any criminal proceeding,
that he had no reasonable cause to believe his conduct was unlawful. Official
capacity means, when used with respect to a director, the office of director
and, when used with respect to any other Proper Person, the office in a
corporation held by the officer or the employment, fiduciary or agency
relationship undertaken by the employee, fiduciary, or agent on behalf of the
corporation. Official capacity does not include service for any other domestic
or foreign corporation or other person or employee benefit plan.
A director's conduct with respect to an employee benefit plan for a purpose the director reasonably believed to be in the interests of the participants in or beneficiaries of the plan is conduct that satisfies the requirement in (ii) of this Section 1. A director's conduct with respect to an employee benefit plan for a purpose that the director did not reasonably believe to be in the interests of the participants in or beneficiaries of the plan shall be deemed not to satisfy the requirement of this section that he conduct himself in good faith.
No indemnification shall be made under this Article VI to a Proper Person with respect to any claim, issue or matter in connection with a proceeding by or in the right of a corporation in which the Proper Person was adjudged liable to the corporation or in connection with any proceeding charging that the Proper Person derived an improper personal benefit, whether or not involving action in an official capacity, in which he was adjudged liable on the basis that he derived an improper personal benefit. Further, indemnification under this section in connection with a proceeding brought by or in the right of the corporation shall be limited to reasonable expenses, including attorneys' fees, incurred in connection with the proceeding.
Section 2. RIGHT TO INDEMNIFICATION. The corporation shall indemnify any Proper Person who was wholly successful, on the merits or otherwise, in defense of any action, suit, or proceeding as to which he was entitled to indemnification under Section 1 of this Article VI against expenses (including attorneys' fees) reasonably incurred by him in connection with the proceeding without the necessity of any action by the corporation other than the determination in good faith that the defense has been wholly successful.
Section 3. EFFECT OF TERMINATION OF ACTION. The termination of any action, suit or proceeding by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent shall not of itself create a presumption that the person seeking indemnification did not meet the standards of conduct described in Section 1 of this Article VI. Entry of a judgment by consent as part of a settlement shall not be deemed an adjudication of liability, as described in Section 2 of this Article VI.
Section 4. GROUPS AUTHORIZED TO MAKE INDEMNIFICATION DETERMINATION. Except where there is a right to indemnification as set forth in Sections 1 or 2 of this Article or where indemnification is ordered by a court in Section 5, any indemnification shall be made by the corporation only as determined in the specific case by a proper group that indemnification of the Proper Person is permissible under the circumstances because he has met the applicable standards of conduct set forth in Section 1 of this Article. This determination shall be made by the board of directors by a majority vote of those present at a meeting at which a quorum is present, which quorum shall consist of directors not parties to the proceeding ("Quorum"). If a Quorum cannot be obtained, the determination shall be made by a majority vote of a committee of the board of directors designated by the board, which committee shall consist of two or more directors not parties to the proceeding, except that directors who are parties to the proceeding may participate in the designation of directors for the committee. If a Quorum of the board of directors cannot be obtained and the committee cannot be established, or even if a Quorum is obtained or the committee is designated and a majority of the directors constituting such Quorum or committee so directs, the determination shall be made by (i) independent legal counsel selected by a vote of the board of directors or the committee in the manner specified in this Section 4 or, if a Quorum of the full board of directors cannot be obtained and a committee cannot be established, by independent legal counsel selected by a majority vote of the full board (including directors who are parties to the action) or (ii) a vote of the shareholders.
Authorization of indemnification and advance of expenses shall be made in the same manner as the determination that indemnification or advance of expenses is permissible except that, if the determination that indemnification or advance of expenses is permissible is made by independent legal counsel, authorization of indemnification and advance of expenses shall be made by the body that selected such counsel.
Section 5. COURT-ORDERED INDEMNIFICATION. Any Proper Person may apply for indemnification to the court conducting the proceeding or to another court of competent jurisdiction for mandatory indemnification under Section 2 of this Article, including indemnification for reasonable expenses incurred to obtain court-ordered indemnification. If a court determines that the Proper Person is entitled to indemnification under Section 2 of this Article, the court shall order indemnification, including the Proper Person's reasonable expenses incurred to obtain court-ordered indemnification. If the court determines that such Proper Person is fairly and reasonably entitled to indemnification in view of all the relevant circumstances, whether or not he met the standards of conduct set forth in Section 1 of this Article or was adjudged liable in the proceeding, the court may order such indemnification as the court deems proper except that if the Proper Person has been adjudged liable, indemnification shall be limited to reasonable expenses incurred in connection with the proceeding and reasonable expenses incurred to obtain court-ordered indemnification.
Section 6. ADVANCE OF EXPENSES. Reasonable expenses (including attorneys'
fees) incurred in defending an action, suit or proceeding as described in
Section 1 may be paid by the corporation to any Proper Person in advance of the
final disposition of such action, suit or proceeding upon receipt of (i) a
written affirmation of such Proper Person's good faith belief that he has met
the standards of conduct prescribed by Section 1 of this Article VI, (ii) a
written undertaking, executed personally or on the Proper Person's behalf, to
repay such advances if it is ultimately determined that he did not meet the
prescribed standards of conduct (the undertaking shall be an unlimited general
obligation of the Proper Person but need not be secured and may be accepted
without reference to financial ability to make repayment), and (iii) a
determination is made by the proper group (as described in Section 4 of this
Article VI) that the facts as then known to the group would not preclude
indemnification. Determination and authorization of payments shall be made in
the same manner specified in Section 4 of this Article VI.
Section 7. ADDITIONAL INDEMNIFICATION TO CERTAIN PERSONS OTHER THAN DIRECTORS. In addition to the indemnification provided to officers, employees, fiduciaries or agents because of their status as Proper Persons under this Article, the corporation may also indemnify and advance expenses to them if they are not directors of the corporation to a greater extent than is provided in these bylaws, if not inconsistent with public policy, and if provided for by general or specific action of its board of directors or shareholders or by contract.
Section 8. WITNESS EXPENSES. The sections of this Article VI do not limit the corporation's authority to pay or reimburse expenses incurred by a director in connection with an appearance as a witness in a proceeding at a time when he has not been made or named as a defendant or respondent in the proceeding.
Section 9. REPORT TO SHAREHOLDERS. Any indemnification of or advance of expenses to a director in accordance with this Article VI, if arising out of a proceeding by or on behalf of the corporation, shall be reported in writing to the shareholders with or before the notice of the next shareholders' meeting. If the next shareholder action is taken without a meeting at the instigation of the board of directors, such notice shall be given to the shareholders at or before the time the first shareholder signs a writing consenting to such action.
ARTICLE VII
PROVISION OF INSURANCE
Section 1. PROVISION OF INSURANCE. By action of the board of directors, notwithstanding any interest of the directors in the action, the corporation may purchase and maintain insurance, in such scope and amounts as the board of directors deems appropriate, on behalf of any person who is or was a director, officer, employee, fiduciary or agent of the corporation, or who, while a director, officer, employee, fiduciary or agent of the corporation, is or was serving at the request of the corporation as a director, officer, partner, trustee, employee, fiduciary or agent of any other foreign or domestic profit or nonprofit corporation or of any partnership, joint venture, trust, profit or nonprofit unincorporated association, limited liability company, other enterprise or employee benefit plan, against any liability asserted against, or incurred by, him in that capacity or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of Article VI or applicable law. Any such insurance may be procured from any insurance company designated by the board of directors of the corporation, whether such insurance company is formed under the laws of Nevada or any other jurisdiction of the United States or elsewhere, including any insurance company in which the corporation has an equity interest or any other interest, through stock ownership or otherwise.
ARTICLE VIII
MISCELLANEOUS
Section 1. SEAL. The board of directors may adopt a corporate seal, which shall contain the name of the corporation and the words, "Seal, Nevada."
Section 2. FISCAL YEAR. The fiscal year of the corporation shall be as established by the board of directors.
Section 3. AMENDMENTS. The board of directors shall have power, to the maximum extent permitted by the Nevada General Corporation Law, to make, amend and repeal the bylaws of the corporation at any regular or special meeting of the board unless the shareholders, in making, amending or repealing a particular bylaw, expressly provide that the directors may not amend or repeal such bylaw. The shareholders also shall have the power to make, amend or repeal the bylaws of the corporation at any annual meeting or at any special meeting called for that purpose.
Section 4. RECEIPT OF NOTICES BY THE CORPORATION. Notices, shareholder writings consenting to action, and other documents or writings shall be deemed to have been received by the corporation when they are actually received: (1) at the registered office of the corporation in Nevada; (2) at the principal office of the corporation (as that office is designated in the most recent document filed by the corporation with the secretary of state for Nevada designating a principal office) addressed to the attention of the secretary of the corporation; (3) by the secretary of the corporation wherever the secretary may be found; or (4) by any other person authorized from time to time by the board of directors or the president to receive such writings, wherever such person is found.
Section 5. GENDER. The masculine gender is used in these bylaws as a matter of convenience only and shall be interpreted to include the feminine and neuter genders as the circumstances indicate.
Section 6. CONFLICTS. In the event of any irreconcilable conflict between these bylaws and either the corporation's articles of incorporation or applicable law, the latter shall control.
Section 7. DEFINITIONS. Except as otherwise specifically provided in these bylaws, all terms used in these bylaws shall have the same definition as in the Nevada General Corporation Law.
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, OC Kim, President of Franklin Wireless Corp., certify that:
1) I have reviewed this quarterly report on Form 10-QSB of Franklin Wireless Corp.;
2) Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;
4) I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and
5) I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.
/s/ OC KIM ---------- OC Kim President May 14, 2008 |
Exhibit 31.2
CERTIFICATION OF ACTING CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, OC Kim, Acting Chief Financial Officer of Franklin Wireless Corp., certify that:
1) I have reviewed this quarterly report on Form 10-QSB of Franklin Wireless Corp.;
2) Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;
4) I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and
5) I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.
/s/ OC KIM ---------- OC Kim Acting Chief Financial Officer May 14, 2008 |
Exhibit 32.1
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Franklin Wireless Corp. (the "Company") on Form 10-QSB for the period ended March 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, OC Kim, President of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
/s/ OC KIM ---------- OC Kim President May 14, 2008 |
A signed copy of this written statement required by section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Franklin Wireless Corp. (the "Company") on Form 10-QSB for the period ended March 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, OC Kim, Acting Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
/s/ OC KIM ---------- OC Kim Acting Chief Financial Officer May 14, 2008 |
A signed copy of this written statement required by section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.