x
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
¨
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
Nevada
(State or other jurisdiction of incorporation or organization)
|
95-3733534
(I.R.S. Employer Identification Number)
|
|
6205 Lusk Blvd.
San Diego, California
(Address of principal executive offices)
|
92121
(Zip code)
|
Large accelerated file r
o
|
Accelerated filer
o
|
Non-accelerated filer
o
|
Smaller reporting company
x
|
Page
|
||
PART I
|
||
Item 1:
|
Business
|
1
|
Item 1A:
|
Risk Factors
|
4
|
Item 1B:
|
Unresolved Staff Comments
|
5
|
Item 2:
|
Properties
|
5
|
Item 3:
|
Legal Proceedings
|
6
|
Item 4:
|
(Removed and Reserved)
|
6
|
PART II
|
||
Item 5:
|
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|
6
|
Item 6:
|
Selected Financial Data
|
7
|
Item 7:
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
7
|
Item 7A:
|
Quantitative and Qualitative Disclosures About Market Risk
|
15
|
Item 8:
|
Financial Statements and Supplementary Data
|
15
|
Item 9:
|
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
|
15
|
Item 9A:
|
Controls and Procedures
|
15
|
Item 9B:
|
Other Information
|
16
|
PART III
|
||
Item 10:
|
Directors, Executive Officers and Corporate Governance
|
16
|
Item 11:
|
Executive Compensation
|
18
|
Item 12:
|
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|
20
|
Item 13:
|
Certain Relationships and Related Transactions, and Director Independence
|
20
|
Item 14:
|
Principal Accounting Fees and Services
|
21
|
PART IV
|
||
Item 15:
|
Exhibits, Financial Statement Schedules
|
21
|
Signatures
|
S-1
|
|
Index to Financial Statements
|
F-1
|
o
|
the terms "we", "us", "our", “Franklin”, “Franklin Wireless”, or the "Company" refer to Franklin Wireless Corp.
|
|
o
|
our fiscal year ends on June 30; references to fiscal 2011 and fiscal 2010 and similar constructions refer to the fiscal year ended on June 30 of the applicable year.
|
Fiscal Year Ended June 30,
|
||||||||
Net sales:
|
2011
|
2010
|
||||||
United States
|
$ | 34,799,764 | $ | 98,404,968 | ||||
Caribbean and South America
|
11,343,521 | 2,858,225 | ||||||
Asia
|
371,211 | 634,926 | ||||||
Totals
|
$ | 46,514,496 | $ | 101,898,119 |
Long-lived assets, net:
|
June 30, 2011
|
June 30, 2010
|
||||||
United States
|
$ | 93,434 | $ | 110,913 | ||||
Asia
|
2,622,043 | 3,733,292 | ||||||
Totals
|
$ | 2,715,477 | $ | 3,844,205 |
●
|
Code Division Multiple Access (“CDMA”) technology 1xEVDO – Evolution-Data Optimized technology in both Rev 0 and Rev A releases. Rev 0 modems have a download speed of up to 2.4 megabits per second (Mbps) and the Rev A products achieve broadband-like speeds of 3.1 Mbps.
|
●
|
High Speed Packet Access (“HSPA”) based on the Universal Mobile Telecommunications System standard, sometimes referred to as Wideband Code Division Multiple Access (“WCDMA”) technology. This technology allows download speeds of up to 14.4 Mbps.
|
●
|
Worldwide Interoperability for Microwave Access (“WiMAX”) based on the IEEE 802.16 standard.
|
●
|
Long Term Evolution (LTE) is a 4G mobile broadband standard.
The LTE specification provides downlink peak rates of at least 100 Mbps, uplink peak rates of at least 50 Mbps and
radio access network (
RAN)
round-trip times
of less than
10 milliseconds.
|
●
|
Dual-mode (3G and 4G) USB modems: These devices, when plugged into the Universal Serial Bus (USB) port of laptop or desktop computers, provide an easy and convenient way for consumers to connect to 3G or 4G wireless broadband networks.
|
●
|
Single-mode USB modems: Operate over a variety of networks including CDMA EVDO Rev A and HSPA.
|
●
|
For Machine-to-Machine and other vertical markets with a need for an Internet connection, such as a kiosk or other remote location, where no cable or DSL service exists.
|
●
|
Hotspot Routers: Embedded Wi-Fi hotspot routers that operate over CDMA EVDO Rev A or WiMAX networks.
|
●
|
Embedded Modules: Includes single-mode devices that operate over CDMA EVDO Rev A or WiMAX networks and dual-mode (3G and 4G) devices whose primary market is original equipment manufacturers (OEMs) who seek a reliable embedded module solution for their wireless data applications.
|
|
·
|
We may be liable for potentially substantial damages, liabilities and litigation costs, including attorneys’ fees;
|
|
·
|
We may be prohibited from further use of the intellectual property and may be required to cease selling our products that are subject to the claim;
|
|
·
|
We 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 we will be able to successfully negotiate and obtain such a license from the third party;
|
|
·
|
We 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 we will be able to develop such a non-infringing alternative;
|
|
·
|
The diversion of management’s attention and resources;
|
|
·
|
Our relationships with customers may be adversely affected; and,
|
|
·
|
We may be required to indemnify our customers for certain costs and damages they incur in such a claim.
|
·
|
Complete development and introduction of functional and attractive products and services;
|
·
|
Attract and maintain customer loyalty;
|
·
|
Establish and increase awareness of our brand and develop customer loyalty;
|
·
|
Provide desirable products and services to customers at attractive prices;
|
·
|
Establish and maintain strategic relationships with strategic partners and affiliates;
|
·
|
Rapidly respond to competitive and technological developments;
|
·
|
Build operations and customer service infrastructure to support our business; and
|
·
|
Attract, retain, and motivate qualified personnel.
|
|
·
|
Increased credit management risks and greater difficulties in collecting accounts receivable;
|
|
·
|
Unexpected changes in regulatory requirements, wireless communications standards, exchange rates, trading policies, tariffs and other barriers;
|
|
·
|
Uncertainties of laws and enforcement relating to the protection of intellectual property;
|
|
·
|
Language barriers; and
|
|
·
|
Potential adverse tax consequences.
|
High
|
Low
|
|||
Year Ended June 30, 2011
|
||||
First Quarter
|
$2.06
|
$1.65
|
||
Second Quarter
|
$2.84
|
$1.90
|
||
Third Quarter
|
$3.03
|
$2.20
|
||
Fourth Quarter
|
$3.09
|
$2.25
|
||
Year Ended June 30, 2010
|
||||
First Quarter
|
$1.01
|
$0.57
|
||
Second Quarter
|
$2.50
|
$0.75
|
||
Third Quarter
|
$2.20
|
$1.10
|
||
Fourth Quarter
|
$2.45
|
$1.97
|
Fiscal Year Ended June 30,
|
||||||||
Net sales:
|
2011
|
2010
|
||||||
United States
|
$
|
34,799,764
|
$
|
98,404,968
|
||||
Caribbean and South America
|
11,343,521
|
2,858,225
|
||||||
Asia
|
371,211
|
634,926
|
||||||
Totals
|
$
|
46,514,496
|
$
|
101,898,119
|
Long-lived assets, net:
|
June 30, 2011
|
June 30, 2010
|
||||||
United States
|
$ | 93,434 | $ | 110,913 | ||||
Asia
|
2,622,043 | 3,733,292 | ||||||
Totals
|
$ | 2,715,477 | $ | 3,844,205 |
Building
|
40 years
|
Machinery
|
6 years
|
Office equipment
|
5 years
|
Molds
|
3 years
|
Vehicles
|
5 years
|
Computers and software
|
5 years
|
Furniture and fixtures
|
7 years
|
Facilities
|
5 years
|
Year Ended June 30,
|
||||||
2011
|
2010
|
2009
|
||||
(Consolidated)
|
||||||
(as a percentage of sales)
|
||||||
Net Sales
|
100.0%
|
100.0%
|
100.0%
|
|||
Cost of goods sold
|
67.6%
|
86.2%
|
78.4%
|
|||
Gross profit
|
32.4%
|
13.8%
|
21.6%
|
|||
Selling, general and administrative expenses
|
20.2%
|
6.2%
|
11.9%
|
|||
Income from operations
|
12.2%
|
7.6%
|
9.7%
|
|||
Other (loss) income, net
|
4.4%
|
(0.1%
|
)
|
0.4%
|
||
Net income before income taxes
|
16.6%
|
7.5%
|
10.1%
|
|||
Income tax provision (benefit)
|
7.2%
|
2.9%
|
(5.1%)
|
|||
Net income before non-controlling interest
|
9.4%
|
4.6%
|
15.2%
|
|||
Non-controlling interest in net loss (net income) of subsidiary
|
0.4%
|
0.1%
|
–
|
|||
Net income
|
9.8%
|
4.7%
|
15.2%
|
Payments Due by June 30,
|
|||||||||||||||||||||||
Lease
|
2012
|
2013
|
2014
|
2015
|
2016
|
Total | |||||||||||||||||
Administrative office facility
|
$
|
183,712
|
$
|
198,914
|
$
|
198,914
|
$
|
198,914
|
$
|
33,152
|
$
|
813,606
|
|||||||||||
Corporate housing facility
|
16,032
|
-
|
-
|
-
|
-
|
16,032
|
|||||||||||||||||
Total Obligation
|
$
|
199,744
|
$
|
198,914
|
$
|
198,914
|
$
|
198,914
|
$
|
33,152
|
$
|
829,638
|
Payments Due by June 30,
|
||||||||||||||||||||||
Borrowings from banks
|
2012
|
2013
|
2014
|
2015
|
2016
|
Total | ||||||||||||||||
Short-term borrowings
|
$
|
139,134
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
139,134
|
||||||||||
Long-term borrowings
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||
Total Obligation
|
$
|
139,134
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
$139,134
|
Name
|
Age
|
Position
|
||
OC Kim
|
48
|
President, Acting Chief Financial Officer, Secretary and a Director
|
||
Gary Nelson
|
70
|
Chairman of the Board and a Director
|
||
Joon Won Jyoung
|
69
|
Director
|
||
Johnathan Chee
|
49
|
Director
|
||
Yun J. (David) Lee
|
49
|
Chief Operating Officer
|
Name and Principal Position
|
Fiscal
Year
|
Salary
($)
|
Bonus
($)
|
Option
Awards
($)(1)
|
All Other
Compensation
($)
|
Total
($)
|
||||||||||||||||
|
||||||||||||||||||||||
OC Kim, President and
|
2010
|
$ | 160,000 | $ | 100,000 | $ | 88,200 | - | $ | 348,200 | ||||||||||||
Acting Chief Financial Officer |
2011
|
$ | 181,668 | $ | 72,000 | $ | - | - | $ | 253,668 | ||||||||||||
|
||||||||||||||||||||||
Yun J. (David) Lee,
|
2010
|
$ | 125,000 | $ | 80,000 | $ | 44,100 | - | $ | 249,100 | ||||||||||||
Chief Operating Officer |
2011
|
$ | 144,820 | $ | 60,000 | $ | - | - | $ | 204,820 |
Name
|
Number of Securities Underlying Unexercised Options
(#)
|
Option Exercise Price
($)
|
Option Expiration
Date
|
Number of Shares that have not Vested
(#)
|
Market Value of Shares that have not Vested
($)
|
|||||||||||||||
OC Kim
|
200,000 | (1) | $ | 2.07 |
04/19/2020
|
- | - | |||||||||||||
97,500 | (2) | $ | 0.495 |
06/11/2013
|
- | - | ||||||||||||||
Yun J. (David) Lee | 100,000 | (1) | $ | 2.07 |
04/19/2020
|
- | - | |||||||||||||
100,000 | (3) | $ | 0.45 |
06/11/2014
|
- | - | ||||||||||||||
25,000 | (4) | $ | 0.45 |
06/11/2014
|
- | - |
(1)
|
The options vest and are exercisable in full on the first anniversary of the date of grant and have a ten-year term.
|
|
(2)
|
The options vest and are exercisable in full on the first anniversary of the date of grant and have a four-year term.
|
|
(3)
|
The options vest and are exercisable over two years as follows, and have a five-year term:
|
|
i.
|
50% of the shares underlying the option on the first anniversary of the date of grant.
|
|
ii.
|
25% of the shares underlying the option eighteen months following the date of the grant.
|
|
iii.
|
25% of the shares underlying the option on the second anniversary of the date of the grant.
|
|
(4)
|
The options vest and are exercisable in full on the first anniversary of the date of grant and have a five-year term.
|
Shares Beneficially Owned
|
||||
Name and Address
|
Number
|
Percent
|
||
OC Kim
6205 Lusk Blvd., San Diego, CA 92121
|
1,499,195
|
12.69%
|
||
Gary Nelson
6205 Lusk Blvd., San Diego, CA 92121
|
344,325
|
2.91%
|
||
C-Motech Co.Ltd
1321-1Seocho-Dong, Seocho-Gu, Seoul, Korea
|
1,566,672
|
|
13.26%
|
|
Joon Won Jyoung
6205 Lusk Blvd., San Diego, CA 92121
|
540,169
|
4.57%
|
||
Johnathan Chee
6205 Lusk Blvd., San Diego, CA 92121
|
7,324
|
0.06%
|
||
All directors and officers as a group (four persons)
|
2,391,013
|
20.23%
|
|
FY 2011
|
FY 2010
|
||||||
Audit Fees
|
$
|
69,025
|
$
|
73,000
|
||||
Audit-Related Fees
|
-
|
3,000
|
||||||
Tax Fees
|
22,242
|
5,000
|
||||||
Total Fees
|
$
|
91,267
|
$
|
81,000
|
(a)
|
Index to the financial statements
|
||
(b)
|
Exhibits
|
Exhibit No. | Description | |
2.1
|
Articles of Merger and Agreement and Plan of Reorganization, filed January 2, 2008 with the Nevada Secretary of State (1)
|
|
3.1
|
Restated Articles of Incorporation of Franklin Wireless Corp.(1)
|
|
3.2
|
Amended and Restated Bylaws of Franklin Wireless Corp.(5)
|
|
10.1
|
Co-Development, Co-Ownership and Supply Agreement, dated January 5, 2005 between the Company and C-Motech Co., Ltd. (2)
|
|
10.2
|
Lease, dated August 12, 2011, between the Company and EJMC, Inc.
|
|
10.3
|
Employment Agreement, dated September 21, 2009, between Franklin Wireless Corp. and OC Kim (4)
|
|
10.4
|
Change of Control Agreement, dated September 21, 2009, between Franklin Wireless Corp. and OC Kim (5)
|
|
10.5
|
Change of Control Agreement, dated September 21, 2009, between Franklin Wireless Corp. and David Lee. (5)
|
|
10.6
|
Common Stock Repurchase Agreement between Franklin Wireless Corp. and C-Motech Co., Ltd. dated July 27, 2010 (6)
|
|
10.7
|
Acknowledgement Letter between Franklin Wireless Corp. and C-Motech Co., Ltd. dated January 28, 2011 (6)
|
|
10.8
|
Amendment 1 to Common Stock Repurchase Agreement between Franklin Wireless Corp. and C-Motech Co., Ltd. dated January 28, 2011 (6)
|
|
10.9
|
Amendment 2 to Common Stock Repurchase Agreement between Franklin Wireless Corp. and C-Motech Co., Ltd. dated January 28, 2011 (6)
|
|
14.1
|
Code of Ethics (3)
|
|
31
|
Certificate of Chief Executive Officer Acting Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
32
|
Certificate of Chief Executive Officer and Acting Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
Franklin Wireless Corp.
|
|||
By:
|
/s/ OC Kim
|
||
OC Kim, President
|
|||
Dated: September 28, 2011
|
Signature
|
Title
|
Date
|
||
(1) Principal Executive, Financial and Accounting Officer
|
||||
/s/ OC KIM
OC Kim
|
President, Acting Chief Financial Officer and a Director
|
September 28, 2011
|
||
(3) Directors
|
||||
/s/ GARY NELSON
Gary Nelson
|
Chairman of the Board of Directors
|
September 28, 2011
|
||
/s/ JOON WON JYOUNG
Joon Won Jyoung
|
Director
|
September 28, 2011
|
||
|
||||
/s/ JOHNATHAN CHEE
Johnathan Chee
|
Director
|
September 28, 2011
|
||
|
Page No.
|
|
Index to Financial Statements
|
F–1
|
Report of Independent Registered Public Accounting Firm
|
F–2
|
Consolidated Balance Sheets at June 30, 2011 and June 30, 2010
|
F–3
|
Consolidated Statements of Income for the Years ended June 30, 2011 and 2010
|
F–4
|
Consolidated Statements of Stockholders' Equity for the Years ended
June 30, 2011 and 2010
|
F–5
|
Consolidated Statements of Cash Flows for the Years ended June 30, 2011 and 2010
|
F–6
|
Notes to Financial Statements
|
F–7
|
Fiscal Years Ended June 30,
|
||||||||
2011
|
2010
|
|||||||
(Consolidated)
|
||||||||
ASSETS
|
||||||||
Current assets
:
|
||||||||
Cash and cash equivalents
|
$
|
11,357,878
|
$
|
16,107,501
|
||||
Accounts receivable
|
6,916,020
|
3,118,754
|
||||||
Inventories
|
934,636
|
197,630
|
||||||
Prepaid expenses and other current assets
|
24,918
|
35,453
|
||||||
Prepaid income taxes
|
88,261
|
–
|
||||||
Deferred tax assets, current
|
220,031
|
372,190
|
||||||
Advance payment to vendor
|
41,376
|
458,034
|
||||||
Total current assets
|
19,583,120
|
20,289,562
|
||||||
Property and equipment, net
|
440,120
|
985,303
|
||||||
Intangible assets, net
|
2,275,357
|
2,858,902
|
||||||
Deferred tax assets, non-current
|
1,459,119
|
1,299,746
|
||||||
Goodwill
|
273,285
|
273,285
|
||||||
Other assets
|
140,258
|
188,281
|
||||||
TOTAL ASSETS
|
$
|
24,171,259
|
$
|
25,895,079
|
||||
LIABILITIES AND STOCKHOLDERS' EQUITY
|
||||||||
Current liabilities
|
||||||||
Trade accounts payable
|
$
|
2,781,651
|
$
|
1,046,602
|
||||
Trade accounts payable – related party
|
–
|
5,371,153
|
||||||
Advance payments from customers
|
15,507
|
309,000
|
||||||
Income taxes payable
|
121,362
|
929,538
|
||||||
Accrued liabilities
|
319,415
|
732,165
|
||||||
Marketing funds payable
|
1,633,806
|
1,277,319
|
||||||
Short-term borrowings
|
139,134
|
173,511
|
||||||
Long-term borrowings, current-portion
|
–
|
68,165
|
||||||
Total current liabilities
|
5,010,875
|
9,907,453
|
||||||
Long-term borrowings
|
–
|
163,596
|
||||||
Other long-term liabilities
|
188,104
|
154,806
|
||||||
Total liabilities
|
5,198,979
|
10,225,855
|
||||||
Stockholders’ equity:
|
||||||||
Preferred stock, par value $0.001 per share, authorized 10,000,000 shares;
No preferred stock issued and outstanding as of June 30, 2011 and June 30, 2010
|
–
|
–
|
||||||
Common stock, par value $0.001 per share, authorized 50,000,000 shares;
11,812,971 and 13,781,491shares issued and outstanding as of June 30, 2011 and
June 30, 2010, respectively
|
13,546
|
13,711
|
||||||
Additional paid-in capital
|
6,420,672
|
5,556,525
|
||||||
Retained earnings
|
13,527,435
|
8,981,906
|
||||||
Treasury stock, 1,803,684 shares
|
(1,873,065
|
) |
–
|
|||||
Non-controlling interests
|
900,874
|
1,129,680
|
||||||
Accumulated other comprehensive loss
|
(17,182
|
) |
(12,598
|
) | ||||
Total stockholders’ equity
|
18,972,280
|
15,669,224
|
||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$
|
24,171,259
|
$
|
25,895,079
|
Fiscal Years Ended June 30,
|
||||||||
2011
|
2010
|
|||||||
(Consolidated)
|
||||||||
Net sales
|
$
|
46,514,496
|
$
|
101,898,119
|
||||
Cost of goods sold
|
31,456,165
|
87,873,396
|
||||||
Gross profit
|
15,058,331
|
14,024,723
|
||||||
Operating expenses:
|
||||||||
Selling, general, and administrative
|
9,405,256
|
6,358,631
|
||||||
Total operating expenses
|
9,405,256
|
6,358,631
|
||||||
Income from operations
|
5,653,075
|
7,666,092
|
||||||
Other income (loss), net:
|
||||||||
Interest income
|
46,486
|
79,005
|
||||||
Gain on sale of property and equipment
|
212,303
|
–
|
||||||
Loss on disposal of property and equipment
|
(140,283
|
)
|
(123,109)
|
|||||
Reimbursement of marketing fund for products previously purchased
|
1,581,457
|
–
|
||||||
Other income (loss), net
|
344,134
|
(40,920)
|
||||||
Total other income (loss), net
|
2,044,097
|
(85,024)
|
||||||
Net income before provision for income taxes
|
7,697,172
|
7,581,068
|
||||||
Income tax provision
|
3,353,795
|
2,954,326
|
||||||
Net income before non-controlling interests
|
4,343,377
|
4,626,742
|
||||||
Non-controlling interests in net loss (income) of subsidiary at 49.4%
|
(207,739
|
)
|
–
|
|||||
Non-controlling interests in net loss (income) of subsidiary at 48.5%
|
409,891
|
151,042
|
||||||
Net income
|
$
|
4,545,529
|
$
|
4,777,784
|
||||
Basic earnings per share
|
$
|
0.37
|
$
|
0.35
|
||||
Diluted earnings per share
|
$
|
0.36
|
$
|
0.35
|
||||
Weighted average common shares outstanding – basic
|
12,279,927
|
13,583,551
|
||||||
Weighted average common shares outstanding – diluted
|
12,463,585
|
13,740,582
|
Comprehensive income
|
||||||||
Net income including non-controlling interest
|
$ | 4,343,377 | $ | 4,626,742 | ||||
Translation adjustments
|
(4,584 | ) | (12,598 | ) | ||||
Comprehensive income
|
4,338,793 | 4,614,144 | ||||||
Comprehensive loss attributable to non-controlling interest
|
202,152 | 151,042 | ||||||
Comprehensive income attributable to controlling interest
|
$ | 4,540,945 | $ | 4,765,186 |
Common Stock
|
Additional
Paid-in
|
Retained
|
Treasury
|
Accumulated Other Comprehensive
|
Non-controlling
|
Total
Stockholders’
|
||||||||||||||||||||||||||
Shares | Amount |
Capital
|
Earnings |
Stock
|
Loss
|
Interest
|
Equity
|
|||||||||||||||||||||||||
Balance – June 30, 2009
|
13,231,491 | $ | 13,232 | $ | 5,018,721 | $ | 4,204,122 | $ | – | $ | – | $ | – | $ | 9,236,075 | |||||||||||||||||
Net income
|
– | – | – | 4,777,784 | – | – | – | 4,777,784 | ||||||||||||||||||||||||
Foreign exchange translation
|
– | – | – | – | – | (12,598 | ) | – | (12,598 | ) | ||||||||||||||||||||||
Total comprehensive income
|
4,765,186 | |||||||||||||||||||||||||||||||
Non-controlling interests on acquisition date, October 1, 2009
|
– | – | – | – | – | – | 1,280,722 | 1,280,722 | ||||||||||||||||||||||||
Change in non-controlling interests
|
– | – | – | – | – | – | (151,042 | ) | (151,042 | ) | ||||||||||||||||||||||
Share-based compensation
|
– | – | 59,783 | – | – | – | – | 59,783 | ||||||||||||||||||||||||
Issuance of stocks related to acquisition
|
550,000 | 479 | 478,021 | – | – | – | – | 478,500 | ||||||||||||||||||||||||
Balance – June 30, 2010
|
13,781,491 | $ | 13,711 | $ | 5,556,525 | $ | 8,981,906 | $ | – | $ | (12,598 | ) | $ | 1,129,680 | $ | 15,669,224 | ||||||||||||||||
Net income
|
– | – | – | 4,545,529 | – | – | – | 4,545,529 | ||||||||||||||||||||||||
Foreign exchange translation
|
– | – | – | – | – | (4,584 | ) | – | (4,584 | ) | ||||||||||||||||||||||
Total comprehensive income
|
4,540,945 | |||||||||||||||||||||||||||||||
Change in non-controlling interests
|
– | – | – | – | – | – | (228,806 | ) | (228,806 | ) | ||||||||||||||||||||||
Share-based compensation
|
– | – | 800,762 | – | – | – | – | 800,762 | ||||||||||||||||||||||||
Repurchase of common stock
|
(1,803,684 | ) | – | – | (1,873,065 | ) | – | – | (1,873,065 | ) | ||||||||||||||||||||||
Cancelation of stock
|
(250,000 | ) | (250 | ) | 250 | – | – | – | – | – | ||||||||||||||||||||||
Issuance of stock related to
stock options exercised
|
85,164 | 85 | 63,135 | – | – | – | – | 63,220 | ||||||||||||||||||||||||
Balance – June 30, 2011
|
11,812,971 | $ | 13,546 | $ | 6,420,672 | $ | 13,527,435 | $ | (1,873,065 | ) | $ | (17,182 | ) | $ | 900,874 | $ | 18,972,280 |
Fiscal Years Ended June 30,
|
||||||||
2011
|
2010
|
|||||||
(Consolidated)
|
||||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net income
|
$
|
4,545,529
|
$
|
4,777,784
|
||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
|
||||||||
Non-controlling interests
|
(202,152)
|
(151,042)
|
||||||
Gain on sales of property and equipment
|
(212,303)
|
|||||||
Loss on disposal of property and equipment
|
140,283
|
123,109
|
||||||
Depreciation
|
151,916
|
63,502
|
||||||
Amortization of intangible assets
|
868,295
|
269,781
|
||||||
Write off of uncollectible accounts receivable
|
–
|
6,000
|
||||||
Deferred tax assets
|
(7,214)
|
(103,414)
|
||||||
Share-based compensation
|
800,762
|
59,783
|
||||||
Increase (decrease) in cash due to change in:
|
||||||||
Accounts receivable
|
(3,797,266)
|
(166,278)
|
||||||
Inventory
|
(737,006)
|
2,420,714
|
||||||
Advance payment to vendor
|
416,658
|
(457,524)
|
||||||
Prepaid expense and other current assets
|
10,535
|
43,507
|
||||||
Prepaid income taxes
|
(88,261)
|
18,503
|
||||||
Other assets
|
48,023
|
(106,852)
|
||||||
Trade accounts payable, including related party
|
(3,636,104)
|
1,515,944
|
||||||
Income taxes payable
|
(808,176)
|
929,538
|
||||||
Accrued liabilities
|
(412,750)
|
430,685
|
||||||
Marketing funds payable
|
356,487
|
1,244,694
|
||||||
Advance payment from customers
|
(293,493)
|
45,866
|
||||||
Other liabilities
|
33,298
|
145,572
|
||||||
Net cash provided by (used in) operating activities
|
(2,822,939)
|
11,109,872
|
||||||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Purchases of property and equipment
|
(119,699)
|
(161,646)
|
||||||
Capitalized product development
|
(127,304)
|
(1,087,684)
|
||||||
Capitalization of intangible assets
|
|
(157,446)
|
–
|
|||||
Proceeds from sale of property and equipment
|
569,328
|
123,936
|
||||||
Net cash provided by (used in) investing activities
|
164,879
|
(1,125,394)
|
||||||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Repayment of short-term borrowings
|
(173,511)
|
(264,153)
|
||||||
Repayment of long-term borrowings
|
(231,761)
|
(27,266)
|
||||||
Proceeds from short-term borrowings
|
139,134
|
173,511
|
||||||
Repurchase of common stock
|
(1,873,065)
|
–
|
||||||
Proceeds from the exercise of employee stock options
|
63,220
|
–
|
||||||
Net cash used in financing activities
|
(2,075,983)
|
(117,908)
|
||||||
Effect of foreign currency translation
|
(15,580)
|
(12,598)
|
||||||
Net increase in cash and cash equivalents
|
(4,749,623)
|
9,853,972
|
||||||
Cash and cash equivalents, beginning of year
|
16,107,501
|
6,253,529
|
||||||
Cash and cash equivalents, end of year
|
$
|
11,357,878
|
$
|
16,107,501
|
||||
Supplemental disclosure of cash flow information:
|
||||||||
Cash paid during the years for:
|
||||||||
Interest
|
$
|
7,137
|
$
|
–
|
||||
Income taxes
|
$
|
4,280,000
|
$
|
2,128,202
|
Fiscal Year Ended June 30,
|
||||||||
Net sales:
|
2011
|
2010
|
||||||
United States
|
$
|
34,799,764
|
$
|
98,404,968
|
||||
Caribbean and South America
|
11,343,521
|
2,858,225
|
||||||
Asia
|
371,211
|
634,926
|
||||||
Totals
|
$
|
46,514,496
|
$
|
101,898,119
|
Long-lived assets, net:
|
June 30, 2011
|
June 30, 2010
|
||||||
United States
|
$ | 93,434 | $ | 110,913 | ||||
Asia
|
2,622,043 | 3,733,292 | ||||||
Totals
|
$ | 2,715,477 | $ | 3,844,205 |
Building
|
40 years
|
Machinery
|
6 years
|
Office equipment
|
5 years
|
Molds
|
3 years
|
Vehicles
|
5 years
|
Computers and software
|
5 years
|
Furniture and fixtures
|
7 years
|
Facilities
|
5 years
|
Complete technology
|
$
|
490,000
|
3 years
|
||
Customer contracts / relationships
|
1,121,000
|
8 years
|
|||
Capitalized product development in progress
|
430,000
|
||||
Total
|
$
|
2,041,000
|
Definite lived intangible assets:
|
Expected Life
|
Average
Remaining
life
|
Gross
Intangible
Assets
|
Accumulated
Amortization
|
Net
Intangible
Assets
|
|||||||||
Complete technology
|
3 years
|
2.3 years
|
$ | 490,000 | $ | 122,500 | $ | 367,500 | ||||||
Complete technology
|
3 years
|
2.8 years
|
1,517,683 | 42,186 | 1,475,497 | |||||||||
Customer contracts / relationships
|
8 years
|
7.3 eyears
|
1,121,000 | 105,095 | 1,015,905 | |||||||||
Total at June 30, 2010
|
$ | 3,128,683 | $ | 269,781 | $ | 2,858,902 |
Definite lived intangible assets:
|
Expected Life
|
Average
Remaining
life
|
Gross
Intangible
Assets
|
Accumulated
Amortization
|
Net
Intangible
Assets
|
|||||||||
Complete technology
|
3 years
|
1.3 years
|
$ | 490,000 | $ | 285,833 | $ | 204,167 | ||||||
Complete technology
|
3 years
|
1.8 years
|
1,517,683 | 592,936 | 924,747 | |||||||||
Customer contracts / relationships
|
8 years
|
6.3 years
|
1,121,000 | 245,219 | 875,781 | |||||||||
Technology
In progress
|
Not Applicable
|
– | 127,304 | – | 127,304 | |||||||||
Software
|
5 years
|
4.3 years
|
155,004 | 14,027 | 140,977 | |||||||||
Patent
|
10 years
|
9.8 years
|
2,441 | 60 | 2,381 | |||||||||
Total at June 30, 2011
|
$ | 3,413,432 | $ | 1,138,075 | $ | 2,275,357 |
FY2012
|
FY2013
|
FY2014
|
FY2015
|
FY2016
|
Thereafter
|
|||||||
Total
|
$
|
861,815
|
$
|
673,491
|
$
|
$213,805
|
$
|
192,587
|
$
|
157,343
|
$
|
176,316
|
June 30, 2011
|
June 30, 2010
|
|||||||||||||||
Fair Value
|
Carrying Amount
|
Fair Value
|
Carrying Amount
|
|||||||||||||
Assets:
|
||||||||||||||||
Cash and cash equivalents (a)
|
$ | 11,357,878 | $ | 11,357,878 | $ | 16,107,501 | $ | 16,107,501 | ||||||||
(a)
|
The fair value of cash and cash equivalents approximates their carrying amount because of the short maturities of such instruments.
|
June 30,
2011
|
June 30,
2010
|
|||||||
Land
|
$ | – | $ | 90,400 | ||||
Building
|
– | 305,202 | ||||||
Machinery and facility
|
143,967 | 82,046 | ||||||
Office equipment
|
271,508 | 236,803 | ||||||
Molds
|
284,645 | 196,751 | ||||||
Vehicle
|
9,843 | 8,768 | ||||||
Construction-in-progress
|
– | 131,372 | ||||||
709,963 | 1,051,342 | |||||||
Less accumulated depreciation
|
(269,843 | ) | (66,039 | ) | ||||
Total
|
$ | 440,120 | $ | 985,303 |
October 1, 2009
|
||||||||
Current assets
|
$
|
1,054,797
|
||||||
Property, plant & equipment, net
|
1,076,063
|
|||||||
Goodwill
|
273,285
|
|||||||
Intangible assets:
|
||||||||
Complete technology
|
$
|
490,000
|
||||||
Capitalized product development in progress
|
430,000
|
|||||||
Customer contracts/relationships
|
1,121,000
|
|||||||
Total intangible assets
|
2,041,000
|
|||||||
Other long-term assets
|
47,063
|
|||||||
Current liabilities
|
(1,141,553
|
)
|
||||||
Deferred tax liability
|
(489,840
|
)
|
||||||
Long-term liabilities
|
(268,260
|
)
|
||||||
Non-controlling interest
|
(1,280,722
|
)
|
||||||
Total purchase price
|
$
|
1,311,833
|
June 30, 2011
|
June 30, 2010
|
|||||||
Accrued salaries, incentives
|
$
|
–
|
$
|
200,000
|
||||
Accrued salaries, severance
|
231,917
|
244,369
|
||||||
Accrued vacations
|
66,143
|
67,435
|
||||||
Accrued professional fees
|
–
|
12,128
|
||||||
Payroll taxes
|
–
|
54,853
|
||||||
Other accrued liabilities
|
21,355
|
153,380
|
||||||
Total
|
$
|
319,415
|
$
|
732,165
|
June 30, 2011
|
June 30, 2010
|
|||||||
Loan dated January 2010, due to a financial institution, with principal
at maturity and monthly interest payments (interest rate of 15.21% per annum),
and the remaining balance due January, 2011.
|
$ | – | $ | 123,936 | ||||
Loan dated February 2010, due to a financial institution, with principal
and monthly interest payments (interest rate of 8% per annum),
and the remaining balance due March, 2010.
|
– | 49,575 | ||||||
Loan dated June 2011, due to a financial institution, with principal
and monthly interest payments (interest rate of 8.90% per annum),
and the remaining balance due September, 2011
|
139,134 | – | ||||||
Total
|
$ | 139,134 | $ | 173,511 |
June 30, 2011
|
June 30, 2010
|
|||||||
Loan dated July 2006, due to a financial institution with principal at maturity and quarterly interest payments (interest rate at 4.5% per annum),
and the remaining balance due June, 2014.
|
$ | – | $ | 231,761 | ||||
Less current portion
|
– | (68,165 | ) | |||||
Total
|
$ | – | $ | 163,596 |
Year
Ended June 30,
|
||||||||
2011
|
2010
|
|||||||
(Consolidated)
|
||||||||
Current income tax expense:
|
||||||||
Federal
|
$ | 2,571,668 | $ | 2,468,810 | ||||
State
|
729,694 | 588,930 | ||||||
3,301,362 | 3,057,740 | |||||||
Deferred income tax expense (benefit):
|
||||||||
Federal
|
119,250 | (27,539 | ) | |||||
State
|
(1,941 | ) | 9,723 | |||||
Foreign
|
(64,876 | ) | (85,598 | ) | ||||
52,433 | (103,414 | ) | ||||||
Provision for income taxes
|
$ | 3,353,795 | $ | 2,954,326 |
Year Ended June 30,
|
||||||||||||||||
2011
|
%
|
2010
|
%
|
|||||||||||||
Federal tax provision, at statutory rate of 34%, earnings before income taxes and extraordinary items
|
$ | 2,787,569 | 34.0 | $ | 2,577,563 | 34.0 | ||||||||||
State tax, net of federal tax benefit
|
480,317 | 5.9 | 395,111 | 5.2 | ||||||||||||
Nondeductible expenses
|
280,185 | 3.4 | 25,489 | 0.3 | ||||||||||||
R&D Credits
|
(66,619 | ) | (0.8 | ) | (161,229 | ) | (2.1 | ) | ||||||||
Uncertain tax position
|
20,746 | 0.3 | 73,431 | 1.0 | ||||||||||||
Foreign rate difference
|
(166,426 | ) | (2.0 | ) | 39,228 | 0.5 | ||||||||||
Other
|
18,023 | 0.2 | 4,733 | 0.1 | ||||||||||||
Provision (benefit) for income taxes
|
$ | 3,353,795 | 41.0 | $ | 2,954,326 | 39.0 |
June 30,2011
|
June 30, 2010
|
|||||||
Net operating losses
|
$
|
1,782,062
|
$
|
1,947,931
|
||||
State tax
|
190,948
|
236,568
|
||||||
Intangibles
|
(299,957)
|
(432,351)
|
||||||
Other, net
|
6,097
|
(80,212)
|
)
|
|||||
Total deferred tax assets
|
1,679,150
|
1,671,936
|
||||||
Less valuation allowance
|
–
|
–
|
||||||
Net deferred tax asset
|
$
|
1,679,150
|
$
|
1,671,936
|
Balance at June 30, 2010
|
$ | 73,431 | ||
Gross increase or (decrease)
|
20,746 | |||
Balance at June 30, 2011
|
$ | 94,177 |
Year Ended June 30,
|
||||||||
2011
|
2010
|
|||||||
Net income before non-controlling interests
|
$
|
4,343,377
|
$
|
4,626,742
|
||||
Non-controlling interests in net loss of subsidiary
|
202,152
|
151,042
|
||||||
Net income
|
$
|
4,545,529
|
$
|
4,777,784
|
||||
Weighted-average shares of common stock outstanding:
|
||||||||
Basic
|
12,279,927
|
13,583,551
|
||||||
Dilutive effect of common stock equivalents arising from stock options
|
183,658
|
157,031
|
||||||
Diluted
|
12,463,585
|
13,740,582
|
||||||
Basic earnings per share
|
$
|
0.37
|
$
|
0.35
|
||||
Diluted earnings per share
|
$
|
0.36
|
$
|
0.35
|
Payments Due by June 30,
|
||||||||||||||||||||||||
Lease
|
2012
|
2013
|
2014
|
2015
|
2016
|
Total
|
||||||||||||||||||
Administrative office facility
|
$ | 183,712 | $ | 198,914 | $ | 198,914 | $ | 198,914 | $ | 33,152 | $ | 813,606 | ||||||||||||
Corporate housing facility
|
16,032 | - | - | - | - | 16,032 | ||||||||||||||||||
Total Obligation
|
$ | 199,744 | $ | 198,914 | $ | 198,914 | $ | 198,914 | $ | 33,152 | $ | 829,638 |
Payments Due by June 30,
|
||||||||||||||||||||||||
Borrowings from banks
|
2012
|
2013
|
2014
|
2015
|
2016
|
Total
|
||||||||||||||||||
Short-term borrowings
|
$ | 139,134 | $ | - | $ | - | $ | - | $ | - | $ | 139,134 | ||||||||||||
Long-term borrowings
|
- | - | - | - | - | - | ||||||||||||||||||
Total Obligation
|
$ | 139,134 | $ | - | $ | - | $ | - | $ | - | $ | 139,134 |
Weighted-
|
||||||||||||||||
Average
|
||||||||||||||||
Weighted-
|
Remaining
|
|||||||||||||||
Average
|
Contractual
|
Aggregate
|
||||||||||||||
Exercise
|
Life
|
Intrinsic
|
||||||||||||||
Options
|
Shares
|
Price
|
(In Years)
|
Value
|
||||||||||||
Outstanding at June 30, 2010
|
1,096,000
|
$
|
1.36
|
8.1
|
$
|
812,863
|
||||||||||
Granted
|
-
|
-
|
-
|
-
|
||||||||||||
Exercised
|
(85,164)
|
(0.74)
|
-
|
-
|
||||||||||||
Forfeited or Expired
|
(80,000)
|
(1.10)
|
-
|
-
|
||||||||||||
Outstanding at June 30, 2011
|
930,836
|
$
|
1.40
|
7.2
|
$
|
978,470
|
||||||||||
Exercisable at June 30, 2011
|
723,503
|
$
|
1.29
|
6.5
|
$
|
839,203
|
||||||||||
Vested and Expected to Vest at June 30, 2011
|
723,503
|
$
|
1.29
|
6.5
|
$
|
839,203
|
/s/ OC Kim
|
|
OC Kim
|
|
President and Acting Chief Financial Officer
|