ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this report. This report contains certain forward-looking statements relating to future events or our future financial performance. These statements are subject to risks and uncertainties which could cause actual results to differ materially from those discussed in this report. You are cautioned not to place undue reliance on this information which speaks only as of the date of this report. We are not obligated to publicly update this information, whether as a result of new information, future events or otherwise, except to the extent we are required to do so in connection with our obligation to file reports with the SEC. For a discussion of the important risks to our business and future operating performance, see the discussion under the caption “Item 1A. Risk Factors” and under the caption “Factors That May Influence Future Results of Operations” below. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this report might not occur.
BUSINESS OVERVIEW
Doing business as “Franklin Access”, we are a leading global provider of integrated wireless solutions utilizing the latest 5G (fifth generation) and 4G LTE (fourth generation long-term evolution) technologies including mobile hotspots, fixed wireless routers, and mobile device management (MDM) solutions. We are a leading enabler of the Digital Divide initiative, and our expertise extends to innovation in Internet of Things (IOT) and machine-to-machine (M2M) applications, driving forward seamless communication and connectivity for both individuals and enterprises.
We hold a 66.3% ownership in Franklin Technology Inc. (“FTI”), a research and development company based in Seoul, South Korea. FTI primarily provides design and development services for our wireless products. We hold a 60% ownership interest in Sigbeat Inc., based in San Diego, California (“Sigbeat”), which will engage in worldwide sales, marketing, customer support and operations for telecommunications modules. Our products are generally marketed and sold directly to wireless operators and indirectly through strategic partners and distributors. Our primary markets are in North America and Asia.
FACTORS THAT MAY INFLUENCE FUTURE RESULTS OF OPERATIONS
We believe that our revenue growth will be influenced largely by (1) the successful maintenance of our existing customers, (2) the rate of increase in demand for wireless data products, (3) customer acceptance of our new products, (4) new customer relationships and contracts, (5) our ability to meet customers’ demands, (6) our ability to maintain good relationships with our manufacturing partners and suppliers, and (7) the defect rates experienced by end users of our hardware and software products.
We have entered into and expect to continue to enter into new customer relationships and contracts for the supply of our products, and this may require significant demands on our resources, resulting in increased operating, selling, and marketing expenses associated with such new customers.
We continuously evaluate the performance of our hardware and software products to discover defects that can adversely affect our revenue, income, and the price of our stock. If defects occur that customers believe are either severe in nature or excessively frequent in occurrence, customers could stop buying our products and services and the value of our stock may decrease.
We are also seeing that demand from end-users has been shifting in the post-pandemic economy as remote education and work from home trends are declining. Current demand for mobile device management (MDM) services has been declining. We are working to improve and further enhance our software service offerings to address this change in the market.
CRITICAL ACCOUNTING POLICIES
Revenue Recognition
We account for our revenue according to ASC 606, “Revenue from Contracts with Customers”, pursuant to which, revenue is recognized when the control of the promised goods or services is transferred to the customers, and the performance obligations under the contract have been satisfied, in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
We determine revenue recognition through the following steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation.
Contracts with Customers
Revenue from sales of products and services is derived from contracts with customers. The products and services covered by contracts primarily consist of hot spot routers. Contracts with each customer generally state the terms of the sale, including the description, quantity and price of each product or service. Payment terms are stated in the contract, primarily in the form of a purchase order. Since the customer typically agrees to a stated rate and price in the purchase order that does not vary over the life of the contract, the majority of our contracts do not contain variable consideration. We establish a provision for estimated warranty and returns. Using historical averages, provisions for the years ended June 30, 2025 and 2024, were not material.
Disaggregation of Revenue
In accordance with Topic 606, we disaggregate revenue from contracts with customers into geographical regions and by the timing of when goods and services are transferred. We determined that disaggregating revenue into these categories meets the disclosure objective in Topic 606, which is to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by regional economic factors.
Contract Balances
We perform our obligations under a contract with a customer by transferring products in exchange for consideration from the customer. We typically invoice our customers as soon as control of an asset is transferred, and a receivable is established. However, we recognize contract liability when a customer prepays for goods and/or services, or when we have not delivered goods under the contract since we have not yet transferred control of the goods and/or services.
The balances of our trade receivables are as follows:
June 30, 2025
June 30, 2024
Accounts Receivable, net
We did not have any un-invoiced receivables in the periods ended June 30, 2025 and 2024.
Our contract liabilities are as follows:
June 30, 2025
June 30, 2024
Undelivered products
Accrued marketing development funds
Totals
Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good and/or service to the customer and is the unit of measurement in Topic 606. At contract inception, we assess the products and/or services promised in our contracts with customers. We then identify performance obligations to transfer distinct products and/or services to the customer. To identify performance obligations, we consider all the products or services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices.
Our performance obligations are satisfied at a point in time. Revenue from products transferred to customers at a single point in time accounted for 99.2% and 98.8% of net sales for the years ended June 30, 2025 and 2024. Revenue recognized over a period of time is based on the percent completion of a project and accounted for under 1.0% and 1.2% of net sales for the years ended June 30, 2025 and 2024, respectively. The majority of our revenue recognized at a point in time is for the sale of hotspot router products. Revenue from these contracts is recognized when the customer is able to direct the use of and obtain substantially all of the benefits from the product, which generally coincides with title transfer at completion of the shipping process.
As of June 30, 2025 and 2024, our contracts do not contain any unsatisfied performance obligations, except for undelivered products.
Capitalized Product Development Costs
Accounting Standards Codification (“ASC”) Topic 350, “Intangibles - Goodwill and Other” includes software that is part of a product or process to be sold to a customer and shall be accounted for under Subtopic 985-20. Our products contain embedded software internally developed by FTI, which is an integral part of these products because it allows the various components of the products to communicate with each other and the products are clearly unable to function without this coding.
The costs of product development that are capitalized once technological feasibility is determined (noted as Technology in progress in the Intangible Assets table, in Note 2 to Notes to Consolidated Financial Statements) include certifications, licenses, payroll, employee benefits, and other headcount-related expenses associated with product development. We determine that technological feasibility for our products is reached after all high-risk development issues have been resolved. Once the products are available for general release to our customers, we cease capitalizing the product development costs and any additional costs, if any, are expensed. The capitalized product development costs are amortized on a product-by-product basis using the straight-line amortization. The amortization begins when the products are available for general release to our customers.
As of June 30, 2025, and June 30, 2024, capitalized product development costs in progress were $452,676 and $0, respectively, and these amounts are included in intangible assets in our consolidated balance sheets. For the years ended June 30, 2025 and 2024, we incurred $520,202 and $123,359, respectively in capitalized product development costs, and all costs incurred before technological feasibility is reached are expensed and included in our consolidated statements of comprehensive income (loss).
Income Taxes
Deferred income tax assets and liabilities are recorded for differences between the financial statement and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. As of June 30, 2025, we have federal and state net operating loss carryforwards of approximately $2.7 million and $0.7 million, respectively. As of June 30, 2024, we have federal and state net operating loss carryforwards of approximately $5.8 million and $0.5 million, respectively.
Under the Tax Cuts and Jobs Act (the “Act”), which was signed into law on December 22, 2017, the federal net operating loss of approximately $2.7 million, which was recognized on or after January 1, 2018, will carry forward indefinitely. The state net operating loss of approximately $0.7 million will begin to expire in 2043. The utilization of net operating loss carryforwards may be subject to limitations under provisions of the Internal Revenue Code Section 382 and similar state provisions.
Under the provision of ASC 740 “Application of the Uncertain Tax Position Provisions” related to accounting for uncertain tax positions, which prescribes a recognition threshold and measurement process for recording in the financial statements, uncertain tax positions taken or expected to be taken in a tax return, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. Tax benefits of an uncertain tax position will not be recognized if it has less than a 50% likelihood of being sustained based on technical merits.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Refer to NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES in the Consolidated Financial Statements.
RESULTS OF OPERATIONS
The following table sets forth, for the years ended June 30, 2025, and 2024, our statements of operations including data expressed as a percentage of sales:
(as a percentage of sales)
Net sales
Cost of goods sold
Gross profit
Operating expenses
Loss from operations
Other income (expense), net
Net loss before income taxes
Income tax benefit
Net loss
Less: non-controlling interest in net (loss) income of subsidiary
Net loss attributable to Parent Company stockholders
YEAR ENDED JUNE 30, 2025, COMPARED TO YEAR ENDED JUNE 30, 2024
NET SALES - Net sales increased by $15,290,211, or 49.6%, to $46,086,901 for the year ended June 30, 2025 from $30,796,690 for the corresponding period of 2024. The increase in net sales was primarily due to increased demand from our major carrier customers. For the year ended June 30, 2025, net sales by geographic regions, consisting of North America and Asia, were $46,081,244 (100.0% of net sales) and $5,657 (0.0% of net sales), respectively. For the year ended June 30, 2024, net sales by geographic regions, consisting of North America and Asia, were $30,699,727 (99.7% of net sales) and $96,963 (0.3% of net sales), respectively.
Net sales in North America increased by $15,381,517, or 50.1%, to $46,081,244 for the year ended June 30, 2025, from $30,699,727 for the corresponding period of 2024. The increase in net sales in North America was primarily due to increased demand from our major carrier customers. Net sales in Asia decreased by $91,306, or 94.2%, to $5,657 for the year ended June 30, 2025, from $96,963 for the corresponding period of 2024. The decrease in net sales was primarily due to the absence of revenue generated by FTI, which typically varies from period to period.
GROSS PROFIT - Gross profit increased by $4,406,719, or 125.6%, to $7,915,069 for the year ended June 30, 2025, from $3,508,350 for the corresponding period of 2024. The gross profit in terms of net sales percentage was 17.2% for the year ended June 30, 2025, compared to 11.4% for the corresponding period of 2024. The increase in gross profit and gross profit in terms of net sales percentage for the year ended June 30, 2025, was primarily due to the increase in net sales, a greater proportion of higher margin products sold, and lower per-unit costs.
OPERATING EXPENSES - Operating expenses increased by $1,330,633, or 14.1%, to $10,778,738 for the year ended June 30, 2025, from $9,448,105 for the corresponding period of 2024.
Selling, general, and administrative expenses increased by $634,723 to $6,676,078 for the year ended June 30, 2025, from $6,041,355 for the corresponding period of 2024. The increase in selling, general, and administrative expenses was primarily due to the increased payroll and related expense of approximately $1.1 million, which was offset by the decreased legal expense of approximately $500,000. Research and development expenses increased by $695,910 to $4,102,660 for the year ended June 30, 2025, from $3,406,750 for the corresponding period of 2024. The increase in research and development expense was primarily driven by two factors: an approximate $370,000 increase in direct R&D costs (such as for materials and third-party services) and a $320,000 increase in related payroll expense. This fluctuation is a natural result of the varying timing and number of active R&D projects from one period to the next.
OTHER INCOME (EXPENSE), NET - Other income (expense), net increased by $1,854,289, or 225.1%, to $2,678,073 for the year ended June 30, 2025, from $823,784 for the corresponding period of 2024. The increase was primarily due to the gain from the legal settlement owed by OC Kim, the President, the forgiven accrued marketing development fund liability, and favorable foreign currency exchange rate changes in FTI of $1,000,000, $247,592, and $683,132, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Our historical operating results, capital resources and financial position, in combination with current projections and estimates, were considered in management's plan and intentions to fund our operations over a reasonable period of time, which we define as the twelve-month period ending June 30, 2025. For the purposes of liquidity disclosures, we assess the likelihood that we have sufficient available working capital and other principal sources of liquidity to fund our operating activities and obligations as they become due.
Our principal source of liquidity as of June 30, 2025, consisted of cash and cash equivalents as well as short-term investments of $40,628,201. We believe we have sufficient available capital to cover our existing operations and obligations through at least June 30, 2026. Our long-term future cash requirements will depend on numerous factors, including our revenue base, profit margins, product development activities, market acceptance of our products, future expansion plans and ability to control costs. If we are unable to achieve our current business plan or secure additional funding that may be required, we would need to curtail our operations or take other similar actions outside the ordinary course of business.
OPERATING ACTIVITIES – Net cash provided by (used in) operating activities for the years ended June 30, 2025 and 2024 were $1,844,360 and ($773,360), respectively.
The $1,844,360 in net cash provided by operating activities for the year ended June 30, 2025 was primarily due to the increase in accrued liabilities and accounts payable of $2,615,116 and $855,382, respectively, which was offset by our operating results (net loss adjusted for depreciation, amortization, and other non-cash charges) and the increase in inventories and accounts receivable of $993,069 and $311,767. The ($773,360) in net cash used in operating activities for the year ended June 30, 2024 was primarily due to the decrease in accounts payable and accrued legal contingency expense of $5,685,087 and $2,400,000, respectively, as well as our operating results (net loss adjusted for depreciation, amortization, and other non-cash charges), which was offset by the decrease of accounts receivable and inventories of $7,722,229 and $2,290,211, respectively.
INVESTING ACTIVITIES – Net cash provided by investing activities for the years ended June 30, 2025 and 2024 were $1,006,398 and $723,858, respectively.
The $1,006,398 in net cash provided by investing activities for the year ended June 30, 2025 was primarily due to the contribution in noncontrolling interest by a partner of $2,000,000, which was offset by the payments for the purchase of capitalized product development and intangible assets of $533,563 and the purchase of short-term investments of $437,774. The $723,858 in net cash provided by investing activities for the year ended June 30, 2024 was primarily due to the proceeds from the sale of short-term investments of $910,034, which was offset by purchases related to capitalized product development costs of $123,359.
FINANCING ACTIVITIES – Net cash (used in) provided by financing activities for the years ended June 30, 2025 and 2024 was ($408,663) and $91,057, respectively.
The ($408,663) in net cash used in financing activities for the year ended June 30, 2025 was the repurchase of 200,000 vested stock options from OC Kim, our President, which had been previously granted under the 2020 employee stock option plan. The $91,057 in net cash provided by financing activities for the year ended June 30, 2024 was a repayment received for a loan made to an employee of $91,057.
OFF-BALANCE SHEET ARRANGEMENTS
None.
CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS
The following table summarizes our contractual obligations and commitments as of June 30, 2025, and the effect such obligations could have on our liquidity and cash flow in future periods:
Operating Lease
Fiscal 2026
Fiscal 2027
Fiscal 2028
Fiscal 2029
Total lease payments
Less imputed interest
Total
Remaining lease term-operating lease in San Diego, California
3.9 years
Discount rate-operating lease in San Diego, California
Remaining lease term-operating lease in South Korea
1.2 years
Discount rate-operating lease in South Korea
Remaining lease term-vehicle lease in San Diego, California
2.4 years
Discount rate-vehicle lease in San Diego, California
LEASES
Refer to ITEM 2. PROPERTIES.
WARRANTY REPAIRS
The following table sets forth the percentages of return rates and warranty repairs for all products currently marketed, in the aggregate, from the date each product was introduced through June 30, 2025.
Current Devices
Device Type
Return Rate
Warranty Repairs
4G Wireless Devices
5G Wireless Devices
FUTURE LIQUIDITY AND CAPITAL REQUIREMENTS
For the next twelve months, we may require in excess of $2 million for capital expenditures, software licenses and for testing and certifying new products. The Company believes its balances of cash, cash equivalents, and short-term investments, which totaled $40.6 million as of June 30, 2025, along with cash generated by ongoing operations will be sufficient to satisfy its cash requirements over the next 12 months.
