Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

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" in the Company's Form 10-K for the year ended June 30, 2025, filed on September 29, 2025. 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

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of these financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingencies at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. Management evaluates these estimates and assumptions on an ongoing basis. Our estimates and assumptions have been prepared on the basis of the most current reasonably available information. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates under different assumptions and conditions.

We have several critical accounting policies, which were described in our Annual Report on Form 10-K for the year ended June 30, 2025, that are both important to the portrayal of our financial condition and results of operations and require management's most difficult, subjective, and complex judgments. Typically, the circumstances that make these judgments difficult, subjective, and complex have to do with making estimates about the effect of matters that are inherently uncertain. There were no material changes to our critical accounting policies for the three months ended September 30, 2025.

RESULTS OF OPERATIONS

The following table sets forth, for the three months ended September 30, 2025 and 2024, our statements of comprehensive income including data expressed as a percentage of sales:

		Three Months Ended
		September 30,
		2025				2024
Net sales			100.0	%			100.0	%
Cost of goods sold			(77.2)	%			(84.5)	%
Gross profit			22.8	%			15.5	%
Operating expenses			18.2	%			18.3	%
Income (loss) from operations			4.6	%			(2.8)	%
Other income, net			0.0	%			8.0	%
Net income before income taxes			4.6	%			5.2	%
Income tax provisions			0.3	%			0.3	%
Net income			4.3	%			4.9	%
Less: noncontrolling interest in net (loss) income of subsidiary			(0.7)	%			1.0	%
Net income attributable to Parent Company stockholders			5.0	%			3.9	%

THREE MONTHS ENDED SEPTEMBER 30, 2025 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2024

NET SALES - Net sales decreased by $577,952, or 4.3%, to $12,744,960 for the three months ended September 30, 2025 from $13,322,912 for the corresponding period of 2024. For the three months ended September 30, 2025, net sales by geographic regions, consisting of North America and Asia, were $12,733,051 (99.9% of net sales) and $11,909 (0.1% of net sales), respectively. For the three months ended September 30, 2024, net sales by geographic regions, consisting of North America and Asia, were $13,322,448 (100.0% of net sales) and $464 (0.0% of net sales), respectively.

Net sales in North America decreased by $589,397, or 4.4%, to $12,733,051 for the three months ended September 30, 2025 from $13,322,448 for the corresponding period of 2024. The decrease in net sales in North America was primarily due to decreased demand from our major carrier customers, which typically varies from period to period. Net sales in Asia increased by $11,445, or 2,466.6%, to $11,909 for the three months ended September 30, 2025 from $464 for the corresponding period of 2024.

GROSS PROFIT - Gross profit increased by $838,268, or 40.5%, to $2,909,770 for the three months ended September 30, 2025 from $2,071,502 for the corresponding period of 2024. The gross profit in terms of net sales percentage was 22.8% for the three months ended September 30, 2025 compared to 15.5% for the corresponding period of 2024.

The increase in gross profit and in gross profit margin in terms of net sales was primarily driven by an increased proportion of high-margin sales and decreased production costs while overall sales decreased for the three months ended September 30, 2025 compared to the corresponding period of 2024.

OPERATING EXPENSES - Operating expenses decreased by $124,895, or 5.1%, to $2,319,390 for the three months ended September 30, 2025 from $2,444,285 for the corresponding period of 2024.

Selling, general, and administrative expenses decreased by $50,335, or 3.5%, to $1,369,638 for the three months ended September 30, 2025, from $1,419,973 for the corresponding period of 2024. The decrease in selling, general, and administrative expenses was primarily due to the reduction in legal expense and stock option expense of approximately $115,000 and $87,000, respectively, which was offset by increased delivery charges of approximately $110,000.

Research and development expense decreased by $74,560, or 7.3%, to $949,752 for the three months ended September 30, 2025, from $1,024,312 for the corresponding period of 2024. The decrease in research and development expense was primarily due to the reduction of approximately $73,000 in direct R&D costs (such as expenses for materials and third-party services), which typically fluctuate from period to period.

TOTAL OTHER INCOME, NET - Other income, net decreased by $1,066,515, or 99.7%, to $2,804 for the three months ended September 30, 2025 from $1,069,319 for the corresponding period of 2024. The decrease was primarily due to the unfavorable changes in foreign currency and the loss from the appreciation on the currency exchange rates in FTI of approximately $740,000 and the absence of a one-time gain of approximately $230,000 recognized in the prior-year period related to the write-off of a forgiven accrued commission to a customer.

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 from the date of the filing of this Form 10-Q. For purposes of liquidity disclosures, we assess the likelihood that we have sufficient available working capital and other principal sources of liquidity to fund our operating activities and obligations as they become due.

Our principal source of liquidity as of September 30, 2025 consisted of cash and cash equivalents, as well as short-term investments, of $38,714,635. We believe we have sufficient available capital to cover our existing operations and obligations through at least one year from the date of the filing of this Form 10-Q. 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 in order to continue to operate as a going concern.

OPERATING ACTIVITIES - Net cash used in operating activities for the three months ended September 30, 2025 was $1,488,908, and net cash provided by operating activities for the three months ended September 30, 2024 was $2,670,900.

The $1,488,908 in net cash used in operating activities for the three months ended September 30, 2025, was primarily due to the increase of accounts receivable of $5,487,322, which was partially offset by the increase in accounts payable of $1,521,184 and the decrease in inventories of $1,358,115 as well as our operating results (net income adjusted for depreciation, amortization, and other non-cash charges of $1,065,379).

The $2,670,900 in net cash provided by operating activities for the three months ended September 30, 2024 was primarily due to the increase in accounts payable of $3,550,907 as well as our operating results (net income adjusted for depreciation, amortization, and other non-cash charges), which was partially offset by the increase of inventories of $1,127,477.

INVESTING ACTIVITIES - Net cash provided by investing activities for the three months ended September 30, 2025 was $143,315, and net cash used in investing activities for the three months ended September 30, 2024 was $334,785.

The $143,315 in net cash provided by investing activities for the three months ended September 30, 2025 was primarily due to the sale of short-term investments of $197,386, which was partially offset by purchases related to capitalized product development costs and intangible assets of $53,167.

The $334,785 in net cash used in financial activities for the three months ended September 30, 2024 was primarily due to the purchase of short-term investments of $291,869, the purchase of property and equipment of $21,544, and the purchase of capitalized product development costs and intangible assets of $21,372, respectively.

CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS

Leases

Refer to NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES in the Consolidated Financial Statements.

Recently Issued Accounting Pronouncements

Refer to NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES in the Consolidated Financial Statements.

OFF-BALANCE SHEET ARRANGEMENTS

None.