Quarterly Report for Quarter Ending December 31, 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 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.

We are also seeing that industry-wide shortages have occurred in the memory market, which may affect the availability and lead times of memory components used in our products. These conditions have resulted in increased complexity in managing our production schedules. Our ability to deliver products to customers on a timely basis is critical, particularly for our Tier-1 carrier customers, who are highly sensitive to delivery timing and reliability. Any delays or disruptions in our supply chain could impair our ability to meet customer delivery schedules, and failure to meet such requirements could negatively impact customer relationships, order volumes, or future business opportunities.

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 and six months ended December 31, 2025.

RESULTS OF OPERATIONS

The following table sets forth, for the three and six months ended December 31, 2025 and 2024, our statements of comprehensive income (unaudited) including data expressed as a percentage of sales:

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2025				2024				2025				2024
Net sales			100.0%				100.0%				100.0%				100.0%
Cost of goods sold			(82.9%	)			(81.8%	)			(80.0%	)			(82.9%	)
Gross profit			17.1%				18.2%				20.0%				17.1%
Operating expenses			16.7%				13.7%				17.4%				15.7%
Income from operations			0.4%				4.5%				2.6%				1.4%
Other income (expense), net			3.8%				(4.0%	)			1.9%				1.1%
Net income before income taxes			4.2%				0.5%				4.5%				2.5%
Income tax provision			0.3%				0.9%				0.4%				0.7%
Net income (loss)			3.9%				(0.4%	)			4.1%				1.8%
Less: non-controlling interest in net (loss) income of subsidiaries			(0.6%	)			(1.7%	)			(0.6%	)			(0.6%	)
Net income attributable to Parent Company stockholders			4.5%				1.3%				4.7%				2.4%

THREE MONTHS ENDED DECEMBER 31, 2025 COMPARED TO THREE MONTHS ENDED DECEMBER 31, 2024

NET SALES - Net sales decreased by $5,898,234, or 33.1%, to $11,928,864 for the three months ended December 31, 2025 from $17,827,098 for the corresponding period of 2024. For the three months ended December 31, 2025, net sales by geographic regions, consisting of North America and Asia, were $11,926,922 (100.0% of net sales) and $1,942 (0.0% of net sales), respectively. For the three months ended December 31, 2024, net sales by geographic regions, consisting of North America and Asia, were $17,827,098 (100% of net sales) and $0 (0% of net sales), respectively.

Net sales in North America decreased by $5,900,176, or 33.1%, to $11,926,922 for the three months ended December 31, 2025 from $17,827,098 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 $1,942, or 100%, to $1,942 for the three months ended December 31, 2025 from $0 for the corresponding period of 2024.

GROSS PROFIT - Gross profit decreased by $1,208,002, or 37.3%, to $2,034,060 for the three months ended December 31, 2025 from $3,242,062 for the corresponding period of 2024. The gross profit in terms of net sales percentage was 17.1% for the three months ended December 31, 2025, compared to 18.2% for the corresponding period of 2024. The decrease in gross profit and gross profit in terms of net sales percentage for the three months ended December 31, 2025, was primarily due to the decrease in net sales as well as a shift in sales mix toward lower-margin products during the period.

OPERATING EXPENSES - Operating expenses decreased by $461,488, or 18.9%, to $1,985,343 for the three months ended December 31, 2025 from $2,446,831 for the corresponding period of 2024.

Selling, general, and administrative ("SG&A") expenses decreased by $311,068, or 20.5%, to $1,208,525 for the three months ended December 31, 2025, from $1,519,593 for the corresponding period of 2024. This decrease was primarily driven by a reduction of approximately $200,000 in legal fees and an $80,000 decline in stock-based compensation expenses related to stock options.

Research and development ("R&D") expense decreased by $150,420, or 16.2%, to $776,818 for the three months ended December 31, 2025, from $927,238 for the corresponding period of 2024. The decrease was mainly attributable to a $64,000 reduction in R&D operational costs and a decline of approximately $87,000 in associated payroll expenses. These variances primarily reflect the cyclical nature of the Company's R&D projects and the specific timing of project activities, which typically result in period-over-period fluctuations.

OTHER (EXPENSE) INCOME, NET - Other (expense) income, net increased by $1,165,163, or 163.9%, to $454,214 for the three months ended December 31, 2025 from ($710,949) for the corresponding period of 2024. The primary drivers for the increase were an $815,634 decrease in FTI's foreign exchange losses and a $397,164 gain from debt forgiveness related to accounts payable and accruals, which was partially offset by a $42,456 decrease in interest income.

SIX MONTHS ENDED DECEMBER 31, 2025 COMPARED TO SIX MONTHS ENDED DECEMBER 31, 2024

NET SALES - Net sales decreased by $6,476,186, or 20.8%, to $24,673,824 for the six months ended December 31, 2025 from $31,150,010 for the corresponding period of 2024. For the six months ended December 31, 2025, net sales by geographic regions, consisting of North America and Asia, were $24,659,973 (99.9% of net sales) and $13,851 (0.1% of net sales), respectively. For the six months ended December 31, 2024, net sales by geographic regions, consisting of North America and Asia, were $31,149,546 (100% of net sales) and $464 (0.0% of net sales), respectively.

Net sales in North America decreased by $6,489,573, or 20.8%, to $24,659,973 for the six months ended December 31, 2025 from $31,149,546 for the corresponding period of 2024. The decrease in net sales was primarily due to decreased demand from our major carrier customers. Net sales in Asia increased by $13,387, or 2,885.1%, to $13,851 for the six months ended December 31, 2025 from $464 for the corresponding period of 2024. The increase in net sales was primarily due to the revenue generated from material sales by FTI, which typically vary from period to period.

GROSS PROFIT - Gross profit decreased by $369,734, or 7.0%, to $4,943,830 for the six months ended December 31, 2025 from $5,313,564 for the corresponding period of 2024. The gross profit in terms of net sales percentage was 20.0% for the six months ended December 31, 2025 compared to 17.1% for the corresponding period of 2024. The decrease in gross profit for the six months ended December 31, 2025, was primarily due to the change in net sales as described above. The increase 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 six months ended December 31, 2025 compared to the corresponding period of 2024.

OPERATING EXPENSES - Operating expenses decreased by $586,383, or 12.0%, to $4,304,733 for the six months ended December 31, 2025 from $4,891,116 for the corresponding period of 2024.

Selling, general, and administrative ("SG&A") expenses decreased by $361,403, or 12.3%, to $2,578,163 for the six months ended December 31, 2025, from $2,939,566 for the corresponding period of 2024. This decrease was primarily driven by a reduction of approximately $310,000 in legal fees.

Research and development ("R&D") expense decreased by $224,980, or 11.5%, to $1,726,570 for the six months ended December 31, 2025, from $1,951,550 for the corresponding period of 2024. The decrease was mainly attributable to a $137,000 reduction in R&D operational costs and an approximately $88,000 decline in associated payroll expenses. These variances primarily reflect the cyclical nature of the Company's R&D projects and the specific timing of project activities, which typically result in period-over-period fluctuations.

OTHER INCOME, NET - Other income, net increased by $98,648, or 27.5%, to $457,018 for the six months ended December 31, 2025 from $358,370 for the corresponding period of 2024. The primary drivers for the increase were a $165,222 gain from debt forgiveness related to accounts payable and accruals, which was partially offset by the decrease in interest income.

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 December 31, 2025 consisted of cash and cash equivalents, as well as short-term investments, of $33,623,292. 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 six months ended December 31, 2025 was $5,574,688, and net cash provided by operating activities for the six months ended December 31, 2024 was $5,412,542.

The $5,574,688 in net cash used in operating activities for the six months ended December 31, 2025 was primarily due to the increase in accounts receivable of $9,084,042, which was partially offset by the increase in accounts payable of $2,522,942 as well as our operating results (net income adjusted for depreciation, amortization, and other non-cash charges. Notably, for the six months ended December 31, 2025, we recorded a total write-off of $412,814 from forgiven accounts payable and accrued liabilities.)

The $5,412,542 in net cash provided by operating activities for the six months ended December 31, 2024 was primarily due to the increase in accounts payable and accrued liabilities of $6,501,820 and $838,564 as well as our operating results (net income adjusted for depreciation, amortization, and other non-cash charges), which was partially offset by the increase in inventories of $2,751,477.

INVESTING ACTIVITIES - Net cash provided by investing activities for the six months ended December 31, 2025 and 2024 was $704,977 and $2,631,817, respectively.

The $704,977 in net cash provided by investing activities for the six months ended December 31, 2025 was primarily due to the sales of short-term investments of $1,028,685, which were offset by the payments for capitalized product development and property and equipment of $316,780 and $6,928, respectively.

The $2,631,817 in net cash provided by investing activities for the six months ended December 31, 2024 was primarily due to the sales of short-term investments of $2,685,688, which were offset by the payments for capitalized product development and property and equipment of $39,587 and $24,784, respectively.

FINANCING ACTIVITIES - Net cash used in financing activities for the six months ended December 31, 2025, and 2024 was $471,371 and $0, respectively. The $471,371 in net cash used in financial activities for the six months ended December 31, 2025 was attributable to the payment of cash dividends.

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.