FKWL 10-K & 10-Q changes, risk factors and insider trading

In the event of an unfavorable outcome in such a claim and our inability to either obtain a license from the third party or develop a non-infringing alternative, then our business, operating results and financial condition may be materially adversely affectedaffected, and we may have to restructure our business.

WE OPERATE IN THE HIGH-RISK SOFTWARE INDUSTRY. This industry has numerous and significantsignificantly known risks. In this industry it should be expected that:

THE LOSS OF ANY OF OUR MATERIAL CUSTOMERSCUSTOMERS, OR A REDUCTION IN THEIR PURCHASES OF OUR PRODUCTS, COULD ADVERSELY AFFECT OUR REVENUES AND PROFITABILITY, AND THEREFORE SHAREHOLDER VALUE. We depend on a small number of customers for a significant portion of our revenues. For the year ended June 30, 2025,2026, net revenues from our two largest customers represented 60.9% and 33.5%27.5% of our consolidated net sales, respectively. We have a written agreement with each of these customers that governs the sale of products to them, but the agreements do not obligate them to purchase any quantity of products from us. If these customers were to reduce their business with us, our revenues and profitability could materially decline.

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. During the six months ended June 30, 2026, we began implementing a strategic shift to reduce our reliance on mobile hotspot products and increase our focus on fixed wireless routers and telecommunications modules. This shift was accelerated following a significant decline in demand for certain legacy hotspot products. 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. While we intend to integrate artificial intelligence (“AI”)-compatible hardware, we have not commercially implemented AI technology within our current products.

We are also seeing that demand from from end-users has been shifting in the post-pandemic economy as remote education and work from home trends are declining. Current demand for 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.

Revenue from sales of products and services is derived from contracts with customers. The products and services coveredpromised byin contracts primarily consist of hot spothotspot 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. WeWhile we continuously monitor product returns, we do not establish a formal provision for estimated warrantywarranties and returns.returns because Usingsuch historicalcosts averages,are provisionscovered forby our manufacturers. For the years ended June 30, 20252026 and 2024,2025, these expenditures were not material.

A performance obligation is a 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 transfer distinct products and/or services to the customer. ToIn order 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%0.7% and 1.2%0.8% of net sales for the years ended June 30, 2025 2026 and 2024,2025, 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, 2025,2026, and June 30, 2024,2025, capitalized product development costs in progress were $452,676$22,582 and $0,$452,676, respectively, and these amounts are included in intangible intangible assets in our consolidated balance sheets. For the years ended June 30, 20252026 and 2024,2025, we incurred $520,202$462,136 and $123,359,$520,202, respectivelyrespectively, 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.

Deferred income tax assets and 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 tax laws and rates applicable to the periods in which the differences are expected expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to 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.

As of June 30, 2026, we had federal and state net operating loss carryforwards of approximately $1.1 million and $0.6 million, respectively. As of June 30, 2025, we had federal and state net operating loss carryforwards of approximately $2.7 million and $0.7 million, respectively. Under current U.S. federal tax law, federal net operating loss carryforwards generated in tax years ending after December 31, 2017, of approximately $1.1 million, carry forward indefinitely. We have no federal net operating loss carryforwards that pre-date the Tax Cuts and Jobs Act of 2017 (the “ActTCJA”), which was signed into law on December 22, 2017, the federal. State 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 losscarryforwards of approximately $0.7 $0.6 million will begin to expire in 2043. The utilization of net operating loss carryforwards may be subject to annual limitations under provisions Section 382 of the Internal Revenue Code Sectionof 3821986, as amended, and similar state tax provisions.

UnderWe apply the provisionprovisions 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,statements uncertain tax positions taken or expected to be taken in a tax return,return. Under this provision, 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.

NET SALES - Net sales decreased increased by $15,290,211,$9,572,496, or 49.6%,20.8%, to $46,086,901$36,514,405 for the year ended June 30, 20252026 from $30,796,690$46,086,901 for the corresponding period of 2024.2025. TheFor increasethe inyear ended June 30, 2026, net sales wasby primarilygeographic dueregions, toconsisting increasedof demandNorth fromAmerica ourand majorAsia, carrierwere customers.$36,478,002 (99.9% of net sales) and $36,403 (0.1% of net sales), respectively. 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 decreased increased by $15,381,517,$9,603,242, or 50.1%,20.8%, to $46,081,244$36,478,002 for the year ended June 30, 2025,2026, from $30,699,727$46,081,244 for the corresponding period of 2024. 2025. The increase decrease in net sales in North America was primarily due to increasedthe demanddiscontinuation fromof oura key product by a major carrier customers.customer, which was expected to contribute a significant portion of revenue following its recent launch, as well as the timing of large deliveries in prior periods that resulted in reduced current-period demand as customers worked through existing inventory. As a result of the product discontinuation, we do not expect material future sales of this product to this customer. Net sales in Asia decreasedincreased by $91,306,$30,746, or 94.2%,543.5%, to $5,657 $36,403 for the year ended June 30, 2025,2026, from $96,963$5,657 for the corresponding period of 2024.2025. The decrease increase 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 profit increaseddecreased by $4,406,719,$1,659,938, or 125.6%,21.0%, to $7,915,069$6,255,131 for the year ended June 30, 2025,2026, from $3,508,350$7,915,069 for the corresponding period of 2024. 2025. The gross profit in terms of net sales percentage was 17.2%17.1% for the year ended June 30, 2025,2026, compared to 11.4%17.2% for the corresponding period of 2024.2025. The increasedecrease in gross profit and gross profit in terms of net sales percentage for the year ended June 30, 2025,2026, was primarily dueattributable to the increasedecrease in net sales, awhich greaterwas proportiondriven in part by the discontinuation of highera marginkey productsproduct sold,by anda lowermajor per-unit costs.customer.

OPERATING EXPENSES - Operating expenses increaseddecreased by $1,330,633,$1,845,997, or 14.1%,17.1%, to $10,778,738$8,932,741 for the year ended June 30, 2025,2026, from $9,448,105$10,778,738 for the corresponding period period of 2024.2025.

TOTAL OTHER INCOME (EXPENSE), NET -– Total Other income (expense), net increaseddecreased by $1,854,289,$7,058,467, or 225.1%,263.6%, to $2,678,073($4,380,394) for the year ended June 30, 2025, 2026, from $823,784 $2,678,073 for the corresponding period of 2024.2025. TheThis increasechange was primarily duedriven toby the gainfollowing 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.factors:

FINANCINGOPERATING ACTIVITIES – Net cash (used in) provided by financingoperating activities for the years ended June 30, 20252026 and 20242025 waswere ($408,663$6,296,906) and $91,057,$1,844,360, respectively.

The ($408,663) in net cash used 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($408,663) in net cash providedused byin financing activities for for the year ended June 30, 20242025 was athe repaymentrepurchase receivedof for200,000 avested loanstock madeoptions tofrom anOC Kim, our President, which had been previously granted under the 2020 employee ofstock $91,057.option plan.

For the next twelve months, we we may require in excess of $2 million for capital expenditures, software licenses and for testing and certifying new products. TheWe Companybelieve believes itsour balances of cash, cash equivalents, and short-term investments, which totaled $40.6$32.0 million as of June 30, 2025,2026, along with cash generated by ongoing operations will be sufficient to satisfy its cash requirements over the next 12 months.

Shortages of components, such as memory, could significantly disrupt our production schedules and adversely affect our relationship with key customers. Industry-wide shortages have occurred in the memory market, which may affect the availability and lead times of memory components used in our products. TheseSuch 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.

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 sixnine months ended DecemberMarch 31, 2025.2026.

The following table sets forth, forth, for the three and sixnine months ended DecemberMarch 31, 20252026 and 2024,2025, our statements of comprehensive (loss) income (unaudited) including data expressed as a percentage of sales:

THREE MONTHS ENDED DECEMBERMARCH 31, 20252026 COMPARED TO THREE MONTHS ENDED DECEMBER MARCH 31, 20242025

NET SALES - Net sales decreased by $5,898,234,$4,565,436, or 33.1%,57.0%, to $11,928,864$3,444,183 for the three months ended DecemberMarch 31, 20252026 from $17,827,098$8,009,619 for the corresponding period period of 2024.2025. For the three months ended DecemberMarch 31, 2025,2026, net sales by geographic regions, consisting of North America and Asia, were $3,442,614 $11,926,922 (100.0% of net sales) and $1,942$1,569 (0.0% of net sales), respectively. For the three months ended DecemberMarch 31, 2024,2025, net sales by geographic regions, consisting of North America and Asia, were $17,827,098$8,007,037 (100%100.0% of net sales) and $0$2,582 (0% of net sales0.0%), respectively.

Net sales in North America decreased by $5,900,176,$4,564,423, or 33.1%,57.0%, to $11,926,922$3,442,614 for the three months ended DecemberMarch 31, 20252026 from $17,827,098$8,007,037 for the corresponding period period of 2024.2025. The decrease in net sales in North America was primarily due to decreasedthe demanddiscontinuation fromof oura key product by a major carrier customers,customer, which which typicallywas varies from periodexpected to period.contribute Neta significant portion of revenue following its recent launch, as well as the timing of large deliveries in prior periods that resulted in reduced current-period demand as customers worked through existing inventory. As a result of the product discontinuation, the Company does not expect material future sales inof Asiathis increased by $1,942, or 100%,product to $1,942this for the three months ended December 31, 2025 from $0 for the corresponding period of 2024.customer.

GROSS PROFIT - Gross profit decreased by $1,208,002,$800,436, or 37.3%,59.1%, to $2,034,060$553,444 for the three months ended DecemberMarch 31, 20252026 from $3,242,062$1,353,880 for the corresponding period period of 2024.2025. The gross profit in terms of net sales percentage was 17.1%16.1% for the three months ended DecemberMarch 31, 2025,2026 compared to 18.2% 16.9% for the corresponding period of 2024.2025. The decrease in gross profit and gross profit in terms of net sales percentage for the three months ended December March 31, 2025,2026, was primarily due to the decrease in net salessales, which was driven in part by the discontinuation of a key product by a major customer, as well as a shift in sales mix toward lower-margin products during the period.

OPERATING EXPENSES - - Operating expenses decreased by $461,488,$1,255,534, or 18.9%,37.8%, to $1,985,343$2,064,899 for the three months ended DecemberMarch 31, 20252026 from $2,446,831$3,320,433 for the corresponding period of 2024.2025.

NetSelling, general, and administrative sales in North Americaexpenses decreased by $6,489,573,$1,277,652, or 20.8%,50.6%, to $24,659,973$1,248,568 for the sixthree months ended DecemberMarch 31, 20252026, 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$2,526,220 for the corresponding period of 2024.2025. The increasedecrease in netoperating salesexpenses was primarily duedriven by the absence of a non-recurring accrued incentive bonus of $1,250,000 to OC Kim, the President, which was recorded in the prior period. Research and development (“R&D”) expense increased by $22,118, or 2.8%, to $816,331 for the revenuethree generatedmonths ended March 31, 2026, from material$794,213 salesfor the corresponding period of 2025. The increase in research and development expense was primarily driven by FTI,an increase of approximately $15,000 in R&D payroll expenses and $7,000 in R&D costs. These fluctuations stem from the timing of R&D activities and the number of active projects, which typically vary from period to period.

Selling,OTHER general,INCOME and(LOSS), administrativeNET - Other income (“SG&A”loss), expensesnet decreased by $361,403,$1,589,436, or 12.3%,119.4%, to $2,578,163($257,997) for the sixthree months ended DecemberMarch 31, 2025,2026 from $2,939,566$1,331,439 for the corresponding period of 2024.2025. ThisThe decrease was primarily driven by the absence of a reductionnon-recurring $1,000,000 legal settlement from OC Kim, the President, which was recorded in the prior period, as well as an unfavorable foreign currency exchange impact at FTI of approximately $310,000 in legal fees.$500,000.

Research and development (“R&D”) expense decreased by $224,980,$202,862, or 11.5%,7.4%, to $1,726,570$2,542,901 for the sixnine months ended DecemberMarch 31, 2025,2026, from $1,951,550$2,745,763 for the corresponding period of 2024.2025. The decrease in research and development expense was mainlyprimarily attributabledriven toby a $137,000reduction reductionof approximately $130,000 in R&D costs and $73,000 in R&D operational costs and an approximately $88,000 decline in associated payroll expenses. These variancesfluctuations primarilystem reflectfrom the cyclical naturetiming of the Company's R&D projectsactivities and the specific timingnumber of project activities,active projects, which typically resultvary infrom period-over-periodperiod fluctuations.to period.

Our principal source of liquidity as of DecemberMarch 31, 20252026 consisted of cash and cash equivalents, as well as short-term investments, of $33,623,292.$32,937,546. We believe we have sufficient 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 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 actions outside the ordinary course of business in order to continue to operate as a going concern.

INVESTINGOPERATING ACTIVITIES - – Net cash providedused byin investingoperating activities for the sixnine months ended DecemberMarch 31, 20252026 and 20242025 was $704,977$5,563,433 and $2,631,817,$490,230, respectively.

FINANCINGThe ACTIVITIES -$5,563,433 Netin net cash used in financingoperating activities for the sixnine months ended DecemberMarch 31, 2025, and 20242026 was $471,371primarily anddue $0,to respectively.the increases in inventories of $5,627,077. The $471,371 $490,230 in net cash used in financialoperating activities for the sixnine months ended DecemberMarch 31, 2025 was attributableprimarily due to the paymentincreases in accounts receivable of cash$1,957,056 dividends.as well as the decrease in accounts payable of $1,025,639, which was offset by the increase in accrued liabilities of $2,376,154.