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What changed in FRANKLIN WIRELESS CORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of FRANKLIN WIRELESS CORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+108 added−100 removedSource: 10-K (2023-09-28) vs 10-K (2022-09-13)

Top changes in FRANKLIN WIRELESS CORP's 2023 10-K

108 paragraphs added · 100 removed · 85 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

14 edited+2 added−5 removed5 unchanged
Biggest changeIOT Server Platform and Application o “Pintrac,” Franklin’s Cloud based telecom grade server platform, enables enhanced remote management of device functionality. o Pintrac Mobile Device Management (MDM) for LTE hotspots allows schools, government agencies and others to remotely manage and configure hotspots. o Pintrac Pet is a complete pet tracking application, allowing monitoring and tracking household pets and their activity using Franklin’s Trackers. o Pintrac Auto tracks, locates, and manages vehicles for consumers and businesses using Franklin’s LTE OBD devices. 2 CUSTOMERS Our global customer base is comprised of wireless operators, strategic partners and distributors located primarily in North America, the Caribbean and South America, and Asia.
Biggest changeHome Phone Connect · Franklin’s Voice Over LTE (VoLTE) device provides a landline alternative, connecting instantly and allowing users local and domestic long distance calling through the carrier’s network. 2 IOT Server Platform and Application · “Pintrac,” Franklin’s Cloud based telecom grade server platform, enables enhanced remote management of device functionality. · Pintrac Mobile Device Management (MDM) for LTE hotspots allows schools, government agencies and others to remotely manage and configure hotspots. · Pintrac Pet is a complete pet tracking application, allowing monitoring and tracking household pets and their activity using Franklin’s Trackers. · Pintrac Auto tracks, locates, and manages vehicles for consumers and businesses using Franklin’s LTE OBD devices. · “JEXtream” Franklin’s Cloud based telecom grade server platform for 5G devices and routers, enables enhanced remote management of device functionality.
The following is a sample of the products we offer: 5G/4G Wireless Broadband Products 5G/4G LTE Wi-Fi Mobile Hotspot o Portable Wi-Fi hotspot routers that provide wireless Internet access with 5G/4G support for multiple simultaneously connected devices including laptops, tablets, and smart phones.
The following is a sample of the products we offer: 5G/4G Wireless Broadband Products 5G/4G LTE Wi-Fi Mobile Hotspot · Portable Wi-Fi hotspot routers that provide wireless Internet access with 5G/4G support for multiple simultaneously connected devices including laptops, tablets, and smart phones.
Connected Car o An all-in-one connected car solution that provides easy access to built-in Wi-Fi Hotspot and extensive added vehicle diagnostics, safety, and security features, as well as location service via OBDII protocol with other applications.
Connected Car · An all-in-one connected car solution that provides easy access to built-in Wi-Fi Hotspot and extensive added vehicle diagnostics, safety, and security features, as well as location service via OBDII protocol with other applications.
IoT Tracking Devices and Connected Devices: Smart IoT tracking device o Location service devices based on CAT1 and CAT M technology, allowing consumers and businesses to track virtually any tangible item, anytime and anywhere.
IoT Tracking Devices and Connected Devices: Smart IoT tracking device · Location service devices based on CAT1 and CAT M technology, allowing consumers and businesses to track virtually any tangible item, anytime and anywhere.
Our employees are not represented by any collective bargaining organization, and we have never experienced a work stoppage.
Our employees are not represented by any collective bargaining organization, and we have never experienced a work stoppage. 3
PRODUCTION AND MANUFACTURING OPERATIONS For the fiscal year ended June 30, 2022, the manufacturing of the majority of our products was performed by two independent companies located in Asia. EMPLOYEES As of June 30, 2022, we had 76 total employees at Franklin and FTI combined. We also use the services of consultants and contract workers from time to time.
PRODUCTION AND MANUFACTURING OPERATIONS For the fiscal year ended June 30, 2023, the manufacturing of the majority of our products was performed by two independent companies located in Asia. EMPLOYEES As of June 30, 2023, we had 69 total employees at Franklin and FTI combined. We also use the services of consultants and contract workers from time to time.
Our Mobile Hotspot products help remote workers be productive while on the go and help students and educational institutions support remote learning activities. 5G/4G Consumer Home Gateway CPE (Customer-Premises Equipment) o Enhanced routing gateway that can provide support for both wired and wireless connectivity, offering solutions for consumers looking to replace Cable or DSL service 5G/4G Enterprise Gateway CPE o Enhanced routing gateway equipped with enterprise features offering solutions for enterprise customers looking to replace wired service, or wireless back-up for wired connections in a mission-critical environment or instant wireless connection in temporal locations.
Our Mobile Hotspot products help remote workers be productive while on the go and help students and educational institutions support remote learning activities. 5G/4G Fixed Wireless Routers · Enhanced routing gateway that can provide support for both wired and wireless connectivity, offering solutions for consumers looking to replace Cable or DSL service 5G/4G Enterprise Gateway CPE · Enhanced routing gateway equipped with enterprise features offering solutions for enterprise customers looking to replace wired service, or wireless back-up for wired connections in a mission-critical environment or instant wireless connection in temporal locations.
The following table contains certain financial information by geographic area: Fiscal Year Ended June 30, Net sales: 2022 2021 North America $ 23,305,366 $ 183,771,146 Caribbean and South America 2,375 17,500 Asia 690,021 326,699 Totals $ 23,997,762 $ 184,115,345 Long-lived assets, net (property and equipment and intangible assets): June 30, 2022 June 30, 2021 United States $ 1,374,747 $ 1,349,320 Asia 81,261 49,040 Totals $ 1,456,008 $ 1,398,360 1 OUR PRODUCTS We are a global leader and innovator in providing the latest mobile technologies to the mass market, which include 5G/4G Mobile Hotspots, 5G/4G Customer Premises Equipment, and MDM solutions.
The following table contains certain financial information by geographic area: Fiscal Year Ended June 30, Net sales: 2023 2022 North America $ 45,782,084 $ 23,305,366 Caribbean and South America – 2,375 Asia 166,432 690,021 Totals $ 45,948,516 $ 23,997,762 Long-lived assets, net (property and equipment and intangible assets): June 30, 2023 June 30, 2022 North America $ 2,083,902 $ 1,374,747 Asia 198,070 81,261 Totals $ 2,281,972 $ 1,456,008 1 OUR PRODUCTS We are a global leader and innovator in providing the latest mobile technologies to the mass market, which include 5G/4G Mobile Hotspots, 5G/4G, fixed wireless routers, and MDM solutions.
OUR STRUCTURE We incorporated in 1982 in California and reincorporated in Nevada on January 2, 2008. The reincorporation had no effect on the nature of our business or our management. Our headquarters office is located in San Diego, California. The office is principally composed of marketing, sales, operations, finance and administrative support.
Our global customer base primarily extends from North America and the Caribbean and South America to Asia. OUR STRUCTURE We incorporated in 1982 in California and reincorporated in Nevada on January 2, 2008. The reincorporation had no effect on the nature of our business or our management. Our headquarters office is located in San Diego, California.
It is responsible for all customer-related activities, such as marketing communications, product planning, product management and customer support, along with sales and business development activities on a worldwide basis.
The office is principally composed of marketing, sales, operations, finance and administrative support. It is responsible for all customer-related activities, such as marketing communications, product planning, product management and customer support, along with sales and business development activities on a worldwide basis. The consolidated financial statements include the accounts of the Company and its subsidiary, Franklin Technology Inc.
The consolidated financial statements include the accounts of the Company and its subsidiary with a majority voting interest of 66.3% (33.7% is owned by non-controlling interests) as of June 30, 2022 and 2021.
(“FTI”), with a majority voting interest of 66.3% (33.7% is owned by non-controlling interests) as of June 30, 2023, and 2022. In the preparation of consolidated financial statements of the Company, intercompany transactions and balances are eliminated and net earnings (loss) are reduced by the portion of the net earnings (loss) of the subsidiary applicable to non-controlling interests.
The following enterprise-wide disclosure is prepared on a basis consistent with the preparation of the consolidated financial statements.
We generate revenues from three geographic areas, consisting of North America, the Caribbean and South America, and Asia. The following enterprise-wide disclosure is prepared on a basis consistent with the preparation of the consolidated financial statements.
We identify our operating segments based on how our chief operating decision maker internally evaluates separate financial information, business activities and management responsibility. We have one reportable segment, consisting of the sale of wireless access products. We generate revenues from three geographic areas, consisting of North America, the Caribbean and South America, and Asia.
Accounting Standards Codification (“ASC”) 280, “Segment Reporting,” requires public companies to report financial and descriptive information about their reportable operating segments. We identify our operating segments based on how our chief operating decision maker internally evaluates separate financial information, business activities and management responsibility. We have one reportable segment, consisting of the sale of wireless access products.
FTI primarily provides design and development services to us for our wireless products. Our products are generally marketed and sold directly to wireless operators, and indirectly through strategic partners and distributors. Our global customer base extends primarily from North America to the Caribbean and South America and Asia.
We have majority ownership of 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. Our products are generally marketed and sold directly to wireless operators and indirectly through strategic partners and distributors.
Removed
ITEM 1. BUSINESS. BUSINESS OVERVIEW We are a leading provider of intelligent wireless solutions including mobile hotspots, routers, trackers, and other devices. Our designs integrate innovative hardware and software enabling machine-to-machine (M2M) applications and the Internet of Things (IoT).
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ITEM 1. BUSINESS. BUSINESS OVERVIEW We are a leading provider of integrated wireless solutions utilizing the latest in 5G (fifth generation) and 4G LTE (fourth generation long-term evolution) technologies including mobile hotspots, routers, fixed wireless routers, and various trackers. Our integrated software subscription services provide users remote capabilities including mobile device management (MDM) and software defined wide area networking (SD-WAN).
Removed
Our M2M and IoT solutions include embedded modules, modems and gateways built to deliver reliable always-on connectivity supporting a broad spectrum of applications based on fifth generation and fourth generation (5G/4G) wireless technology. We have a majority ownership position in Franklin Technology Inc. ("FTI"), a research and development company located in Seoul, South Korea.
Added
CUSTOMERS Our global customer base is comprised of wireless operators, strategic partners and distributors located primarily in North America, the Caribbean and South America, and Asia.
Removed
For the year ended June 30, 2020, the increase in the majority voting interest in percentage from 64.2% to 66.3% was due to the purchase by the Company of 43,333 shares of the subsidiary for $75,000 ($1.73 per share) from three non-controlling shareholders. The purchase decreased the non-controlling interests’ ownership percentage from 35.8% to 33.7%.
Removed
In the preparation of consolidated financial statements of the Company, intercompany transactions and balances are eliminated and net earnings are reduced by the portion of the net earnings of the subsidiary applicable to non-controlling interests. Accounting Standards Codification (“ASC”) 280, “Segment Reporting,” requires public companies to report financial and descriptive information about their reportable operating segments.
Removed
Home Phone Connect o Franklin’s Voice Over LTE (VoLTE) device provides a landline alternative, connecting instantly and allowing users local and domestic long distance calling through the carrier’s network.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeWe expect that revenues and operating results will fluctuate in the future. There is no assurance that any or all our efforts will produce a successful outcome. POTENTIAL DESIGN AND MANUFACTURING DEFECTS COULD OCCUR. Our product and service offerings may have quality issues from time to time, due to defects in software design, hardware design or component manufacturing.
Biggest changePOTENTIAL DESIGN AND MANUFACTURING DEFECTS COULD OCCUR. Our product and service offerings may have quality issues from time to time, due to defects in software design, hardware design or component manufacturing. As a result, our products and services may not perform as anticipated and may not meet customer expectations.
Our expansion into international operations exposes us to additional risks unique to such international markets, including the following: o Increased credit management risks and greater difficulties in collecting accounts receivable; o Unexpected changes in regulatory requirements, wireless communications standards, exchange rates, trading policies, tariffs, and other barriers; o Uncertainties of laws and enforcement relating to the protection of intellectual property; o Language barriers; and o Potential adverse tax consequences.
Our expansion into international operations exposes us to additional risks unique to such international markets, including the following: · 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.
In addition, there is no assurance that we will be able to develop such a non-infringing alternative; o The diversion of management’s attention and resources; o Our relationships with customers may be adversely affected; and, o We may be required to indemnify our customers for certain costs and damages they incur in such a claim.
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.
In addition, there is no assurance that we will be able to successfully negotiate and obtain such a license from the third party; o 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 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.
Pandemic outbreaks can also disrupt supply chains, manufacturing operations, and shipping. These disruptions can make product fulfilment difficult, delayed, or impossible. All these changes are beyond our ability to control and can cause revenue and income to change dramatically. WE DEPEND ON COLLABORATIVE ARRANGEMENTS.
Pandemic outbreaks can also disrupt supply chains, manufacturing operations, and shipping. These disruptions can make product fulfilment difficult, delayed, or impossible. All these changes are beyond our ability to control and can cause revenue and income to change dramatically. 6 WE DEPEND ON COLLABORATIVE ARRANGEMENTS.
In addition, regulatory requirements may change, or we may not be able to obtain regulatory approvals from countries other than the United States in which we may desire to sell products in the future. ITEM 1B. UNRESOLVED STAFF COMMENTS None.
In addition, regulatory requirements may change, or we may not be able to obtain regulatory approvals from countries other than the United States in which we may desire to sell products in the future. 7 ITEM 1B. UNRESOLVED STAFF COMMENTS None.
Regardless of whether these infringement claims have merit or not, we may be subject to the following: o We may be liable for potentially substantial damages, liabilities, and litigation costs, including attorneys’ fees; 3 o 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; o We may have to license the third-party intellectual property, incurring royalty fees that may or may not be on commercially reasonable terms.
Regardless of whether these infringement claims have merit or not, we may be subject to the following: · 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.
We depend on a small number of customers for a significant portion of our revenues. For the year ended June 30, 2022, net revenues from our two largest customers represented 70% and 13% of our consolidated net sales, respectively.
We depend on a small number of customers for a significant portion of our revenues. For the year ended June 30, 2023, net revenues from our two largest customers represented 61% and 31% of our consolidated net sales, respectively.
Our success depends on our ability to quickly enter the market and establish an early mover advantage. We must implement an aggressive sales and marketing campaign to solicit customers and strategic partners.
Our success depends on our ability to quickly enter the market and establish an early mover advantage. We must implement an aggressive sales and marketing campaign to solicit customers and strategic partners. Any delay could seriously affect our ability to establish and exploit effectively an early-to-market strategy.
To be successful in the market we must, among other things: o Complete development and introduction of functional and attractive products and services; o Attract and maintain customer loyalty; o Establish and increase awareness of our brand and develop customer loyalty; o Provide desirable products and services to customers at attractive prices; o Establish and maintain strategic relationships with strategic partners and affiliates; o Rapidly respond to competitive and technological developments; o Build operations and customer service infrastructure to support our business; and o Attract, retain, and motivate qualified personnel. 4 We cannot guarantee that we will be able to achieve these goals, and our failure to achieve them could adversely affect our business, results of operations, and financial condition.
To be successful in the market we must, among other things: · 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.
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 affected and we may have to restructure our business.
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 affected and we may have to restructure our business. 4 Absent a specific claim for infringement of intellectual property, from time to time we have and expect to continue to license technology, intellectual property, and software from third parties.
These are beyond our ability to control and can either increase or decrease demand for our products. PANDEMIC OUTBREAKS CAN CAUSE VOLATILE CHANGES IN THE MARKET.
Thus, if wireless operators experience financial or network difficulties, it will likely reduce demand for our products. These are beyond our ability to control and can either increase or decrease demand for our products. PANDEMIC OUTBREAKS CAN CAUSE VOLATILE CHANGES IN THE MARKET.
In addition, we may be exposed to product liability claims, recalls, product replacements or modifications, write-offs of inventory, property, plant and equipment, and/or intangible assets, and significant warranty and other expenses, including litigation costs and regulatory fines. WE OPERATE IN A FIELD WITH RAPIDLY CHANGING TECHNOLOGY.
Failure to do so could result in widespread technical and performance issues affecting our products and services. In addition, we may be exposed to product liability claims, recalls, product replacements or modifications, write-offs of inventory, property, plant and equipment, and/or intangible assets, and significant warranty and other expenses, including litigation costs and regulatory fines.
The demand for our products is completely dependent on the demand for broadband wireless access to networks. If wireless operators do not deliver acceptable wireless service, our product sales may dramatically decline. Thus, if wireless operators experience financial or network difficulties, it will likely reduce demand for our products.
If we fail to develop and introduce products on time, we may lose customers and potential product orders. WE DEPEND ON THE DEMAND FOR WIRELESS NETWORK CAPACITY. The demand for our products is completely dependent on the demand for broadband wireless access to networks. If wireless operators do not deliver acceptable wireless service, our product sales may dramatically decline.
We cannot be certain that our products and services will function as anticipated or be desirable to our intended markets. Our current or future products and services may fail to function properly, and if our products and services do not achieve and sustain market acceptance, our business, results of operations and profitability may suffer.
Our current or future products and services may fail to function properly, and if our products and services do not achieve and sustain market acceptance, our business, results of operations and profitability may suffer. If we are unable to predict and comply with evolving wireless standards, our ability to introduce and sell new products will be adversely affected.
There can be no assurance we will be able to detect and address all issues and defects in the hardware, software, and services we offer. Failure to do so could result in widespread technical and performance issues affecting our products and services.
Component defects could make our products unsafe and create a risk of environmental or property damage and personal injury. There can be no assurance we will be able to detect and address all issues and defects in the hardware, software, and services we offer.
Any delay could seriously affect our ability to establish and exploit effectively an early-to-market strategy. 5 AS OUR BUSINESS EXPANDS INTERNATIONALLY, WE WILL BE EXPOSED TO ADDITIONAL RISKS RELATING TO INTERNATIONAL OPERATIONS.
AS OUR BUSINESS EXPANDS INTERNATIONALLY, WE WILL BE EXPOSED TO ADDITIONAL RISKS RELATING TO INTERNATIONAL OPERATIONS.
Removed
Absent a specific claim for infringement of intellectual property, from time to time we have and expect to continue to license technology, intellectual property, and software from third parties.
Added
We cannot guarantee that we will be able to achieve these goals, and our failure to achieve them could adversely affect our business, results of operations, and financial condition. We expect that revenues and operating results will fluctuate in the future.
Removed
As a result, our products and services may not perform as anticipated and may not meet customer expectations. Component defects could make our products unsafe and create a risk of environmental or property damage and personal injury.
Added
There is no assurance that any or all our efforts will produce a successful outcome. 5 WE OPERATE IN THE HIGH-RISK HARDWARE DESIGN INDUSTRY. We are in a volatile industry.
Removed
If we are unable to predict and comply with evolving wireless standards, our ability to introduce and sell new products will be adversely affected. If we fail to develop and introduce products on time, we may lose customers and potential product orders. WE DEPEND ON THE DEMAND FOR WIRELESS NETWORK CAPACITY.
Added
In this industry it should be expected that: · Latent design flaws can be discovered, even after a device has been certified; · Latent component defects can be discovered in critical systems, including batteries, LCDs, chargers, and other systems; · Manufacturing defects and flaws will occur during device production. WE OPERATE IN THE HIGH-RISK SOFTWARE INDUSTRY.
Added
This industry has numerous and significant known risks.
Added
In this industry it should be expected that: · Latent design flaws and security defects will be discovered, even after a device has been tested and approved; · Code within a program will fail to operate as intended due to updates or changes in other systems; · Hacking and malicious actions by outside parties can damage or alter coding and system integrity.
Added
WE OPERATE IN A FIELD WITH RAPIDLY CHANGING TECHNOLOGY. We cannot be certain that our products and services will function as anticipated or be desirable to our intended markets.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeRent expense related to these leases was approximately $128,400 for each of the years ended June 30, 2022, and 2021. We lease one corporate housing facility, located in Seoul, Korea, primarily for our employees who travel, under a non-cancelable operating lease that expired on September 4, 2022, and extended by an additional twelve months to September 4, 2023.
Biggest changeRent expense related to these leases was approximately $128,400 for each of the years ended June 30, 2023 and 2022. We lease one corporate housing facility, located in Seoul, Korea, primarily for our employees who travel, under a non-cancelable operating lease that expired on September 4, 2023, and was extended for an additional twelve months to September 4, 2024.
Our facility is covered by an appropriate level of insurance, and we believe it to be suitable for our use and adequate for our present needs. Rent expense related to this property was $309,053 for the years ended June 30, 2022, and 2021.
Our facility is covered by an appropriate level of insurance, and we believe it to be suitable for our use and adequate for our present needs. Rent expense related to this property was $309,053 for the years ended June 30, 2023 and 2022.
Our Korea-based subsidiary, FTI, leases approximately 10,000 square feet of office space, at a monthly rent of approximately $8,000, and additional office space consisting of approximately 2,682 square feet at a monthly rent of approximately $2,700, both located in Seoul, Korea. These leases expired on August 31, 2022 but extended by an additional twelve months to August 31, 2023.
Our Korea-based subsidiary, FTI, leases approximately 10,000 square feet of office space, at a monthly rent of approximately $8,000, and additional office space consisting of approximately 2,682 square feet at a monthly rent of approximately $2,700, both located in Seoul, Korea. These leases expired on August 31, 2023, and were extended for an additional twelve months to August 31, 2024.
Rent expense related to this lease was $8,604 and $9,161 for the years ended June 30, 2022, and 2021, respectively. 6
Rent expense related to this lease was $8,095 and $8,604 for the years ended June 30, 2023 and 2022, respectively.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

2 edited+0 added−0 removed1 unchanged
Biggest changeEQUITY COMPENSATION PLAN INFORMATION The following table summarizes share and exercise price information about our equity compensation plans as of June 30, 2022: Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans Equity compensation plans approved by security holders 766,001 $ 3.85 532,003 Equity compensation plans not approved by security holders – N/A – Total 766,001 $ 3.85 532,003 ITEM 6. [RESERVED]
Biggest changeEQUITY COMPENSATION PLAN INFORMATION The following table summarizes share and exercise price information about our equity compensation plans as of June 30, 2023: Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans Equity compensation plans approved by security holders 647,001 $ 4.24 551,003 Equity compensation plans not approved by security holders – N/A – Total 647,001 $ 4.24 551,003 ITEM 6. [RESERVED]
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. MARKET PRICE OF OUR COMMON STOCK Shares of our Common Stock are quoted and traded on NASDAQ under the trading symbol "FKWL." We have one class of common stock. As of June 30, 2022, we had 721 shareholders of record.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. MARKET PRICE OF OUR COMMON STOCK Shares of our Common Stock are quoted and traded on NASDAQ under the trading symbol "FKWL." We have one class of common stock. As of June 30, 2023, we had 717 shareholders of record.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

48 edited+15 added−7 removed26 unchanged
Biggest changeRESULTS OF OPERATIONS The following table sets forth, for the years ended June 30, 2022, 2021, and 2020, our statements of operations including data expressed as a percentage of sales: 2022 2021 2020 (as a percentage of sales) Net sales 100.0% 100.0% 100.0% Cost of goods sold 84.1% 82.4% 80.7% Gross profit 15.9% 17.6% 19.3% Operating expenses 36.6% 5.2% 9.9% (Loss) income from operations (20.7% ) 12.4% 9.4% Other income, net 1.1% 0.3% 0.3% Net (loss) income before income taxes (19.6% ) 12.7% 9.7% Income tax (benefit) provision (4.3% ) 2.7% 1.8% Net (loss) income (15.3% ) 10.0% 7.9% Less: non-controlling interest in net income of subsidiary 0.4% 0.4% 0.5% Net (loss) income attributable to Parent Company stockholders (15.7% ) 9.6% 7.4% YEAR ENDED JUNE 30, 2022, COMPARED TO YEAR ENDED JUNE 30, 2021 NET SALES - Net sales decreased by $160,117,583, or 87.0%, to $23,997,762 for the year ended June 30, 2022 from $184,115,345 for the corresponding period of 2021.
Biggest changeRECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS Refer to NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES in the Consolidated Financial Statements. 12 RESULTS OF OPERATIONS The following table sets forth, for the years ended June 30, 2023, 2022, and 2021, our statements of operations including data expressed as a percentage of sales: 2023 2022 2021 (as a percentage of sales) Net sales 100.0% 100.0% 100.0% Cost of goods sold 84.7% 84.1% 82.4% Gross profit 15.3% 15.9% 17.6% Operating expenses 20.4% 36.6% 5.2% Loss from operations (5.1% ) (20.7% ) 12.4% Other income (expense), net (3.2% ) 1.1% 0.3% Net loss before income taxes (8.3% ) (19.6% ) 12.7% Income tax (benefit) provision (1.9% ) (4.3% ) 2.7% Net loss (6.4% ) (15.3% ) 10.0% Less: non-controlling interest in net income (loss) of subsidiary (0.2% ) 0.4% 0.4% Net loss attributable to Parent Company stockholders (6.2% ) (15.7% ) 9.6% YEAR ENDED JUNE 30, 2023, COMPARED TO YEAR ENDED JUNE 30, 2022 NET SALES - Net sales increased by $21,950,754, or 91.5%, to $45,948,516 for the year ended June 30, 2023 from $23,997,762 for the corresponding period of 2022.
Our products are generally marketed and sold directly to wireless operators, and indirectly through strategic partners and distributors. Our global customer base extends primarily from North America to countries in the Caribbean and South America, and Asia.
Our products are generally marketed and sold directly to wireless operators and indirectly through strategic partners and distributors. Our global customer base primarily extends from North America, the Caribbean and South America to countries in the Asia.
We typically invoice our customers as soon as control of an asset is transferred, and a receivable is established. We, however, recognize a contract liability when a customer prepays for goods and/or services, or we have not delivered goods under the contract since we have not yet transferred control of the goods and/or services.
We typically invoice our customers as soon as control of an asset is transferred, and a receivable is established. We, however, recognize contract liability when a customer prepays for goods and/or services, or we have not delivered goods under the contract since we have not yet transferred control of the goods and/or services.
At contract inception, we assess the products and services promised in our contracts with customers. We then identify performance obligations to transfer distinct products 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.
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.
The increase in net sales was primarily due to the revenue generated from the material sales by FTI, which typically vary from period to period. 11 GROSS PROFIT - Gross profit decreased by $28,647,438, or 88.2%, to $3,816,583 for the year ended June 30, 2022, from $32,464,021 for the corresponding period of 2021.
The increase in net sales was primarily due to the revenue generated from the material sales by FTI, which typically vary from period to period. GROSS PROFIT - Gross profit decreased by $28,647,438, or 88.2%, to $3,816,583 for the year ended June 30, 2022, from $32,464,021 for the corresponding period of 2021.
We believe we have sufficient available capital to cover our existing operations and obligations through at least June 30, 2023. 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.
We believe we have sufficient available capital to cover our existing operations and obligations through at least June 30, 2024. 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.
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, 2022.
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, 2023.
We might not be able to affect these alternative strategies to raise funds including credit lines and loans, on satisfactory terms, if at all. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable.
We might not be able to effect these alternative strategies to raise funds including credit lines and loans, on satisfactory terms, if at all. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable.
Our performance obligations are satisfied at a point in time. Revenue from products transferred to customers at a single point in time accounted for over 99% of net sales for the year ended June 30, 2022.
Our performance obligations are satisfied at a point in time. Revenue from products transferred to customers at a single point in time accounted for over 99% of net sales for the year ended June 30, 2023 and 2022.
Revenue for non-recurring engineering projects is based on the percentage completion of a project and accounted for under 1% of net sales for the year ended June 30, 2022. Most of our revenue that is recognized at a point in time is for the sale of hot-spot router products.
Revenue for non-recurring engineering projects is based on the percentage completion of a project and accounted for under 1% of net sales for the years ended June 30, 2023 and 2022. Most of our revenue that is recognized at a point in time is for the sale of hot-spot router products.
The amortization begins when the products are available for general release to our customers. As of June 30, 2022, and June 30, 2021, capitalized product development costs in progress were $187,343 and $602,388, respectively, and these amounts are included in intangible assets in our consolidated balance sheets.
The amortization begins when the products are available for general release to our customers. As of June 30, 2023, and June 30, 2022, capitalized product development costs in progress were $203,838 and $187,343, respectively, and these amounts are included in intangible assets in our consolidated balance sheets.
We believe these sources of funds will be sufficient to continue our operations and planned capital expenditures. However, we will be required to raise additional debt or equity capital if we are unable to generate sufficient cash flow from operations to fund the expansion of our sales and to satisfy the related working capital requirements for the next twelve months.
However, we will be required to raise additional debt or equity capital if we are unable to generate sufficient cash flow from operations to fund the expansion of our sales and to satisfy the related working capital requirements for the next twelve months.
The $7,407,355 in net cash used in operating activities for the year ended June 30, 2022, was primarily due to the increase in inventory and decrease in accounts payable of $3,222,344 and $1,537,287, 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 of $1,205,938.
The $7,407,355 in net cash used in operating activities for the year ended June 30, 2022 was primarily due to the increase in inventory and decrease in accounts payable of $3,222,344 and $1,537,287, 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 of $1,205,938. 15 INVESTING ACTIVITIES – Net cash used in investing activities for the years ended June 30, 2023, and 2022 was $12,109,183 and $11,675,028, respectively.
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 June 30, 2022, consisted of cash and cash equivalents as well as short-term investments of $42,614,077.
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, 2023, consisted of cash and cash equivalents as well as short-term investments of $38,969,599.
Using historical averages, that provision for the year ended June 30, 2022, was 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.
Using historical averages, that provisions for the years ended June 30, 2023, and 2022, were not material. 10 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.
Our contract liabilities, which are included in accrued liabilities on our balance sheet, are as follows: June 30, 2022 June 30, 2021 Undelivered products $ 371,624 $ 140,000 Performance Obligations A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of measurement in Topic 606.
Our contract liabilities, which are included in accrued liabilities on our consolidated balance sheets, are as follows: June 30, 2023 June 30, 2022 Undelivered products $ 146,488 $ 371,624 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.
During the year ended June 30, 2022, we incurred $658,544 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.
During the years ended June 30, 2023 and 2022, we incurred $1,631,376 and $658,544, 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).
INVESTING ACTIVITIES – Net cash used in investing activities for the years ended June 30, 2022, and 2021 was $11,675,028 and $722,520, respectively. The $11,675,028 in net cash used in investing activities for the year ended June 30, 2022, was primarily due to the purchases of short-term investments and capitalized product development of $10,950,625 and $658,544, respectively.
The $11,675,028 in net cash used in investing activities for the year ended June 30, 2022, was primarily due to the purchases of short-term investments and capitalized product development of $10,950,625 and $658,544, respectively. FINANCING ACTIVITIES – Net cash provided by financing activities for the years ended June 30, 2023 and 2022 was $42,943 and $75,445, respectively.
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 for our new products, (4) new customer relationships and contracts, and (5) our ability to meet customers’ demands.
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.
These transactions were a direct result of an agreement between our vendor and our customer. There is a corresponding balance of $837,000 in our Accounts Payable account to offset.
Included in the Accounts Receivable balance as of June 30, 2022, is a passthrough amount of $837,000. These transactions were a direct result of an agreement between our vendor and our customer. There is a corresponding balance of $837,000 in our Accounts Payable account as of June 30, 2022, to offset.
OPERATING EXPENSES - Operating expenses decreased by $854,236, or 8.9%, to $8,791,475 for the year ended June 30, 2022, from $9,645,711 for the corresponding period of 2021. Selling, general, and administrative expenses decreased by $568,504 to $4,509,344 for the year ended June 30, 2022, from $5,077,848 for the corresponding period of 2021.
Selling, general, and administrative expenses decreased by $568,504 to $4,509,344 for the year ended June 30, 2022, from $5,077,848 for the corresponding period of 2021.
The balances of our trade receivables are as follows: June 30, 2022 June 30, 2021 Accounts Receivable, net $ 1,322,619 $ 2,542,429 The balance of contract assets was immaterial as we did not have a significant amount of un-invoiced receivables in the periods ended June 30, 2022 and June 30, 2021. 9 Included in the Accounts Receivable balance is a passthrough amount of $837,000.00.
The balances of our trade receivables are as follows: June 30, 2023 June 30, 2022 Accounts Receivable, net $ 8,949,802 $ 1,322,619 The balance of contract assets was immaterial as we did not have a significant amount of un-invoiced receivables in the periods ended June 30, 2023, and June 30, 2022.
As of June 30, 2022, we have federal and state net operating loss carryforwards of approximately $3.3 million and $40,000, respectively. 10 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 $2.5 million, which was recognized on or after January 1, 2018, will carry forward indefinitely.
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 $2.5 million, which was recognized on or after January 1, 2018, will carry forward indefinitely. The state net operating loss of approximately $0.5 million will begin to expire through 2043.
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.
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.
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.
As of June 30, 2023 and 2022, our contracts do not contain any unsatisfied performance obligations, except for undelivered products. 11 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.
Revenue from these contracts is recognized when the customer can 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, 2022, our contracts do not contain any unsatisfied performance obligations, except for undelivered products.
Revenue from these contracts is recognized when the customer can 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.
The $75,445 in net cash provided by financing activities for the year ended June 30, 2022, was from the exercise of stock options.
The $42,943 in net cash provided by financing activities for the year ended June 30, 2023 was from the exercise of stock options of $45,000, which was offset by loan to an employee of $2,057. The $75,445 in net cash provided by financing activities for the year ended June 30, 2022 was from the exercise of stock options.
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.
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.
For the year ended June 30, 2020, net sales by geographic regions, consisting of North America, the Caribbean and South America, and Asia were $74,839,778 (99.7% of net sales), $0 (0.0% of net sales), and $232,520 (0.3% of net sales), respectively.
For the year ended June 30, 2023, net sales by geographic regions, consisting of North America, the Caribbean and South America, and Asia were $45,782,084 (99.6% of net sales), $0 (0.0% of net sales), and $166,432 (0.4% of net sales), respectively.
The decrease in gross profit in terms of net sales percentage was primarily due to variations in customer and product mix, competitive selling prices and product costs which generally vary from period to period and region to region.
The decrease in gross profit in terms of net sales percentage was primarily due to variations in customer and product mix, competitive selling prices and product costs which generally vary from period to period and region to region. 14 OPERATING EXPENSES - Operating expenses decreased by $854,236, or 8.9%, to $8,791,475 for the year ended June 30, 2022, from $9,645,711 for the corresponding period of 2021.
FUTURE LIQUIDITY AND CAPITAL REQUIREMENTS For the next twelve months, we may require in excess of $5 million for capital expenditures, software licenses and for testing and certifying new products. We believe we will be able to fund our future cash requirements for operations from our cash available, operating cash flows, bank lines of credit and issuance of equity securities.
PROPERTIES. 16 FUTURE LIQUIDITY AND CAPITAL REQUIREMENTS For the next twelve months, we may require in excess of $5 million for capital expenditures, software licenses and for testing and certifying new products.
For the year ended June 30, 2021, net sales by geographic regions, consisting of North America, the Caribbean and South America, and Asia were $183,771,146 (99.8% of net sales), $17,500 (0.0% of net sales), and $326,699 (0.2% of net sales), respectively.
For the year ended June 30, 2022, net sales by geographic regions, consisting of North America, the Caribbean and South America, and Asia were $23,305,366 (97.1% of net sales), $2,375 (0.0% of net sales), and $690,021 (2.9% of net sales), respectively.
The increase in selling, general, and administrative expenses was primarily due to increased payroll expense as well as compensation expense related to stock options granted for employees (approximately $560,000), increased bad debt expense of approximately $340,000, increased professional fees of approximately $130,000, and increased shipping and handling charges of approximately $80,000.
The increase in selling, general, and administrative expenses was primarily due to the increased payroll expenses (excluding payroll expense for employees involved in research and development) and compensation expenses related to stock options granted for employees of approximately $230,000 and $165,000, respectively, and the increased legal expenses of $195,000.
OPERATING ACTIVITIES – Net cash used in operating activities for the year ended June 30, 2022, was $7,407,355, and net cash provided by operating activities for the year ended June 30, 2021 was $12,104,199.
OPERATING ACTIVITIES – Net cash used in operating activities for the years ended June 30, 2023 and 2022 were $1,882,114 and $7,407,355, respectively.
YEAR ENDED JUNE 30, 2021, COMPARED TO YEAR ENDED JUNE 30, 2020 NET SALES - Net sales increased by $109,043,047, or 145.3%, to $184,115,345 for the year ended June 30, 2021 from $75,072,298 for the corresponding period of 2020.
YEAR ENDED JUNE 30, 2022, COMPARED TO YEAR ENDED JUNE 30, 2021 NET SALES - Net sales decreased by $160,117,583, or 87.0%, to $23,997,762 for the year ended June 30, 2022, from $184,115,345 for the corresponding period of 2021.
The $12,104,199 in net cash provided by operating activities for the year ended June 30, 2021, was primarily due to the decrease in accounts receivable and inventory of $13,103,973 and $10,807,884, respectively, as well as our operating results (net income adjusted for depreciation, amortization and other non-cash charges), which was offset by the decrease in accounts payable of $32,364,266.
The $1,882,114 in net cash used in operating activities for the year ended June 30, 2023 was primarily due to the increase in accounts receivable of $7,601,489 as well as our operating results (net loss adjusted for depreciation, amortization, and other non-cash charges), which was offset by the increase of accounts payable and accrued legal contingency expense of $4,905,499 and $2,400,000, respectively.
The increase was primarily due to the gain from the forgiveness of the Payroll Protection Plan loan and increased product development funding received by FTI from a government entity, which was partially offset by the loss from the unfavorable changes in foreign currency exchange rates in FTI and the decreased interest income earned from the money market accounts and certificates of deposit.
The decrease was primarily due to the loss from the agreement in principle to settle a legal action of $2,400,000 and the increased loss from unfavorable changes in foreign currency exchange rates in FTI of approximately $184,000, which were offset by the increased interest income earned from the money market accounts and certificates of deposit of approximately $388,000, the increased unrealized gain from an investment account of approximately $340,000, and the increased gain from forgiven liabilities of approximately $199,000.
Net sales in the Caribbean and South America increased by $17,500, or 100.0%, to $17,500 for the year ended June 30, 2021, from $0 for the corresponding period of 2020. Net sales in Asia increased by $94,179, or 40.5%, to $326,699 for the year ended June 30, 2021, from $232,520 for the corresponding period of 2020.
Net sales in the Caribbean and South America decreased by $2,375, or 100%, to $0 for the year ended June 30, 2023, from $2,375 for the corresponding period of 2022. Net sales in Asia decreased by $523,589, or 75.9%, to $166,432 for the year ended June 30, 2023, from $690,021 for the corresponding period of 2022.
The gross profit in terms of net sales percentage was 17.6% for the year ended June 30, 2021, compared to 19.3% for the corresponding period of 2020. The increase in gross profit was primarily due to the change in net sales as described above.
The increase in gross profit was primarily due to the change in net sales as described above.
Research and development expense decreased by $285,732 to $4,282,131 for the year ended June 30, 2022, from $4,567,863 for the corresponding period of 2021. The decrease in research and development expense was primarily due to the decreased payroll expense for employees involved in research and development and other research and development costs of approximately $104,000 and $182,000, respectively.
Research and development expenses decreased by $363,467 to $3,918,664 for the year ended June 30, 2023, from $4,282,131 for the corresponding period of 2022. The decrease in research and development expense was primarily due to the mix of the timing of research and development activities and the number of active projects, which typically vary from period to period.
Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. As of June 30, 2023, we have federal and state net operating loss carryforwards of approximately $2.5 million and $0.5 million, respectively.
CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS The following table summarizes our contractual obligations and commitments as of June 30, 2022, and the effect such obligations could have on our liquidity and cash flow in future periods: Payments due by June 30, 2023 2024 2025 Total Total Obligations $ 321,930 $ 160,965 $ – $ 482,895 LEASES Refer to ITEM 2. PROPERTIES.
CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS The following table summarizes our contractual obligations and commitments as of June 30, 2023, and the effect such obligations could have on our liquidity and cash flow in future periods: Payments due by June 30, 2024 2025 Total Legal contingency expense $ 2,400,000 $ – $ 2,400,000 Operating lease 160,965 – 160,965 Total Obligations $ 2,560,965 $ – $ 2,560,965 On April 16, 2021, an action was filed in the United States District Court for the Southern District of California against the Company and two of its officers relating to the timing of the disclosure of a recall of certain Jetpack products supplied by the Company to Verizon.
OTHER INCOME, NET - Other income, net increased by $396,403, or 179.6%, to $617,167 for the year ended June 30, 2021, from $220,764 for the corresponding period of 2020.
OTHER INCOME, NET - Other income, net decreased by $1,747,162, or 658.3%, to $1,481,743 for the year ended June 30, 2023, from $265,419 for the corresponding period of 2022.
The $722,520 in net cash used in investing activities for the year ended June 30, 2021, was primarily due to the purchases of capitalized product development and property and equipment of $694,909 and $21,043, respectively. FINANCING ACTIVITIES – Net cash provided by financing activities for the years ended June 30, 2022, and 2021 was $75,445 and $6,074,759, respectively.
The $12,109,183 in net cash used in investing activities for the year ended June 30, 2023 was primarily due to the purchases of short-term investments of $10,391,654 and capitalized product development of $1,631,376.
Research and development expense increased by $821,361 to $4,567,863 for the year ended June 30, 2021, from $3,746,502 for the corresponding period of 2020. The increase in research and development expense was primarily due to the increased payroll expense for employees involved in research and development and other research and development costs.
Research and development expenses decreased by $363,467 to $3,918,664 for the year ended June 30, 2023, from $4,282,131 for the corresponding period of 2022. The decrease in research and development expense was primarily due to the mix of the timing of research and development activities and the number of active projects, which typically vary from period to period.
The decrease in gross profit in terms of net sales percentage was primarily due to competitive selling prices and the increase in production costs.
The decrease in gross profit in terms of net sales percentage was the mixed results of competitive selling prices and the increase in production costs of the launched products. 13 OPERATING EXPENSES - Operating expenses increased by $578,842, or 6.6%, to $9,370,317 for the year ended June 30, 2023, from $8,791,475 for the corresponding period of 2022.
OPERATING EXPENSES - Operating expenses increased by $2,199,350, or 29.5%, to $9,645,711 for the year ended June 30, 2021, from $7,446,361 for the corresponding period of 2020. 12 Selling, general, and administrative expenses increased by $1,377,989 to $5,077,848 for the year ended June 30, 2021, from $3,699,859 for the corresponding period of 2020.
Selling, general, and administrative expenses increased by $942,309 to $5,451,653 for the year ended June 30, 2023, from $4,509,344 for the corresponding period of 2022.
Our M2M and IoT solutions include embedded modules, modems and gateways built to deliver reliable always-on connectivity supporting a broad spectrum of applications based on 5G/4G wireless technology. 8 We have a majority ownership position in FTI, a research and development company located in Seoul, South Korea. FTI primarily provides design and development services to us for our wireless products.
Our integrated software subscription services provide users remote capabilities including mobile device management (MDM) and software defined wide area networking (SD-WAN). We have majority ownership of 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.
Removed
BUSINESS OVERVIEW We are a leading provider of intelligent wireless solutions including mobile hotspots, routers, trackers, and other devices. Our designs integrate innovative hardware and software, enabling machine-to-machine (M2M) applications and the Internet of Things (IoT).
Added
In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this report might not occur. 9 BUSINESS OVERVIEW We are a leading provider of integrated wireless solutions utilizing the latest in 4G LTE (fourth generation long-term evolution) and 5G (fifth generation) technologies including mobile hotspots, routers, CPEs (Customer Premise Equipment), and various trackers.
Removed
The federal net operating loss of approximately $0.8 million, which was recognized on or before December 31, 2017, will expire through 2035. The state net operating loss of approximately $40,000 will begin to expire through 2042.
Added
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.
Removed
Net sales in North America increased by $108,931,368, or 145.6%, to $183,771,146 for the year ended June 30, 2021, from $74,839,778 for the corresponding period of 2020. The increase in net sales in North America resulted primarily from increased demand for wireless connectivity due to people working and attending school remotely.
Added
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.
Removed
High volume sales to school districts rapidly rolling out remote learning programs was a significant driver for increased sales through our primary customers due to the Covid-19 pandemic.
Added
These balances are removed as of June 30, 2023, since these pass-through charges are unlikely to ever be collected due to the customer's refusal to pay. There were no such balances as of June 30, 2023.
Removed
Net sales also increased due to the timing of orders placed by a carrier customer, from which a significant portion of our revenue was derived (approximately 63% of our consolidated net sales for this period).
Added
As of June 30, 2022, we have federal and state net operating loss carryforwards of approximately $3.3 million and $40,000, respectively.
Removed
The increase in net sales was primarily due to product development service revenue generated by FTI, which typically varies from period to period. GROSS PROFIT - Gross profit increased by $17,939,536, or 123.5%, to $32,464,021 for the year ended June 30, 2021, from $14,524,485 for the corresponding period of 2020.
Added
Net sales in North America increased by $22,476,718, or 96.4%, to $45,782,084 for the year ended June 30, 2023, from $23,305,366 for the corresponding period of 2022.
Removed
The $6,074,759 in net cash provided by financing activities for the year ended June 30, 2021, was primarily due to the $6,000,008 aggregate purchase price, paid to us in cash by investors for the issuance of 923,078 shares of Common Stock, as well as $74,751 received from the exercise of stock options. 13 OFF-BALANCE SHEET ARRANGEMENTS None.
Added
The increase in net sales in North America was primarily due to the new demand for two newly launched wireless products from a major carrier customer (approximately $14M newly generated revenue) which did not purchase our products during the fiscal year 2022, and the increased demand by approximately $11M, or 66%, for our wireless products from the existing major carrier customer compared to the fiscal year 2022, which were offset by the decreased demands from other customers.
Added
The decrease in net sales was primarily due to the one-time revenue generated from the material sales by FTI for the fiscal year 2022, which was partially offset by the revenue generated from the demand for one newly launched wireless product by FTI (approximately $160,000) for the year ended June 30, 2023.
Added
GROSS PROFIT - Gross profit increased by $3,204,159, or 84.0%, to $7,020,742 for the year ended June 30, 2023, from $3,816,583 for the corresponding period of 2022. The gross profit in terms of net sales percentage was 15.3% for the year ended June 30, 2023, compared to 15.9% for the corresponding period of 2022.
Added
For the year ended June 30, 2023, the research and development expenses decreased by approximately $450,000, which is partially offset by the increased payroll expenses for employees involved in research and development of approximately $89,000.
Added
For the year ended June 30, 2023, the research and development expenses decreased by approximately $450,000, which is partially offset by the increased payroll expenses for employees involved in research and development of approximately $89,000.
Added
The agreement was memorialized in a memorandum of understanding (the “Memorandum of Understanding”) which was fully executed on May 3, 2023. The Memorandum of Understanding was formalized in a Stipulation and Agreement of Settlement (the “Settlement Agreement”) that was executed on May 23, 2023, and filed with the Court on May 24, 2023.
Added
Under the terms of the Settlement Agreement, the Company will pay $2.4 million (the “Settlement Amount”) into an escrow account maintained by Huntington National Bank subject to the approval of the Court.
Added
The terms and conditions expressly provided within the Settlement Agreement, such Settlement fully, finally and forever settles, releases, resolves and dismisses with prejudice all claims asserted against the Company. This agreement is still pending final approval by the Federal Court as of the date of this filing. LEASES Refer to ITEM 2.
Added
We believe we will be able to fund our future cash requirements for operations from our cash available, operating cash flows, bank lines of credit and issuance of equity securities. We believe these sources of funds will be sufficient to continue our operations and planned capital expenditures.

Other FKWL 10-K year-over-year comparisons