FRANKLIN WIRELESS CORP. 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2025

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission file number: 001-14891

FRANKLIN WIRELESS CORP.

(Exact name of Registrant as specified in its charter)

Nevada

(State or other jurisdiction of incorporation or organization)

95-3733534

(I.R.S. Employer Identification Number)

3940 Ruffin Road

Suite C

San Diego, California

(Address of principal executive offices)

92123

(Zip code)

(858) 623-0000

Registrant's telephone number, including area code

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer ☒

Smaller reporting company ☒

Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☐ No ☒

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, par value $.001 per share	FKWL	The Nasdaq Stock Market LLC

The Registrant has 11,784,280 shares of common stock outstanding as of February 17, 2026.

FRANKLIN WIRELESS CORP.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2025

INDEX

		Page

PART I – Financial Information

Item 1:	Consolidated Financial Statements (unaudited)	4
	Consolidated Balance Sheets as of December 31, 2025 (unaudited) and June 30, 2025	4
	Consolidated Statements of Comprehensive Income (unaudited) for the three and six months ended December 31, 2025 and 2024	5
	Consolidated Statements of Stockholders' Equity (unaudited) for the three and six months ended December 31, 2025 and 2024	6-7
	Consolidated Statements of Cash Flows (unaudited) for the six months ended December 31, 2025 and 2024	8
	Notes to Consolidated Financial Statements	9
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4:	Controls and Procedures	33

PART II – Other Information

Item 1:	Legal Proceedings	34
Item 1A:	Risk Factors	34
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3:	Defaults Upon Senior Securities	34
Item 4:	Mine Safety Disclosures	34
Item 5:	Other Information	34
Item 6:	Exhibits	34

Signatures		35

NOTE ON FORWARD LOOKING STATEMENTS

You should keep in mind the following points as you read this Report on Form 10-Q:

The terms “we,” “us,” “our,” “Franklin,” “Franklin Wireless,” or the “Company” refer to Franklin Wireless Corp.

This Report on Form 10-Q contains statements which, to the extent they do not recite historical fact, constitute “forward looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward looking statements are used under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operation,” and elsewhere in this Quarterly Report on Form 10-Q. You can identify these statements by the use of words like “may,” “will,” “could,” “should,” “project,” “believe,” “anticipate,” “expect,” “plan,” “estimate,” “forecast,” “potential,” “intend,” “continue,” and variations of these words or comparable words. Forward looking statements do not guarantee future performance and involve risks and uncertainties. Actual results may differ substantially from the results that the forward looking statements suggest for various reasons, including those discussed under the caption “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended June 30, 2025. These forward looking statements are made only as of the date of this Report on Form 10-Q. We do not undertake to update or revise the forward looking statements, whether as a result of new information, future events or otherwise.

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

FRANKLIN WIRELESS CORP.

Consolidated Balance Sheets


	December 31, 2025 (Unaudited)			June 30, 2025
ASSETS
Current assets:
Cash and cash equivalents	$	9,362,857		$	14,741,173
Short-term investments		24,260,435			25,887,028
Accounts receivable, net		10,356,344			1,330,504
Other receivable due from officer		662,596			662,596
Inventories, net		2,110,116			2,358,335
Other current assets		354,903			143,666
Advance payments to vendors		58,335			56,988
Total current assets		47,165,586			45,180,290
Property and equipment, net		58,268			72,882
Intangible assets, net		952,973			1,014,112
Deferred tax assets, non-current		3,254,625			3,273,622
Goodwill		273,285			273,285
Right of use assets, net		1,195,514			1,382,294
Other assets		128,216			133,545
TOTAL ASSETS	$	53,028,467		$	51,330,030

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	10,219,497		$	8,119,055
Contract liabilities and advance from customers		121,354			125,300
Income tax payable		3,754			–
Accrued liabilities, bonus payable to an officer		2,875,000			2,625,000
Accrued liabilities, others		349,150			1,172,044
Lease liabilities, current		351,829			375,343
Total current liabilities		13,920,584			12,416,742
Lease liabilities, non-current		843,684			1,018,985
Total liabilities		14,764,268			13,435,727

Commitments and contingencies (Note 6)		–			–

Stockholders’ equity:
Parent Company stockholders’ equity
Preferred stock, par value $0.001 per share, authorized 10,000,000 shares; none issued and outstanding		–			–
Common stock, par value $0.001 per share, authorized 50,000,000 shares; 11,784,280 shares issued and outstanding		14,263			14,263
Additional paid-in capital		14,337,826			14,337,826
Retained earnings		25,596,837			24,894,108
Treasury stock, 2,549,208 shares		(3,554,893	)		(3,554,893	)
Accumulated other comprehensive loss		(1,263,582	)		(1,146,862	)
Total Parent Company stockholders’ equity		35,130,451			34,544,442
Non-controlling interests		3,133,748			3,349,861
Total stockholders’ equity		38,264,199			37,894,303
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	53,028,467		$	51,330,030

The accompanying notes are an integral part of these consolidated financial statements.

FRANKLIN WIRELESS CORP.

Consolidated Statements of Comprehensive Income

(Unaudited)


	Three Months Ended						Six Months Ended
	December 31,						December 31,
	2025			2024			2025			2024
Net sales	$	11,928,864		$	17,827,098		$	24,673,824		$	31,150,010
Cost of goods sold		(9,894,804	)		(14,585,036	)		(19,729,994	)		(25,836,446	)
Gross profit		2,034,060			3,242,062			4,943,830			5,313,564

Operating expenses:
Selling, general and administrative		1,208,525			1,519,593			2,578,163			2,939,566
Research and development		776,818			927,238			1,726,570			1,951,550
Total operating expenses		1,985,343			2,446,831			4,304,733			4,891,116

Income from operations		48,717			795,231			639,097			422,448

Other income (loss), net:
Interest income		130,592			173,048			282,218			354,852
Gain from the forgiveness of accounts payable and accrued liabilities		397,164			–			412,814			247,592
Loss from foreign currency transactions		(192,904	)		(1,008,538	)		(483,774	)		(556,591	)
Other income, net		119,362			124,541			245,760			312,517
Total other income (loss), net		454,214			(710,949	)		457,018			358,370
Income before provision for income taxes		502,931			84,282			1,096,115			780,818
Income tax provision		36,266			167,727			78,914			215,607
Net income (loss)		466,665			(83,445	)		1,017,201			565,211
Less: noncontrolling interests in net loss of subsidiary at 33.7%		(80,628	)		(308,804	)		(185,792	)		(175,335	)
Less: noncontrolling interests in net income (loss) of subsidiary at 40.0%		13,671			(3,381	)		28,893			(3,381	)
Net income attributable to Parent Company	$	533,622		$	228,740		$	1,174,100		$	743,927

Earnings per share attributable to Parent Company stockholders - basic	$	0.05		$	0.02		$	0.10		$	0.06
Earnings per share attributable to Parent Company stockholders - diluted	$	0.05		$	0.02		$	0.10		$	0.06

Weighted average common shares outstanding - basic		11,784,280			11,784,280			11,784,280			11,784,280
Weighted average common shares outstanding - diluted		11,816,519			11,838,850			11,810,463			11,823,672

Comprehensive income
Net income	$	466,665		$	(83,445	)	$	1,017,201		$	565,211
Translation adjustments		(89,174	)		(264,428	)		(175,934	)		(136,304	)
Comprehensive income		377,491			(347,873	)		841,267			428,907
Less: comprehensive loss attributable to non-controlling interest		(66,957	)		(312,185	)		(156,899	)		(178,716	)
Less: foreign exchange translation attributable to non-controlling interest		(30,013	)		(89,000	)		(59,214	)		(45,876	)
Comprehensive income attributable to controlling interest	$	474,461		$	53,312		$	1,057,380		$	653,499

The accompanying notes are an integral part of these consolidated financial statements.

FRANKLIN WIRELESS CORP.

Consolidated Statements of Changes in Stockholders' Equity

For the Three and Six Months Ended December 31, 2025
(Unaudited)


	Common Stock				Additional Paid-in		Retained			Treasury			Accumulated Other Comprehensive			Non- controlling			Total Stockholders
	Shares		Amount		Capital		Earnings			Stock			Loss			Interest			Equity
Balance - June 30, 2025		11,784,280	$	14,263	$	14,337,826	$	24,894,108		$	(3,554,893	)	$	(1,146,862	)	$	3,349,861		$	37,894,303
Net income attributable to Parent Company		–		–		–		640,478			–			–			–			640,478
Foreign exchange translation		–		–		–		–			–			(57,559	)		(29,201	)		(86,760	)
Comprehensive loss attributable to non-controlling interest		–		–		–		–			–			–			(89,942	)		(89,942	)
Balance – September 30, 2025 (unaudited)		11,784,280	$	14,263	$	14,337,826	$	25,534,586		$	(3,554,893	)	$	(1,204,421	)	$	3,230,718		$	38,358,079
Net income attributable to Parent Company		–		–		–		533,622			–			–			–			533,622
Foreign exchange translation		–		–		–		–			–			(59,161	)		(30,013	)		(89,174	)
Comprehensive loss attributable to non-controlling interest		–		–		–		–			–			–			(66,957	)		(66,957	)
Dividend declared and paid		–		–		–		(471,371	)		–			–			–			(471,371	)
Balance – December 31, 2025 (unaudited)		11,784,280	$	14,263	$	14,337,826	$	25,596,837		$	(3,554,893	)	$	(1,263,582	)	$	3,133,748		$	38,264,199

The accompanying notes are an integral part of these consolidated financial statements.

FRANKLIN WIRELESS CORP.

Consolidated Statements of Stockholders’ Equity

For the Three and Six Months Ended December 31, 2024

(Unaudited)


	Common Stock				Additional Paid-in		Retained		Treasury			Accumulated Other Comprehensive Income			Noncontrolling			Total Stockholders
	Shares		Amount		Capital		Earnings		Stock			(Loss)			Interest			Equity
Balance – June 30, 2024		11,784,280	$	14,263	$	14,733,300	$	25,137,209	$	(3,554,893	)	$	(1,182,825	)	$	1,228,944		$	36,375,998
Net income attributable to Parent Company		–		–		–		515,187		–			–			–			515,187
Foreign exchange translation		–		–		–		–		–			85,000			43,124			128,124
Comprehensive income attributable to non-controlling interest		–		–		–		–		–			–			133,469			133,469
Stock based compensation		–		–		87,384		–		–			–			–			87,384
Balance – September 30, 2024 (unaudited)		11,784,280	$	14,263	$	14,820,684	$	25,652,396	$	(3,554,893	)	$	(1,097,825	)	$	1,405,537		$	37,240,162
Net income attributable to Parent Company		–		–		–		228,740		–			–			–			228,740
Foreign exchange translation		–		–		–		–		–			(175,428	)		(89,000	)		(264,428	)
Comprehensive loss attributable to non-controlling interest		–		–		–		–		–			–			(312,185	)		(312,185	)
Stock based compensation		–		–		83,199		–		–			–			–			83,199
Balance – December 31, 2024 (unaudited)		11,784,280	$	14,263	$	14,903,883	$	25,881,136	$	(3,554,893	)	$	(1,273,253	)	$	1,004,352		$	36,975,488

The accompanying notes are an integral part of these consolidated financial statements.

FRANKLIN WIRELESS CORP.

Consolidated Statements of Cash Flows
(Unaudited)


	Six Months Ended December 31,
	2025			2024
CASH FLOW FROM OPERATING ACTIVITIES:
Net income	$	1,017,201		$	565,211
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation		16,428			16,970
Amortization of intangible assets		372,195			471,586
Loss from foreign currency transactions		553,028			585,283
Loss from provision for slow-moving inventory		16,695			–
Gain from trading a vehicle		–			(3,563	)
Stock based compensation		–			170,583
Forgiveness of debt		(412,814	)		(247,592	)
Net change of right use assets and lease liabilities		(12,035	)		(11,685	)
Deferred tax provision		–			214,807
Increase (decrease) in cash due to change in:
Accounts receivable		(9,084,042	)		(866,389	)
Inventories		218,981			(2,751,477	)
Other current assets		(215,512	)		6,707
Advance to vendors		(4,513	)		(83,527	)
Accounts payable		2,126,698			6,501,820
Contract liabilities and advance from customers		(3,947	)		5,244
Accrued liabilities		(163,051	)		838,564
Net cash (used in) provided by operating activities		(5,574,688	)		5,412,542

CASH FLOW FROM INVESTING ACTIVITIES:
Sales of short-term investments		1,028,685			2,685,688
Cash proceeds from sales of a vehicle		–			10,500
Purchases of property and equipment		(6,928	)		(24,784	)
Payments for capitalized product development costs and intangible assets		(316,780	)		(39,587	)
Net cash provided by investing activities		704,977			2,631,817

CASH FLOW FROM FINANCING ACTIVITIES:
Dividend declared and paid		(471,371	)		–
Net cash used in financing activities		(471,371	)		–

Effect of foreign currency translation		(37,234	)		(48,029	)
Net (decrease) increase in cash and cash equivalents		(5,378,316	)		7,996,330
Cash and cash equivalents, beginning of period		14,741,173			12,266,556
Cash and cash equivalents, end of period	$	9,362,857		$	20,262,886

Supplemental disclosure of cash flow information:
Cash paid during the periods for:
Income taxes	$	(131,400	)	$	(800	)

The accompanying notes are an integral part of these consolidated financial statements.

FRANKLIN WIRELESS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This summary of significant accounting policies of the Company is presented to assist in understanding the Company’s consolidated financial statements. The consolidated financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to GAAP and have been consistently applied in the preparation of the consolidated financial statements.

Principles of Consolidation

As of December 31, 2025 and 2024, the consolidated financial statements include the accounts of the Company and its subsidiaries, Franklin Technology Inc. (“FTI”) and Sigbeat Inc. (“Sigbeat”), with majority voting interests of approximately 66.3% and 60.0%, respectively, (approximately 33.7% and 40.0% are owned by noncontrolling interests, respectively). 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 or subsidiaries applicable to noncontrolling interests.

On May 14, 2024, the Company entered into an Agreement for Formation of a Joint Venture Corporation (the “Agreement”). Under the terms of the Agreement, the parties formed a Nevada corporation, Sigbeat, to be owned 60% by Franklin and 40% by its Electronic Manufacturing Services (“EMS”) partner, Forge International Co., Ltd. (“Forge”). The parties contributed a total of $5,000,000 in capital, in accordance with their respective ownership interest percentages. Under the terms of the Agreement, Sigbeat has a Board of Directors consisting of three members, of whom two are to be appointed by the Company and one appointed by Forge. Sigbeat will engage in worldwide sales, marketing, customer support and operations for telecommunications modules under such brands or designations as the Board of Directors of Sigbeat determines.

Pursuant to the Agreement, in July 2024, Sigbeat entered into a stock subscription agreement with Forge to purchase 400,000 shares of Common Stock, representing 40% of the total outstanding Common Stock of Sigbeat. On December 23, 2024, and January 9, 2025, the Company contributed $600,000 and $2,400,000 for Common Stock, respectively, and, on January 16, 2025, Forge contributed $2,000,000 for Common Stock.

Reclassifications

Certain amounts on the prior period’s consolidated financial statements were regrouped and reclassified to conform to current-year presentation, with no effect on total stockholders’ equity.

Non-controlling Interests in Consolidated Subsidiaries

As of December 31, 2025, the Non-Controlling Interests (“NCI”) totaled $3,133,748, representing a $216,113 net decrease from the $3,349,861 balance as of June 30, 2025. The net decrease of $216,113 is broken down by subsidiary for the six months ended December 31, 2025, as follows:

The NCI in FTI decreased by ($245,006), and the decrease was comprised of the following two items:

	o	($185,792) attributable to FTI's net loss of ($552,012) for the period.
	o	($59,214) attributable to foreign currency translation adjustments for the period.

The NCI in Sigbeat increased by $28,893, attributable to Sigbeat's net income of $72,234 for the period.

As of December 31, 2024, the NCI was $1,004,352, which represents a $224,592 net decrease from $1,228,944 as of June 30, 2024. The net decrease of $224,592 is broken down by subsidiary for the six months ended December 31, 2024, as follows:

The NCI in FTI decreased by ($221,211), and the decrease was comprised of the following two items:

	o	($175,335) attributable to FTI's net loss of ($520,940) for the period.
	o	($45,876) attributable to foreign currency translation adjustments for the period.

The NCI in Sigbeat decreased by ($3,381), attributable to Sigbeat's net loss of ($8,452) for the period.

Segment Reporting

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. The Chief Operating Decision Maker (“CODM”) assesses performance for the segment and allocates resources based on the consolidated net income (loss) of the company. The CODM uses the consolidated net income (loss) to evaluate the return on assets in deciding on resource allocation, monitor performance against budgets, and benchmark performance against competitors.

We generate revenues from two geographic areas, consisting of North America and Asia. The following enterprise-wide disclosure is prepared on a basis consistent with the preparation of the consolidated financial statements. The following table contains certain financial information by geographic area and a reconciliation of total revenues and significant expenses by geographic area to the Company’s measure of net income (loss).


	Three Months Ended				Six Months Ended
	December 31,				December 31,
Net sales:	2025		2024		2025		2024
North America	$	11,926,922	$	17,827,098	$	24,659,973	$	31,149,546
Asia		1,942		–		13,851		464
Totals	$	11,928,864	$	17,827,098	$	24,673,824	$	31,150,010


	Three Months Ended						Six Months Ended
	December 31,						December 31,
Items:	2025			2024			2025			2024
Net sales	$	11,928,864		$	17,827,098		$	24,673,824		$	31,150,010
Cost of goods sold		(9,894,804	)		(14,585,036	)		(19,729,994	)		(25,836,446	)
Selling, general, and administrative expenses		(1,208,525	)		(1,519,593	)		(2,578,163	)		(2,939,566	)
Research and development expenses		(776,818	)		(927,238	)		(1,726,570	)		(1,951,550	)
Other segment items		417,948			(878,676	)		378,104			142,763
Net Income (loss)	$	466,665		$	(83,445	)	$	1,017,201		$	565,211

Schedule of long-lived assets, net
Long-lived assets, net (property and equipment and intangible assets):	December 31, 2025		June 30, 2025
North America	$	863,266	$	929,173
Asia		147,975		157,821
Totals	$	1,011,241	$	1,086,994

Fair Value of Financial Instruments

Fair value accounting is applied for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis (at least annually). Assets and liabilities recorded at fair value in the financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels, which are directly related to the amount of subjectivity, associated with the inputs to the valuation of these assets or liabilities are as follows:

		·	Level 1 – Observable inputs, such as unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

		·	Level 2 – Observable inputs other than Level 1 quoted prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

		·	Level 3 – Unobservable inputs that cannot be directly corroborated by observable market data and that typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

The carrying amounts of financial instruments such as cash equivalents, short-term investments, accounts receivable, other current assets, accounts payable, and accrued liabilities approximate the related fair values due to the short-term nature of these instruments. We invest our excess cash into financial instruments which are readily convertible into cash, such as money market funds and certificates of deposit.

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates.

Allowance for Doubtful Accounts

On July 1, 2023, we adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held to maturity debt securities. It also applies to Off-Balance Sheet (“OBS”) credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments and leases recognized by a lessor in accordance with Topic 842 on leases. Upon adoption of ASC 326 and based upon our review of historical collections and current receivable balances, the Company determined that no additional allowance for doubtful accounts was required for the six months ended December 31, 2025 and 2024. The allowance for doubtful accounts remained $158,400 as of December 31, 2025, and June 30, 2025, respectively.

Cash Flows Reporting

We follow ASC 230, Statements of Cash Flows, which requires that cash receipts and payments be classified as operating, investing, or financing activities and provides definitions for each category. We use the indirect or reconciliation method (“Indirect method”) as defined by ASC 230. Under this method, net income is adjusted for the effects of non-cash transactions, deferrals or accruals of past or future operating cash receipts and payments, and items classified as investing or financing cash flows.

Related Parties

We follow ASC 850, “Related Party Disclosures,” for the identification of related parties and disclosure of related party transactions. Related parties are any entities or individuals that, through employment, ownership or other means, possess the ability to direct or cause the direction of our management and policies of the Company. (Refer to NOTE 10–RELATED PARTY TRANSACTIONS)

Foreign Currency Translations

We have a majority-owned subsidiary in a foreign country, South Korea. Fluctuations in foreign currency impact the amount of total assets, liabilities, earnings and cash flows that we report for our foreign subsidiary upon the translation of these amounts into U.S. Dollars for, and as of the end of, each reporting period. In particular, the strengthening of the U.S. Dollar generally will reduce the reported amount of our foreign-denominated cash, cash equivalents, total revenues and total expense that we translate into U.S. Dollars and report in our consolidated financial statements for, and as of the end of, each reporting period. However, a majority of our consolidated revenue is denominated in U.S. Dollars, and therefore, our revenue is not directly subject to foreign currency risk.

In accordance with ASC 830, when an operation has transactions denominated in a currency other than its functional currency, they are measured in the functional currency. Changes in the expected functional currency cash flows caused by changes in exchange rates are included in net income (loss) for the period.

Leases

In accordance with ASC 842, we determine whether an arrangement contains a lease at inception. A lease is a contract that provides the right to control an identified asset for a period of time in exchange for consideration. For identified leases, we determine whether it should be classified as an operating or finance lease. Operating leases are recorded in the balance sheet as right-of-use asset (“ROU asset”) and operating lease obligation. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payment arising from the lease ROU assets and operating lease liabilities are recognized at the commencement date of the lease and measured based on the present value of lease payment over the lease term. The ROU asset also includes deferred rent liabilities. Our lease arrangements generally do not provide an implicit interest rate. As a result, in such situations, we use its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. We include options to extend or terminate the lease when it is reasonably certain that it will exercise that option in the measurement of its ROU assts and liabilities.

Lease expense for operating leases is recognized on a straight-line basis over the lease term. We are also electing not to apply the recognition requirements to short-term leases of twelve months or less and instead will recognize lease payments as expense on a straight-line basis over the lease term.

Revenue Recognition

The Company accounts for its revenue according to ASC 606, “Revenue from Contracts with Customers”, pursuant to which, revenue is recognized when the control of the promised goods or services is transferred to the customers, and the performance obligations under the contract have been satisfied, in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

The Company determines revenue recognition through the following steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation.

Contracts with Customers

Revenue from sales of products and services is derived from contracts with customers. The products and services promised in contracts primarily consist of hotspot 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. While we continuously monitor product returns, we do not establish a formal provision for estimated warranties and returns because such costs are covered by our manufacturers. For the six months ended December 31, 2025 and 2024 presented, these expenditures were not material.

Disaggregation of Revenue

In accordance with Topic 606, we disaggregate revenue from contracts with customers into geographical regions and by the timing of when goods and services are transferred. We determined that disaggregating revenue into these categories meets the disclosure objective in Topic 606, which is to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by regional economic factors.

Contract Balances

We perform our obligations under a contract with a customer by transferring products in exchange for consideration from the customer. We typically invoice our customers as soon as control of an asset is transferred, and a receivable is established. 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.

The balances of our trade receivables are as follows:

Schedule of trade receivables
	December 31, 2025		June 30, 2025
Accounts Receivable, net	$	10,356,344	$	1,330,504

We did not have any un-invoiced receivables for the periods ended December 31, 2025, and June 30, 2025.

Our contract liabilities are as follows:

Schedule of contract liabilities
	December 31, 2025		June 30, 2025
Undelivered products	$	121,354	$	125,300

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. 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. In 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.

The majority of our revenue recognized at a point in time is for the sale of hotspot router products, accounting for 99.5% and 99.4% of net sales for the six months ended December 31, 2025 and 2024, respectively. 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 December 31, 2025 and 2024, our contracts do not contain any unsatisfied performance obligations, except for undelivered products.

Cost of Goods Sold

All costs associated with our contract manufacturers, as well as distribution, fulfillment and repair services, are included in our cost of goods sold. Cost of goods sold also includes amortization expenses of $165,664 and $355,306 associated with capitalized product development costs associated with complete technology for the three and six months ended December 31, 2025, respectively, and $208,917 and $454,150 for the three and six months ended December 31, 2024, respectively.

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 is accounted for under Subtopic 985-20. Our products contain embedded software internally developed by FTI, which is an integral part of these products because it allows the various components of the products to communicate with each other and the products are clearly unable to function without this coding.

The costs of product development that are capitalized once technological feasibility is determined (noted as technology in progress in the Intangible Assets table in NOTE 4-INTANGIBLE ASSETS, NET) include related licenses, certification costs, payroll, employee benefits, and other headcount-related expenses associated with product development. We determine that technological feasibility for our products is reached after all high-risk development issues have been resolved. Once the products are available for general release to our customers, we cease capitalizing the product development costs and any additional costs, if any, are expensed. The capitalized product development costs are amortized on a product-by-product basis using the straight-line amortization. The amortization begins when the products are available for general release to our customers.

As of December 31, 2025, and June 30, 2025, capitalized product development costs in progress were $301,902 and $452,676, respectively, and are included in intangible assets in our consolidated balance sheets. For the three and six months ended December 31, 2025, we incurred $238,599 and $285,777, respectively, and for the three and six months ended December 31, 2024, we incurred $17,981 and $31,981, respectively, in capitalized product development costs, and such amounts are primarily comprised of certifications and licenses. All costs incurred before technological feasibility reached are expensed and included in our consolidated statements of comprehensive income (loss).

Research and Development Costs

Costs associated with research and development are expensed as incurred. Research and development costs were $776,818 and $927,238 for the three months ended December 31, 2025 and 2024, respectively, and $1,726,570 and $1,951,550 for the six months ended December 31, 2025 and 2024, respectively.

Warranties

We provide a warranty for one year which is covered by our vendors and manufacturers under purchase agreements between the Company and the vendors. As a result, we believe we do not have any net warranty exposure and do not accrue any warranty expenses. Historically, the Company has not experienced any material net warranty expenditures.

Shipping and Handling Costs

Costs associated with product shipping and handling are expensed as incurred. Shipping and handling costs, which are included in selling, general and administrative expenses on the consolidated statements of comprehensive income, were $82,554 and $94,742 for the three months ended December 31, 2025 and 2024, respectively, and $271,397 and $172,855 for the six months ended December 31, 2025 and 2024, respectively.

Cash and Cash Equivalents

For the purposes of the consolidated balance sheets and the consolidated statements of cash flow, we consider all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.

Short Term Investments

We have invested excess funds in short-term liquid assets, such as certificates of deposit or money market funds.

Inventories, Net

Our inventories consist of finished goods and are stated at the lower of cost or net realizable value, cost being determined on a first-in, first-out basis. We assess the inventory carrying value and reduce it, if necessary, to its net realizable value based on customer orders on hand, and internal demand forecasts using management’s best estimates given information currently available. Our customer demand is highly unpredictable and can fluctuate significantly caused by factors beyond the Company’s control. We may write down our inventory value for potential obsolescence and excess inventory. For the six months ended December 31, 2025 and 2024, we recorded $16,695 and $0 reserve allowances for inventories we have identified as obsolete or slow-moving. As of December 31, 2025, and June 30, 2025, the inventory reserve for obsolete or slow-moving items was $55,194 and $40,274, respectively.

Property and Equipment, Net

Property and equipment are recorded at cost. Significant additions or improvements extending the useful lives of assets are capitalized. Expenditures for maintenance and repairs are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful lives as follows:

Schedule of estimated useful lives
Machinery		6 years
Office equipment, including software		5 years
Molds		3~6 years
Vehicles		5 years
Furniture and fixtures		7 years
Facilities improvements		5 years or life of the lease, whichever is shorter

Stock-based Compensation

We account for stock options and other equity-based compensation issued in accordance with ASC 718 “Stock Compensation”, which requires the measurement and recognition of compensation expense related to the fair value of equity-based compensation awards that are ultimately expected to vest. Stock-based compensation expense recognized includes the compensation cost for all share-based compensation payments granted to employees and non-employees, net of estimated forfeitures, over the employees’ requisite service period or the non-employees’ performance period based on the grant date fair value estimated in accordance with the provision of ASC 718. ASC 718 is also applied to awards modified, repurchased, or cancelled during the periods reported.

Income Taxes

We use the asset and liability method of accounting for income taxes. Accordingly, deferred tax assets and liabilities are determined based on the difference between the financial statement and income tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is recorded to reduce the carrying amount of deferred tax assets, unless it is more likely than not such assets will be realized. Current income taxes are based on the year’s taxable income for federal and state income tax reporting purposes and the annual change in deferred taxes.

We assess income tax positions and record tax benefits based upon management’s evaluation of the facts, circumstances, and information available at the reporting date. For those tax positions where it is more likely than not that a tax benefit will be sustained, we record the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information. For those income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit is recognized in the financial statements. We classify interest and penalties associated with such uncertain tax positions as a component of income tax expense.

As of December 31, 2025, we have no material unrecognized tax benefits. We recorded income tax provisions of $36,266 and $78,914 for the three and six months ended December 31, 2025, respectively, and income tax provisions of $167,727 and $215,607 for the three and six months ended December 31, 2024, respectively.

For the three and six months ended December 31, 2025, we recorded a decrease of $18,997 in non-current deferred tax assets. During the same periods, combined prepaid income taxes increased by $33,010 and $77,018, respectively. Regarding U.S. income tax payable, we recognized a net decrease of $27,116 for the three-month period and a net increase of $3,754 for the six-month period ended December 31, 2025.

In comparison, for the three and six months ended December 31, 2024, non-current deferred tax assets decreased by $167,727 and $214,807, respectively, while combined prepaid income taxes increased by $1,261 and $32,207 for the same periods.

Concentrations of Credit Risk

We maintain our cash accounts with established commercial banks in the United States of America (the “U.S.”) and Korea. Such cash deposits exceed the Federal Deposit Insurance Corporation insured limit of $250,000 and the Korea Deposit Insurance Corporation insured limit of approximately $70,000 for each financial institution located in the U.S. and Korea, respectively. As of December 31, 2025, we have approximately $22.4 million and $10.5 million in uninsured deposits in the U.S and Korea, respectively, but we do not anticipate any losses on excess deposits.

We extend credit to our customers and perform ongoing credit evaluations of such customers. We evaluate our accounts receivable on a regular basis for collectability and provide an allowance for potential credit losses as deemed necessary. No reserve was required or recorded for any of the periods presented.

Substantially all of our revenues are derived from sales of wireless data products. Any significant decline in market acceptance of our products or in the financial condition of our existing customers could impair our ability to operate effectively. A significant portion of our revenue is derived from a small number of customers. For the six months ended December 31, 2025, sales to our top two customers accounted for 91.6% of our consolidated net sales, and 94.1% of our accounts receivable balance as of December 31, 2025. In the same period of 2024, sales to our top two customers accounted for 94.5% of our consolidated net sales, and 82.9% of our accounts receivable balance as of December 31, 2024.

For the six months ended December 31, 2025, we purchased the majority of our wireless data products from a manufacturing company located in Asia. If this manufacturing company were to experience delays, capacity constraints or quality control problems, product shipments to our customers could be delayed, or our customers could consequently elect to cancel the underlying product purchase order, which would negatively impact on our revenue. For the six months ended December 31, 2025, we purchased wireless data products from this manufacturer in the amount of $16,086,692, or 85.4% of total purchases, and had related accounts payable of $8,533,065, or 83.5% of total accounts payable balance as of December 31, 2025. In the same period of 2024, we purchased wireless data products from two manufacturing companies located in Asia in the amount of $25,125,060, or 91.4% of total purchases, and had related accounts payable of $11,973,285, or 87.0% of total accounts payable balance as of December 31, 2024.

Recently Issued Accounting Pronouncements

In December 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures (Topic 740). The ASU requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional information on income taxes paid. The ASU is effective on a prospective basis for annual periods beginning after December 15, 2024. Early adoption is also permitted for annual financial statements that have not yet been issued or made available for issuance. This ASU will likely result in the required additional disclosures being included in our consolidated financial statements once adopted.

In November 2024, the FASB issued ASU No. 2024-03, Expense Disaggregation Disclosures (Subtopic 220-40). The ASU requires disclosure of specified information about certain costs and expenses. This includes purchases of inventory, employee compensation, depreciation, and intangible asset amortization. The ASU is effective on a prospective or retrospective basis for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. This ASU will likely result in the required additional disclosures being included in our consolidated financial statements, once adopted.

In January 2025, the FASB issued ASU 2025-01, which revises the effective date of ASU 2024-03, “to clarify that all public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027.” Entities within the ASU’s scope are permitted to early adopt the ASU. This ASU will likely result in the required additional disclosures being included in our consolidated financial statements once adopted.

On July 30, 2025, the FASB issued ASU 2025-05, which amends ASC 326-20 to provide a practical expedient for all entities and an accounting policy election for non-public business entities in estimating expected credit losses on current accounts receivable and current contract assets arising from transactions accounted for under ASC 606. We are currently evaluating whether to adopt the practical expedient under ASU 2025-05. We expect that the effect, if there are any, on our allowance for credit losses will depend on the mix and aging of our current receivables and contract assets under ASC 606, the timing of collections after period end, and whether macroeconomic forecasts materially deviate from current conditions.

In December 2025, the FASB issued Accounting Standards Update (“ASU”) 2025-11, Interim Reporting (Topic 270): Improvements to Interim Disclosure Requirements. This ASU improves the organization and clarity of interim reporting guidance and introduces a disclosure principle requiring entities to disclose events that occur after the most recent annual reporting period that have a material impact on interim financial statements. The ASU is effective for interim periods within annual periods beginning after December 15, 2027, which for the Company corresponds to fiscal year 2029. Early adoption is permitted. The Company is currently evaluating the impact of this ASU on its interim financial statement disclosures and does not expect the adoption to have a material impact on its consolidated financial position, results of operations, or cash flows.

In December 2025, the FASB issued Accounting Standards Update (“ASU”) 2025-12, Codification Improvements. This ASU includes amendments to the FASB Accounting Standards Codifications intended to clarify, correct, and make minor improvements to various Topics. The ASU is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods, which for the Company corresponds to fiscal year 2028. Early adoption is permitted. The Company does not expect adoption of this ASU to have a material impact on its consolidated financial statements.

NOTE 2 – BUSINESS OVERVIEW

Doing business as “Franklin Access”, we are a leading global provider of integrated wireless solutions utilizing the latest 5G (fifth generation) and 4G LTE (fourth generation long-term evolution) technologies including mobile hotspots, fixed wireless routers, and mobile device management (MDM) solutions. We are a leading enabler of the Digital Divide initiative, and our expertise extends to innovation in Internet of Things (IOT) and machine-to-machine (M2M) applications, driving forward seamless communication and connectivity for both individuals and enterprises.

We hold a 66.3% ownership in Franklin Technology Inc. (“FTI”), a research and development company based in Seoul, South Korea. FTI primarily provides design and development services for our wireless products. We hold a 60% ownership interest in Sigbeat Inc., based in San Diego, California (“Sigbeat”), which will engage in worldwide sales, marketing, customer support and operations for telecommunications modules. Our products are generally marketed and sold directly to wireless operators and indirectly through strategic partners and distributors. Our primary markets are in North America and Asia.

NOTE 3 – BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of Franklin Wireless Corp. have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and are presented in accordance with the requirements of Form 10-Q. In the opinion of management, the financial statements included herein contain all adjustments, including normal recurring adjustments, considered necessary to present fairly the financial position, the results of operations and comprehensive income (loss) and cash flows of the Company for the periods presented. These financial statements and notes hereto should be read in conjunction with the financial statements and notes thereto for the fiscal year ended June 30, 2025 included in our Form 10-K filed on September 29, 2025. The operating results or cash flows for the interim periods presented herein are not necessarily indicative of the results to be expected for any other interim period or the full year.

NOTE 4 – LIVED INTANGIBLE ASSETS, NET

The definite lived intangible assets consisted of the following as of December 31, 2025:


Intangible assets:	Expected Life	Average Remaining life		Gross Intangible Assets		Less Accumulated Amortization		Net Intangible Assets
Technology in progress	Not Applicable		–	$	301,902	$	–	$	301,902
Software	5~10 years		2.1 years		436,817		358,672		78,145
Patents	10 years		5.5 years		88,989		34,337		54,652
Certifications & licenses	3 years		1.6 years		3,620,134		3,101,860		518,274
Total as of December 31, 2025				$	4,447,842	$	3,494,869	$	952,973

The definite lived intangible assets consisted of the following as of June 30, 2025:


Intangible assets:	Expected Life	Average Remaining life		Gross Intangible Assets		Less Accumulated Amortization		Net Intangible Assets
Technology in progress	Not Applicable		–	$	452,676	$	–	$	452,676
Software	5~10 years		2.4 years		448,922		355,600		93,322
Patents	10 years		6.0 years		79,519		31,679		47,840
Certifications & licenses	3 years		1.3 years		3,166,828		2,746,554		420,274
Total as of June 30, 2025				$	4,147,945	$	3,133,833	$	1,014,112

Amortization expenses recognized for the three months ended December 31, 2025 and 2024 were $173,899 and $217,591, respectively, and for the six months ended December 31, 2025 and 2024 were $372,195 and $471,586, respectively.

The amortization expenses of the definite lived intangible assets for the future are as follows:


	FY2026		FY2027		FY2028		FY2029		FY2030		Thereafter
Total	$	182,418	$	241,322	$	190,433	$	31,592	$	5,306	$	–

NOTE 5 – ACCRUED LIABILITIES

Accrued liabilities consist of the following as of:

Schedule of accrued liabilities
	December 31, 2025		June 30, 2025
Accrued payroll deductions owed to government entities	$	50,377	$	50,988
Accrued bonuses to an officer – related party (1)		2,875,000		2,625,000
Accrued salaries		–		132,377
Accrued vacation		155,893		174,108
Accrued expenses for service providers		–		69,318
Accrued marketing development funds (2)		70,832		673,205
Other accrued liabilities		72,048		72,048
Total	$	3,224,150	$	3,797,044

(1)	The balance of Accrued Bonus to an officer consists of two components: the Quarterly Bonus and the Joint Venture Incentive. As of December 31, 2025, no cash payment has been made by the Company for either accrued amount.

On November 10, 2022, the Company and OC Kim, its President, entered into an amendment of the employment agreement dated September 7, 2021. The amendment provides for the payment of an incentive to Mr. Kim, of $125,000 for each calendar quarter during the remaining four-year term of the employment agreement, for an aggregate total of $2 million, with the first such bonus accrued on December 31, 2022. Incentive bonuses of $250,000 have been accrued for six months ended December, 2025, resulting in accrued bonus balances of $1,625,000 and $1,375,000 as of December 31, 2025, and June 30, 2025, respectively.

On September 23, 2024, the Board acknowledged that Mr. Kim had earned an incentive bonus of $1,250,000 for negotiating and securing a joint venture agreement which resulted in the organization of Sigbeat. The Company and Mr. Kim entered into a Forbearance Agreement, dated September 23, 2024, under which Mr. Kim agreed to defer the bonus, in exchange for the Company’s agreement to allow Mr. Kim to defer payment of the $1,000,000 settlement amount owed by Mr. Kim to the Company under a Settlement Agreement, dated June 12, 2024. On January 16, 2025, there was a completed contribution for Common Stock of Sigbeat, and the Company accrued the deferred incentive bonus of $1,250,000 to Mr. Kim.

(2)

During the six months ended December 31, 2025, the Company accrued $193,731 in marketing development funds (“MDF”) payable to a customer to support its marketing and promotion programs. Of the total outstanding obligations, $400,000 was offset against accounts receivable requested by the customer, and $396,104 was written off due to the end of the related product's life cycle and obligation. This resulted in a total accrued marketing development fund balance of $70,832 as of December 31, 2025.

NOTE 6 – COMMITMENTS AND CONTINGENCIES

Leases

We adopted ASC 842 new lease accounting on July 1, 2019. We have operating leases for both the Company and FTI, in accordance with ASC 842.

We determine whether an arrangement contains a lease at inception. A lease is a contract that provides the right to control an identified asset for a period of time in exchange for consideration. Operating leases are recorded in the balance sheet as right-of-use asset (“ROU asset”) and operating lease obligation. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payment arising from the lease ROU assets and operating lease liabilities are recognized at the commencement date of the lease and measured based on the present value of lease payment over the lease term. The ROU asset also includes deferred rent liabilities. Our lease arrangements generally do not provide an implicit interest rate. As a result, in such situations, we use its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We include lease extension or termination options in the measurement of our right-of-use (“ROU”) assets and lease liabilities when it is reasonably certain that such options will be exercised. Lease expense for operating lease is recognized on a straight-line basis over the lease term. We are also electing not to apply the recognition requirements to short-term leases of twelve months or less and instead will recognize lease payments as expense on a straight-line basis over the lease term.

Effective January 1, 2024, we leased approximately 11,400 square feet of office space in San Diego, California. The lease has an initial term of 65 months, expiring on May 31, 2029. The monthly rent for the first year was $27,789, subject to a fixed three percent annual increase every first of January, and the lease includes one month of rent abatement each year. In addition to the base monthly rent, the lease also requires payment for certain common area costs. We maintain appropriate insurance coverage and believe the facility is suitable and adequate for our present needs. Rent expense for this office space was $85,295 and $83,367 for the three months ended December 31, 2025 and 2024, respectively, and $170,590 and $166,734 for the six months ended December 31, 2025 and 2024, respectively.

Our Korea-based subsidiary, FTI, leases approximately 10,000 square feet of office space, at a monthly rent of approximately $6,600, and additional office space consisting of approximately 2,682 square feet at a monthly rent of approximately $2,200, both located in Seoul, South Korea. These leases expired on August 31, 2024, and were extended for an additional 24 months to August 31, 2026. In addition to monthly rent, the leases provide for periodic cost of living increases in the base rent and payment for certain common area costs. These facilities are covered by an appropriate level of insurance, and we believe them to be suitable for our use and adequate for our present needs. Rent expense related to these leases was approximately $25,580 and $26,475 for the three months ended December 31, 2025 and 2024, respectively, and $52,345 and $53,821 for the six months ended December 31, 2025 and 2024, respectively.

We leased one corporate vehicle on December 1, 2024, in San Diego, California, for our employees, under a non-cancelable lease that expires on November 30, 2027. Rent expense related to this lease was $1,486 and $496 for the three months ended December 31, 2025 and 2024, respectively, and $2,973 and $496 for the six months ended December 31, 2025 and 2024, respectively.

We used discount rates of 7.0% and 6.0% in determining our operating lease liabilities for the office spaces in San Diego, California, and South Korea, respectively, and used a discount rate of 7.0% in determining our lease liabilities for the vehicle. These rates represented our incremental borrowing rates at that time. Short-term leases with initial terms of twelve months or less are not capitalized. The office leases of our Korea-based subsidiary were extensions of previous leases and do not contain any further extension provisions.

Total rent expenses for the six months ended December 31, 2025 and 2024 were $237,419 and $225,109, respectively. In accordance with ASC 842, the components of the lease expense and supplemental cash flow information related to leases for the six months ended December 31, 2025, and 2024 are as follows:


	Six Months Ended December 31,
	2025		2024
Operating lease expense	$	222,935	$	220,555
Vehicle lease expense		2,973		496
Short term lease cost		11,511		4,058
Total lease expense	$	237,419	$	225,109

In accordance with ASC 842, future minimum payments under operating leases are as follows:


	Operating Lease
Fiscal 2026		$	216,920
Fiscal 2027			376,048
Fiscal 2028			389,915
Fiscal 2029			363,310
Total lease payments			1,346,193
Less imputed interest			(150,680	)
Total		$	1,195,513

Remaining lease term-operating lease in San Diego, California			3.4 years
Discount rate-operating lease in San Diego, California			7%
Remaining lease term-operating lease in South Korea			0.7 years
Discount rate-operating lease in South Korea			6%
Remaining lease term-vehicle lease in San Diego, California			1.9 years
Discount rate-vehicle lease in San Diego, California			7%

WARRANTY REPAIRS

The following table sets forth the accumulated percentages of return rates and warranty repairs for all products currently marketed, in the aggregate, from the date each product was introduced through December 31, 2025.


Current Devices
Device Type	Return Rate	Warranty Repairs
4G Wireless Devices	0.11%	0.01%
5G Wireless Devices	0.55%	0.14%

Litigation

We are from time to time involved in certain legal proceedings and claims arising in the ordinary course of business.

FTI Litigation in Korea

In January of 2025 our South Korea-based subsidiary, FTI was sued by Partron Co., Ltd., a South Korean manufacturer of electronic parts for mobile and telecommunication devices (“Partron”). The complaint, filed in Seoul Central District Court, alleges that FTI requested Partron to prepare semiconductor components to be included in FTI’s products for resale to third parties. The complaint also alleges that FTI and Partron had entered into a Confidentiality Agreement under which Partron shared the login credentials for its Qualcomm account and that FTI used such access for the design of the products but contracted with another vendor to produce the components. It further alleges that Partron ordered a large quantity of semiconductor components from its business partners, such as Qualcomm and Dasaron Corporation, in reliance on such requests from FTI, but FTI failed to complete the purchase of such components from Partron. Parton alleges that it paid its suppliers for such components, but that FTI failed to purchase the components from Partron, resulting in damages, including interest, of $8,126,786, under the South Korean Unfair Competition Prevention Act and other legal theories. On January, 20, 2026, Partron’s final claim was adjusted to, including interest, $8,895,120 for the primary claim. The next hearing by the court is scheduled for March 31, 2026.

The Company owns approximately 66.34% of the outstanding equity securities of FTI. While the Company is not named as a defendant in the action, FTI is a consolidated subsidiary. Accordingly, the final outcome of this litigation could have an impact on the Company’s consolidated statements of operations (P&L) and financial position. In response to the lawsuit, FTI has engaged legal counsel to represent its interests and is vigorously defending against the allegations. The Company and FTI are continuously evaluating the potential financial statement impact as the case progresses. FTI has advised the Company that it does not believe the allegations are supported by the facts and it intends to vigorously oppose the action.

Shareholder Litigation

Pape

A legal action was filed in the Second Judicial District Court of Nevada in the County of Washoe against Franklin, as a nominal defendant, Barbara Pape, derivatively on behalf of nominal defendant Franklin Wireless Corp. v. O.C. Kim, et al., Case # CV22-00471, on or about March 21, 2022, claiming among other things, that we had prior knowledge that the recall was likely and that we did not disclose that information to investors in a timely manner. Following the jury verdict in the consolidated Harwood and Martin action finding only nominal damages, the parties agreed to dismiss this action. On August 12, 2025, the court formally dismissed the case.

“Short-Swing” Profits Litigation

A legal action was filed in the U.S. District Court, Southern District of California (San Diego) against Franklin, as a nominal defendant, Nosirrah Management LLC v. Franklin Wireless et al., Case # 3:21-cv-01316-RSH-JLB, on or about July 22, 2021, claiming that our Chief Executive Officer, O.C. Kim, violated Section 16(b) of the Securities Exchange Act of 1934 for receiving “short-swing” profits from a sale and purchase of Franklin shares, in violation of that Act. On October 19, 2023, the jury returned a verdict of $2,000,000 in favor of the Company against the Company’s Chief Executive Officer, O.C. Kim. Mr. Kim. Subsequently, the parties entered into a settlement agreement on June 12, 2024, for Mr. Kim to pay $1,000,000, and the appeal by OC Kim was dismissed. On September 23, 2024 the Company and Mr. Kim entered into a Forbearance Agreement to defer payment of the settlement in exchange for deferment of a $1,250,000 bonus for securing a joint venture agreement to allow Mr. Kim time to pursue remedies with the State of Nevada.

On January 16, 2025, the Company accrued the deferred incentive bonus of $1,250,000 to OC Kim, its President, and recognized a receivable for the deferred $1,000,000 settlement amount owed by Mr. Kim to the Company. As of June 30, 2025, no payment for the accrued bonus has been made to Mr. Kim by the Company, and the receivable of $1,000,000 from Mr. Kim was partially settled through the May 8, 2025 option repurchase transaction, in which the $337,404 net proceeds otherwise payable to Mr. Kim were applied against the receivable. This leaves a remaining settlement balance of $662,596 owed by Mr. Kim as of December 31, 2025.

Loan Agreement with Subsidiary, FTI

On March 21, 2022, Franklin Wireless Corp. (the “Company”) entered into a Loan Agreement with its South Korean subsidiary, FTI, under which the Company agreed to loan US$10,000,000 to FTI. The Company owns a majority of the outstanding equity of FTI. FTI’s primary business is providing design and development services to the Company for our wireless products. As part of the loan transaction, FTI delivered a $10 million Promissory Note to the Company (the “Note”). In the preparation of consolidated financial statements of the Company, the transactions and balances related to the loan of $10 million, including the accrued interest for the year ended June 30, 2025, were eliminated as intercompany transactions.

The purpose of the loan is to allow FTI to purchase a facility in South Korea to house its operations, and to provide it with additional working capital. The purchase of such a facility with the loan proceeds is subject to the Company’s reasonable approval. Upon acquisition of the facility, FTI is required to grant the Company a mortgage on it to secure payment of the Note. The Note is for a term of five years, provides for annual payments of interest at 2% per annum, and is due and payable upon maturity. The Note and Loan Agreement includes customary provisions for default and acceleration upon default, and a default interest rate of 7% per annum. FTI has not yet acquired a facility for its operations.

The loan proceeds are subject to foreign exchange fluctuations as the funds are being held in Korea at a Korean bank. Should the exchange rate rise or fall during the term of the agreement the return value in the United States Dollar (“USD”) could decrease resulting in a potential loss of value.

Employment Contracts

On October 1, 2020, we entered into Change of Control Agreements with OC Kim, our President, and Yun J. (David) Lee, our Senior Vice President of Sales who previously served as Chief Operating Officer. Each Change of Control Agreement provides for a lump sum payment to the officer in case of a change of control of the Company. The term includes the acquisition of Common Stock of the Company resulting in one person or company owning more than 50% of the outstanding shares, a significant change in the composition of the Board of Directors of the Company during any 12-month period, a reorganization, merger, consolidation or similar transaction resulting in the transfer of ownership of more than fifty percent (50%) of the Company’s outstanding Common Stock, or a liquidation or dissolution of the Company or sale of substantially all of the Company’s assets.

The Change of Control Agreement with Mr. Kim calls for a payment of $5 million upon a change of control, and the agreement with Mr. Lee calls for a payment of $2 million upon a change of control. These agreements were for an initial term of three years but have now been extended through October 2027.

On November 10, 2022, the Company and OC Kim, its President, entered into an amendment of the employment agreement dated September 7, 2021. The amendment provides for a severance payment of $3 million if Mr. Kim voluntarily terminates his employment with the Company or if he voluntarily terminates his employment due to a “change in circumstances,” generally defined as a material breach by the Company of its salary and benefit obligations or a significant reduction in Mr. Kim’s title or responsibilities. In the case of a termination of employment by the Company for cause (generally defined as conviction of a felony, or a misdemeanor where imprisonment is imposed, commission of any act of theft, fraud, dishonesty, or material falsification of any employment or Company records, or improper disclosure of the Company’s confidential or proprietary information), the Company is to make a severance payment of $1,500,000. In either case, any unvested options become immediately vested.

In the amendment, Mr. Kim also agrees that, for a period of two years after termination, he will not disparage the Company or its officers, solicit any of its employees to terminate their employment, or disclose any of the Company’s proprietary information. In addition, the amendment provides for the payment of an incentive bonus to Mr. Kim of $125,000 for each calendar quarter during the remaining four-year term of the employment agreement, with the first such bonus due on December 31, 2022. Incentive bonuses of $250,000 have been accrued for each of six months ended December 31, 2025 and 2024, resulting in accrued bonus balances of $1,625,000 and $1,375,000 as of December 31, 2025, and June 30, 2025, respectively. As of December 31, 2025, no payment for the accrued bonuses has been made by the Company.

The employment agreement with OC Kim was renewed and extended by the Board in September 2024 and will continue through October 2027.

Joint Venture Agreement

On May 14, 2024, the Company entered into an Agreement for Formation of a Joint Venture Corporation (the “Agreement”). Under the terms of the Agreement, the parties formed a Nevada corporation, Sigbeat, to be owned 60% by Franklin and 40% by its EMS partner, Forge. The parties contributed a total of $5,000,000 in capital, in accordance with their respective ownership interest percentages. Under the terms of the Agreement, Sigbeat has a Board of Directors consisting of three members, of whom two are to be appointed by the Company and one appointed by Forge. Sigbeat will engage in worldwide sales, marketing, customer support and operations for telecommunications modules under such brands or designations as the Board of Directors of Sigbeat determine.

Forbearance Agreement

On September 23, 2024, the Board acknowledged that Mr. Kim had earned an incentive bonus of $1,250,000 for negotiating and securing a joint venture agreement with its EMS partner. The Company and Mr. Kim also entered into a Forbearance Agreement on September 23, 2024, under which Mr. Kim agreed to defer the bonus, in exchange for the Company’s agreement to allow Mr. Kim to defer payment of the $1,000,000 settlement amount owed by Mr. Kim to the Company under a Settlement Agreement, dated June 12, 2024.

International Tariffs

Our products are currently manufactured in Vietnam. We believe that our products are currently exempt from international tariffs upon import from our manufacturers to the United States.

If tariffs are imposed on our products either based on type of product or the country of manufacture, they could significantly increase our costs to import devices and potentially reduce or even eliminate our ability to earn profits from the sale of our devices. Should we be required to use device manufacturing companies located outside of tariffed countries we will incur significant delays in production and possibly lose sales as a result of those changes and delays.

Given the unpredictable timing of tariff implementation, it is possible that sales could be in process and become subject to a tariff that would result in losses on those transactions. Any such reduction in profit margins, lost sales and or increased costs would likely have a negative impact on the price of our shares in the market.

Customer Indemnification

Under purchase orders and contracts for the sale of our products we may provide indemnification to our customers for potential intellectual property infringement claims for which we may have no corresponding recourse against our third-party licensors. This potential liability, if realized, could materially adversely affect our business, operating results and financial condition.

NOTE 7 – CYBERSECURITY.

Cybersecurity risk management is an integral part of our overall enterprise risk management program. We manage cybersecurity and data protection through a continuously evolving program. Our cybersecurity risk management program is designed to provide a framework for assessing, identifying and managing cybersecurity threats and incidents, including threats and incidents associated with the use of services provided by third-party service providers, and to facilitate coordination across different departments of our Company. Our processes include steps for assessing the severity of a cybersecurity threat, identifying the source of a cybersecurity threat, including whether the cybersecurity threat is associated with a third-party service provider, and implementing cybersecurity countermeasures and mitigation strategies and informing management and the board of directors of material cybersecurity threats and incidents.

The Board of Directors has oversight for the most significant risks facing us and for our processes to identify, prioritize, assess, manage and mitigate those risks. The Audit Committee of the Board of Directors (the “Audit Committee”) has been designated to oversee cybersecurity risks. The Audit Committee receives regular updates on cybersecurity and information technology matters and related risk exposures from our management. The Board of Directors also receives periodic updates from management and the Audit Committee on cybersecurity risks. Management is responsible for identifying, considering and assessing material cybersecurity risks on an ongoing basis, establishing processes designed to ensure that such potential cybersecurity risk exposures are monitored, putting in place mitigation measures and maintaining cybersecurity programs. Our cybersecurity programs are under the direction of our Chief Executive Officer. Management regularly updates the Audit Committee on our cybersecurity programs, which includes cybersecurity risks and mitigation strategies, vulnerability management, and on-going cybersecurity projects.

As of December 31, 2025, we did not identify any cybersecurity incidents that materially affected or are reasonably likely to materially affect our business strategy, results of operations, or financial condition. However, despite our efforts, we cannot eliminate all risks from cybersecurity threats or provide assurances that we have not experienced an undetected cybersecurity incident. It is possible that we may not implement appropriate controls if we do not detect a particular risk. In addition, security controls, no matter how well designed or implemented, may only mitigate and not fully eliminate the risks. Even when a risk is detected, disruptive events may not always be immediately and thoroughly interpreted and acted upon.

NOTE 8 – LONG-TERM INCENTIVE PLAN AWARDS

We apply the provisions of ASC 718, “Compensation - Stock Compensation,” to all of our stock-based compensation awards and use the Black-Scholes option pricing model to value stock options. The fair value of each share option award on the date of grant was estimated using the Black-Scholes method based on the following weighted average assumptions: The risk-free interest rate is based on the U.S. treasury yield curve in effect at the time of grant for periods corresponding with the expected term of options award; the expected term represents the period of time that options granted are expected to be outstanding, taking into account the vesting provisions and historical exercise patterns of participants; the expected volatility is based upon historical volatility; and the dividend yield is based upon the company’s dividend rate at the time fair value is measured and future expectations. Under this application, we record compensation expense for all awards granted.

In July of 2020, the Board of Directors adopted the 2020 Franklin Wireless Corp. Stock Option Plan (the “2020 Plan”), which covers 1,000,000 shares of Common Stock. The 2020 Plan provides for the grant of incentive stock options, non-qualified stock options and restricted stock to our employees, directors, and independent contractors. These options will have such vesting or other provisions as they may be established by the Board of Directors or Plan Administrator at the time of each grant.

The estimated forfeiture rate considers historical turnover rates stratified into employee pools in comparison with an overall employee turnover rate, as well as expectations about the future. We periodically revise the estimated forfeiture rate in subsequent periods if actual forfeitures differ from those estimates. There were $0 and $170,583 compensation expenses recorded under this method for the six months ended December 31, 2025 and 2024, respectively.

A summary of the status of our stock options is presented below as of December 31, 2025:

Weighted-

Average

Weighted-

Remaining

Average

Contractual

Aggregate

Exercise

Life

Intrinsic

Options

Shares

Price

(In Years)

Value

Outstanding as of June 30, 2025

392,001

4.64

0.58

117,600

Granted

–

Exercised

–

Cancelled

–

Forfeited or expired (1)

(245,001)

5.40

–

Outstanding as of December 31, 2025

147,000

3.38

0.99

145,530

Exercisable as of December 31, 2025

147,000

3.38

0.99

145,530

(1)	A total of 245,001 shares of fully vested stock options, which had been previously granted through its 2020 employee stock option plan, lapsed and expired in July 2025.

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based upon our closing stock price of $4.37 as of December 31, 2025, which would have been received by the option holders had all option holders exercised their options as of that date. The weighted-average grant-date fair value of stock options outstanding as of December 31, 2025, in the amount of 147,000 shares was $2.83 per share. As of December 31, 2025, there was no unrecognized compensation cost related to non-vested stock options granted.

A summary of the status of our stock options is presented below as of December 31, 2024:

Weighted-

Average

Weighted-

Remaining

Average

Contractual

Aggregate

Exercise

Life

Intrinsic

Options

Shares

Price

(In Years)

Value

Outstanding as of June 30, 2024

627,001

4.24

2.88

130,200

Granted

–

Exercised

–

Cancelled

–

Forfeited or expired

(20,000

)

4.90

–

Outstanding as of December 31, 2024

607,001

4.20

1.40

550,240

Exercisable as of December 31, 2024

607,001

4.20

1.40

550,240

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based upon our closing stock price of $4.90 as of December 31, 2024, which would have been received by the option holders had all option holders exercised their options as of that date. The weighted-average grant-date fair value of stock options outstanding as of December 31, 2024, in the amount of 607,001 shares was $3.32 per share. As of December 31, 2024, there was unrecognized compensation cost of $0 related to non-vested stock options granted.

NOTE 9 – STOCKHOLDERS’ EQUITY

Common Stock

We are authorized to issue 50,000,000 shares of common stock, $0.001 par value. Each share of issued and outstanding common stock shall entitle the holder thereof to fully participate in all shareholder meetings, to cast one vote on each matter with respect to which shareholders have the right to vote, and to share ratably in all dividends and other distributions declared and paid with respect to common stock, as well as in the net assets of the corporation upon liquidation or dissolution.

For the six months ended December 31, 2025, no shares of common stock were issued, and there were 11,784,280 shares issued and outstanding as of December 31, 2025, and June 30, 2025.

Preferred Stock

We have been authorized to issue 10,000,000 shares of preferred stock. $0.01 par value, but no preferred stock is issued and outstanding as of December 31, 2025, and June 30, 2025.

Treasury Stock

We had 2,549,208 shares of treasury stock, valued at $3,554,893 (based on the costs that we agreed to repurchase) as of December 31, 2025, and June 30, 2025.

Cash Dividends

On November 4, 2025, our Board of Directors declared a cash dividend of $0.04 per share on our common stock, totaling $471,371. The dividend was payable to shareholders of record at the close of business on November 14, 2025. We recorded the dividend declaration as a reduction to Retained Earnings and a corresponding increase in Dividends Payable on November 4, 2025. On December 2, 2025, we completed the cash payment, which resulted in a decrease in both Cash and Dividends Payable. As of December 31, 2025, there were no unpaid dividends remaining in the Company's liabilities.

NOTE 10 – RELATED PARTY TRANSACTIONS

We entered into a Forbearance Agreement with Mr. Kim on September 23, 2024, under which Mr. Kim agreed to defer a $1,250,000 bonus previously earned by him in exchange for the Company’s agreement to allow Mr. Kim to defer payment of the $1,000,000 settlement amount owed by Mr. Kim to the Company under a Settlement Agreement, dated June 12, 2024. On January 16, 2025, we accrued the deferred incentive bonus of $1,250,000 to OC Kim, our President, and recognized a receivable for the deferred $1,000,000 settlement amount owed by Mr. Kim to the Company. As of December 31, 2025, no payment for the accrued bonus has been made to Mr. Kim by the Company, and the receivable of $1,000,000 from Mr. Kim was partially settled through the May 8, 2025 option repurchase transaction, in which the $337,404 net proceeds otherwise payable to Mr. Kim were applied against the receivable. This leaves a remaining settlement balance of $662,596 owed by Mr. Kim as of December 31, 2025.

On May 14, 2024, we entered into an Agreement for Formation of a Joint Venture Corporation (the “Agreement”). Under the terms of the Agreement, the parties formed a Nevada corporation, Sigbeat, to be owned 60% by Franklin and 40% by its EMS partner, Forge. The parties contributed a total of $5,000,000 in capital, in accordance with their respective ownership interest percentages. Under the terms of the Agreement, Sigbeat has a Board of Directors consisting of three members, of whom two are to be appointed by the Company and one appointed by Forge. Sigbeat will engage in worldwide sales, marketing, customer support and operations for telecommunications modules under such brands or designations as the Board of Directors of Sigbeat determines. Pursuant to the Agreement, in July 2024, Sigbeat entered into a stock subscription agreement with Forge, for the purchase of 400,000 shares of Common Stock, representing 40% of the total outstanding Common Stock of Sigbeat. On December 23, 2024, and January 9, 2025, we contributed $600,000 and $2,400,000 for Common Stock, respectively, and, on January 16, 2025, Forge contributed $2,000,000 for Common Stock. On June 20, 2024, we entered into a Purchase and Supply Agreement with Forge. This Agreement outlines the terms under which we purchase certain products from Forge for resale to our customers.

For the three and six months ended December 31, 2025, we purchased wireless data products from Forge in the amount of approximately $8.5 million and $

SEC Form 10-Q filed by Franklin Wireless Corp.