FRANKLIN WIRELESS CORP

NOTE 1 -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. During the six months ended June 30, 2026, we began implementing a strategic shift to reduce our reliance on mobile hotspot products and increase our focus on fixed wireless routers and telecommunications modules. This shift was accelerated following a significant decline in demand for certain legacy hotspot products. We are a leading enabler of the Digital Divide initiative, and our expertise extends to innovation in Internet of Things (IOT) and machine-to-machine (M2M) applications, driving forward seamless communication and connectivity for both individuals and enterprises. While we intend to integrate artificial intelligence (“AI”)-compatible hardware, we have not commercially implemented AI technology within our current products.

We 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 2 -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 June 30, 2026 and 2025, the consolidated financial statements include the accounts of Franklin Wireless Corp. and its subsidiaries, FTI and Sigbeat, with majority voting interests of 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, intercompany transactions and balances are eliminated and net (loss) earnings are reduced by the portion of the net (loss) earnings of the subsidiary or subsidiaries applicable to noncontrolling interests.

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 Interest in Consolidated Subsidiary

As of June 30, 2026, the Non-Controlling Interests (“NCI”) totaled $1,166,023, representing a ($2,183,838) net decrease from the $3,349,861 balance as of June 30, 2025. The net decrease of ($2,183,838) is broken down by subsidiaries for the year ended June 30, 2026, as follows:

The NCI in FTI decreased by ($2,128,030), and the decrease was comprised of the following two items:

The NCI in Sigbeat decreased by ($55,808), and the decrease was attributable to Sigbeat’s net loss of ($139,520) for the period.

As of June 30, 2025, the non-controlling interest was $3,349,861, which represents a $2,120,917 increase from $1,228,944 as of June 30, 2024. The net increase of $2,120,917 is broken down by subsidiaries for the year ended June 30, 2025, as follows:

The NCI in FTI increased by $97,315, and the increase was comprised of the following two items:

The NCI in Sigbeat increased by $2,023,602, and the increase was comprised of the following two items:

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 haveone 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 (loss) income 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 the reconciliation of total segment sales less disclosed significant expenses to the segment’s measure of net (loss) income.

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:

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 the adoption of ASC 326 and based on our evaluation of historical collection experience and current receivable balances, we recorded an allowance for doubtful accounts of $550,000 for the year ended June 30, 2026, bringing the total allowance to $709,074 as of June 30, 2026, compared to $159,074 as of June 30, 2025. For the year ended June 30, 2026, we recorded a bad debt expense of $555,600, which consisted of a reserve of $550,000 and direct write-off of uncollectible account of $5,600. For the year ended June 30, 2025, we recorded a bad debt expense of $158,400.

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 9–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 expenses 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, transactions denominated in a currency other than an entity’s functional currency are remeasured into the functional currency. Resulting foreign currency transaction gains and losses are recognized in net (loss) income in the period in which they occur.

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 **

We account for our 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.

We determine 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 years ended June 30, 2026 and 2025 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. However, we recognize contract liability when a customer prepays for goods and/or services, or when 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:

We did not have any un-invoiced receivables in the periods ended June 30, 2026 and 2025.

Our contract liabilities are as follows:

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.

Our performance obligations are satisfied at a point in time. Revenue from products transferred to customers at a single point in time accounted for 99.3% and 99.2% of net sales for the years ended June 30, 2026 and 2025, respectively.

Revenue recognized over a period of time is based on the percent completion of a project and accounted for under 0.7% and 0.8% of net sales for the years ended June 30, 2026 and 2025, respectively. The majority of our revenue recognized at a point in time is for the sale of hotspot router products. Revenue from these contracts is recognized when the customer is able to direct the use of and obtain substantially all of the benefits from the product, which generally coincides with title transfer at completion of the shipping process. As of June 30, 2026 and 2025, 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 approximately $540,000 and $790,000 related to capitalized product development costs associated with completed technology for the years ended June 30, 2026, and 2025, 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 shall be 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 2 to Notes to Consolidated Financial Statements) include certifications, licenses, 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 June 30, 2026, and 2025, capitalized product development costs in progress were $22,582 and $452,676, respectively, and these amounts are included in intangible assets in our consolidated balance sheets. For the years ended June 30, 2026 and 2025, we incurred $462,136 and $520,202, 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 (loss) income.

Research and Development Costs

Costs associated with research and development are expensed as incurred. Research and development costs were $3,233,791 and $4,102,660 for the years ended June 30, 2026, and 2025, respectively.

Warranties

We provide a warranty for a period of twelve (12) to eighteen (18) months, 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, we have 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 statements of comprehensive income, were $363,110 and $276,311 for the years ended June 30, 2026, and 2025, respectively.

Cash and Cash Equivalents

For purposes of 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. We invest our excess cash into financial instruments which management believes are readily convertible into cash, such as money market funds that are readily convertible to cash and have a $1.00 net asset value.

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 control of the Company.

We may write down our inventory value for potential obsolescence and excess inventory. For the years ended June 30, 2026, and 2025, we recorded $18,968 and $63,846 reserve allowance for inventories we have identified as obsolete or slow-moving. As of June 30, 2026 and 2025, the inventory reserve for obsolete or slow-moving items was $54,768 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. Maintenance and repairs of an expense nature are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful lives as follows:

Goodwill and Intangible Assets

Goodwill and certain intangible assets were recorded in connection with the FTI acquisition in October 2009, and were accounted for in accordance with ASC 805, “Business Combinations.” Goodwill represents the excess of the purchase price over the fair value of the tangible and intangible net assets acquired. Intangible assets are recorded at their fair value at the date of acquisition. Goodwill and other intangible assets are accounted for in accordance with ASC 350, “Goodwill and Other Intangible Assets.” Goodwill and other intangible assets are tested for impairment at least annually and any related impairment losses are recognized in earnings when identified. No impairment was recognized during the years ended June 30, 2026, and 2025.

Intangible Assets, Net

The definite lived intangible assets consisted of the following as of June 30, 2026:

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

Amortization expense recognized for the years ended June 30, 2026 and 2025 were $573,439 and $827,091, respectively. For the year ended June 30, 2026, we had no disposals of certifications, licenses, or completed technology. For the year ended June 30, 2025, we disposed of fully amortized certifications and licenses of $824,706 and completed technology of $18,397.

The amortization expenses of the definite lived intangible assets for the next five years and thereafter are as follows

Impairment of Long-lived Assets

In accordance with ASC 360, “Property, Plant, and Equipment,” we review for impairment long-lived assets and certain identifiable intangibles whenever events or circumstances indicate that the carrying amount of assets may not be recoverable. We consider the carrying value of assets may not be recoverable based upon our review of the following events or changes in circumstances: the asset’s ability to continue to generate income from operations and positive cash flow in future periods; loss of legal ownership or title to the assets; significant changes in our strategic business objectives and utilization of the asset; or significant negative industry or economic trends. An impairment loss would be recognized when estimated future cash flows expected to result from the use of the asset are less than its carrying amount.

We are not aware of any events or changes in circumstances during the year ended June 30, 2026, that would indicate that the long-lived assets are impaired.

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.

(Loss) Earnings per Share Attributable to Common Stockholders

In accordance with ASC 260, basic (loss) earnings per share are calculated by dividing the net (loss) income by the weighted-average number of common shares that were outstanding for the period, without considering any potential future issuance of common shares. Diluted (loss) earnings per share is calculated by dividing the net income (loss) by the sum of the weighted-average number of dilutive potential common shares outstanding for the period determined using the treasury-stock method. Potentially dilutive shares are comprised of common stock options outstanding under our stock plan. Diluted EPS excludes all dilutive potential common shares if their effect is nondilutive. Nondilutive shares are not taken into account when computing the weighted average number of shares used in the dilutive EPS calculation.

**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 $65,000 for each financial institution located in the U.S. and Korea, respectively. As of June 30, 2026, we have approximately $21.5 million and $9.5 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. For the year ended June 30, 2026 and 2025, $550,000 and $158,400 reserves were recorded respectively.

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 year ended June 30, 2026, net sales to our two largest customers represented approximately 61% and 28% of our consolidated net sales, respectively, and 0% and 44% of our accounts receivable balance as of June 30, 2026. During the six months ended June 30, 2026, we experienced a significant reduction in revenue from one of our major customers due to the discontinuation of a key product by this customer. We do not expect material future sales of this product to this customer. For the year ended June 30, 2025, net sales to our two largest customers represented approximately 61% and 33% of our consolidated net sales, respectively, and 34% and 57% of our accounts receivable balance as of June 30, 2025.

For the year ended June 30, 2026, we purchased the majority of our wireless data products from one manufacturing company located in Asia. If these manufacturers experience delays, capacity constraints—particularly as they reallocate production toward higher-margin Artificial Intelligence (“AI”) related components—or quality control problems, shipments to our customers could be delayed. Consequently, customers may elect to cancel purchase orders, which would negatively impact our revenue.

For the year ended June 30, 2026, we purchased wireless data products from one major supplier in the amount of $27,135,655, or 83.8% of total purchases, and had related accounts payable of $5,733,863, or 83.2%, as of June 30, 2026.

For the fiscal year ended June 30, 2025, we purchased wireless data products from two major suppliers totaling $31,999,540, representing 85.3% of total purchases. Specifically, purchases from these suppliers amounted to $18,268,052 (48.7%) and $13,731,488 (36.6%), respectively. As of June 30, 2025, outstanding accounts payable balances related to these suppliers were $0 and $5,641,183 (representing 69.5% of total accounts payable), respectively.

Recently Issued Accounting Pronouncements

In December 2023, the FASB issued ASU No. 2023-09,Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The ASU requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional details regarding income taxes paid. The ASU is effective on a prospective basis for annual periods beginning after December 15, 2024, with early adoption permitted. We adopted the ASU effective July 1, 2025, and the required disclosures are included in Note 4 of our Form 10-K for the fiscal year ended June 30, 2026. The adoption enhanced disclosures regarding rate reconciliation and income taxes paid, but had no impact on our consolidated financial position, results of operations, or cash flows.

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 Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures/DISE, primarily for public business entities (PBEs) with non-calendar year-ends, “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 to simplify credit loss estimations for current accounts receivable and contract assets under ASC 606. The amendments in this ASU are effective for all entities for annual reporting periods beginning after 15 December 2025, and interim reporting periods within those annual reporting periods, which for the Company corresponds to fiscal year 2027. 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. We are currently evaluating the impact of this ASU on our interim financial statement disclosures and do not expect the adoption to have a material impact on our 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. We do not expect adoption of this ASU to have a material impact on our consolidated financial statements.

NOTE 3 -ACCRUED LIABILITIES

Accrued liabilities consist of the following as of:

On July 28, 2026, the Seoul Central District Court issued a partially adverse judgment against FTI in a civil lawsuit brought by Partron Co., Ltd. (“Partron) for alleged damages arising from the termination of supply contract negotiations. As a result of this ruling, FTI recognized a total litigation loss contingency of $4,345,104 for the fiscal year ended June 30, 2026. This accrued amount comprises the principal judgment award of $3,673,336 plus accrued statutory interest of $671,768 calculated through June 30, 2026. On August 6, 2026, FTI, through its legal counsel, filed a formal appeal against the judgment. The Company, through FTI, intends to vigorously contest the ruling through the appellate process to reverse the judgment.

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 $500,000 have been accrued for each of the years ended June 30, 2026 and 2025, resulting in accrued bonus balances of $1,875,000 and $1,375,000 as of June 30, 2026 and 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.

NOTE 4 -INCOME TAXES

Income tax benefit for the years ended June 30, 2026, and 2025 consists of the following:

The income tax benefit reconciles to the amount computed by applying the effective federal statutory income tax rate to the income before provision for income taxes as follows:

Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets are as follows:

Deferred income tax assets and liabilities are recorded for differences between the financial statement and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

We evaluate the available positive and negative evidence supporting the realization of our gross deferred tax assets, including historical financial results, the scheduled reversal of deferred tax liabilities, and the amount and timing of forecasted future taxable income. Based on this evaluation, management determined that it is more likely than not that our U.S. federal and state deferred tax assets will be fully realized, and accordingly, no valuation allowance was recorded for U.S. deferred tax assets as of June 30, 2026, or 2025.

Conversely, during the fiscal year ended June 30, 2026, based on the weight of available evidence, including cumulative losses incurred by our foreign subsidiary, management determined that it was no longer more likely than not that the foreign deferred tax assets would be realized. Consequently, a 100% valuation allowance was recorded against all foreign deferred tax assets as of June 30, 2026, whereasno valuation allowance was recorded against foreign deferred tax assets as of June 30, 2025.

We apply the provisions of ASC 740 related to accounting for uncertain tax positions, which prescribes a recognition threshold and measurement process for recording in the financial statements uncertain tax positions taken or expected to be taken in a tax return. Under this provision, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. Tax benefits of an uncertain tax position will not be recognized if it has less than a 50% likelihood of being sustained based on technical merits.

As of June 30, 2026, the Company had federal and state net operating loss (NOL) carryforwards of approximately $1.1 million and $0.6 million, respectively. Under current U.S. federal tax law, federal net operating loss carryforwards generated in tax years ending after December 31, 2017, of approximately $1.1 million, carry forward indefinitely. The Company has no pre-TCJA federal net operating loss carryforwards. The state net operating loss carryforwards of approximately $0.6 million will begin to expire in 2043. The utilization of net operating loss carryforwards may be subject to annual limitations under Section 382 of the Internal Revenue Code of 1986, as amended, and similar state tax provisions.

We apply the provisions of ASC 740 related to accounting for uncertain tax positions, which prescribes a recognition threshold and measurement process for recording in the financial statements uncertain tax positions taken or expected to be taken in a tax return. Under this provision, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. Tax benefits of an uncertain tax position will not be recognized if it has less than a 50% likelihood of being sustained based on technical merits.

A reconciliation of the beginning and ending balance of unrecognized tax benefits, which have been considered in the Company’s computation of its deferred tax assets, is as follows:

If recognized, the total amount of unrecognized tax benefits as of June 30, 2026, would favorably affect the Company’s effective tax rate. We do not anticipate any material change in the total amount of unrecognized tax benefits to occur within the next twelve months.

ASC 740 requires us to accrue interest and penalties where there is an underpayment of taxes based on our best estimate of the amount ultimately to be paid. Our policy is to recognize interest accrued related to unrecognized tax benefits and penalties as a component of income tax expense. For the fiscal years ended June 30, 2026, and 2025, we recognized no interest or penalties.

We file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The statutes of limitations for its U.S. federal income tax returns remain open for fiscal years 2022 and onward, and state and local income tax returns remain open for fiscal years 2021 and onward.

The components of (loss) income before income taxes by jurisdiction for the fiscal years ended June 30, 2026, and 2025 are as follows:

Loss before income taxes is derived from operations conducted in the United States and one foreign jurisdiction. Domestic results primarily reflect the Company’s U.S. operations, while foreign income primarily relates to the Company’s international subsidiary.

Pursuant to ASU 2023-09, the following table presents disaggregated income taxes paid, net of refunds received, for the jurisdictions that individually represent greater than 5% of total income taxes paid for the fiscal years ended June 30, 2026, and 2025:

NOTE 5 –(LOSS) EARNINGS PER SHARE

We report (loss) earnings per share in accordance with ASC 260, “Earnings Per Share.” Basic (loss) earnings per share are computed using the weighted average number of shares outstanding during the period. Diluted (loss) earnings per share represent basic earnings per share adjusted to include the potentially dilutive effect of outstanding stock options by using the treasury stock method, which assumes that the proceeds from assumed option exercises are used to repurchase common shares in the market.

For the years ended June 30, 2026, and 2025, we were in a net loss position and have excluded 142,000 and 392,001 stock options from the calculation of diluted net loss per share because these securities are anti-dilutive.

The weighted average number of shares outstanding used to compute loss per share is as follows:

NOTE 6 -COMMITMENTS AND CONTINGENCIES

Leases

We adopted ASC 842 new lease accounting on July 1, 2019. We had an operating lease principally for both Franklin Wireless Corp. and Franklin Technologies Inc., 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 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 measure based on the present value of lease payment over the lease term. The ROU asset also includes deferred rent liabilities. Our lease arrangement generally does 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 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 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 related to this property was $345,150 and $337,322 for the years ended June 30, 2026 and 2025, respectively.

Our Korea-based subsidiary, FTI, leases approximately 10,000 square feet of office space, at a monthly rent of approximately $6,400, and additional office space consisting of approximately 2,682 square feet at a monthly rent of approximately $2,100, both located in Seoul, South Korea. These leases expired on August 31, 2026, and were extended for an additional 24 months to August 31, 2028. 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 $102,510 and $105,889 for the years ended June 30, 2026 and 2025, 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 $5,947 and $3,469 for the years ended June 30, 2026 and 2025, respectively.

We leased another corporate vehicle on April 28, 2026, in San Diego, California, for our employee, under a non-cancelable lease that expires on July 28, 2029. Rent expense related to this lease was $1,885 and $0 for the years ended June 30, 2026 and 2025, 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% and 3.9% in determining our lease liabilities for the vehicles in the order of lease inception date, respectively. 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.

Rent expenses for the years ended June 30, 2026, and 2025 were $477,478 and $469,910 respectively. In accordance with ASC 842, the components of the lease expense and supplemental cash flow information related to leases for the years ended June 30, 2026, and 2025 are as follows:

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

Litigation

The Company is from time to time involved in certain legal proceedings and claims arising in the ordinary course of business.

FTI Litigation in Korea

In January 2025, Partron Co., Ltd. (“Partron”), a South Korean electronic components manufacturer, filed a lawsuit in the Korean Seoul Central District Court against Franklin Technology Inc. (“FTI”), a South Korea-based consolidated subsidiary in which the Company holds an approximate 66.34% equity interest. The complaint alleged that FTI breached a Confidentiality Agreement by utilizing Partron’s Qualcomm account credentials to design products with an alternative manufacturing vendor. Partron further alleged that, in reliance on FTI’s requests, it procured semiconductor components from third-party suppliers (including Qualcomm and Dasaron Corporation) which FTI subsequently failed to purchase, violating the South Korean Unfair Competition Prevention Act and other legal doctrines. On January 20, 2026, Partron adjusted its primary claim to $8,895,120, including interest.

On July 28, 2026, the Seoul Central District Court (62nd Civil Division) issued a ruling partially against FTI, ordering FTI to pay damages of approximately $3,673,336 USD, plus pre-judgment interest at 5% per annum from November 4, 2022 through July 16, 2026, and post-judgment interest at 12% per annum from July 17, 2026 until paid in full.

On August 6, 2026, FTI filed a notice of appeal with the Appellate Division of the South Korean Court and is currently preparing its appellate brief, which is due by September 16, 2026. FTI continues to vigorously defend its position.

As a result of the court’s ruling, FTI recorded a total litigation loss contingency of $4,345,104 in its consolidated financial statements for the fiscal year ended June 30, 2026. This accrued amount comprises the principal judgment award of $3,673,336 and accrued statutory interest of $671,768 calculated through June 30, 2026.

While the Company is not individually named as a defendant in this action, FTI is a consolidated subsidiary. FTI is actively pursuing an appeal; however, any ultimate adverse judgment or adjustments to this accrued loss contingency, or defense costs for collection actions against the Company could further impact the Company’s consolidated financial position and results of operations.

Shareholder Litigation

Harwood / Martin

A legal action was filed in the U.S. District Court, Southern District of California (San Diego) against Franklin, as a nominal defendant, by Stephen Harwood, derivatively on behalf of nominal defendant Franklin Wireless Corp. v. O.C. Kim, et al., Case #21cv01837-AJB-MSB, on or about October 29, 2021, 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. We believe these allegations are not supported by the facts and we will vigorously defend against such claims.

A legal action was filed in the U.S. District Court, Southern District of California (San Diego) against Franklin, as a nominal defendant, by Debra Martin, derivatively on behalf of nominal defendant Franklin Wireless Corp. v. O.C. Kim, et al., Case #21cv2091-AJB-MSB, on or about December 15, 2021, 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. We believe these allegations are not supported by the facts and we will vigorously defend against such claims.

The Harwood and Martin actions have been consolidated into a single action in the U.S. District Court, Southern District of California (San Diego) titled “In re Franklin Wireless Corp. Derivative Litigation,” Case No.: 21cv1837-AJB (MSB). A jury trial was held in December 2024. On December 19 th, 2024, after an 8-day trial, the jury returned a verdict finding only nominal damages of $0.99 against a single director and no damages against all other defendants.

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. 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, 2026, 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 June 30, 2026.

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, 2026, were eliminated as intercompany transactions.

Subsequent to the fiscal year ended June 30, 2026, the loan was terminated and settled, and all funds were transferred back to the Company’s controlled accounts in the United States.

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 $500,000 have been accrued for each of years ended June 30, 2026 and June 30, 2025, resulting in accrued bonus balances of $1,875,000 and $1,375,000 as of June 30, 2026, and June 30, 2025, respectively. As of June 30, 2026, 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.

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.

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.

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, 2026, 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 June 30, 2026.

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 -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 measure 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 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 was compensation expense of $0 and $350,593 recorded under this method for the years ended June 30, 2026, and 2025, respectively. As of June 30, 2026,142,000 shares of Common Stock under the 2020 Plan are available.

A summary of the status of our stock options is presented below:

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based upon the Company’s closing stock price of $2.54 as of June 30, 2026, 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 June 30, 2026, in the amount of 142,000 shares was $2.83 per share.

As of June 30, 2026, there wasno unrecognized compensation cost related to non-vested stock options granted.

NOTE 8 –STOCKHOLDERS’ EQUITY

Common Stock

We have been 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 year ended June 30, 2026, no shares of common stock were issued, and there were 11,784,280 shares issued and outstanding as of June 30, 2026, and 2025.

Preferred Stock

We have been authorized to issue 10,000,000 shares of preferred stock. $0.01 par value, butno preferred stock is issued and outstanding as of June 30, 2026 and 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 June 30, 2026 and 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 June 30, 2026, there were no unpaid dividends remaining in the Company’s liabilities.

NOTE 9 –RELATED PARTY TRANSACTIONS

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 years ended June 30, 2026 and 2025, we purchased EMS from Forge in the amount of approximately $27.1 million and $13.7 million, respectively, and had related accounts payable of approximately $5.7 million and $5.6 million as of June 30, 2026 and 2025, respectively.

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 $500,000 have been accrued for each of the years ended June 30, 2026, resulting in accrued bonus balances of $1,875,000 as of June 30, 2026.

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, 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.

On May 8, 2025, we entered into an Option Repurchase Agreement with Mr. Kim under which it repurchased certain vested options for a total value of $746,067. Of this amount, $408,663 was withheld to satisfy applicable employee payroll and income tax withholding obligations in accordance with federal and state tax requirements, and the remaining net cash proceeds of $337,404 were applied directly to reduce Mr. Kim’s $1,000,000 receivable balance owed to the Company.

As of June 30, 2026, the Company has not made any cash payments toward Mr. Kim’s total accrued bonus of $3,125,000 (comprising the $1,875,000 Quarterly Bonus and the $1,250,000 Joint Venture Incentive). Additionally, no cash payments have been received for the remaining $662,596 settlement balance owed by Mr. Kim, which reflects his original $1,000,000 debt offset by $337,404 in net proceeds from the May 2025 option repurchase.

Excluding what was previously described, there have not been any transactions entered into or have been a participant in which a related person had or will have a direct or indirect material interest.

NOTE 10 –SUBSEQUENT EVENTS

The FASB issued ASC 855, “Subsequent Events.” ASC 855 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. We have evaluated all events or transactions that occurred after June 30, 2026, up through the date the financial statements were available to be issued.

Other than as described in NOTE 6 (COMMITMENTS AND CONTINGENCIES – Litigation -FTI Litigation in Korea), we did not have any material recognizable subsequent events required to be disclosed to the financial statements as of June 30, 2026.