Franklin Wireless(FKWL) - 2025 Q4 - Annual Report

PART I Item 1: Business Franklin Wireless Corp. provides global 5G/4G LTE wireless solutions, including mobile hotspots and MDM, operating as a single segment with R&D and sales subsidiaries - Franklin Wireless (Franklin Access) is a global provider of integrated 5G/4G LTE wireless solutions, including mobile hotspots, fixed wireless routers, and MDM, also focusing on IoT and M2M applications[13][221] - The company holds 66.3% ownership in FTI (South Korea-based R&D) and 60% in Sigbeat Inc. (San Diego-based sales, marketing, and operations for telecommunications modules)[14][16][222][225] - Franklin Wireless operates as a single reportable segment focused on wireless access product sales, with performance assessed by the CODM based on consolidated net income (loss)[18][230] Geographic Area | Geographic Area | Fiscal Year Ended June 30, 2025 | Fiscal Year Ended June 30, 2024 | | :---------------- | :------------------------------ | :------------------------------ | | Net Sales: | | | | North America | $46,081,244 | $30,699,727 | | Asia | $5,657 | $96,963 | | Totals | $46,086,901 | $30,796,690 | | | | | | Net Loss: | $(140,429) | $(4,166,671) | | | | | | Long-lived assets, net: | June 30, 2025 | June 30, 2024 | | North America | $929,173 | $1,218,139 | | Asia | $157,821 | $206,426 | | Totals | $1,086,994 | $1,424,565 | - Product offerings include 5G/4G LTE Wi-Fi Mobile Hotspots, Fixed Wireless Routers, Smart Box Solutions (M2M Gateway, On-Device AI), Quvo Family Guardian Solutions, and JEXtream MDM/NMS Solutions[22][23][24][25][26][27][28] - As of June 30, 2025, Franklin Wireless had 67 total employees across its entities, with the majority of product manufacturing outsourced to two independent companies in Asia[32][33] Item 1A: Risk Factors The company faces significant risks from financing needs, IP infringement, intense competition, product defects, customer concentration, and international operations - Additional financing may be required for product development and commercialization, with potential for unfavorable terms, program delays, or stockholder dilution[35] - Operating in an IP-rich industry, the company faces infringement claims that could result in substantial damages, sales prohibitions, or costly licensing[36][39] - The highly competitive wireless broadband market demands continuous investment in R&D, sales, and marketing; ineffective competition could lead to price reductions and smaller orders[41] - Operating in high-risk telecom, hardware, and software industries, the company faces challenges like design flaws, manufacturing defects, and rapidly changing technology, impacting product quality and market acceptance[42][43][44][45][46] - Product demand is highly dependent on wireless network capacity and subject to dramatic fluctuations from events like pandemics, which also disrupt supply chains[47][48] - The company relies on a small number of customers, with the two largest accounting for 60.9% and 33.5% of FY2025 net sales, posing a material risk to revenues and profitability if business is lost[51][274] - International operations expose the company to risks including credit management, regulatory changes, tariffs (10-80%), IP uncertainties, foreign currency fluctuations, and political instability[54][55][58][63] Item 1B: Unresolved Staff Comments There are no unresolved staff comments from the SEC - No unresolved staff comments[66] Item 1C: Cybersecurity Cybersecurity risk management is integrated into the enterprise risk program, overseen by the Board and Audit Committee, with no material incidents identified as of June 30, 2025 - Cybersecurity risk management is an integral part of the company's enterprise risk management program, designed to assess, identify, and manage threats and incidents, including those from third parties[67] - The Board of Directors oversees significant risks, with the Audit Committee specifically overseeing cybersecurity risks, while management handles day-to-day identification and management[68] - As of June 30, 2025, no cybersecurity incidents were identified that materially affected business strategy, results of operations, or financial condition[73] Item 2: Properties The company leases executive offices in San Diego and FTI leases office space in Seoul, with FY2025 rent expenses totaling $469,910 - The company leases 11,400 square feet of office space in San Diego at a monthly rent of $27,789, under a 65-month lease commencing January 1, 2024[74][293] - FTI, the Korea-based subsidiary, leases 12,682 square feet of office space in Seoul, with leases extended to August 31, 2026[76][295] Rent Expense Summary | Fiscal Year Ended June 30, | 2025 | 2024 | | :------------------------- | :---------- | :---------- | | Total Lease Expense | $469,910 | $538,258 | - The company is reviewing a $96,704 invoice for additional rent from a prior landlord for a lease expired in December 2023, recorded as an accrued liability in FY2024[75][294] Item 3: Legal Proceedings The company is involved in various legal proceedings and claims arising in the ordinary course of business, with details in Note 6 to the Consolidated Financial Statements - The company is involved in legal proceedings and claims arising in the ordinary course of business, with further details in Note 6 of the Consolidated Financial Statements[78][300] Item 4: Mine Safety Disclosures There are no mine safety disclosures applicable to the company - No mine safety disclosures[79] PART II Item 5: Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's Common Stock trades on Nasdaq under "FKWL," with 11.78 million shares outstanding and equity compensation plans including 392,001 outstanding options at a $4.64 weighted-average exercise price - The company's Common Stock is traded on the Nasdaq National Market System under the symbol "FKWL"[81] - As of September 29, 2025, the company had 11,784,280 shares of common stock outstanding[7] Equity Compensation Plan Information (as of June 30, 2025) | Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans | | :---------------------------------------------- | :------------------------------------------------------------------------ | :------------------------------------------------------------------------ | :------------------------------------------------------------------------------------------- | | Equity compensation plans approved by security holders | 392,001 | $4.64 | 604,000 | | Equity compensation plans not approved by security holders | – | N/A | – | | Total | 392,001 | $4.64 | 604,000 | Item 6: Selected Financial Data This item is reserved and contains no selected financial data - Item 6 is reserved and contains no selected financial data[83] Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations FY2025 saw significant increases in net sales and gross profit, while operating expenses rose and other income surged from a legal settlement and foreign currency gains, with $40.6 million in liquidity - Net sales increased by $15.29 million (49.6%) to $46.09 million for FY2025, primarily due to increased demand from major North American carrier customers[108] - Gross profit increased by $4.41 million (125.6%) to $7.92 million for FY2025, with the gross profit margin improving to 17.2% from 11.4% in FY2024[110] - Operating expenses increased by $1.33 million (14.1%) to $10.78 million in FY2025, mainly due to increased payroll and direct R&D costs[111][112] - Other income (expense), net, increased by $1.85 million (225.1%) to $2.68 million in FY2025, driven by a $1 million legal settlement gain, $247,592 from forgiven liability, and $683,132 from favorable foreign currency exchange[113] Consolidated Statements of Comprehensive Loss (as a percentage of sales) | Item | 2025 | 2024 | | :---------------------------------------- | :-------- | :-------- | | Net sales | 100.00% | 100.00% | | Cost of goods sold | (82.80%) | (88.60%) | | Gross profit | 17.20% | 11.40% | | Operating expenses | 23.40% | 30.70% | | Loss from operations | (6.20%) | (19.30%) | | Other income (expense), net | 5.80% | 2.70% | | Net loss before income taxes | (0.40%) | (16.60%) | | Income tax benefit | (0.10%) | (3.10%) | | Net loss | (0.30%) | (13.50%) | | Less: non-controlling interest in net (loss) income of subsidiary | 0.20% | (0.60%) | | Net loss attributable to Parent Company stockholders | (0.50%) | (12.90%) | - Principal liquidity as of June 30, 2025, was $40.63 million in cash and short-term investments, deemed sufficient to cover operations through at least June 30, 2026[115][127] Cash Flow from Activities | Activity | Fiscal Year Ended June 30, 2025 | Fiscal Year Ended June 30, 2024 | | :------------------- | :------------------------------ | :------------------------------ | | Operating Activities | $1,844,360 (provided) | $(773,360) (used) | | Investing Activities | $1,006,398 (provided) | $723,858 (provided) | | Financing Activities | $(408,663) (used) | $91,057 (provided) | Warranty Repairs and Return Rates (as of June 30, 2025) | Device Type | Return Rate | Warranty Repairs | | :---------------- | :---------- | :--------------- | | 4G Wireless Devices | 0.10% | 0.01% | | 5G Wireless Devices | 0.55% | 0.13% | Item 7A: Quantitative and Qualitative Disclosures About Market Risk This item is not applicable to the company - This item is not applicable[128] Item 8: Financial Statements and Supplementary Data The required financial statements and supplementary data are included in the report, starting on page F-1 - The financial statements and supplementary financial information are listed in the Index to Financial Statements beginning on page F-1[129] Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There have been no changes in or disagreements with accountants on accounting and financial disclosure - No changes in and disagreements with accountants on accounting and financial disclosure[130] Item 9A: Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes in internal control over financial reporting during Q4 FY2025 - Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2025[131] - No material changes in internal controls over financial reporting occurred during the fourth quarter of fiscal year ended June 30, 2025[132] - Management maintained effective internal control over financial reporting as of June 30, 2025, based on the COSO 2013 framework[134] Item 9B: Other Information No director or officer adopted or terminated any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the quarter ended June 30, 2025 - No director or officer adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the quarter ended June 30, 2025[135] Item 9C: Disclosure Regarding Foreign Jurisdictions That Prevent Inspections This item is not applicable to the company - This item is not applicable[136] PART III Item 10: Directors, Executive Officers and Corporate Governance The company's leadership includes OC Kim (President, CEO) and Johnathan Chee (Chairman), with the Board operating with Audit, Compensation, and Nominating Committees, supported by a Code of Ethics and Insider Trading Policy - Key executive officers and directors include OC Kim (President, CEO), Johnathan Chee (Chairman), Heidy Chow (Audit Committee Chair), Reid Granados (Acting CFO), and Bill Bauer (Secretary, General Counsel)[139][140][141][145][146] - The Board of Directors held four meetings in FY2025 with 100% attendance, operating with an Audit Committee, a Compensation Committee, and a Nominating Committee[149] - The company adopted a Code of Ethics and an Insider Trading Policy prohibiting trading on material nonpublic information, restricting blackout period trading, and requiring pre-clearance for certain individuals[148][151][152] - No directors or executive officers adopted, modified, or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during FY2025[150] Item 11: Executive Compensation Executive compensation includes base salary, incentives, and stock options, aligned with stockholder interests, with a Mandatory Recoupment Policy; OC Kim's FY2025 compensation increased significantly due to bonuses and an option repurchase, alongside Change of Control and Forbearance Agreements - Executive officers are compensated through a mix of base salary, incentive compensation, and stock options, aligning management incentives with stockholder interests[176] - A Mandatory Recoupment Policy was adopted on October 13, 2023, to recover incentive compensation paid to executive officers in connection with financial restatements[154][180] Summary Compensation for Named Executive Officers | Name and Principal Position | Fiscal Year | Salary ($) | Paid Bonus ($) | Accrued Bonus ($) | Stock Option Repurchase Payment ($) | Option Awards ($) | Total ($) | | :-------------------------- | :---------- | :--------- | :------------- | :---------------- | :---------------------------------- | :---------------- | :-------- | | OC Kim, President, CEO and a Director | 2024 | 300,000 | – | 500,000 | – | – | 800,000 | | | 2025 | 300,000 | 25,001 | 1,750,000 | 746,067 | – | 2,821,068 | | Reid Granados, Acting Chief Financial Officer | 2024 | – | – | – | – | – | – | | | 2025 | 141,013 | – | 3,000 | – | – | 144,013 | | William Bauer, Secretary, General Counsel | 2024 | 145,000 | – | 75,000 | – | – | 220,000 | | | 2025 | 158,061 | – | 3,000 | – | – | 161,061 | | Yun J. (David) Lee, Senior Vice President of Sales | 2024 | 300,000 | – | 120,000 | – | – | 420,000 | | | 2025 | 300,000 | – | 3,000 | – | – | 303,000 | - Change of Control Agreements provide lump sum payments of $5 million for OC Kim and $2 million for Yun J. (David) Lee upon a change of control, extended through October 2027[169][170][318][319] - A Forbearance Agreement with OC Kim (September 23, 2024) deferred a $1.25 million incentive bonus in exchange for deferring a $1 million settlement owed by Mr. Kim, partially offset by a $337,404 option repurchase, leaving a $662,596 balance owed as of June 30, 2025[174][175][185][186][187][312][314][325][326][341][342][343] Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters As of September 30, 2025, OC Kim beneficially owned 9.3% of the company's Common Stock, while all directors and executive officers as a group beneficially owned 28.4% Shares Beneficially Owned (as of September 30, 2025) | Name and Address | Number of Shares | Percent | | :-------------------------------------------------- | :--------------- | :------ | | Joon Won Jyoung (3940 Ruffin Road, Suite C, San Diego, CA 92123) | 1,004,948 | 8.5% | | OC Kim (3940 Ruffin Road, Suite C, San Diego, CA 92123) | 1,096,695 | 9.3% | | The Estate of Gary Nelson (3940 Ruffin Road, Suite C, San Diego, CA 92123) | 314,008 | 2.7% | | Yun J. (David) Lee (3940 Ruffin Road, Suite C, San Diego, CA 92123) | 185,000 | 1.6% | | Johnathan Chee (3940 Ruffin Road, Suite C, San Diego, CA 92123) | 13,500 | 0.1% | | Paul Packer (7100 West Camino Real, Suite 302-48, Boca Raton, FL 33433) | 727,794 | 6.2% | | All directors and executive officers as a group | 3,341,945 | 28.4% | Item 13: Certain Relationships and Related Transactions, and Director Independence Key related party transactions include the Forbearance Agreement and Option Repurchase Agreement with President OC Kim, involving a deferred $1.25 million bonus and partial settlement of a $1 million receivable, and $13.7 million in EMS purchases from Forge International Co., Ltd. in FY2025 - The company entered a Forbearance Agreement with President OC Kim on September 23, 2024, deferring a $1.25 million bonus in exchange for deferring a $1 million settlement payment owed by Mr. Kim[185][341] - On May 8, 2025, the company repurchased vested options from Mr. Kim for $746,067, with $337,404 of net proceeds offsetting his receivable balance[187][343] - The company purchased $13.7 million in electronic manufacturing services (EMS) from Forge International Co., Ltd., its joint venture partner in Sigbeat, in FY2025, a significant increase from $177,000 in FY2024[188][346] Item 14: Principal Accountant Fees and Services Audit fees billed by Simon & Edward, LLP were $104,378 for FY2025 and $126,350 for FY2024, with all services approved in advance by the Board or Audit Committee Principal Accountant Fees | Fee Type | FY 2025 | FY 2024 | | :--------- | :--------- | :--------- | | Audit Fees | $104,378 | $126,350 | | Total Fees | $104,378 | $126,350 | - All services provided by the external auditor, Simon & Edward, LLP, were approved in advance by the Board of Directors or the Audit Committee[188] PART IV Item 15: Exhibits, Financial Statement Schedules This section lists all exhibits and financial statement schedules filed as part of, or incorporated by reference into, the Form 10-K report - This section provides an index to financial statements and a list of exhibits filed as part of, or incorporated by reference into, the Form 10-K report[190] Item 16: Form 10-K Summary This item is not applicable to the company - This item is not applicable[193] Signatures The report is signed by OC Kim (President, Principal Executive Officer), Reid Granados (Acting CFO), and other directors, affirming compliance with the Securities Exchange Act of 1934 - The report is signed by OC Kim (President and Principal Executive Officer), Reid Granados (Acting Chief Financial and Accounting Officer), and other directors, dated September 29, 2025[196][197] Index to Financial Statements This section indexes consolidated financial statements, including the auditor's report which highlights legal proceedings as a critical audit matter, and comprehensive notes for FY2025 and FY2024 - The index lists the Consolidated Balance Sheets, Statements of Comprehensive Loss, Statements of Changes in Stockholders' Equity, Statements of Cash Flows, and Notes to Consolidated Financial Statements for FY2025 and FY2024[199] - The Report of Independent Registered Public Accounting Firm (Simon & Edward, LLP) provides an unqualified opinion and identifies legal proceedings as a critical audit matter due to high auditor judgment in evaluating liabilities and disclosures[201][205][207] - Notes to Consolidated Financial Statements provide detailed information on business overview, significant accounting policies, accrued liabilities, earnings per share, commitments and contingencies, long-term incentive plan awards, stockholders' equity, related party transactions, and subsequent events[220][224][280][281][288][291][331][337][341][347]