10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2022

OR

¨ 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)
9707 Waples Street Suite 150 San Diego, California (Address of principal executive offices)	92121 (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 11,684,280 shares of common stock outstanding as of November 14, 2022.

FRANKLIN WIRELESS CORP.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2022

INDEX

		Page
PART I – Financial Information
Item 1:	Consolidated Financial Statements (unaudited)	4
	Consolidated Balance Sheets as of September 30, 2022 (unaudited) and June 30, 2022	4
	Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income (unaudited) for the three months ended September 30, 2022 and 2021	5
	Consolidated Statements of Stockholders' Equity (unaudited) for the three months ended September 30, 2022 and 2021	6 - 7
	Consolidated Statements of Cash Flows (unaudited) for the three months ended September 30, 2022 and 2021	8
	Notes to Consolidated Financial Statements	9
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4:	Controls and Procedures	26
PART II – Other Information
Item 1:	Legal Proceedings	27
Item 1A:	Risk Factors	27
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3:	Defaults Upon Senior Securities	27
Item 4:	Mine Safety Disclosures	27
Item 5:	Other Information	27
Item 6:	Exhibits	28
Signatures		29

2

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, 2022. 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.

3

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

FRANKLIN WIRELESS CORP.

Consolidated Balance Sheets

	September 30, 2022			June 30,
	(Unaudited)			2022
ASSETS
Current assets:
Cash and cash equivalents	$	25,504,941		$	26,277,418
Short-term investments-others		15,256,000			16,336,659
Accounts receivable, net		946,006			1,322,619
Other receivables, net		28,178			40,132
Inventories, net		5,053,255			4,197,863
Prepaid expenses and other current assets		32,232			40,939
Advance payments to vendors		146,020			174,796
Total current assets		46,966,632			48,390,426
Property and equipment, net		116,807			105,952
Intangible assets, net		1,670,266			1,350,056
Deferred tax assets, non-current		1,451,619			1,347,436
Goodwill		273,285			273,285
Right of use assets		375,785			448,621
Other assets		116,186			126,095
TOTAL ASSETS	$	50,970,580		$	52,041,871
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	8,680,700		$	8,143,305
Income tax payable		1,770			6,702
Unearned revenue		301,737			231,624
Accrued liabilities		552,140			589,907
Lease liabilities, current		311,932			308,834
Total current liabilities		9,848,279			9,280,372
Lease liabilities, non-current		79,949			159,104
Total liabilities		9,928,228			9,439,476
Commitments and contingencies (Note 8)
Stockholders’ equity:
Parent Company stockholders’ equity
Preferred stock, par value $0.001 per share, authorized 10,000,000 shares; No preferred stock issued and outstanding as of September 30, 2022, and June 30, 2022		–			–
Common stock, par value $0.001 per share, authorized 50,000,000 shares; 11,684,280 shares issued and outstanding as of September 30, 2022, and June 30, 2022, respectively		14,163			14,163
Additional paid-in capital		13,774,171			13,593,426
Retained earnings		30,837,255			31,964,246
Treasury stock, 2,549,208 shares as of September 30, 2022, and June 30, 2022		(3,554,893	)		(3,554,893	)
Accumulated other comprehensive loss		(1,298,370	)		(984,152	)
Total Parent Company stockholders’ equity		39,772,326			41,032,790
Non-controlling interests		1,270,026			1,569,605
Total stockholders’ equity		41,042,352			42,602,395
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	50,970,580		$	52,041,871

See accompanying notes to consolidated financial statements.

4

FRANKLIN WIRELESS CORP.

Consolidated Statements of Comprehensive Loss

	Three Months Ended September 30,
	2022			2021
Net sales	$	8,108,940		$	3,344,060
Cost of goods sold		6,515,078			2,851,096
Gross profit		1,593,862			492,964
Operating expenses:
Selling, general and administrative		1,239,635			1,077,815
Research and development		970,120			1,021,902
Total operating expenses		2,209,755			2,099,717
Loss from operations		(615,893	)		(1,606,753	)
Other income, net:
Interest income		60,062			1,923
Income from governmental subsidy		17,147			84,746
(Loss) gain from foreign currency transactions		(948,887	)		47,318
Other expense, net		(42,382	)		(1,463	)
Total other (expense) income, net		(914,060	)		132,524
Loss before provision for income taxes		(1,529,953	)		(1,474,229	)
Income tax benefits		(103,383	)		(411,256	)
Net loss		(1,426,570	)		(1,062,973	)
Less: non-controlling interests in net (loss) income of subsidiary at 33.7%		(299,579	)		40,632
Net loss attributable to Parent Company	$	(1,126,991	)	$	(1,103,605	)
Basic loss per share attributable to Parent Company stockholders	$	(0.10	)	$	(0.10	)
Diluted loss per share attributable to Parent Company stockholders	$	(0.10	)	$	(0.10	)
Weighted average common shares outstanding - basic		11,684,280			11,593,006
Weighted average common shares outstanding - diluted		11,684,280			11,593,006
Comprehensive loss:
Net loss	$	(1,426,570	)	$	(1,062,973	)
Translation adjustments		(314,218	)		(127,605	)
Comprehensive loss		(1,740,788	)		(1,190,578	)
Less: comprehensive (loss) income attributable to non-controlling interest		(299,579	)		40,632
Comprehensive loss attributable to controlling interest	$	(1,441,209	)	$	(1,231,210	)

See accompanying notes to consolidated financial statements.

5

FRANKLIN WIRELESS CORP.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Three Months Ended September 30, 2022 (unaudited)

	Common Stock				Additional Paid-in		Retained			Treasury			Accumulated Other Comprehensive Income			Non-controlling			Total Stockholders
	Shares		Amount		Capital		Earnings			Stock			(Loss)			Interest			Equity
Balance - June 30, 2022		11,684,280	$	14,163	$	13,593,426	$	31,964,246		$	(3,554,893	)	$	(984,152	)	$	1,569,605		$	42,602,395
Net loss attributable to Parent Company		–		–		–		(1,126,991	)		–			–			–			(1,126,991	)
Foreign exchange translation		–		–		–		–			–			(314,218	)		–			(314,218	)
Comprehensive loss attributable to non-controlling interest		–		–		–		–			–			–			(299,579	)		(299,579	)
Stock based compensation		–		–		180,745		–			–			–			–			180,745
Balance – September 30, 2022 (unaudited)		11,684,280	$	14,163	$	13,774,171	$	30,837,255		$	(3,554,893	)	$	(1,298,370	)	$	1,270,026		$	41,042,352

See accompanying notes to consolidated financial statements.

6

FRANKLIN WIRELESS CORP.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Three Months Ended September 30, 2021 (unaudited)

	Common Stock				Additional Paid-in		Retained			Treasury			Accumulated Other Comprehensive Income			Non-controlling		Total Stockholders
	Shares		Amount		Capital		Earnings			Stock			(Loss)			Interest		Equity
Balance - June 30, 2021		11,590,281	$	14,069	$	12,972,234	$	35,727,094		$	(3,554,893	)	$	(472,502	)	$	1,479,162	$	46,165,164
Net loss attributable to Parent Company		–		–		–		(1,103,605	)		–			–			–		(1,103,605	)
Foreign exchange translation		–		–		–		–			–			(127,605	)		–		(127,605	)
Issuance of stock related to stock option exercised		3,999		4		21,591		–			–			–			–		21,595
Comprehensive income attributable to non-controlling interest		–		–		–		–			–			–			40,632		40,632
Stock based compensation		–		–		94,538		–			–			–			–		94,538
Balance – September 30, 2021 (unaudited)		11,594,280	$	14,073	$	13,088,363	$	34,623,489		$	(3,554,893	)	$	(600,107	)	$	1,519,794	$	45,090,719

See accompanying notes to consolidated financial statements.

7

FRANKLIN WIRELESS CORP.

Consolidated Statements of Cash Flows

	Three Months Ended September 30,
	2022			2021
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss	$	(1,426,570	)	$	(1,062,973	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		15,819			22,786
Amortization of intangible assets		179,894			93,694
Stock based compensation		180,745			94,538
Amortization of right of use assets		72,836			90,634
Deferred tax (benefit)		(104,183	)		(439,568	)
Increase (decrease) in cash due to change in:
Accounts receivable		388,567			1,000,401
Inventories		(855,392	)		247,576
Prepaid expenses and other current assets		8,707			10,544
Prepaid income taxes		–			(102,055	)
Advance payments to vendors		28,776			(88,114	)
Other assets		9,909			5,321
Accounts payable		537,395			(6,156,666	)
Income tax payable		(4,932	)		(69,984	)
Unearned revenue from customers		70,113			125,701
Lease liabilities		(76,057	)		(93,853	)
Accrued liabilities		(37,767	)		(46,568	)
Net cash used in operating activities		(1,012,140	)		(6,368,586	)
CASH FLOW FROM INVESTING ACTIVITIES:
Sales/Purchases of short-term investments		1,080,659			(585	)
Purchases of property and equipment		(26,674	)		(6,032	)
Payments for capitalized product development costs		(493,250	)		(35,543	)
Purchases of intangible assets		(6,854	)		(1,325	)
Net cash provided by (used in) investing activities		553,881			(43,485	)
CASH FLOW FROM FINANCING ACTIVITIES:
Cash received from exercise of stock options		–			21,595
Net cash provided by financing activities		–			21,595
Effect of foreign currency translation		(314,218	)		(127,605	)
Net decrease in cash and cash equivalents		(772,477	)		(6,518,081	)
Cash and cash equivalents, beginning of period		26,277,418			45,796,006
Cash and cash equivalents, end of period	$	25,504,941		$	39,277,925
Supplemental disclosure of cash flow information:
Cash paid during the periods for:
Income taxes	$	(800	)	$	(200,350	)

See accompanying notes to consolidated financial statements.

8

FRANKLIN WIRELESS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiary, Franklin Technology Inc. ("FTI"), with a majority voting interest of 66.3% (approximately 33.7% is owned by non-controlling interests) as of September 30, 2022 and 2021. In the preparation of consolidated financial statements of the Company, intercompany transactions and balances are eliminated and net earnings are reduced by the portion of the net earnings of the subsidiary applicable to non-controlling interests.

As consolidated financial statements are based on the assumption that they represent the financial position and operating results of a single economic entity, the retained earnings or deficit of the subsidiary at the date of acquisition, October 1, 2009, by the parent are excluded from consolidated retained earnings. When a subsidiary is consolidated, the consolidated financial statements include the subsidiary’s revenues, expenses, gains, and losses only from the date the subsidiary is initially consolidated, and the non-controlling interest is reported in the consolidated statement of financial position within equity, separately from the parent’s equity. There are no shares of the Company held by any subsidiaries as of September 30, 2022, or June 30, 2022.

Non-controlling Interest in a Consolidated Subsidiary

As of September 30, 2022, the non-controlling interest was $1,270,026, which represents a $299,579 decrease from $1,569,605 as of June 30, 2022. The decrease in the non-controlling interest of $299,579 was from loss in the subsidiary of $890,082 incurred for the three months ended September 30, 2022.

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.

	Three Months Ended September 30,
Net sales:	2022		2021
North America	$	8,107,451	$	3,171,198
Asia		1,489		172,862
Totals	$	8,108,940	$	3,344,060

Long-lived assets, net (property and equipment and intangible assets):	September 30, 2022		June 30, 2022
North America	$	1,681,253	$	1,374,747
Asia		105,820		81,261
Totals	$	1,787,073	$	1,456,008

9

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.

Fair Value of Financial Instruments

The carrying amounts of financial instruments such as cash equivalents, short-term investments, accounts receivable, accounts payable and debt approximate the related fair values due to the short-term maturities 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.

Allowance for Doubtful Accounts

Based upon our review of our collection history as well as the current balances associated with all significant customers and associated invoices, as of September 30, 2022, we did not believe an allowance for doubtful accounts was necessary.

Revenue Recognition

Contracts with Customers

Revenue for 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. We establish a provision for estimated warranty and returns. Using historical averages, that provision for the quarter ended September 30, 2022 was not material.

Disaggregation of Revenue

In accordance with Topic 606, we disaggregate revenue from contracts with customers into geographical regions and by the timing of when goods and services are transferred. 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.

10

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:

	September 30, 2022		June 30, 2022
Accounts Receivable	$	946,006	$	1,322,619

The balance of contract assets was immaterial as we did not have a significant amount of un-invoiced receivables in the periods ended September 30, 2022, and June 30, 2022. 

Our contract liabilities are as follows:

	September 30, 2022		June 30, 2022
Undelivered products	$	441,737	$	371,624

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 primarily satisfied at a point in time. Revenue from products transferred to customers at a single point in time accounted for 99.9% of net sales for the three months ended September 30, 2022. Revenue recognized over a period of time for non-recurring engineering projects is based on the percent complete of a project and accounted for 0.1% of net sales for the three months ended September 30, 2022. 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 September 30, 2022, 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 $166,000 and $78,000 associated with capitalized product development costs associated with complete technology for the three months ended September 30, 2022 and 2021, respectively.

11

Capitalized Product Development Costs

Accounting Standards Codification (“ASC”) Topic 350, “Intangibles - Goodwill and Other” includes software that is part of a product or process to be sold to a customer and 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 3 to Notes to Consolidated Financial Statements) 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 greater of straight-line amortization or the ratio of the current gross revenues to the current and anticipated future gross revenues. The amortization begins when the products are available for general release to our customers.

As of September 30, 2022, and June 30, 2022, capitalized product development costs in progress were $680,593 and $187,343, respectively, and the amounts are included in intangible assets in our consolidated balance sheets. During the three months ended September 30, 2022 and 2021, we incurred $493,250 and $35,543, respectively, in capitalized product development costs, and such amounts are primarily comprised of certifications and licenses. All costs incurred before technological feasibility is reached are expensed and included in our consolidated statements of comprehensive income.

Research and Development Costs

Costs associated with research and development are expensed as incurred. Research and development costs were $970,120 and $1,021,902 for the three months ended September 30, 2022 and 2021, 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 (loss), were $40,553 and $45,384 for the three months ended September 30, 2022 and 2021, 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.

12

Inventories

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.  As of September 30, 2022, and June 30, 2022, we have recorded inventory reserves in the amount of $557,155 for inventories that we have identified as obsolete or slow-moving.

Property and Equipment

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

Machinery	6 years
Office equipment	5 years
Molds	3 years
Vehicles	5 years
Computers and software	5 years
Furniture and fixtures	7 years
Facilities improvements	5 years or life of the lease, whichever is shorter

Goodwill and Intangible Assets

Goodwill and certain intangible assets were recorded in connection with the FTI acquisition in October 2009, and are 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 deemed necessary as of September 30, 2022 or June 30, 2022.

Long-lived Assets

In accordance with ASC 360, “Property, Plant, and Equipment,” we review for impairment of 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.

As of September 30, 2022, and June 30, 2022, we were not aware of any events or changes in circumstances that would indicate that the long-lived assets are impaired.

Stock-based Compensation

Our employee share-based awards result in a cost that is measured at fair value on an award’s grant date, based on the estimated number of awards that are expected to vest. Compensation costs are recognized over the period that an employee provides service in exchange for the award, i.e., the vesting period. We estimate the fair value of stock options using a Black-Scholes option pricing model. Transactions with non-employees in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Stock-based compensation costs are reflected in the accompanying consolidated statements of comprehensive income based upon the underlying recipients' roles within the Company.

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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 its income tax positions and records 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 September 30, 2022, we have no material unrecognized tax benefits. We recorded income tax benefits of $103,383 and $411,256 for the three months ended September 30, 2022, and 2021, respectively. We also recorded an increase in deferred tax asset, non-current, of $104,183 and $439,568 for the three months ended September 30, 2022, and 2021, respectively.

Earnings (loss) per Share Attributable to Common Stockholders

Earnings (loss) per share is calculated by dividing the net income (loss) by the weighted-average number of common shares that were outstanding for the period, without consideration for potential common shares. Diluted 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 or the as-converted method. Potentially dilutive shares are comprised of common stock options outstanding under our stock plan.

Concentrations

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 for 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 three months ended September 30, 2022, sales to our one largest customer accounted for 92% of our consolidated net sales, and 0% of our accounts receivable balance as of September 30, 2022. In the same period of 2021, sales to our two largest customers accounted for 64% and 16% of our consolidated net sales, and 0% and 33% of our accounts receivable balance as of September 30, 2021. No other customers accounted for more than ten percent of total net sales for the three months ended September 30, 2022 and 2021.

For the three months ended September 30, 2022, we purchased the majority of our wireless data products from two manufacturing companies located in Asia. If these manufacturing companies 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 the Company's revenue. For the three months ended September 30, 2022, we purchased wireless data products from these manufacturers in the amount of $7,067,055, or 99% of total purchases, and had related accounts payable of $7,990,867 as of September 30, 2022. In the same period of 2021, we purchased wireless data products from these manufacturers in the amount of $2,473,117, or 99% of total purchases, and had related accounts payable of $3,159,529 as of September 30, 2021.

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We maintain our cash accounts with established commercial banks. Such cash deposits exceed the Federal Deposit Insurance Corporation insured limit of $250,000 for each financial institution. However, we do not anticipate any losses on excess deposits.

NOTE 2 – BUSINESS OVERVIEW

We are a leading provider of integrated wireless solutions utilizing the latest in 4G LTE (fourth generation long-term evolution) and 5G (fifth generation) technologies including mobile hotspots, routers, CPEs (Customer Premise Equipment), and various trackers. Our integrated software subscription services provide users remote capabilities including mobile device management (MDM) and software defined wide area networking (SD-WAN).

We have majority ownership of Franklin Technology Inc. (FTI), a research and development company based in Seoul, South Korea. FTI primarily provides design and development services for our wireless products.

Our products are generally marketed and sold directly to wireless operators and indirectly through strategic partners and distributors. Our global customer base primarily extends from North America to 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, 2022 included in our Form 10-K filed on September 13, 2022. 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 – DEFINITE LIVED INTANGIBLE ASSETS

The definite lived intangible assets consisted of the following as of September 30, 2022:

Definite lived intangible assets:	Expected Life	Average Remaining Life	Gross Intangible Assets		Less Accumulated Amortization		Net Intangible Assets
Complete technology	3 years	–		18,397		18,397		–
Technology in progress	Not Applicable	–		680,593		–		680,593
Software	5 years	2.3 years		423,147		327,182		95,964
Patents	10 years	3.2 years		28,397		16,500		11,898
Certifications & licenses	3 years	0.8 years		2,144,359		1,262,548		881,811
Total as of September 30, 2022			$	3,294,893	$	1,624,627	$	1,670,266

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The definite lived intangible assets consisted of the following as of June 30, 2022: 

Definite lived intangible assets:	Expected Life	Average Remaining Life	Gross Intangible Assets		Less Accumulated Amortization		Net Intangible Assets
Complete technology	3 years	–		18,397		18,397		–
Technology in progress	Not Applicable	–		187,343		–		187,343
Software	5 years	2.6 years		423,147		314,855		108,292
Patents	10 years	2.5 years		21,543		15,122		6,421
Certifications & licenses	3 years	1.1 years		2,144,359		1,096,359		1,048,000
Total as of June 30, 2022			$	2,794,789		1,444,733		1,350,056

Amortization expense recognized during the three months ended September 30, 2022 and 2021 was $179,894 and $93,694, respectively.

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

	FY2023		FY2024		FY2025		FY2026		FY2027		Thereafter
Total	$	370,841	$	393,046	$	183,177	$	13,981	$	10,188	$	18,440

NOTE 5 – PROPERTY AND EQUIPMENT

Property and equipment consisted of the following as of:

	September 30, 2022			June 30, 2022
Machinery and Commercial Equipment	$	68,004		$	67,848
Office equipment		312,993			312,785
Molds		601,862			575,552
Vehicle		15,513			15,513
		998,372			971,698
Less accumulated depreciation		(881,565	)		(865,746	)
Total	$	116,807		$	105,952

Depreciation expense associated with property and equipment was $15,819 and $22,786 for the three months ended September 30, 2022 and 2021, respectively.

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NOTE 6 – ACCRUED LIABILITIES

Accrued liabilities consisted of the following as of:

	September 30, 2022		June 30, 2022
Accrued payroll deductions owed to government entities	$	52,356	$	55,387
Accrued vacation		62,563		65,602
Accrued undelivered inventory		140,000		140,000
Accrued commission for service providers		37,500		40,000
Accrued commission to a customer		248,549		288,306
Other accrued liabilities		11,172		612
Total	$	552,140	$	589,907

NOTE 7 – EARNINGS (LOSS) PER SHARE

For the three months ended September 30, 2022 and 2021, we were in a net loss position and have excluded 756,001 and 477,001 stock options, respectively, 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 earnings per share is as follows:

	Three Months Ended September 30,
	2022			2021
Net loss attributable to Parent Company	$	(1,126,991	)	$	(1,103,605	)
Weighted-average shares of common stock outstanding:
Basic shares outstanding		11,684,280			11,593,006
Dilutive effect of common stock equivalents arising from stock options		–			–
Diluted shares outstanding		11,684,280			11,593,006
Basic loss per share	$	(0.10	)	$	(0.10	)
Diluted loss per share	$	(0.10	)	$	(0.10	)

NOTE 8 – COMMITMENTS AND CONTINGENCIES

Leases

On September 9, 2015, we signed a lease for new office space consisting of approximately 12,775 square feet, located in San Diego, California, at a monthly rent of $23,115, which commenced on October 28, 2015. In addition to monthly rent, the new lease includes payment for certain common area costs. The term of the lease for the new office space was four years from the lease commencement date and was then extended by an additional fifty months, to December 31, 2023. Our facility is covered by an appropriate level of insurance, and we believe it to be suitable for our use and adequate for our present needs. Rent expense for this office space was $77,263 for the three months ended September 30, 2022 and 2021.

Our Korea-based subsidiary, FTI, leases approximately 10,000 square feet of office space, at a monthly rent of approximately $8,000, and additional office space consisting of approximately 2,682 square feet at a monthly rent of approximately $2,700, both located in Seoul, Korea. These leases will expire on August 31, 2023. 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 $32,100 for the three months ended September 30, 2022 and 2021.

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We lease one corporate housing facility, located in Seoul, Korea, primarily for our employees who travel, under a non-cancelable operating lease that will expire on September 4, 2023. Rent expense related to this lease was $1,930 and $2,223 for the three months ended September 30, 2022 and 2021, respectively.

As of September 30, 2022, we used discount rates of 4.0% and 2.8% in determining our operating lease liabilities for the office spaces in San Diego, California, and South Korea, 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. Both our San Diego and Korean office leases were extensions of previous leases and neither contains any further extension provisions.

Future minimum payments under operating leases are as follows:

	Operating Leases
Fiscal 2023	$	241,448
Fiscal 2024		160,965
Total lease payments		402,413
Less imputed interest		(10,532	)
Total	$	391,881

Litigation

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

Verizon Jetpack Recall

On April 8, 2021, Verizon issued a press release announcing that it is working with the U.S. Consumer Product Safety Commission (CPSC) to conduct a voluntary recall of certain Verizon Ellipsis Jetpack mobile hotspot devices, indicating that the lithium-ion battery in the devices can overheat, posing a fire and burn hazard. According to the CPSC release, the recall affects approximately 2.5 million devices. We imported the devices and supplied them to Verizon.

Verizon first advised us of one alleged Jetpack device failure at the end of February 2021. We immediately began meeting with Verizon and requested access to the device. We also began internal testing to evaluate device performance. We did not receive any further incident information until the last week of March 2021. On April 1, 2021 we issued a press release announcing that we had received reports from Verizon about potential issues with the batteries in the devices. On April 9, 2021 we issued a press release announcing the voluntary recall by Verizon.

As of the date of this report, we have been unable to recreate any device failures of the type identified by Verizon. All internal testing conducted to date has confirmed that the Jetpack devices are performing within normal parameters. We are not currently aware of any aspect of the Jetpack design that could cause the devices to fail in the way described in Verizon’s recall notice. 

Future Impact on Financial Performance

We are striving to avoid any litigation arising from the recall and have not been served with any legal action relating to the products covered by the recall. We are not currently able to estimate the financial impact of the recall on our future operations. At this time, we do not have information that identifies the cause of the alleged incidents. We also do not have any specific legal claims or theories of causation for device failure incidents that would help us estimate the cost of potential future litigation. No liability has been recorded for this litigation because the Company believes that any such liability is not probable and reasonably estimable at this time.

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Shareholder Litigation

Ali

A shareholder action, Ali vs. Franklin Wireless Corp. et al. Case #3:21-cv-00687-AJB-MSB, was filed in the U.S. District Court, Southern District of California (San Diego) on April 16, 2021, alleging, 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. Discovery is ongoing at this time.

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, Stephen Norwood Derivatively on Behalf of Nominal Defendant Franklin Wireless Corp. v. OC Kim, Et al., Case #21cv01837-JAH-DEB, 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. OC Kim, Et al., Case #21cv2091-CAB-KSC, 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 recently 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). Discovery is ongoing at this time.

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. OC 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. We believe these allegations are not supported by the facts and we will vigorously defend against such claims. 

The Company will vigorously defend such shareholder litigation and proceedings. No liability has been recorded for these litigations because the Company believes that any such liability is not probable and reasonably estimable at this time.

“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-CAB-JLB, on or about July 22, 2021, claiming that our Chief Executive Officer, OC 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. We believe the allegations are not supported by the facts and we intend to vigorously defend against these claims. No liability has been recorded for this litigation because the Company believes that any such liability is not probable and reasonably estimable at this time.

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Franklin v. Anydata, Inc.

We entered into a Professional Services Agreement with Anydata Corp. (“Anydata”) for the product ACT233F Smart Link OBD device on May 5, 2017, for a minimum purchase commitment of 250,000 units. We have delivered approximately 25,000 units and 7,000 units during our second and fourth quarters of fiscal 2018, respectively, and an additional 18,000 units during our first quarter of fiscal 2019. Sales to Anydata were approximately $1.8 million for the year ended June 30, 2019. We have received information that Anydata may not be able to fulfill the entire purchase commitment for which parts have already been ordered with our main vendor, Quanta. We believe that the Company will be able to supply some of the products to another customer and has received personal guarantees from the ownership group of Anydata. As of June 30, 2019, the remaining unfulfilled purchase commitment was approximately $3.1 million. The total product purchase commitment with Quanta was approximately $2.9 million. We have not recorded a receivable from Anydata, nor a liability owed to Quanta. Management believes that, at this time, a loss contingency is reasonably possible but not estimable as to how much ultimately would be paid to Quanta. As of June 30, 2020, we paid $100,000 for the right to call on inventory and recorded an additional $49,580 as a prepaid expense related to pricing adjustments, which has been agreed with Quanta for other products to ensure demand is met, and for the quarter ended December 31, 2020, the prepaid expense of $149,580 has been recorded as a cost of goods sold. As of March 31, 2022, there is a reasonable possibility we may incur a loss; however, the amount is not estimable at this time. On January 25^th, 2021, we commenced legal action against Anydata and its principal officers in San Diego Superior Court, case number 37-2021-00003468-CU-BC-CTL. As of the date of this report, litigation is continuing, and the action is not yet resolved.

COVID-19

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic which continues to spread throughout the United States. On March 19, 2020, the Governor of California declared a health emergency and issued an order to close all nonessential businesses until further notice. As a maker of wireless connectivity devices, we are deemed to be an essential business. Nonetheless, out of concern for our workers and pursuant to the government order, we reduced the scope of our operations and, where possible, certain workers began telecommuting from their homes. The continued spread of COVID-19 may result in a period of business disruption, including delays or disruptions in our supply chain. The spread of COVID-19, or another infectious disease, could also negatively affect the operations at our third-party manufacturers, which could result in delays or disruptions in the supply of our products. While we expect this situation may increase demand for its products, the related impact cannot be reasonably estimated at this time.

Change of Control Agreements

On October 1, 2020, we entered into Change of Control Agreements with OC Kim, our President, and Yun J. (David) Lee, our Chief Operating Officer. Each Change of Control Agreement provides for a lump sum payment to the officer in case we experience a change of control. The term includes the acquisition of our Common Stock 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 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 our outstanding Common Stock, or a liquidation or dissolution or sale of substantially all of our 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. 

International Tariffs

We believe that our products are currently exempt from international tariffs upon import from our manufacturers to the United States. If this were to change at any point, a tariff of 10%-25% of the purchase price would be imposed. If such tariffs are imposed, they could have a materially adverse effect on sales and operating results.

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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 9 – 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. Under this application, we record compensation expense for all awards granted.

In 2009, we adopted the Stock Incentive Plan (“2009 Plan”), which provided for the grant of incentive stock options and non-qualified stock options to our employees and directors. Options granted under the 2009 Plan generally have a term of ten years and generally vest and become exercisable at the rate of 33% after one year and 33% on the second and third anniversaries of the option grant dates. Historically, some stock option grants have included shorter vesting periods ranging from one to two years.

In July of 2020, the Board of Directors adopted the 2020 Franklin Wireless Corp. Stock Option Plan (the “2020 Plan”), which covers 800,000 shares of Common Stock. The 2020 Plan provide 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 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 $180,745 and $94,538 compensation expenses recorded under this method for the three months ended September 30, 2022 and 2021, respectively.

A summary of the status of our stock options is presented below as of September 30, 2022:

						Weighted-
						Average
				Weighted-		Remaining
				Average		Contractual		Aggregate
				Exercise		Life		Intrinsic
Options	Shares			Price		(In Years)		Value
Outstanding as of June 30, 2022		766,001		$	3.85		3.37	$	183,270
Granted		–			–		–		–
Exercised		–			–		–		–
Cancelled		–			–		–		–
Forfeited or expired		(10,000	)		5.40		–		–
Outstanding as of September 30, 2022		756,001		$	3.86		3.11	$	158,000
Exercisable as of September 30, 2022		399,089		$	3.90		2.36	$	158,000

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based upon the Company’s closing stock price of $2.92 as of September 30, 2022, 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 September 30, 2022, in the amount of 756,001 shares was $3.17 per share. As of September 30, 2022, there was unrecognized compensation cost of $1,102,036 related to non-vested stock options granted.

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A summary of the status of our stock options is presented below as of September 30, 2021:

						Weighted-
						Average
				Weighted-		Remaining
				Average		Contractual		Aggregate
				Exercise		Life		Intrinsic
Options	Shares			Price		(In Years)		Value
Outstanding as of June 30, 2021		484,000		$	3.67		2.83	$	2,662,830
Granted		–			–		–		–
Exercised		(3,999	)		5.40		–		–
Cancelled		–			–		–		–
Forfeited or expired		(3,000	)		5.40		–		–
Outstanding as of September 30, 2021		477,001		$	3.64		2.56	$	1,725,372
Exercisable as of September 30, 2021		303,622		$	2.64		0.70	$	1,402,888

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based upon the Company’s closing stock price of $7.26 as of September 30, 2021, 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 September 30, 2021, in the amount of 477,001 shares was $3.00 per share. As of September 30, 2021, there was unrecognized compensation cost of $700,605 related to non-vested stock options granted.

NOTE 10 – SUBSEQUENT EVENT

On November 10, 2022 the Company and OC Kim, its President, entered into an amendment of the employment letter agreement dated September 7, 2021. The amendment provides for a severance payment of $3,000,000 if Mr. Kim voluntarily terminates his employment by 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 letter, with the first such bonus due on December 31, 2022.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this report.  This report contains certain forward-looking statements relating to future events or our future financial performance. These statements are subject to risks and uncertainties which could cause actual results to differ materially from those discussed in this report. You are cautioned not to place undue reliance on this information, which speaks only as of the date of this report.  We are not obligated to publicly update this information, whether as a result of new information, future events or otherwise, except to the extent we are required to do so in connection with our obligation to file reports with the SEC. For a discussion of the important risks to our business and future operating performance, see the discussion under the caption “Item 1A. Risk Factors” and under the caption “Factors That May Influence Future Results of Operations” in the Company’s Form 10-K for the year ended June 30, 2022, filed on September 13, 2022. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this report might not occur.

BUSINESS OVERVIEW

We are a leading provider of integrated wireless solutions utilizing the latest in 4G LTE (fourth generation long-term evolution) and 5G (fifth generation) technologies including mobile hotspots, routers, CPEs (Customer Premise Equipment), and various trackers. Our integrated software subscription services provide users remote capabilities including mobile device management (MDM) and software defined wide area networking (SD-WAN).

We have majority ownership of Franklin Technology Inc. (FTI), a research and development company based in Seoul, South Korea. FTI primarily provides design and development services for our wireless products.

Our products are generally marketed and sold directly to wireless operators and indirectly through strategic partners and distributors. Our global customer base primarily extends from North America to Asia.

FACTORS THAT MAY INFLUENCE FUTURE RESULTS OF OPERATIONS

We believe that our revenue growth will be influenced largely by (1) the successful maintenance of our existing customers, (2) the rate of increase in demand for wireless data products, (3) customer acceptance of our new products, (4) new customer relationships and contracts, and (5) our ability to meet customers’ demands.

We have entered into and expect to continue to enter into new customer relationships and contracts for the supply of our products, and this may require significant demands on our resources, resulting in increased operating, selling, and marketing expenses associated with such new customers.

CRITICAL ACCOUNTING POLICIES

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of these financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingencies at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. Management evaluates these estimates and assumptions on an ongoing basis. Our estimates and assumptions have been prepared on the basis of the most current reasonably available information. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates under different assumptions and conditions.

We have several critical accounting policies, which were described in our Annual Report on Form 10-K for the year ended June 30, 2022, that are both important to the portrayal of our financial condition and results of operations and require management’s most difficult, subjective, and complex judgments. Typically, the circumstances that make these judgments difficult, subjective, and complex have to do with making estimates about the effect of matters that are inherently uncertain. There were no material changes to our critical accounting policies during the three months ended September 30, 2022.

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RESULTS OF OPERATIONS

The following table sets forth, for the three months ended September 30, 2022 and 2021, our statements of comprehensive income including data expressed as a percentage of sales:

	Three Months Ended
	September 30,
	2022			2021
Net sales		100.0%			100.0%
Cost of goods sold		80.3%			85.3%
Gross profit		19.7%			14.7%
Operating expenses		27.3%			62.8%
Loss from operations		(7.6%	)		(48.1%	)
Other (expense) income, net		(11.3%	)		4.0%
Net loss before income taxes		(18.9%	)		(44.1%	)
Income tax benefits		(1.3%	)		(12.3%	)
Net loss		(17.6%	)		(31.8%	)
Less: non-controlling interest in net (loss) income of subsidiary		(3.7%	)		1.2%
Net loss attributable to Parent Company stockholders		(13.9%	)		(33.0%	)

THREE MONTHS ENDED SEPTEMBER 30, 2022 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2021

NET SALES - Net sales increased by $4,764,880, or 142.5%, to $8,108,940 for the three months ended September 30, 2022 from $3,344,060 for the corresponding period of 2021. For the three months ended September 30, 2022, net sales by geographic regions, consisting of North America and Asia, were $8,107,451 (100.0% of net sales) and $1,489 (0.0% of net sales), respectively. For the three months ended September 30, 2021, net sales by geographic regions, consisting of North America and Asia, were $3,171,198 (94.8% of net sales) and $172,862 (5.2% of net sales), respectively.

Net sales in North America increased by $4,936,253, or 155.7%, to $8,107,451 for the three months ended September 30, 2022 from $3,171,198 for the corresponding period of 2021. The increase in net sales in North America was primarily due to the demand for a wireless product from one major carrier customer. Net sales in Asia decreased by $171,373, or 99.1%, to $1,489 for the three months ended September 30, 2022 from $172,862 for the corresponding period of 2021. The decrease in net sales was primarily due to the decreased revenue generated from the material sales and product development service by FTI, which typically vary from period to period.

GROSS PROFIT - Gross profit increased by $1,100,898, or 223.3%, to $1,593,862 for the three months ended September 30, 2022 from $492,964 for the corresponding period of 2021. The gross profit in terms of net sales percentage was 19.7% for the three months ended September 30, 2022 compared to 14.7% for the corresponding period of 2021. The increase in gross profit was primarily due to the change in net sales as described above. The increase in gross profit in terms of net sales percentage was primarily due to the revenues generated from a major carrier customer, which involved higher gross margin compared the corresponding period of 2021.

OPERATING EXPENSES - Operating expenses increased by $110,038, or 5.2%, to $2,209,755 for the three months ended September 30, 2022 from $2,099,717 for the corresponding period of 2021. Selling, general, and administrative expenses increased by $161,820 to $1,239,635 for the three months ended September 30, 2022, from $1,077,815 for the corresponding period of 2021. The increase in selling, general, and administrative expenses was primarily due to the increased compensation expenses related to stock options granted for employees and legal expenses of approximately $86,000 and $60,000, respectively. Research and development expense decreased by $51,782 to $970,120 for the three months ended September 30, 2022, from $1,021,902 for the corresponding period of 2021. The decrease in research and development expense was primarily due to decreased other research and development costs, which typically vary from period to period.

24

OTHER INCOME, NET - Other income, net decreased by $1,046,584, or 789.7%, to $914,060 for the three months ended September 30, 2022 from $132,524 for the corresponding period of 2021. The decrease was primarily due to the unfavorable changes in foreign currency exchange rates in FTI.

LIQUIDITY AND CAPITAL RESOURCES

Our historical operating results, capital resources and financial position, in combination with current projections and estimates, were considered in management's plan and intentions to fund our operations over a reasonable period of time, which we define as the twelve-month period ending from the date of the filing of this Form 10-Q. For purposes of liquidity disclosures, we assess the likelihood that we have sufficient available working capital and other principal sources of liquidity to fund our operating activities and obligations as they become due.

Our principal source of liquidity as of September 30, 2022 consisted of cash and cash equivalents as well as short-term investments of $40,760,941.  We believe we have sufficient available capital to cover our existing operations and obligations through at least one year from the date of the filing of this Form 10-Q.  Our long-term future cash requirements will depend on numerous factors, including our revenue base, profit margins, product development activities, market acceptance of our products, future expansion plans and ability to control costs.  If we are unable to achieve our current business plan or secure additional funding that may be required, we would need to curtail our operations or take other similar actions outside the ordinary course of business in order to continue to operate as a going concern.

OPERATING ACTIVITIES - Net cash used in operating activities for the three months ended September 30, 2022 and 2021 was $1,012,140 and $6,368,586, respectively.

The $1,012,140 in net cash used in operating activities for the three months ended September 30, 2022 was primarily due to the increase in inventory of $855,392 as well as our operating results (net loss adjusted for depreciation, amortization, and other non-cash charges), which was partially offset by an increase in accounts payable of $537,395.

The $6,368,586 in net cash used in operating activities for the three months ended September 30, 2021 was primarily due to the decrease in accounts payable of $6,156,666 as well as our operating results (net loss adjusted for depreciation, amortization, and other non-cash charges), which was partially offset by a decrease in accounts receivable of $1,000,401.

INVESTING ACTIVITIES - Net cash provided by investing activities for the three months ended September 30, 2022 was $553,881, and net cash used in investing activities for the three months ended September 30, 2021 was $43,485.

The $553,881 in net cash provided by financial activities for the three months ended September 30, 2022 was from the decreased short-term investments of $1,080,659, which was partially offset by the payments for capitalized products development and property and equipment of $493,250 and $26,674, respectively.

The $43,485 in net cash used in investing activities for the three months ended September 30, 2021 was primarily due to the payments for capitalized product development of $35,543.

FINANCING ACTIVITIES - Net cash provided by financing activities for the three months ended September 30, 2022, and 2021 was $0 and $21,595, respectively. The $21,595 in net cash provided by financial activities for the three months ended September 30, 2021 was from cash received from exercise of stock options.

25

CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS

Leases

We lease approximately 12,775 square feet of office space in San Diego, California, at a monthly rent of $25,754, pursuant to a lease expiring in December 2023. In addition to monthly rent, the lease includes payment for certain common area costs. Our facility is covered by an appropriate level of insurance, and we believe it to be suitable for our use and adequate for our present needs. Our Korea-based subsidiary, FTI, leases approximately 10,000 square feet of office space, at a monthly rent of approximately $8,000, and additional office space consisting of approximately 2,682 square feet at a monthly rent of approximately $2,700, both located in Seoul, Korea. These leases will expire on August 31, 2023. 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. We lease one corporate housing facility, located in Seoul, Korea, primarily for our employees who travel, under a non-cancelable operating lease will expire on September 4, 2023.

Rent expense for the three months ended September 30, 2022 and 2021 was $111,293 and $111,586, respectively.

Recently Issued Accounting Pronouncements

Refer to NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES in the Consolidated Financial Statements.

OFF-BALANCE SHEET ARRANGEMENTS

None.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a “smaller reporting company,” the Company is not required to respond to this item.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management has evaluated, under the supervision and with the participation of our President and Acting Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, our President and our Acting Chief Financial Officer have concluded that, as of September 30, 2022, our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC and (ii) accumulated and communicated to our management, including our principal executive and principal accounting officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934 and as a result of adopting Topic 842) during the three months ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

26

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We have provided information about legal proceedings in which we are involved in Note 8 of the notes to consolidated financial statements for the three months ended September 30, 2022, contained within this Quarterly Report on Form 10-Q.

ITEM 1A. RISK FACTORS

Our Annual Report on Form 10-K for the fiscal year ended June 30, 2022, filed with the SEC on September 13, 2022 (the “Annual Report”), includes a detailed discussion of our risk factors under the heading “PART I, ITEM 1A – RISK FACTORS.” You should carefully consider the risk factors discussed in our Annual Report, as well as other information in this quarterly report. Any of these risks could cause our business, financial condition, results of operations and future growth prospects to suffer. We are not aware of any material changes from the risk factors previously disclosed.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

On November 10, 2022 the Company and OC Kim, its President, entered into an amendment of the employment letter agreement dated September 7, 2021. The amendment provides for a severance payment of $3 million if Mr. Kim voluntarily terminates his employment by 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 letter, with the first such bonus due on December 31, 2022.

27

ITEM 6. EXHIBITS

Exhibit Number	Description
10.1	Amendment No. 1 to Employment Agreement, executed on November 10, 2022
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instances Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

28

SIGNATURES

In accordance with Section 13 of 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Franklin Wireless Corp.
	By:	/s/ OC Kim
		OC Kim President (Principal Executive Officer)
	By:	/s/ Bill Bauer
		Bill Bauer
Dated: November 14, 2022		Acting Chief Financial Officer (Principal Financial Officer)

29

EX-10.1

Exhibit 10.1

 

Amendment No. 1 to Employment Letter

This Amendment No. 1 amends that certain letter agreement dated October 21, 2022, between Franklin Wireless Corp. (“Franklin”) and OC Kim (the “Employment Letter”).

The Employment letter is hereby amended as follows:

1. Severance Benefit.

1.1 Voluntary Termination or Involuntary Termination Due to Changed Circumstances. If, during the term of the Employment Letter, OC Kim either (i) voluntarily terminates his employment, or (ii) is deemed to have been terminated due to a Change in Circumstances (as defined below), then Franklin shall pay him $3,000,000 in cash, within 30 days of such termination, such payment to be subject to customary payroll withholding and reporting. In addition, all employee stock options then held by OC Kim shall be immediately exercisable. As used in this section, the term "Change in Circumstances” shall mean Executive may terminate his employment for good reason upon at least thirty days prior written notice to the Company. For purposes of this Agreement, “Good Reason shall mean (a) Franklin's material breach of the salary and benefit obligations hereunder, and either such breach is incurable or, if curable, has not been cured within fifteen days following receipt of written notice by Executive to the Company of such breach by the Company, or (b) Franklin significantly reduces OC Kim's title or responsibilities.

1.2 Involuntary Termination For Cause.

If, during the term of the Employment Letter, OC Kim's employment is terminated for Cause (as defined below), then Franklin shall pay him $1,500,000 in cash, within 30 days of such termination, such payment to be subject to customary payroll withholding and reporting. In addition, all employee stock options then held by OC Kim shall be immediately exercisable. As used in this Section, “Cause” shall mean (1) conviction of a felony, or any act involving moral turpitude, where imprisonment is imposed, (ii) commission of any act of theft, fraud, dishonesty, or material falsification of any employment or Company records that is construe as criminal act, or (iii) improper disclosure of the Company's confidential or proprietary information.

2. Covenants of O C Kim

2.1 Non-Solicitation; Non-Disparagement.

For a period of two years following termination, OC Kim agrees that he will not, directly, or indirectly, (i) solicit or induce or attempt to solicit or induce any employee, representative or agent of Franklin or any of its subsidiaries to terminate their employment, representation or other association with Franklin or such subsidiary, or (ii) disparage Franklin or any of its subsidiaries or any of its or their past, present or future agents, officers, members, shareholders, managers, directors or employees to the public, media, any individual, or any other third party.

9707 Waples Street Suite 150 San Diego, CA 92121 858-623-0000, Fax 858-623-0050

www.franklinwireless.com

 

2 ..2 Non-Disclosure.

OC Kim (1) acknowledges and agrees that any Confidential Information gained by him during his employment with Franklin or any of its subsidiaries has been developed by Franklin and such subsidiary through substantial expenditures of time and money and constitutes valuable and unique property of Franklin and such subsidiary, (ii) after the termination of this Agreement, OC Kim shall keep in strict confidence and shall not, directly or indirectly, disclose, furnish, disseminate, make available or use (except in the course of performing her duties of employment) any Confidential Information, regardless of when or how OC Kim acquired such information. As used herein, “Confidential Information” shall mean any information that (i) constitutes a trade secret or that otherwise is not generally known to the public and that is developed, owned or obtained by Franklin or any of its subsidiaries (including information developed by OC Kim in the course of performing service to Franklin, or (ii) regards Franklin's and its subsidiaries' marketing strategy and efforts, direct and indirect owners, financing arrangements, financial position, prospects, operating methods or procedures, sales volume, sales proposals, customers, prospective customers, vendors, service providers, key employees, or consultants.

3. Incentive Bonus.

OC Kim shall be entitled to a quarterly incentive bonus of $125,000 for each calendar quarter during the term of the Employment Agreement, with the first such bonus due on December 31, 2022, and on the last day of each calendar quarter thereafter, until December 31, 2026; provide, however, that OC Kim must continue to be employed by Franklin on the last day of the calendar quarter to be entitled to the bonus for such calendar quarter.

4. “At-Will” Employment.

The paragraph titled "At-Will Employment” in the Employment Letter is hereby deleted in its entirety.

5. Confirmation of Agreement.

Except as so amended, the Employment Letter is hereby confirmed in its entirety.

Dated: October 21, 2022

Franklin Wireless Corp.

By: ___________________________ ________________

Gary Nelson – Chairman of the Board Date signed

By:________________________ ________________

OC Kim - President Date signed

9707 Waples Street Suite 150 San Diego, CA 92121 858-623-0000, Fax 858-623-0050

www.franklinwireless.com

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, OC Kim, President of Franklin Wireless Corp., certify that:

1)	I have reviewed this quarterly report on Form 10-Q of Franklin Wireless Corp.;
2)	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3)	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4)	I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5) I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ OC KIM  

OC Kim

President

(Principal Executive Officer)

November 14, 2022

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Bill Bauer, Acting Chief Financial Officer of Franklin Wireless Corp., certify that:

1)	I have reviewed this quarterly report on Form 10-Q of Franklin Wireless Corp.;
2)	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3)	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4)	I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5) I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Bill Bauer 

Bill Bauer

Principal Financial Officer

November 14, 2022

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Franklin Wireless Corp. (the "Company") on Form 10-Q for the three months ended September 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, OC Kim, President of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ OC KIM                   

OC Kim

President

(Principal Executive Officer)

November 14, 2022

A signed copy of this written statement required by section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Franklin Wireless Corp. (the "Company") on Form 10-Q for the three months ended September 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Bill Bauer, Acting Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ Bill Bauer 

Bill Bauer

Principal Financial Officer

November 14, 2022

A signed copy of this written statement required by section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Cover - shares	3 Months Ended
	Sep. 30, 2022	Nov. 14, 2022
Cover [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Quarterly Report	true
Document Transition Report	false
Document Period End Date	Sep. 30, 2022
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2023
Current Fiscal Year End Date	--06-30
Entity File Number	001-14891
Entity Registrant Name	FRANKLIN WIRELESS CORP.
Entity Central Index Key	0000722572
Entity Tax Identification Number	95-3733534
Entity Incorporation, State or Country Code	NV
Entity Address, Address Line One	9707 Waples Street
Entity Address, Address Line Two	Suite 150
Entity Address, City or Town	San Diego
Entity Address, State or Province	CA
Entity Address, Postal Zip Code	92121
City Area Code	(858)
Local Phone Number	623-0000
Title of 12(b) Security	Common Stock, par value $.001 per share
Trading Symbol	FKWL
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		11,684,280

XML

Consolidated Balance Sheets (Unaudited) - USD ($)	Sep. 30, 2022	Jun. 30, 2022
Current assets:
Cash and cash equivalents	$ 25,504,941	$ 26,277,418
Short-term investments-others	15,256,000	16,336,659
Accounts receivable, net	946,006	1,322,619
Other receivables, net	28,178	40,132
Inventories, net	5,053,255	4,197,863
Prepaid expenses and other current assets	32,232	40,939
Advance payments to vendors	146,020	174,796
Total current assets	46,966,632	48,390,426
Property and equipment, net	116,807	105,952
Intangible assets, net	1,670,266	1,350,056
Deferred tax assets, non-current	1,451,619	1,347,436
Goodwill	273,285	273,285
Right of use assets	375,785	448,621
Other assets	116,186	126,095
TOTAL ASSETS	50,970,580	52,041,871
Current liabilities:
Accounts payable	8,680,700	8,143,305
Income tax payable	1,770	6,702
Unearned revenue	301,737	231,624
Accrued liabilities	552,140	589,907
Lease liabilities, current	311,932	308,834
Total current liabilities	9,848,279	9,280,372
Lease liabilities, non-current	79,949	159,104
Total liabilities	9,928,228	9,439,476
Commitments and contingencies (Note 8)
Parent Company stockholders’ equity
Preferred stock, par value $0.001 per share, authorized 10,000,000 shares; No preferred stock issued and outstanding as of September 30, 2022, and June 30, 2022	0	0
Common stock, par value $0.001 per share, authorized 50,000,000 shares; 11,684,280 shares issued and outstanding as of September 30, 2022, and June 30, 2022, respectively	14,163	14,163
Additional paid-in capital	13,774,171	13,593,426
Retained earnings	30,837,255	31,964,246
Treasury stock, 2,549,208 shares as of September 30, 2022, and June 30, 2022	(3,554,893)	(3,554,893)
Accumulated other comprehensive loss	(1,298,370)	(984,152)
Total Parent Company stockholders’ equity	39,772,326	41,032,790
Non-controlling interests	1,270,026	1,569,605
Total stockholders’ equity	41,042,352	42,602,395
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$ 50,970,580	$ 52,041,871

XML

Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares	Sep. 30, 2022	Jun. 30, 2022
Statement of Financial Position [Abstract]
Preferred stock par value	$ 0.001	$ 0.001
Preferred Stock, Shares Authorized	10,000,000	10,000,000
Preferred Stock, Shares Issued	0	0
Preferred Stock, Shares Outstanding	0	0
Common stock par value	$ 0.001	$ 0.001
Common Stock, Shares Authorized	50,000,000	50,000,000
Common Stock, Shares, Issued	11,684,280	11,684,280
Common Stock, Shares, Outstanding	11,684,280	11,684,280
Treasury stock shares	2,549,208	2,549,208

XML

Consolidated Statements of Comprehensive Loss (Unaudited) - USD ($)	3 Months Ended
	Sep. 30, 2022	Sep. 30, 2021
Income Statement [Abstract]
Net sales	$ 8,108,940	$ 3,344,060
Cost of goods sold	6,515,078	2,851,096
Gross profit	1,593,862	492,964
Operating expenses:
Selling, general and administrative	1,239,635	1,077,815
Research and development	970,120	1,021,902
Total operating expenses	2,209,755	2,099,717
Loss from operations	(615,893)	(1,606,753)
Other income, net:
Interest income	60,062	1,923
Income from governmental subsidy	17,147	84,746
(Loss) gain from foreign currency transactions	(948,887)	47,318
Other expense, net	(42,382)	(1,463)
Total other (expense) income, net	(914,060)	132,524
Loss before provision for income taxes	(1,529,953)	(1,474,229)
Income tax benefits	(103,383)	(411,256)
Net loss	(1,426,570)	(1,062,973)
Less: non-controlling interests in net (loss) income of subsidiary at 33.7%	(299,579)	40,632
Net loss attributable to Parent Company	$ (1,126,991)	$ (1,103,605)
Basic loss per share attributable to Parent Company stockholders	$ (0.10)	$ (0.10)
Diluted loss per share attributable to Parent Company stockholders	$ (0.10)	$ (0.10)
Weighted average common shares outstanding - basic	11,684,280	11,593,006
Weighted average common shares outstanding - diluted	11,684,280	11,593,006
Comprehensive loss:
Translation adjustments	$ (314,218)	$ (127,605)
Comprehensive loss	(1,740,788)	(1,190,578)
Less: comprehensive (loss) income attributable to non-controlling interest	(299,579)	40,632
Comprehensive loss attributable to controlling interest	$ (1,441,209)	$ (1,231,210)

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) - USD ($)	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Treasury Stock [Member]	AOCI Attributable to Parent [Member]	Noncontrolling Interest [Member]	Total
Balance - June 30, 2021 at Jun. 30, 2021	$ 14,069	$ 12,972,234	$ 35,727,094	$ (3,554,893)	$ (472,502)	$ 1,479,162	$ 46,165,164
Beginning balace, shares at Jun. 30, 2021	11,590,281
Net loss attributable to Parent Company			(1,103,605)				(1,103,605)
Foreign exchange translation					(127,605)		(127,605)
Issuance of stock related to stock option exercised	$ 4	21,591					21,595
Issuance of stock related to stock options exercised, shares	3,999
Comprehensive income attributable to non-controlling interest						40,632	40,632
Stock based compensation		94,538					94,538
Balance – September 30, 2021 (unaudited) at Sep. 30, 2021	$ 14,073	13,088,363	34,623,489	(3,554,893)	(600,107)	1,519,794	45,090,719
Ending balace, shares at Sep. 30, 2021	11,594,280
Balance - June 30, 2021 at Jun. 30, 2022	$ 14,163	13,593,426	31,964,246	(3,554,893)	(984,152)	1,569,605	42,602,395
Beginning balace, shares at Jun. 30, 2022	11,684,280
Net loss attributable to Parent Company			(1,126,991)				(1,126,991)
Foreign exchange translation					(314,218)		(314,218)
Comprehensive income attributable to non-controlling interest						(299,579)	(299,579)
Stock based compensation		180,745					180,745
Balance – September 30, 2021 (unaudited) at Sep. 30, 2022	$ 14,163	$ 13,774,171	$ 30,837,255	$ (3,554,893)	$ (1,298,370)	$ 1,270,026	$ 41,042,352
Ending balace, shares at Sep. 30, 2022	11,684,280

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Consolidated Statements of Cash Flows (Unaudited) - USD ($)	3 Months Ended
	Sep. 30, 2022	Sep. 30, 2021
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss	$ (1,426,570)	$ (1,062,973)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	15,819	22,786
Amortization of intangible assets	179,894	93,694
Stock based compensation	180,745	94,538
Amortization of right of use assets	72,836	90,634
Deferred tax (benefit)	(104,183)	(439,568)
Increase (decrease) in cash due to change in:
Accounts receivable	388,567	1,000,401
Inventories	(855,392)	247,576
Prepaid expenses and other current assets	8,707	10,544
Prepaid income taxes	0	(102,055)
Advance payments to vendors	28,776	(88,114)
Other assets	9,909	5,321
Accounts payable	537,395	(6,156,666)
Income tax payable	(4,932)	(69,984)
Unearned revenue from customers	70,113	125,701
Lease liabilities	(76,057)	(93,853)
Accrued liabilities	(37,767)	(46,568)
Net cash used in operating activities	(1,012,140)	(6,368,586)
CASH FLOW FROM INVESTING ACTIVITIES:
Sales/Purchases of short-term investments	1,080,659	(585)
Purchases of property and equipment	(26,674)	(6,032)
Payments for capitalized product development costs	(493,250)	(35,543)
Purchases of intangible assets	(6,854)	(1,325)
Net cash provided by (used in) investing activities	553,881	(43,485)
CASH FLOW FROM FINANCING ACTIVITIES:
Cash received from exercise of stock options	0	21,595
Net cash provided by financing activities	0	21,595
Effect of foreign currency translation	(314,218)	(127,605)
Net decrease in cash and cash equivalents	(772,477)	(6,518,081)
Cash and cash equivalents, beginning of period	26,277,418	45,796,006
Cash and cash equivalents, end of period	25,504,941	39,277,925
Cash paid during the periods for:
Income taxes	$ (800)	$ (200,350)

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Sep. 30, 2022

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiary, Franklin Technology Inc. ("FTI"), with a majority voting interest of 66.3% (approximately 33.7% is owned by non-controlling interests) as of September 30, 2022 and 2021. In the preparation of consolidated financial statements of the Company, intercompany transactions and balances are eliminated and net earnings are reduced by the portion of the net earnings of the subsidiary applicable to non-controlling interests.

As consolidated financial statements are based on the assumption that they represent the financial position and operating results of a single economic entity, the retained earnings or deficit of the subsidiary at the date of acquisition, October 1, 2009, by the parent are excluded from consolidated retained earnings. When a subsidiary is consolidated, the consolidated financial statements include the subsidiary’s revenues, expenses, gains, and losses only from the date the subsidiary is initially consolidated, and the non-controlling interest is reported in the consolidated statement of financial position within equity, separately from the parent’s equity. There are no shares of the Company held by any subsidiaries as of September 30, 2022, or June 30, 2022.

Non-controlling Interest in a Consolidated Subsidiary

As of September 30, 2022, the non-controlling interest was $1,270,026, which represents a $299,579 decrease from $1,569,605 as of June 30, 2022. The decrease in the non-controlling interest of $299,579 was from loss in the subsidiary of $890,082 incurred for the three months ended September 30, 2022.

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.

	Three Months Ended September 30,
Net sales:	2022		2021
North America	$	8,107,451	$	3,171,198
Asia		1,489		172,862
Totals	$	8,108,940	$	3,344,060

Long-lived assets, net (property and equipment and intangible assets):	September 30, 2022		June 30, 2022
North America	$	1,681,253	$	1,374,747
Asia		105,820		81,261
Totals	$	1,787,073	$	1,456,008

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.

Fair Value of Financial Instruments

The carrying amounts of financial instruments such as cash equivalents, short-term investments, accounts receivable, accounts payable and debt approximate the related fair values due to the short-term maturities 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.

Allowance for Doubtful Accounts

Based upon our review of our collection history as well as the current balances associated with all significant customers and associated invoices, as of September 30, 2022, we did not believe an allowance for doubtful accounts was necessary.

Revenue Recognition

Contracts with Customers

Revenue for 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. We establish a provision for estimated warranty and returns. Using historical averages, that provision for the quarter ended September 30, 2022 was not material.

Disaggregation of Revenue

In accordance with Topic 606, we disaggregate revenue from contracts with customers into geographical regions and by the timing of when goods and services are transferred. 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:

	September 30, 2022		June 30, 2022
Accounts Receivable	$	946,006	$	1,322,619

The balance of contract assets was immaterial as we did not have a significant amount of un-invoiced receivables in the periods ended September 30, 2022, and June 30, 2022. 

Our contract liabilities are as follows:

	September 30, 2022		June 30, 2022
Undelivered products	$	441,737	$	371,624

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 primarily satisfied at a point in time. Revenue from products transferred to customers at a single point in time accounted for 99.9% of net sales for the three months ended September 30, 2022. Revenue recognized over a period of time for non-recurring engineering projects is based on the percent complete of a project and accounted for 0.1% of net sales for the three months ended September 30, 2022. 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 September 30, 2022, 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 $166,000 and $78,000 associated with capitalized product development costs associated with complete technology for the three months ended September 30, 2022 and 2021, 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 3 to Notes to Consolidated Financial Statements) 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 greater of straight-line amortization or the ratio of the current gross revenues to the current and anticipated future gross revenues. The amortization begins when the products are available for general release to our customers.

As of September 30, 2022, and June 30, 2022, capitalized product development costs in progress were $680,593 and $187,343, respectively, and the amounts are included in intangible assets in our consolidated balance sheets. During the three months ended September 30, 2022 and 2021, we incurred $493,250 and $35,543, respectively, in capitalized product development costs, and such amounts are primarily comprised of certifications and licenses. All costs incurred before technological feasibility is reached are expensed and included in our consolidated statements of comprehensive income.

Research and Development Costs

Costs associated with research and development are expensed as incurred. Research and development costs were $970,120 and $1,021,902 for the three months ended September 30, 2022 and 2021, 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 (loss), were $40,553 and $45,384 for the three months ended September 30, 2022 and 2021, 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.

Inventories

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.  As of September 30, 2022, and June 30, 2022, we have recorded inventory reserves in the amount of $557,155 for inventories that we have identified as obsolete or slow-moving.

Property and Equipment

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

Machinery	6 years
Office equipment	5 years
Molds	3 years
Vehicles	5 years
Computers and software	5 years
Furniture and fixtures	7 years
Facilities improvements	5 years or life of the lease, whichever is shorter

Goodwill and Intangible Assets

Goodwill and certain intangible assets were recorded in connection with the FTI acquisition in October 2009, and are 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 deemed necessary as of September 30, 2022 or June 30, 2022.

Long-lived Assets

In accordance with ASC 360, “Property, Plant, and Equipment,” we review for impairment of 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.

As of September 30, 2022, and June 30, 2022, we were not aware of any events or changes in circumstances that would indicate that the long-lived assets are impaired.

Stock-based Compensation

Our employee share-based awards result in a cost that is measured at fair value on an award’s grant date, based on the estimated number of awards that are expected to vest. Compensation costs are recognized over the period that an employee provides service in exchange for the award, i.e., the vesting period. We estimate the fair value of stock options using a Black-Scholes option pricing model. Transactions with non-employees in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Stock-based compensation costs are reflected in the accompanying consolidated statements of comprehensive income based upon the underlying recipients' roles within the Company.

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 its income tax positions and records 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 September 30, 2022, we have no material unrecognized tax benefits. We recorded income tax benefits of $103,383 and $411,256 for the three months ended September 30, 2022, and 2021, respectively. We also recorded an increase in deferred tax asset, non-current, of $104,183 and $439,568 for the three months ended September 30, 2022, and 2021, respectively.

Earnings (loss) per Share Attributable to Common Stockholders

Earnings (loss) per share is calculated by dividing the net income (loss) by the weighted-average number of common shares that were outstanding for the period, without consideration for potential common shares. Diluted 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 or the as-converted method. Potentially dilutive shares are comprised of common stock options outstanding under our stock plan.

Concentrations

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 for 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 three months ended September 30, 2022, sales to our one largest customer accounted for 92% of our consolidated net sales, and 0% of our accounts receivable balance as of September 30, 2022. In the same period of 2021, sales to our two largest customers accounted for 64% and 16% of our consolidated net sales, and 0% and 33% of our accounts receivable balance as of September 30, 2021. No other customers accounted for more than ten percent of total net sales for the three months ended September 30, 2022 and 2021.

For the three months ended September 30, 2022, we purchased the majority of our wireless data products from two manufacturing companies located in Asia. If these manufacturing companies 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 the Company's revenue. For the three months ended September 30, 2022, we purchased wireless data products from these manufacturers in the amount of $7,067,055, or 99% of total purchases, and had related accounts payable of $7,990,867 as of September 30, 2022. In the same period of 2021, we purchased wireless data products from these manufacturers in the amount of $2,473,117, or 99% of total purchases, and had related accounts payable of $3,159,529 as of September 30, 2021.

We maintain our cash accounts with established commercial banks. Such cash deposits exceed the Federal Deposit Insurance Corporation insured limit of $250,000 for each financial institution. However, we do not anticipate any losses on excess deposits.

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BUSINESS OVERVIEW

3 Months Ended

Sep. 30, 2022

Accounting Policies [Abstract]

BUSINESS OVERVIEW

NOTE 2 – BUSINESS OVERVIEW

We are a leading provider of integrated wireless solutions utilizing the latest in 4G LTE (fourth generation long-term evolution) and 5G (fifth generation) technologies including mobile hotspots, routers, CPEs (Customer Premise Equipment), and various trackers. Our integrated software subscription services provide users remote capabilities including mobile device management (MDM) and software defined wide area networking (SD-WAN).

We have majority ownership of Franklin Technology Inc. (FTI), a research and development company based in Seoul, South Korea. FTI primarily provides design and development services for our wireless products.

Our products are generally marketed and sold directly to wireless operators and indirectly through strategic partners and distributors. Our global customer base primarily extends from North America to Asia.

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BASIS OF PRESENTATION

3 Months Ended

Sep. 30, 2022

Organization, Consolidation and Presentation of Financial Statements [Abstract]

BASIS OF PRESENTATION

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, 2022 included in our Form 10-K filed on September 13, 2022. 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.

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DEFINITE LIVED INTANGIBLE ASSETS

3 Months Ended

Sep. 30, 2022

Goodwill and Intangible Assets Disclosure [Abstract]

DEFINITE LIVED INTANGIBLE ASSETS

NOTE 4 – DEFINITE LIVED INTANGIBLE ASSETS

The definite lived intangible assets consisted of the following as of September 30, 2022:

Definite lived intangible assets:	Expected Life	Average Remaining Life	Gross Intangible Assets		Less Accumulated Amortization		Net Intangible Assets
Complete technology	3 years	–		18,397		18,397		–
Technology in progress	Not Applicable	–		680,593		–		680,593
Software	5 years	2.3 years		423,147		327,182		95,964
Patents	10 years	3.2 years		28,397		16,500		11,898
Certifications & licenses	3 years	0.8 years		2,144,359		1,262,548		881,811
Total as of September 30, 2022			$	3,294,893	$	1,624,627	$	1,670,266

The definite lived intangible assets consisted of the following as of June 30, 2022: 

Definite lived intangible assets:	Expected Life	Average Remaining Life	Gross Intangible Assets		Less Accumulated Amortization		Net Intangible Assets
Complete technology	3 years	–		18,397		18,397		–
Technology in progress	Not Applicable	–		187,343		–		187,343
Software	5 years	2.6 years		423,147		314,855		108,292
Patents	10 years	2.5 years		21,543		15,122		6,421
Certifications & licenses	3 years	1.1 years		2,144,359		1,096,359		1,048,000
Total as of June 30, 2022			$	2,794,789		1,444,733		1,350,056

Amortization expense recognized during the three months ended September 30, 2022 and 2021 was $179,894 and $93,694, respectively.

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

	FY2023		FY2024		FY2025		FY2026		FY2027		Thereafter
Total	$	370,841	$	393,046	$	183,177	$	13,981	$	10,188	$	18,440

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PROPERTY AND EQUIPMENT

3 Months Ended

Sep. 30, 2022

Property, Plant and Equipment [Abstract]

PROPERTY AND EQUIPMENT

NOTE 5 – PROPERTY AND EQUIPMENT

Property and equipment consisted of the following as of:

	September 30, 2022			June 30, 2022
Machinery and Commercial Equipment	$	68,004		$	67,848
Office equipment		312,993			312,785
Molds		601,862			575,552
Vehicle		15,513			15,513
		998,372			971,698
Less accumulated depreciation		(881,565	)		(865,746	)
Total	$	116,807		$	105,952

Depreciation expense associated with property and equipment was $15,819 and $22,786 for the three months ended September 30, 2022 and 2021, respectively.

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ACCRUED LIABILITIES

3 Months Ended

Sep. 30, 2022

Payables and Accruals [Abstract]

ACCRUED LIABILITIES

NOTE 6 – ACCRUED LIABILITIES

Accrued liabilities consisted of the following as of:

	September 30, 2022		June 30, 2022
Accrued payroll deductions owed to government entities	$	52,356	$	55,387
Accrued vacation		62,563		65,602
Accrued undelivered inventory		140,000		140,000
Accrued commission for service providers		37,500		40,000
Accrued commission to a customer		248,549		288,306
Other accrued liabilities		11,172		612
Total	$	552,140	$	589,907

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EARNINGS (LOSS) PER SHARE

3 Months Ended

Sep. 30, 2022

Earnings Per Share [Abstract]

EARNINGS (LOSS) PER SHARE

NOTE 7 – EARNINGS (LOSS) PER SHARE

For the three months ended September 30, 2022 and 2021, we were in a net loss position and have excluded 756,001 and 477,001 stock options, respectively, 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 earnings per share is as follows:

	Three Months Ended September 30,
	2022			2021
Net loss attributable to Parent Company	$	(1,126,991	)	$	(1,103,605	)
Weighted-average shares of common stock outstanding:
Basic shares outstanding		11,684,280			11,593,006
Dilutive effect of common stock equivalents arising from stock options		–			–
Diluted shares outstanding		11,684,280			11,593,006
Basic loss per share	$	(0.10	)	$	(0.10	)
Diluted loss per share	$	(0.10	)	$	(0.10	)

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COMMITMENTS AND CONTINGENCIES

3 Months Ended

Sep. 30, 2022

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

NOTE 8 – COMMITMENTS AND CONTINGENCIES

Leases

On September 9, 2015, we signed a lease for new office space consisting of approximately 12,775 square feet, located in San Diego, California, at a monthly rent of $23,115, which commenced on October 28, 2015. In addition to monthly rent, the new lease includes payment for certain common area costs. The term of the lease for the new office space was four years from the lease commencement date and was then extended by an additional fifty months, to December 31, 2023. Our facility is covered by an appropriate level of insurance, and we believe it to be suitable for our use and adequate for our present needs. Rent expense for this office space was $77,263 for the three months ended September 30, 2022 and 2021.

Our Korea-based subsidiary, FTI, leases approximately 10,000 square feet of office space, at a monthly rent of approximately $8,000, and additional office space consisting of approximately 2,682 square feet at a monthly rent of approximately $2,700, both located in Seoul, Korea. These leases will expire on August 31, 2023. 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 $32,100 for the three months ended September 30, 2022 and 2021.

We lease one corporate housing facility, located in Seoul, Korea, primarily for our employees who travel, under a non-cancelable operating lease that will expire on September 4, 2023. Rent expense related to this lease was $1,930 and $2,223 for the three months ended September 30, 2022 and 2021, respectively.

As of September 30, 2022, we used discount rates of 4.0% and 2.8% in determining our operating lease liabilities for the office spaces in San Diego, California, and South Korea, 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. Both our San Diego and Korean office leases were extensions of previous leases and neither contains any further extension provisions.

Future minimum payments under operating leases are as follows:

	Operating Leases
Fiscal 2023	$	241,448
Fiscal 2024		160,965
Total lease payments		402,413
Less imputed interest		(10,532	)
Total	$	391,881

Litigation

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

Verizon Jetpack Recall

On April 8, 2021, Verizon issued a press release announcing that it is working with the U.S. Consumer Product Safety Commission (CPSC) to conduct a voluntary recall of certain Verizon Ellipsis Jetpack mobile hotspot devices, indicating that the lithium-ion battery in the devices can overheat, posing a fire and burn hazard. According to the CPSC release, the recall affects approximately 2.5 million devices. We imported the devices and supplied them to Verizon.

Verizon first advised us of one alleged Jetpack device failure at the end of February 2021. We immediately began meeting with Verizon and requested access to the device. We also began internal testing to evaluate device performance. We did not receive any further incident information until the last week of March 2021. On April 1, 2021 we issued a press release announcing that we had received reports from Verizon about potential issues with the batteries in the devices. On April 9, 2021 we issued a press release announcing the voluntary recall by Verizon.

As of the date of this report, we have been unable to recreate any device failures of the type identified by Verizon. All internal testing conducted to date has confirmed that the Jetpack devices are performing within normal parameters. We are not currently aware of any aspect of the Jetpack design that could cause the devices to fail in the way described in Verizon’s recall notice. 

Future Impact on Financial Performance

We are striving to avoid any litigation arising from the recall and have not been served with any legal action relating to the products covered by the recall. We are not currently able to estimate the financial impact of the recall on our future operations. At this time, we do not have information that identifies the cause of the alleged incidents. We also do not have any specific legal claims or theories of causation for device failure incidents that would help us estimate the cost of potential future litigation. No liability has been recorded for this litigation because the Company believes that any such liability is not probable and reasonably estimable at this time.

Shareholder Litigation

Ali

A shareholder action, Ali vs. Franklin Wireless Corp. et al. Case #3:21-cv-00687-AJB-MSB, was filed in the U.S. District Court, Southern District of California (San Diego) on April 16, 2021, alleging, 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. Discovery is ongoing at this time.

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, Stephen Norwood Derivatively on Behalf of Nominal Defendant Franklin Wireless Corp. v. OC Kim, Et al., Case #21cv01837-JAH-DEB, 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. OC Kim, Et al., Case #21cv2091-CAB-KSC, 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 recently 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). Discovery is ongoing at this time.

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. OC 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. We believe these allegations are not supported by the facts and we will vigorously defend against such claims. 

The Company will vigorously defend such shareholder litigation and proceedings. No liability has been recorded for these litigations because the Company believes that any such liability is not probable and reasonably estimable at this time.

“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-CAB-JLB, on or about July 22, 2021, claiming that our Chief Executive Officer, OC 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. We believe the allegations are not supported by the facts and we intend to vigorously defend against these claims. No liability has been recorded for this litigation because the Company believes that any such liability is not probable and reasonably estimable at this time.

Franklin v. Anydata, Inc.

We entered into a Professional Services Agreement with Anydata Corp. (“Anydata”) for the product ACT233F Smart Link OBD device on May 5, 2017, for a minimum purchase commitment of 250,000 units. We have delivered approximately 25,000 units and 7,000 units during our second and fourth quarters of fiscal 2018, respectively, and an additional 18,000 units during our first quarter of fiscal 2019. Sales to Anydata were approximately $1.8 million for the year ended June 30, 2019. We have received information that Anydata may not be able to fulfill the entire purchase commitment for which parts have already been ordered with our main vendor, Quanta. We believe that the Company will be able to supply some of the products to another customer and has received personal guarantees from the ownership group of Anydata. As of June 30, 2019, the remaining unfulfilled purchase commitment was approximately $3.1 million. The total product purchase commitment with Quanta was approximately $2.9 million. We have not recorded a receivable from Anydata, nor a liability owed to Quanta. Management believes that, at this time, a loss contingency is reasonably possible but not estimable as to how much ultimately would be paid to Quanta. As of June 30, 2020, we paid $100,000 for the right to call on inventory and recorded an additional $49,580 as a prepaid expense related to pricing adjustments, which has been agreed with Quanta for other products to ensure demand is met, and for the quarter ended December 31, 2020, the prepaid expense of $149,580 has been recorded as a cost of goods sold. As of March 31, 2022, there is a reasonable possibility we may incur a loss; however, the amount is not estimable at this time. On January 25^th, 2021, we commenced legal action against Anydata and its principal officers in San Diego Superior Court, case number 37-2021-00003468-CU-BC-CTL. As of the date of this report, litigation is continuing, and the action is not yet resolved.

COVID-19

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic which continues to spread throughout the United States. On March 19, 2020, the Governor of California declared a health emergency and issued an order to close all nonessential businesses until further notice. As a maker of wireless connectivity devices, we are deemed to be an essential business. Nonetheless, out of concern for our workers and pursuant to the government order, we reduced the scope of our operations and, where possible, certain workers began telecommuting from their homes. The continued spread of COVID-19 may result in a period of business disruption, including delays or disruptions in our supply chain. The spread of COVID-19, or another infectious disease, could also negatively affect the operations at our third-party manufacturers, which could result in delays or disruptions in the supply of our products. While we expect this situation may increase demand for its products, the related impact cannot be reasonably estimated at this time.

Change of Control Agreements

On October 1, 2020, we entered into Change of Control Agreements with OC Kim, our President, and Yun J. (David) Lee, our Chief Operating Officer. Each Change of Control Agreement provides for a lump sum payment to the officer in case we experience a change of control. The term includes the acquisition of our Common Stock 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 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 our outstanding Common Stock, or a liquidation or dissolution or sale of substantially all of our 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. 

International Tariffs

We believe that our products are currently exempt from international tariffs upon import from our manufacturers to the United States. If this were to change at any point, a tariff of 10%-25% of the purchase price would be imposed. If such tariffs are imposed, they could have a materially adverse effect on sales and operating results.

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.

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LONG-TERM INCENTIVE PLAN AWARDS

3 Months Ended

Sep. 30, 2022

Share-Based Payment Arrangement [Abstract]

LONG-TERM INCENTIVE PLAN AWARDS

NOTE 9 – 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. Under this application, we record compensation expense for all awards granted.

In 2009, we adopted the Stock Incentive Plan (“2009 Plan”), which provided for the grant of incentive stock options and non-qualified stock options to our employees and directors. Options granted under the 2009 Plan generally have a term of ten years and generally vest and become exercisable at the rate of 33% after one year and 33% on the second and third anniversaries of the option grant dates. Historically, some stock option grants have included shorter vesting periods ranging from one to two years.

In July of 2020, the Board of Directors adopted the 2020 Franklin Wireless Corp. Stock Option Plan (the “2020 Plan”), which covers 800,000 shares of Common Stock. The 2020 Plan provide 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 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 $180,745 and $94,538 compensation expenses recorded under this method for the three months ended September 30, 2022 and 2021, respectively.

A summary of the status of our stock options is presented below as of September 30, 2022:

						Weighted-
						Average
				Weighted-		Remaining
				Average		Contractual		Aggregate
				Exercise		Life		Intrinsic
Options	Shares			Price		(In Years)		Value
Outstanding as of June 30, 2022		766,001		$	3.85		3.37	$	183,270
Granted		–			–		–		–
Exercised		–			–		–		–
Cancelled		–			–		–		–
Forfeited or expired		(10,000	)		5.40		–		–
Outstanding as of September 30, 2022		756,001		$	3.86		3.11	$	158,000
Exercisable as of September 30, 2022		399,089		$	3.90		2.36	$	158,000

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based upon the Company’s closing stock price of $2.92 as of September 30, 2022, 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 September 30, 2022, in the amount of 756,001 shares was $3.17 per share. As of September 30, 2022, there was unrecognized compensation cost of $1,102,036 related to non-vested stock options granted.

A summary of the status of our stock options is presented below as of September 30, 2021:

						Weighted-
						Average
				Weighted-		Remaining
				Average		Contractual		Aggregate
				Exercise		Life		Intrinsic
Options	Shares			Price		(In Years)		Value
Outstanding as of June 30, 2021		484,000		$	3.67		2.83	$	2,662,830
Granted		–			–		–		–
Exercised		(3,999	)		5.40		–		–
Cancelled		–			–		–		–
Forfeited or expired		(3,000	)		5.40		–		–
Outstanding as of September 30, 2021		477,001		$	3.64		2.56	$	1,725,372
Exercisable as of September 30, 2021		303,622		$	2.64		0.70	$	1,402,888

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based upon the Company’s closing stock price of $7.26 as of September 30, 2021, 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 September 30, 2021, in the amount of 477,001 shares was $3.00 per share. As of September 30, 2021, there was unrecognized compensation cost of $700,605 related to non-vested stock options granted.

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SUBSEQUENT EVENT

3 Months Ended

Sep. 30, 2022

Subsequent Events [Abstract]

SUBSEQUENT EVENT

NOTE 10 – SUBSEQUENT EVENT

On November 10, 2022 the Company and OC Kim, its President, entered into an amendment of the employment letter agreement dated September 7, 2021. The amendment provides for a severance payment of $3,000,000 if Mr. Kim voluntarily terminates his employment by 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 letter, with the first such bonus due on December 31, 2022.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

3 Months Ended

Sep. 30, 2022

Accounting Policies [Abstract]

Principles of Consolidation

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiary, Franklin Technology Inc. ("FTI"), with a majority voting interest of 66.3% (approximately 33.7% is owned by non-controlling interests) as of September 30, 2022 and 2021. In the preparation of consolidated financial statements of the Company, intercompany transactions and balances are eliminated and net earnings are reduced by the portion of the net earnings of the subsidiary applicable to non-controlling interests.

As consolidated financial statements are based on the assumption that they represent the financial position and operating results of a single economic entity, the retained earnings or deficit of the subsidiary at the date of acquisition, October 1, 2009, by the parent are excluded from consolidated retained earnings. When a subsidiary is consolidated, the consolidated financial statements include the subsidiary’s revenues, expenses, gains, and losses only from the date the subsidiary is initially consolidated, and the non-controlling interest is reported in the consolidated statement of financial position within equity, separately from the parent’s equity. There are no shares of the Company held by any subsidiaries as of September 30, 2022, or June 30, 2022.

Non-controlling Interest in a Consolidated Subsidiary

Non-controlling Interest in a Consolidated Subsidiary

As of September 30, 2022, the non-controlling interest was $1,270,026, which represents a $299,579 decrease from $1,569,605 as of June 30, 2022. The decrease in the non-controlling interest of $299,579 was from loss in the subsidiary of $890,082 incurred for the three months ended September 30, 2022.

Segment Reporting

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.

	Three Months Ended September 30,
Net sales:	2022		2021
North America	$	8,107,451	$	3,171,198
Asia		1,489		172,862
Totals	$	8,108,940	$	3,344,060

Long-lived assets, net (property and equipment and intangible assets):	September 30, 2022		June 30, 2022
North America	$	1,681,253	$	1,374,747
Asia		105,820		81,261
Totals	$	1,787,073	$	1,456,008

Use of Estimates

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.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The carrying amounts of financial instruments such as cash equivalents, short-term investments, accounts receivable, accounts payable and debt approximate the related fair values due to the short-term maturities 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.

Allowance for Doubtful Accounts

Allowance for Doubtful Accounts

Based upon our review of our collection history as well as the current balances associated with all significant customers and associated invoices, as of September 30, 2022, we did not believe an allowance for doubtful accounts was necessary.

Revenue Recognition

Revenue Recognition

Contracts with Customers

Revenue for 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. We establish a provision for estimated warranty and returns. Using historical averages, that provision for the quarter ended September 30, 2022 was not material.

Disaggregation of Revenue

In accordance with Topic 606, we disaggregate revenue from contracts with customers into geographical regions and by the timing of when goods and services are transferred. 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:

	September 30, 2022		June 30, 2022
Accounts Receivable	$	946,006	$	1,322,619

The balance of contract assets was immaterial as we did not have a significant amount of un-invoiced receivables in the periods ended September 30, 2022, and June 30, 2022. 

Our contract liabilities are as follows:

	September 30, 2022		June 30, 2022
Undelivered products	$	441,737	$	371,624

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 primarily satisfied at a point in time. Revenue from products transferred to customers at a single point in time accounted for 99.9% of net sales for the three months ended September 30, 2022. Revenue recognized over a period of time for non-recurring engineering projects is based on the percent complete of a project and accounted for 0.1% of net sales for the three months ended September 30, 2022. 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 September 30, 2022, our contracts do not contain any unsatisfied performance obligations, except for undelivered products.

Cost of Goods Sold

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 $166,000 and $78,000 associated with capitalized product development costs associated with complete technology for the three months ended September 30, 2022 and 2021, respectively.

Capitalized Product Development Costs

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 3 to Notes to Consolidated Financial Statements) 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 greater of straight-line amortization or the ratio of the current gross revenues to the current and anticipated future gross revenues. The amortization begins when the products are available for general release to our customers.

As of September 30, 2022, and June 30, 2022, capitalized product development costs in progress were $680,593 and $187,343, respectively, and the amounts are included in intangible assets in our consolidated balance sheets. During the three months ended September 30, 2022 and 2021, we incurred $493,250 and $35,543, respectively, in capitalized product development costs, and such amounts are primarily comprised of certifications and licenses. All costs incurred before technological feasibility is reached are expensed and included in our consolidated statements of comprehensive income.

Research and Development Costs

Research and Development Costs

Costs associated with research and development are expensed as incurred. Research and development costs were $970,120 and $1,021,902 for the three months ended September 30, 2022 and 2021, respectively.

Warranties

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

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 (loss), were $40,553 and $45,384 for the three months ended September 30, 2022 and 2021, respectively.

Cash and Cash Equivalents

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

Short Term Investments

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

Inventories

Inventories

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.  As of September 30, 2022, and June 30, 2022, we have recorded inventory reserves in the amount of $557,155 for inventories that we have identified as obsolete or slow-moving.

Property and Equipment

Property and Equipment

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

Machinery	6 years
Office equipment	5 years
Molds	3 years
Vehicles	5 years
Computers and software	5 years
Furniture and fixtures	7 years
Facilities improvements	5 years or life of the lease, whichever is shorter

Goodwill and Intangible Assets

Goodwill and Intangible Assets

Goodwill and certain intangible assets were recorded in connection with the FTI acquisition in October 2009, and are 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 deemed necessary as of September 30, 2022 or June 30, 2022.

Long-lived Assets

Long-lived Assets

In accordance with ASC 360, “Property, Plant, and Equipment,” we review for impairment of 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.

As of September 30, 2022, and June 30, 2022, we were not aware of any events or changes in circumstances that would indicate that the long-lived assets are impaired.

Stock-based Compensation

Stock-based Compensation

Our employee share-based awards result in a cost that is measured at fair value on an award’s grant date, based on the estimated number of awards that are expected to vest. Compensation costs are recognized over the period that an employee provides service in exchange for the award, i.e., the vesting period. We estimate the fair value of stock options using a Black-Scholes option pricing model. Transactions with non-employees in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Stock-based compensation costs are reflected in the accompanying consolidated statements of comprehensive income based upon the underlying recipients' roles within the Company.

Income Taxes

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 its income tax positions and records 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 September 30, 2022, we have no material unrecognized tax benefits. We recorded income tax benefits of $103,383 and $411,256 for the three months ended September 30, 2022, and 2021, respectively. We also recorded an increase in deferred tax asset, non-current, of $104,183 and $439,568 for the three months ended September 30, 2022, and 2021, respectively.

Earnings (loss) per Share Attributable to Common Stockholders

Earnings (loss) per Share Attributable to Common Stockholders

Earnings (loss) per share is calculated by dividing the net income (loss) by the weighted-average number of common shares that were outstanding for the period, without consideration for potential common shares. Diluted 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 or the as-converted method. Potentially dilutive shares are comprised of common stock options outstanding under our stock plan.

Concentrations

Concentrations

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 for 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 three months ended September 30, 2022, sales to our one largest customer accounted for 92% of our consolidated net sales, and 0% of our accounts receivable balance as of September 30, 2022. In the same period of 2021, sales to our two largest customers accounted for 64% and 16% of our consolidated net sales, and 0% and 33% of our accounts receivable balance as of September 30, 2021. No other customers accounted for more than ten percent of total net sales for the three months ended September 30, 2022 and 2021.

For the three months ended September 30, 2022, we purchased the majority of our wireless data products from two manufacturing companies located in Asia. If these manufacturing companies 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 the Company's revenue. For the three months ended September 30, 2022, we purchased wireless data products from these manufacturers in the amount of $7,067,055, or 99% of total purchases, and had related accounts payable of $7,990,867 as of September 30, 2022. In the same period of 2021, we purchased wireless data products from these manufacturers in the amount of $2,473,117, or 99% of total purchases, and had related accounts payable of $3,159,529 as of September 30, 2021.

We maintain our cash accounts with established commercial banks. Such cash deposits exceed the Federal Deposit Insurance Corporation insured limit of $250,000 for each financial institution. However, we do not anticipate any losses on excess deposits.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

3 Months Ended

Sep. 30, 2022

Accounting Policies [Abstract]

Segment information by geographic areas

	Three Months Ended September 30,
Net sales:	2022		2021
North America	$	8,107,451	$	3,171,198
Asia		1,489		172,862
Totals	$	8,108,940	$	3,344,060

Long lived assets by geographic area

Long-lived assets, net (property and equipment and intangible assets):	September 30, 2022		June 30, 2022
North America	$	1,681,253	$	1,374,747
Asia		105,820		81,261
Totals	$	1,787,073	$	1,456,008

Schedule of receivables

	September 30, 2022		June 30, 2022
Accounts Receivable	$	946,006	$	1,322,619

Schedule of contract liabilities

	September 30, 2022		June 30, 2022
Undelivered products	$	441,737	$	371,624

Useful lives of property and equipment

Machinery	6 years
Office equipment	5 years
Molds	3 years
Vehicles	5 years
Computers and software	5 years
Furniture and fixtures	7 years
Facilities improvements	5 years or life of the lease, whichever is shorter

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DEFINITE LIVED INTANGIBLE ASSETS (Tables)

3 Months Ended

Sep. 30, 2022

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of definite lived intangible assets

Definite lived intangible assets:	Expected Life	Average Remaining Life	Gross Intangible Assets		Less Accumulated Amortization		Net Intangible Assets
Complete technology	3 years	–		18,397		18,397		–
Technology in progress	Not Applicable	–		680,593		–		680,593
Software	5 years	2.3 years		423,147		327,182		95,964
Patents	10 years	3.2 years		28,397		16,500		11,898
Certifications & licenses	3 years	0.8 years		2,144,359		1,262,548		881,811
Total as of September 30, 2022			$	3,294,893	$	1,624,627	$	1,670,266

The definite lived intangible assets consisted of the following as of June 30, 2022: 

Definite lived intangible assets:	Expected Life	Average Remaining Life	Gross Intangible Assets		Less Accumulated Amortization		Net Intangible Assets
Complete technology	3 years	–		18,397		18,397		–
Technology in progress	Not Applicable	–		187,343		–		187,343
Software	5 years	2.6 years		423,147		314,855		108,292
Patents	10 years	2.5 years		21,543		15,122		6,421
Certifications & licenses	3 years	1.1 years		2,144,359		1,096,359		1,048,000
Total as of June 30, 2022			$	2,794,789		1,444,733		1,350,056

Schedule of future amortization expense

	FY2023		FY2024		FY2025		FY2026		FY2027		Thereafter
Total	$	370,841	$	393,046	$	183,177	$	13,981	$	10,188	$	18,440

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PROPERTY AND EQUIPMENT (Tables)

3 Months Ended

Sep. 30, 2022

Property, Plant and Equipment [Abstract]

Schedule of property and equipment

	September 30, 2022			June 30, 2022
Machinery and Commercial Equipment	$	68,004		$	67,848
Office equipment		312,993			312,785
Molds		601,862			575,552
Vehicle		15,513			15,513
		998,372			971,698
Less accumulated depreciation		(881,565	)		(865,746	)
Total	$	116,807		$	105,952

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ACCRUED LIABILITIES (Tables)

3 Months Ended

Sep. 30, 2022

Payables and Accruals [Abstract]

Schedule of accrued liabilities

	September 30, 2022		June 30, 2022
Accrued payroll deductions owed to government entities	$	52,356	$	55,387
Accrued vacation		62,563		65,602
Accrued undelivered inventory		140,000		140,000
Accrued commission for service providers		37,500		40,000
Accrued commission to a customer		248,549		288,306
Other accrued liabilities		11,172		612
Total	$	552,140	$	589,907

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EARNINGS (LOSS) PER SHARE (Tables)

3 Months Ended

Sep. 30, 2022

Earnings Per Share [Abstract]

Schedule of earnings per share

	Three Months Ended September 30,
	2022			2021
Net loss attributable to Parent Company	$	(1,126,991	)	$	(1,103,605	)
Weighted-average shares of common stock outstanding:
Basic shares outstanding		11,684,280			11,593,006
Dilutive effect of common stock equivalents arising from stock options		–			–
Diluted shares outstanding		11,684,280			11,593,006
Basic loss per share	$	(0.10	)	$	(0.10	)
Diluted loss per share	$	(0.10	)	$	(0.10	)

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COMMITMENTS AND CONTINGENCIES (Tables)

3 Months Ended

Sep. 30, 2022

Commitments and Contingencies Disclosure [Abstract]

Schedule of future minimum rental payments for operating leases

	Operating Leases
Fiscal 2023	$	241,448
Fiscal 2024		160,965
Total lease payments		402,413
Less imputed interest		(10,532	)
Total	$	391,881

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LONG-TERM INCENTIVE PLAN AWARDS (Tables)

3 Months Ended

Sep. 30, 2022

Share-Based Payment Arrangement [Abstract]

Schedule of stock option activity

						Weighted-
						Average
				Weighted-		Remaining
				Average		Contractual		Aggregate
				Exercise		Life		Intrinsic
Options	Shares			Price		(In Years)		Value
Outstanding as of June 30, 2022		766,001		$	3.85		3.37	$	183,270
Granted		–			–		–		–
Exercised		–			–		–		–
Cancelled		–			–		–		–
Forfeited or expired		(10,000	)		5.40		–		–
Outstanding as of September 30, 2022		756,001		$	3.86		3.11	$	158,000
Exercisable as of September 30, 2022		399,089		$	3.90		2.36	$	158,000

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based upon the Company’s closing stock price of $2.92 as of September 30, 2022, 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 September 30, 2022, in the amount of 756,001 shares was $3.17 per share. As of September 30, 2022, there was unrecognized compensation cost of $1,102,036 related to non-vested stock options granted.

A summary of the status of our stock options is presented below as of September 30, 2021:

						Weighted-
						Average
				Weighted-		Remaining
				Average		Contractual		Aggregate
				Exercise		Life		Intrinsic
Options	Shares			Price		(In Years)		Value
Outstanding as of June 30, 2021		484,000		$	3.67		2.83	$	2,662,830
Granted		–			–		–		–
Exercised		(3,999	)		5.40		–		–
Cancelled		–			–		–		–
Forfeited or expired		(3,000	)		5.40		–		–
Outstanding as of September 30, 2021		477,001		$	3.64		2.56	$	1,725,372
Exercisable as of September 30, 2021		303,622		$	2.64		0.70	$	1,402,888

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details - Segments) - USD ($)	3 Months Ended
	Sep. 30, 2022	Sep. 30, 2021
Net sales	$ 8,108,940	$ 3,344,060
North America [Member]
Net sales	8,107,451	3,171,198
Asia [Member]
Net sales	$ 1,489	$ 172,862

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details - Segments Long-Lived Assets) - USD ($)	Sep. 30, 2022	Jun. 30, 2022
Long-lived assets, net (property and equipment and intangible assets)	$ 1,787,073	$ 1,456,008
North America [Member]
Long-lived assets, net (property and equipment and intangible assets)	1,681,253	1,374,747
Asia [Member]
Long-lived assets, net (property and equipment and intangible assets)	$ 105,820	$ 81,261

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details - Receivables) - USD ($)	Sep. 30, 2022	Jun. 30, 2022
Accounting Policies [Abstract]
Accounts Receivable	$ 946,006	$ 1,322,619

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details - Contract liabilities) - USD ($)	Sep. 30, 2022	Jun. 30, 2022
Accounting Policies [Abstract]
Undelivered products	$ 441,737	$ 371,624

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details - Useful lives)	3 Months Ended
	Sep. 30, 2022
Equipment [Member]
Property, Plant and Equipment [Line Items]
Estimated useful lives	6 years
Office Equipment [Member]
Property, Plant and Equipment [Line Items]
Estimated useful lives	5 years
Tools, Dies and Molds [Member]
Property, Plant and Equipment [Line Items]
Estimated useful lives	3 years
Vehicles [Member]
Property, Plant and Equipment [Line Items]
Estimated useful lives	5 years
Computer Equipment [Member]
Property, Plant and Equipment [Line Items]
Estimated useful lives	5 years
Furniture and Fixtures [Member]
Property, Plant and Equipment [Line Items]
Estimated useful lives	7 years
Facility Closing [Member]
Property, Plant and Equipment [Line Items]
Estimated useful lives	5 years or life of the lease, whichever is shorter

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($)	3 Months Ended		12 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Jun. 30, 2022
Product Information [Line Items]
Purchases of shares of a subsidiary	$ 0		$ 0
Noncontrolling interest	1,270,026		1,569,605
Increase (decrease) in noncontrolling interest	299,579
Loss of subsidiary	890,082
Allowance for doubtful accounts	0
Product development costs	166,000	$ 78,000
Capitalized product development costs	680,593		187,343
Product development costs incurred	493,250	35,543
Research and development costs	970,120	1,021,902
Shipping and handling expense	1,239,635	1,077,815
Inventory reserve	557,155		557,155
Income tax benefits	103,383	411,256
Increase (decrease) in deferred tax asset	104,183	439,568
Cost of Revenue	6,515,078	2,851,096
Accounts Payable, Current	8,680,700		$ 8,143,305
Wireless Data Products [Member]
Product Information [Line Items]
Cost of Revenue	7,067,055	2,473,117
Accounts Payable, Current	$ 7,990,867	$ 3,159,529
Cost of Goods and Service, Product and Service Benchmark [Member] | Supplier Concentration Risk [Member] | Wireless Data Products [Member]
Product Information [Line Items]
Concentration of credit risk	99.00%	99.00%
Customer 1 [Member] | Revenue Benchmark [Member] | Customer Concentration Risk [Member]
Product Information [Line Items]
Concentration of credit risk	92.00%	64.00%
Customer 1 [Member] | Accounts Receivable [Member] | Customer Concentration Risk [Member]
Product Information [Line Items]
Concentration of credit risk		0.00%
Customer 2 [Member] | Revenue Benchmark [Member] | Customer Concentration Risk [Member]
Product Information [Line Items]
Concentration of credit risk	0.00%	16.00%
Customer 2 [Member] | Accounts Receivable [Member] | Customer Concentration Risk [Member]
Product Information [Line Items]
Concentration of credit risk		33.00%
Shipping and Handling [Member]
Product Information [Line Items]
Shipping and handling expense	$ 40,553	$ 45,384
Franklin Technology [Member]
Product Information [Line Items]
Noncontrolling interest percentage	66.30%	33.70%
Noncontrolling Interests [Member]
Product Information [Line Items]
Noncontrolling interest percentage	33.70%

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DEFINITE LIVED INTANGIBLE ASSETS (Details - Intangible assets activity) - USD ($)	3 Months Ended	12 Months Ended
	Sep. 30, 2022	Jun. 30, 2022
Indefinite-Lived Intangible Assets [Line Items]
Gross Intangible Assets	$ 3,294,893	$ 2,794,789
Less Accumulated Amortization	1,624,627	1,444,733
Net Intangible Assets	$ 1,670,266	$ 1,350,056
Complete Technology [Member]
Indefinite-Lived Intangible Assets [Line Items]
Expected Life	3 years	3 years
Gross Intangible Assets	$ 18,397	$ 18,397
Less Accumulated Amortization	18,397	18,397
Net Intangible Assets	0	0
Technology In Progess [Member]
Indefinite-Lived Intangible Assets [Line Items]
Gross Intangible Assets	680,593	187,343
Less Accumulated Amortization	0	0
Net Intangible Assets	$ 680,593	$ 187,343
Computer Software, Intangible Asset [Member]
Indefinite-Lived Intangible Assets [Line Items]
Expected Life	5 years	5 years
Gross Intangible Assets	$ 423,147	$ 423,147
Less Accumulated Amortization	327,182	314,855
Net Intangible Assets	$ 95,964	$ 108,292
Average Remaining Life	2 years 3 months 18 days	2 years 7 months 6 days
Patent [Member]
Indefinite-Lived Intangible Assets [Line Items]
Expected Life	10 years	10 years
Gross Intangible Assets	$ 28,397	$ 21,543
Less Accumulated Amortization	16,500	15,122
Net Intangible Assets	$ 11,898	$ 6,421
Average Remaining Life	3 years 2 months 12 days	2 years 6 months
Certification And Licenses [Member]
Indefinite-Lived Intangible Assets [Line Items]
Expected Life	3 years	3 years
Gross Intangible Assets	$ 2,144,359	$ 2,144,359
Less Accumulated Amortization	1,262,548	1,096,359
Net Intangible Assets	$ 881,811	$ 1,048,000
Average Remaining Life	9 months 18 days	1 year 1 month 6 days

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DEFINITE LIVED INTANGIBLE ASSETS (Details - Amortization Expenses)	Sep. 30, 2022 USD ($)
Goodwill and Intangible Assets Disclosure [Abstract]
FYE 2023	$ 370,841
FYE 2024	393,046
FYE 2025	183,177
FYE 2026	13,981
FYE 2027	10,188
Thereafter	$ 18,440

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DEFINITE LIVED INTANGIBLE ASSETS (Details Narrative) - USD ($)	3 Months Ended
	Sep. 30, 2022	Sep. 30, 2021
Goodwill and Intangible Assets Disclosure [Abstract]
Amortization of Intangible Assets	$ 179,894	$ 93,694

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PROPERTY AND EQUIPMENT (Details) - USD ($)	Sep. 30, 2022	Jun. 30, 2022
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 998,372	$ 971,698
Less accumulated depreciation	(881,565)	(865,746)
Total	116,807	105,952
Machinery and Equipment [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	68,004	67,848
Office Equipment [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	312,993	312,785
Tools, Dies and Molds [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	601,862	575,552
Vehicle [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 15,513	$ 15,513

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PROPERTY AND EQUIPMENT (Details Narrative) - USD ($)	3 Months Ended
	Sep. 30, 2022	Sep. 30, 2021
Property, Plant and Equipment [Abstract]
Depreciation	$ 15,819	$ 22,786

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ACCRUED LIABILITIES (Details) - USD ($)	Sep. 30, 2022	Jun. 30, 2022
Payables and Accruals [Abstract]
Accrued payroll deductions owed to government entities	$ 52,356	$ 55,387
Accrued vacation	62,563	65,602
Accrued undelivered inventory	140,000	140,000
Accrued commission for service providers	37,500	40,000
Accrued commission to a customer	248,549	288,306
Other accrued liabilities	11,172	612
Total	$ 552,140	$ 589,907

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EARNINGS PER SHARE (Details) - USD ($)	3 Months Ended
	Sep. 30, 2022	Sep. 30, 2021
Earnings Per Share [Abstract]
Net loss attributable to Parent Company	$ (1,126,991)	$ (1,103,605)
Weighted-average shares of common stock outstanding:
Basic shares outstanding	11,684,280	11,593,006
Dilutive effect of common stock equivalents arising from stock options
Diluted shares outstanding	11,684,280	11,593,006
Basic loss per share	$ (0.10)	$ (0.10)
Diluted loss per share	$ (0.10)	$ (0.10)

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EARNINGS (LOSS) PER SHARE (Details Narrative) - shares	3 Months Ended
	Sep. 30, 2022	Sep. 30, 2021
Earnings Per Share [Abstract]
Anti-dilutive shares excluded from EPS	756,001	477,001

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COMMITMENTS AND CONTINGENCIES (Details - Maturities of lease liabilities)	Sep. 30, 2022 USD ($)
Commitments and Contingencies Disclosure [Abstract]
Fiscal 2023	$ 241,448
Fiscal 2024	160,965
Total lease payments	402,413
Less imputed interest	(10,532)
Total	$ 391,881

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COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($)		3 Months Ended
	Sep. 09, 2015	Sep. 30, 2022	Sep. 30, 2021	Dec. 31, 2020	Jun. 30, 2020
Purchase Commitment, Excluding Long-Term Commitment [Line Items]
Monthly rent	$ 23,115
Rent Expense		$ 1,930	$ 2,223
Quanta [Member]
Purchase Commitment, Excluding Long-Term Commitment [Line Items]
Payment made for inventory					$ 100,000
Prepaid expense				$ 149,580	$ 49,580
Administrative Office San Diego C A [Member]
Purchase Commitment, Excluding Long-Term Commitment [Line Items]
Rent Expense		$ 77,263	77,263
Operating lease discount rate		2.80%
Administrative Office Korea [Member]
Purchase Commitment, Excluding Long-Term Commitment [Line Items]
Rent Expense		$ 32,100	$ 32,100
Operating lease discount rate		4.00%

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LONG-TERM INCENTIVE PLAN AWARDS (Details - Option Activity) - Equity Option [Member] - USD ($)	3 Months Ended		12 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items]
Number of Options Outstanding, Beginning	766,001	484,000	484,000
Weighted Average Exercise Price Outstanding, Beginning	$ 3.85	$ 3.67	$ 3.67
Weighted Average Remaining Contractual Life (in years) Outstanding	3 years 1 month 9 days	2 years 6 months 21 days	3 years 4 months 13 days	2 years 9 months 29 days
Aggregate Intrinsic Value Outstanding, Beginning	$ 183,270	$ 2,662,830	$ 2,662,830
Number of Options Granted	0	0
Weighted Average Exercise Price Granted	$ 0	$ 0
Number of Options Exercised	0	3,999
Weighted Average Exercise Price Exercised	$ 0	$ 5.40
Number of Options Cancelled	0	0
Weighted Average Exercise Price Canceled	$ 0	$ 0
Number of Options Forfeited or expired	(10,000)	(3,000)
Weighted Average Exercise Price Forfeited or expired	$ 5.40	$ 5.40
Number of Options Outstanding, Ending	756,001	477,001	766,001	484,000
Weighted Average Exercise Price Outstanding, Ending	$ 3.86	$ 3.64	$ 3.85	$ 3.67
Aggregate Intrinsic Value Outstanding, Ending	$ 158,000	$ 1,725,372	$ 183,270	$ 2,662,830
Number of Options Exercisable	399,089	303,622
Weighted Average Exercise Price Exercisable	$ 3.90	$ 2.64
Weighted Average Remaining Contractual Life (in years) Exercisable	2 years 4 months 9 days	8 months 12 days
Aggregate Intrinsic Value Exercisable	$ 158,000	$ 1,402,888
Number of Options Exercised	0	(3,999)

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LONG-TERM INCENTIVE PLAN AWARDS (Details Narrative) - USD ($)	3 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Jul. 31, 2020
Share-Based Payment Arrangement [Abstract]
Common stock shares			800,000
Share based compensation expense	$ 180,745	$ 94,538
Weighted average grant-date fair value of stock options	756,001	477,001
Weighted average grant-date fair value of stock options, per share price	$ 3.17	$ 3.00
Unrecognized compensation cost related to non-vested options	$ 1,102,036	$ 700,605