Franklin Wireless Corp: Form 10-Q for the period ended Mar 31, 2026

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, 2025, filed on September 29, 2025. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this report might not occur.

BUSINESS OVERVIEW

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

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

FACTORS THAT MAY INFLUENCE FUTURE RESULTS OF OPERATIONS

We believe that our revenue growth will be influenced largely by (1) the successful maintenance of our existing customers, (2) the rate of increase in demand for wireless data products, (3) customer acceptance of our new products, (4) new customer relationships and contracts, (5) our ability to meet customers’ demands, (6) our ability to maintain good relationships with our manufacturing partners and suppliers, and (7) the defect rates experienced by end users of our hardware and software products.

During the quarter ended March 31, 2026, we experienced a significant reduction in expected future demand from one of our major customers related to a legacy hotspot product. This decrease in demand was caused by difficulties working with an intermediary company regarding late payments, as well as other matters. In response to this, we are accelerating our strategic focus toward commercial and industrial routers and telecommunications modules through our subsidiary. These product lines are in earlier stages of commercialization, and there can be no assurance regarding the timing or level of future revenues from these initiatives.

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.

We continuously evaluate the performance of our hardware and software products to discover defects that can adversely affect our revenue, income, and the price of our stock. If defects occur that customers believe are either severe in nature or excessively frequent in occurrence, customers could stop buying our products and services and the value of our stock may decrease.

We are seeing that demand from end-users has been shifting in the post-pandemic economy as remote education and work from home trends are declining. Current demand for mobile device management (MDM) services has been declining. We are working to improve and further enhance our software service offerings to address this change in the market.

We are also seeing that industry-wide shortages have occurred in the memory market, which may affect the availability and lead times of memory components used in our products. These conditions have resulted in increased complexity in managing our production schedules. Our ability to deliver products to customers on a timely basis is critical, particularly for our Tier-1 carrier customers, who are highly sensitive to delivery timing and reliability. Any delays or disruptions in our supply chain could impair our ability to meet customer delivery schedules, and failure to meet such requirements could negatively impact customer relationships, order volumes, or future business opportunities.

Recent regulatory developments involving restrictions on certain foreign-manufactured telecommunications and networking equipment may impact the approval, importation, or commercialization of certain future wireless products. The Company is continuing to evaluate the applicability of these developments to its product roadmap, including upcoming consumer and enterprise networking products. The Company believes its currently approved mobile hotspot products are not materially impacted by these developments.

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, 2025, 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 for the three and nine months ended March 31, 2026.

RESULTS OF OPERATIONS

The following table sets forth, for the three and nine months ended March 31, 2026 and 2025, our statements of comprehensive (loss) income (unaudited) including data expressed as a percentage of sales:

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THREE MONTHS ENDED MARCH 31, 2026 COMPARED TO THREE MONTHS ENDED MARCH 31, 2025

NET SALES - Net sales decreased by $4,565,436, or 57.0%, to $3,444,183 for the three months ended March 31, 2026 from $8,009,619 for the corresponding period of 2025. For the three months ended March 31, 2026, net sales by geographic regions, consisting of North America and Asia, were $3,442,614 (100.0% of net sales) and $1,569 (0.0%), respectively. For the three months ended March 31, 2025, net sales by geographic regions, consisting of North America and Asia, were $8,007,037 (100.0% of net sales) and $2,582 (0.0%), respectively.

Net sales in North America decreased by $4,564,423, or 57.0%, to $3,442,614 for the three months ended March 31, 2026 from $8,007,037 for the corresponding period of 2025. The decrease in net sales in North America was primarily due to the discontinuation of a key product by a major carrier customer, which was expected to contribute a significant portion of revenue following its recent launch, as well as the timing of large deliveries in prior periods that resulted in reduced current-period demand as customers worked through existing inventory. As a result of the product discontinuation, the Company does not expect material future sales of this product to this customer.

GROSS PROFIT - Gross profit decreased by $800,436, or 59.1%, to $553,444 for the three months ended March 31, 2026 from $1,353,880 for the corresponding period of 2025. The gross profit in terms of net sales percentage was 16.1% for the three months ended March 31, 2026 compared to 16.9% for the corresponding period of 2025. The decrease in gross profit and gross profit in terms of net sales percentage for the three months ended March 31, 2026, was primarily due to the decrease in net sales, which was driven in part by the discontinuation of a key product by a major customer, as well as a shift in sales mix toward lower-margin products during the period.

OPERATING EXPENSES - Operating expenses decreased by $1,255,534, or 37.8%, to $2,064,899 for the three months ended March 31, 2026 from $3,320,433 for the corresponding period of 2025.

Selling, general, and administrative expenses decreased by $1,277,652, or 50.6%, to $1,248,568 for the three months ended March 31, 2026, from $2,526,220 for the corresponding period of 2025. The decrease in operating expenses was primarily driven by the absence of a non-recurring accrued incentive bonus of $1,250,000 to OC Kim, the President, which was recorded in the prior period. Research and development (“R&D”) expense increased by $22,118, or 2.8%, to $816,331 for the three months ended March 31, 2026, from $794,213 for the corresponding period of 2025. The increase in research and development expense was primarily driven by an increase of approximately $15,000 in R&D payroll expenses and $7,000 in R&D costs. These fluctuations stem from the timing of R&D activities and the number of active projects, which typically vary from period to period.

OTHER INCOME (LOSS), NET - Other income (loss), net decreased by $1,589,436, or 119.4%, to ($257,997) for the three months ended March 31, 2026 from $1,331,439 for the corresponding period of 2025. The decrease was primarily driven by the absence of a non-recurring $1,000,000 legal settlement from OC Kim, the President, which was recorded in the prior period, as well as an unfavorable foreign currency exchange impact at FTI of approximately $500,000.

NINE MONTHS ENDED MARCH 31, 2026 COMPARED TO NINE MONTHS ENDED MARCH 31, 2025

NET SALES - Net sales decreased by $11,041,622, or 28.2%, to $28,118,007 for the nine months ended March 31, 2026 from $39,159,629 for the corresponding period of 2025. For the nine months ended March 31, 2026, net sales by geographic regions, consisting of North America and Asia, were 28,102,587 (99.9% of net sales) and $15,420 (0.1% of net sales), respectively. For the nine months ended March 31, 2025, net sales by geographic regions, consisting of North America and Asia, were $39,156,583 (100.0% of net sales) and $3,046 (0.0% of net sales), respectively.

Net sales in North America decreased by $11,053,996, or 28.2%, to $28,102,587 for the nine months ended March 31, 2026 from $39,156,583 for the corresponding period of 2025. The decrease in net sales in North America was primarily due to the discontinuation of a key product by a major carrier customer, which was expected to contribute a significant portion of revenue following its recent launch, as well as the timing of large deliveries in prior periods that resulted in reduced current-period demand as customers worked through existing inventory. As a result of the product discontinuation, the Company does not expect material future sales of this product to this customer.

GROSS PROFIT - Gross profit decreased by $1,170,170, or 17.6%, to $5,497,274 for the nine months ended March 31, 2026 from $6,667,444 for the corresponding period of 2025. The gross profit in terms of net sales percentage was 19.6% for the nine months ended March 31, 2026 compared to 17.0% for the corresponding period of 2025. The decline in gross profit for the nine months ended March 31, 2026, was primarily attributable to the decrease in net sales, which was driven in part by the discontinuation of a key product by a major customer. The increase in gross profit margin in terms of net sales percentage was primarily driven by an increased proportion of high-margin sales and decreased production costs while overall sales decreased for the nine months ended March 31, 2026 compared to the corresponding period of 2025.

OPERATING EXPENSES - Operating expenses decreased by $1,841,917, or 22.4%, to $6,369,632 for the nine months ended March 31, 2026 from $8,211,549 for the corresponding period of 2025.

Selling, general, and administrative expenses decreased by $1,639,055, or 30.0%, to $3,826,731 for the nine months ended March 31, 2026, from $5,465,786 for the corresponding period of 2025. The decrease in operating expenses was primarily driven by the absence of a non-recurring accrued incentive bonus of $1,250,000 to OC Kim, the President, which was recorded in the prior period as well as a reduction of approximately $300,000 in legal fees and a $170,000 decline in stock-based compensation expenses related to stock options.

Research and development (“R&D”) expense decreased by $202,862, or 7.4%, to $2,542,901 for the nine months ended March 31, 2026, from $2,745,763 for the corresponding period of 2025. The decrease in research and development expense was primarily driven by a reduction of approximately $130,000 in R&D costs and $73,000 in R&D payroll expenses. These fluctuations stem from the timing of R&D activities and the number of active projects, which typically vary from period to period.

OTHER INCOME (LOSS), NET - Other income, net decreased by $1,490,788, or 88.2%, to $199,021 for the nine months ended March 31, 2026 from $1,689,809 for the corresponding period of 2025. The decrease was primarily driven by the absence of a non-recurring $1,000,000 legal settlement from OC Kim, the President, which was recorded in the prior period, as well as an unfavorable foreign currency exchange impact at FTI of approximately $430,000.

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 March 31, 2026 consisted of cash and cash equivalents, as well as short-term investments, of $32,937,546. 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 nine months ended March 31, 2026 and 2025 was $5,563,433 and $490,230, respectively.

The $5,563,433 in net cash used in operating activities for the nine months ended March 31, 2026 was primarily due to the increases in inventories of $5,627,077. The $490,230 in net cash used in operating activities for the nine months ended March 31, 2025 was primarily due to the increases in accounts receivable of $1,957,056 as well as the decrease in accounts payable of $1,025,639, which was offset by the increase in accrued liabilities of $2,376,154.

INVESTING ACTIVITIES - Net cash provided by investing activities for the nine months ended March 31, 2026 and 2025 was $652,888 and $1,030,351.

The $652,888 in net cash provided by investing activities for the nine months ended March 31, 2026 was primarily due to the sales of short-term investments of $1,141,759, which was partially offset by the payments for purchase of capitalized product development and intangible assets of $481,954. The $1,030,351 in net cash provided by investing activities for the nine months ended March 31, 2025 was primarily due to the contribution in noncontrolling interest by a partner of $2,000,000, which was offset by the purchase of short-term investments of $730,024 and payments for purchase of capitalized product development and intangible assets of $224,442.

FINANCING ACTIVITIES - Net cash used in financing activities for the nine months ended March 31, 2026 and 2025 was $471,371 and $0, respectively. The $471,371 in net cash used in financial activities for the nine months ended March 31, 2026 was attributable to the payment of cash dividends

CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS

Leases

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

Recently Issued Accounting Pronouncements

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

OFF-BALANCE SHEET ARRANGEMENTS

None.

Evaluation of Disclosure Controls and Procedures

Our management has evaluated, under the supervision and with the participation of OC Kim, our President, and Reid Granados, our 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 the Acting Chief Financial Officer have concluded that, as of March 31, 2026, 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 financial and 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 nine months ended March 31, 2026 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Our Annual Report on Form 10-K for the fiscal year ended June 30, 2025, filed with the SEC on September 29, 2025 (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. Except as set forth below, we are not aware of any material changes from the risk factors previously disclosed in our Annual Report.

Industry-wide memory shortages and supply chain disruptions may adversely affect our operations. Industry-wide shortages have occurred in the memory market, which may affect the availability and lead times of memory components used in our products. These shortages are primarily driven by a significant increase in demand for specialized memory chips used in artificial intelligence (AI) applications. While the specific memory components we utilize differ from those used by AI companies, many memory manufacturers have reallocated their production capacity toward higher-margin AI-related products. This shift in manufacturing focus has decreased the available supply and extended lead times for the specific memory components required for our products.

Such conditions have resulted in increased complexity in managing our production schedules. Our ability to deliver products to customers on a timely basis is critical, particularly for our Tier-1 carrier customers, who are highly sensitive to delivery timing and reliability. Any delays or disruptions in our supply chain could impair our ability to meet customer delivery schedules, and failure to meet such requirements could negatively impact customer relationships, order volumes, or future business opportunities.

We have experienced a significant reduction in demand from a major customer, which has materially impacted our revenue, and we may not be able to replace this revenue. During the quarter ended March 31, 2026, a major customer discontinued a key product that historically represented a significant portion of our revenue. We do not expect material future sales of this product to this customer. Our ability to replace this lost revenue depends on the successful development and commercialization of new products, including fixed wireless routers and telecommunications modules, which are in earlier stages of market adoption.