FRANKLIN WIRELESS CORP 10-K

ITEM 1. BUSINESS. BUSINESS OVERVIEW We are a leading provider of intelligent wireless solutions including mobile hotspots, routers, trackers, and other devices. Our designs integrate innovative hardware and software enabling machine-to-machine (M2M) applications and the Internet of Things (IoT). Our M2M and IoT solutions include embedded modules, modems and gateways built to deliver reliable always-on connectivity supporting a broad spectrum of applications based on fifth generation and fourth generation (5G/4G) wireless technology. We have a majority ownership position in Franklin Technology Inc. ("FTI"), a research and development company located in Seoul, South Korea. FTI primarily provides design and development services to us 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 extends primarily from the United States to countries in Europe, the Middle East and Africa ("EMEA") and Asia. OUR STRUCTURE We incorporated in 1982 in California and reincorporated in Nevada on January 2, 2008. The reincorporation had no effect on the nature of our business or our management. Our headquarters office is located in San Diego, California. The office is principally composed of marketing, sales, operations, finance and administrative support. It is responsible for all customer-related activities, such as marketing communications, product planning, product management and customer support, along with sales and business development activities on a worldwide basis. The consolidated financial statements include the accounts of the Company and its subsidiary with a majority voting interest of 66.3% (33.7% is owned by non-controlling interests) and 64.2% (35.8% is owned by non-controlling interests) as of June 30, 2020 and as of June 30, 2019, respectively. 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. The increase in the majority voting interest in percentage from 64.2% to 66.3% was due to the purchase by the Company of 43,333 shares of the subsidiary for $75,000 ($1.73 per share) from three non-controlling shareholders. The purchase decreased the non-controlling interests’ ownership percentage from 35.8% to 33.7%. 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. We generate revenues from three geographic areas, consisting of the United States, EMEA and Asia. The following enterprise-wide disclosure is prepared on a basis consistent with the preparation of the consolidated financial statements. The following table contains certain financial information by geographic area: Fiscal Year Ended June 30, Net sales: 2020 2019 United States $ 74,839,778 $ 36,217,387 Europe, the Middle East and Africa ("EMEA") – 224,427 Asia 232,520 27,086 Totals $ 75,072,298 $ 36,468,900 Long-lived assets, net (property and equipment and intangible assets): June 30, 2020 June 30, 2019 United States $ 1,302,353 $ 1,209,159 Asia 43,688 32,631 Totals $ 1,346,041 $ 1,241,790 1 OUR PRODUCTS We are a global leader and innovator in providing the latest mobile technologies to the mass market, which includes 5G/4G Mobile Hotspots, 5G/4G Customer Premises Equipment, and 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. The following is a sample of the products we offer: 5G/4G LTE Wireless Broadband Products 5G/4G LTE Wi-Fi Mobile Hotspot o Portable Wi-Fi hotspot routers that provide wireless Internet access with 5G/4G support for multiple simultaneously connected devices including laptops, tablets, and smart phones. Our Mobile Hotspot products help remote workers be productive while on the go and help students and educational institutions support remote learning activities. 5G/4G LTE Consumer Home Gateway (Customer-Premises Equipment) o Enhanced routing gateway that can provide support for both wired and wireless connectivity, offering solutions for consumers looking to replace Cable or DSL service IoT Tracking Devices and Connected Devices: Smart IoT tracking device o Location service devices based on CAT1 and CAT M technology, allowing consumers and businesses to track virtually any tangible item, anytime and anywhere. Connected Car o An all in one connected car solution that provides easy access Wi-Fi Hotspot technology and extensive added vehicle diagnostics, safety, and security features, as well as location service via OBDII protocol with other applications. Home Phone Connect o Franklin’s Voice Over LTE (VoLTE) device provides a landline alternative connecting instantly and allows users local and domestic long distance calling through the carrier’s network. IOT Server Platform and Application o “Pintrac,” Franklin’s Cloud based telecom grade server platform enables enhanced remote device functionality. o Pintrac Mobile Device Management (MDM) for LTE hotspots allows schools, government agencies and to remotely manage and configure hotspots. o Pintrac Pet is a complete pet tracking application, allowing monitoring and tracking household pets and their activity using Franklin’s Trackers. o Pintrac Auto tracks, locates, and manages vehicles for consumers and businesses using Franklin’s LTE OBD devices. 2 CUSTOMERS Our global customer base is comprised of wireless operators, strategic partners and distributors located primarily in the United States, EMEA and Asia. SALES AND MARKETING We market and sell our products primarily to wireless operators located in the United States, EMEA, and Asia regions mainly through our internal, direct sales organization and, to a lesser degree, indirectly through strategic partners and distributors. The sales process is supported with a range of marketing activities, including trade shows, product marketing and public relations. All of our wireless devices must pass Federal Communications Commission (FCC) testing in order to be sold in United States markets. Global Certification Forum (“GCF”) test certifications are required in order to launch any wireless data products with wireless operators in North America. PCS Type Certification Review Board (“PTCRB”) test certifications also are required for all LTE and HSPA/GSM wireless data products. Other LTE and 5G test certifications, as defined by the 3GPP governing body, are required for LTE and 5G wireless data products. Certifications are issued as being a qualifier of GCF, PTCRB, IEEE, CE, UL, Wi-Fi alliance certification and 3GPP standards. PRODUCTION AND MANUFACTURING OPERATIONS For the fiscal year ended June 30, 2020, the manufacturing of the majority of our products was performed by two independent companies located in Asia. EMPLOYEES As of June 30, 2020, we had 71 total employees at Franklin and FTI combined. We also use the services of consultants and contract workers from time to time. Our employees are not represented by any collective bargaining organization, and we have never experienced a work stoppage.