FRANKLIN WIRELESS CORP 10-K

ITEM 9A. CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES Our management has evaluated, under the supervision and with the participation of OC Kim, our President, and Bill Bauer, 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 June 30, 2023, 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. 17 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 Exchange Act or in other factors that materially affected or are reasonably likely to materially affect our internal controls and procedures over financial reporting during the fourth quarter of the fiscal year ended June 30, 2023. MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our internal control over financial reporting is designed 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. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. To evaluate the effectiveness of internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, management conducted an assessment, using the criteria in Internal Control-Integrated Framework, (specifically the 2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on its assessment, management concluded that we maintained effective internal control over financial reporting as of June 30, 2023. Item 9C . DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable 18 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Set forth below are the names, ages, titles and present and past positions of our directors and executive officers as of June 30, 2023. Name Age Position OC Kim 58 President, Secretary and a Director Gary Nelson 83 Chairman of the Board and a Director Johnathan Chee 60 Director Heidy Chow 45 Director Kristina Kim 60 Director Yun J. (David) Lee (1) 62 Chief Operating Officer Bill Bauer 54 Acting Chief Financial Officer (Principal Financial Officer) ______________________ (1) On 7/14/2023, the board of directors appointed Mr. Lee as Senior Vice President of Sales who previously served as Chief Operating Officer. This change did not affect his compensation. OC Kim has been our President, CEO and a Director since 2003. Prior to joining Franklin Wireless, Mr. Kim was the CEO and President of Accetio Inc., a company he founded that developed modules for the wireless telecommunication industry. In 2003, Accetio Inc. merged with Franklin Telecommunications Corp. and was renamed Franklin Wireless Corp. He was a general manager of Kolon California Corp., one of Korea's most prominent conglomerates. While at Kolon Data Communications, in Korea, Mr. Kim helped introduce the first generation of CDMA phones to the Korean market through his work with Qualcomm Personal Electronics (QPE), a joint venture between Qualcomm Incorporated and Sony Electronics Inc. Mr. Kim began his career at Lucky Goldstar (LG) Electronics. He has almost 30 years of experience in sales, marketing, and operations management in the telecommunications and information systems industries. He earned a B.A. from Sogang University in Korea. We believe Mr. Kim’s qualifications to serve as a director of the Company include his extensive business, operational and management experience in the wireless industry, including his current position as the Company’s President. In addition, his knowledge of the Company’s business, products, strategic relationships and future opportunities is of great value to the Company. Gary Nelson has been a director since September 2003. Mr. Nelson was an early investor in Franklin Telecommunications Corp. in the 1980’s and served as a director from 2001 up until the Company’s merger with Accetio Inc. in September 2003, at which time the Company was renamed Franklin Wireless Corp. Following the merger, Mr. Nelson became a director and ultimately Chairman of the Board of Franklin Wireless Corp. He was co-founder and President of Churchill Mortgage Corporation, an income property mortgage banking firm based in Los Angeles, California, which was a loan correspondent for major life insurance companies and other financial institutions. In addition, Mr. Nelson was the Chief Operating Officer of Churchill Mortgage Capital, which was the loan origination arm of Churchill Mortgage Corporation. Mr. Nelson’s prior experience includes various marketing positions with Control Data Corporation and design engineering positions with North American Aviation where he worked on the Apollo Project. He holds a B.S. in Mechanical Engineering from Kansas State University and an MBA from the University of Southern California. We believe that Mr. Nelson’s qualifications to serve as a director of the Company include his many years of business, operational and management experience including his previous position as President of Churchill Mortgage Corporation. In addition, Mr. Nelson has served as a director of the Company for 14 years, and brings a valuable historical perspective on the development of the Company’s business and its leadership. Johnathan Chee has been a director since September 2009. He is an attorney and has owned the Law Offices of Johnathan Chee, in Niles, Illinois, since August 2007. Mr. Chee has represented clients in various business dealings and negotiations with Ameritech, SBC, Sprint and several wireless carriers in Latin America. Between 1998 and 2007, he served as an attorney with the C&S Law Group, P.C., in Glenview, Illinois. He holds a B.A. from the University of Illinois-Chicago and a J.D. from IIT Chicago-Kent College of Law. He is a member of the Illinois Bar Association. We believe Mr. Chee’s qualifications to serve as a director of the Company include his experience as a business attorney that allow him to provide the Company’s Board of Directors with valuable knowledge of legal matters that may affect the Company. 19 Heidy Chow is a Certified Public Accountant and an experienced finance and accounting executive whose client base includes several IT companies. Ms. Chow is an Assurance Partner of The Pun Group, LLP and has over fifteen (15) years of combined experience in auditing, consulting and finance. Ms. Chow’s career in public accounting was spent primarily with the National firms of RSM US and Ernst & Young, and regional firms where she has specialized in corporate accounting and auditing services. She supervises engagement teams in areas of designing and planning audits in accordance with the AICPA Generally Accepted Auditing Standards and Public Company Accounting Oversight Board (PCAOB) standards. In addition, she often serves as Contract Chief Financial Officer for privately held small and middle market companies. She holds a B.S. in Accounting from California State Polytechnic University, Pomona. Kristina Kim is a licensed attorney with extensive knowledge of global import/export, international trade, and regulatory issues. Ms. Kim also served as General Counsel and Vice President with Samsung International Inc. for over 14 years. Ms. Kim holds a B.A. in Biochemistry and Molecular Biology from the University of California at Santa Barbara, and a Juris Doctorate from the University of San Diego. Yun J. (David) Lee has served as our Chief Operating Officer since September 2008. Mr. Lee has 23 years of upper level management experience in telecommunications, including experience in the cellular telephone business in the U.S. and South America. Prior to joining the Company, he was President of Ace Electronics, and served as Chief Financial Officer and Director of Sales and Marketing for RMG Wireless. Prior to that, he served as Controller and Director of International Sales for Focus Wireless in Chicago. David Brown has served as our Acting Chief Financial Officer since March 2021. With over 25 years of financial experience, David Brown has worked in several industries including manufacturing, aerospace, biotech, and electronics. A graduate in accounting from San Diego State University, David has advanced knowledge of accounting, budgeting, and cash management. He has developed and implemented internal policies and procedures throughout several organizations and has managed all aspects of the finance departments along with outside auditors. One September 30, 2022, he resigned his position to pursue other opportunities. Bill Bauer has served as our Acting Chief Financial Officer since October 2022. Prior to joining Franklin, he served as in-house legal counsel and senior finance executive across various industries in California and Texas. He has over 15 years of experience in Finance and executive management. He holds a Master’s degree in Business Administration from San Diego State University and a Juris Doctorate from California Western School of Law and is also a member of both the California and Texas State Bars. CODE OF ETHICS The Board of Directors has adopted a Code of Ethics, which is applicable to all of our employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The Code of Ethics covers all areas of professional conduct, including honest and ethical conduct, conflicts of interest, compliance with laws, disclosure obligation, and accountability for adherence to this Code. CORPORATE GOVERNANCE During fiscal 2023, the Board of Directors held four meetings. Each director attended 100% of the meetings of the Board. The Board of Directors has an Audit Committee made up of Heidy Chow (committee chair), Gary Nelson, and Kristina Kim, and a Compensation Committee made up of Gary Nelson (committee chair) and Johnathan Chee, and a Nominating Committee made up of Gary Nelson (committee chair) and Johnathan Chee. The Board of Directors has no other committees. ITEM 11. EXECUTIVE COMPENSATION The following table sets forth all compensation paid or accrued by us for the years ended June 30, 2023 and 2022 to our President, Chief Operating Officer, and Acting Chief Financial Officer (The "Named Executive Officers"). 20 Summary Compensation Table Name and Principal Position Fiscal Year Salary ($) Bonus ($) Option Awards ($) Total ($) OC Kim, 2022 $ 300,000 $ – $ 566,000 $ 866,000 President 2023 $ 300,000 $ – $ – $ 300,000 Yun J. (David) Lee, 2022 $ 300,000 $ – $ 42,450 $ 342,450 Chief Operating Officer 2023 $ 300,000 $ – $ – $ 300,000 David Brown (1), 2022 $ 100,193 $ – $ 28,300 $ 128,493 Acting Chief Financial Officer 2023 $ 25,649 $ – $ – $ 25,649 Bill Bauer, 2022 $ – $ – $ – $ – Acting Chief Financial Officer 2023 $ 107,798 $ – $ – $ 107,798 (1) David Brown resigned his position on September 30, 2023. Outstanding Equity Awards at Fiscal Year-End The following table presents the outstanding equity awards held by each of the Named Executive Officer as of June 30, 2023. The only outstanding equity awards are stock options. Options to purchase 200,000, 15,000, 10,000 and 15,000 shares were granted to OC Kim, Yun J. (David) Lee, David Brown, and Bill Bauer during fiscal 2022, respectively. 10,000 shares granted to David Brown have been forfeited and returned to the Company as he resigned his position on September 30, 2023. The options vest over periods ranging from one to three years and are subject to early termination on the occurrence of certain events related to termination of employment. In addition, the full vesting of options is accelerated if there is a change in control of the Company. Outstanding Equity Awards at Fiscal Year-End Options Awards Name Number of Securities Underlying Unexercised Options (#) Number of Securities Underlying Unexercised Options (#) nonexercisable Option Exercise Price ($) Option Expiration Date OC Kim 200,000 (1) 99,818 $3.38 12/27/2026 Yun J. (David) Lee 100,000 (1) 1,369 $5.40 07/13/2025 15,000 (1) 7,486 $3.38 12/27/2026 Bill Bauer 15,000 (1) 7,486 $3.38 12/27/2026 (1) The option vests and is exercisable over three years as follows and has a five-year term: i. 33.3% of the shares underlying the option vest on the first anniversary of the date of the grant. ii. 33.3% of the shares underlying the option vest on the second anniversary of the date of the grant. ii. 33.3% of the shares underlying the option vest on the third anniversary of the date of the grant. 21 Director Compensation Our directors are reimbursed for reasonable out-of-pocket expenses incurred in attending meetings of the Board of Directors. Employee directors do not receive any cash compensation for service as directors and do not receive any equity compensation designated for such services. Members of the Board of Directors who are not employees may receive stock option grants as consideration for their board service from time to time, although there is no established policy for such stock option grants. Fiscal 2023 Director Compensation Name Fee Earned or Paid in Cash ($)(1) Option Awards ($)(2) All Other Compensation ($) Total ($) Gary Nelson 17,500 – – 17,500 Johnathan Chee 17,500 – – 17,500 Heidy Chow 17,500 – – 17,500 Kristina Kim 17,500 – – 17,500 (1) Directors are compensated at a base rate of $15,000 and $20,000 annually for the six months ended December 31, 2022 and for the six months ended June 30, 2023, respectively, and prorated based upon board meeting attendance. Bonuses may be awarded when the business has performed exceptionally well as determined by the Board of Directors. For the year ended June 30, 2023, there has been no approved bonus for the Directors. There were no outstanding equity awards held by any of the non-officer directors as of June 30, 2023. EMPLOYMENT CONTRACTS 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 of a change of control of the Company. The term includes the acquisition of Common Stock of the Company resulting in one person or company owning more than 50% of the outstanding shares, a significant change in the composition of the Board of Directors of the Company during any 12-month period, a reorganization, merger, consolidation or similar transaction resulting in the transfer of ownership of more than fifty percent (50%) of the Company's outstanding Common Stock, or a liquidation or dissolution of the Company or sale of substantially all of the Company's assets. These agreements were for an initial term of three years but have now been extended through October 2024. 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. 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. 22 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. The Change in Control Agreement with Mr. Kim, dated October 1, 2020, has not been terminated and remains in effect at this time. COMPENSATION DISCUSSION AND ANALYSIS GENERAL PHILOSOPHY - We compensate our executive officers through a mix of base salary, incentive compensation and stock options. Our compensation policies are designed to be competitive with comparable employers and to align management’s incentives with both near-term and long-term interests of our stockholders. We use informal methods of benchmarking our executive compensation, based on the experience of our directors or, in some cases, studies of industry standards. Our compensation is negotiated on a case by case basis, with attention being given to the amount of compensation necessary to make a competitive offer and the relative compensation among our executive officers. BASE SALARIES – We want to provide our senior management with a level of cash compensation in the form of base salary that facilitates an appropriate lifestyle given their professional status and accomplishments. INCENTIVE COMPENSATION – Our practice is to award cash bonuses based upon performance objectives set by the Board of Directors. We maintain a bonus plan which provides our executive officers to earn cash bonuses based on the achievement of performance targets. The performance targets are set by the Board of Directors, and our executive officers are eligible to receive bonuses on a quarterly basis. The actual amount of incentive compensation paid to our executive officers is in the sole discretion of the Board of Directors. SEVERANCE BENEFITS – We are generally an “at-will” employer and have no employment agreements with severance benefits; however, we have entered into Change of Control Agreements with OC Kim & David Lee, and a severance agreement with OC Kim that provides him with a lump sum payment in the event he leaves the Company. RETIREMENT PLANS – In January 2022, we implemented the CalSavers retirement program, an automatic enrollment individual retirement account (IRA). The program is a voluntary participation program, and all employees have the option to participate in this program if they choose to do so. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The following table sets forth certain information regarding the beneficial ownership of our Common Stock as of September 28, 2023, by each director and executive officer of the Company, each person known to us to be the beneficial owner of more than 5% of the outstanding Common Stock, and all directors and executive officers of the Company as a group. Except as otherwise indicated below, each person has sole voting and investment power with respect to the shares owned, subject to applicable community property laws. 23 Shares Beneficially Owned Name and Address Number Percent Joon Won Jyoung 9707 Waples Street, Suite 150, San Diego, CA 92121 1,004,948 8.5% OC Kim 9707 Waples Street, Suite 150, San Diego, CA 92121 1,096,695 9.3% Gary Nelson 9707 Waples Street, Suite 150, San Diego, CA 92121 314,008 2.7% Yun J. (David) Lee 9707 Waples Street, Suite 150, San Diego, CA 92121 185,000 1.6% Johnathan Chee 9707 Waples Street, Suite 150, San Diego, CA 92121 13,500 0.1% Paul Packer 805 Third Ave., 15 th Floor, New York, NY 10022 874,292 (1) 7.4% All directors and executive officers as a group 3,488,443 29.6% (1) Based solely on a Schedule 13G dated December 31, 2022, which indicates that Mr. Packer may be deemed to beneficially own 874,292 shares. With respect to these shares, Mr. Packer has shared voting power and shared dispositive power with Globis Capital Partners, L.P., Globis Capital Advisors, L.L.C., Globis Overseas Fund, Ltd., Globis Capital Management, L.P. and Globis Capital, L.L.C. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. None. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The aggregate fees billed for the most recently completed fiscal period for the audit of our annual financial statements and services normally provided by the independent registered public accounting firm for this fiscal period were as follows: FY 2023 FY 2022 Audit Fees $ 84,250 $ 91,500 Total Fees $ 84,250 $ 91,500 In the above table, "audit fees" are fees billed by our external auditor for services provided in auditing our company's annual financial statements for the subject year. The fees set forth on the foregoing table relate to the audit as of and for the years ended June 30, 2023, and 2022, which was performed by Kreit, and Chiu CPA LLP (formerly as “Paris, Kreit, and Chiu CPA LLP”). All of the services described above were approved in advance by the Board of Directors or the Company's Audit Committee. 24 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a) Index to financial statements (b) Exhibits The following Exhibits are files as part of, or incorporated by reference into, this Report on Form 10-K: Exhibit No. Description 2.1 Articles of Merger and Agreement and Plan of Reorganization, filed January 2, 2008 with the Nevada Secretary of State (1) 3.1 Articles of Incorporation of Franklin Wireless Corp. (1) 3.2 Amended and Restated Bylaws of Franklin Wireless Corp. (3) 4.1 Description of Securities (6) 10.1 10.2 Employment Agreement, dated September 7, 2021, between Franklin Wireless Corp. and OC Kim (4) Amendment No. 1 to Employment Agreement, dated November 10, 2022 (8) 10.3 Change of Control Agreement, dated October 1, 2020, between Franklin Wireless Corp. and OC Kim (3) 10.4 Change of Control Agreement, dated October 1, 2020, between Franklin Wireless Corp. and David Lee. (3) 10.5 Lease, dated September 9, 2015, between the Company and Hunsaker & Associates San Diego, Inc., a California corporation (5) 10.6 Loan Agreement between Franklin Technology Incorporation and Franklin Wireless Corporation, dated March 31, 2022 (8) 10.7 Amendment to Change of Control Agreement between Franklin Wireless Corp. and OC Kim, dated September 25, 2023 10.8 Amendment to Change of Control Agreement between Franklin Wireless Corp. and Yun J. (“David”) Lee, dated September 25, 2023 14.1 Code of Ethics (2) 23.1 Consent of Kreit and Chiu CPA LLP 31.1 Certificate of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certificate of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.1 Certificate of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.2 Certificate of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101.INS XBRL Instance Document 101.SCH XBRL Schema Document 101.CAL XBRL Calculation Linkbase Document 101.DEF XBRL Definition Linkbase Document 101.LAB XBRL Label Linkbase Document 101.PRE XBRL Presentation Linkbase Document _________________________ (1) Incorporated by reference from Report on Form 10-QSB for the quarterly period ended March 31, 2008, filed on May 14, 2008. (2) Incorporated by reference from Annual Report on Form 10-K for the year ended June 30, 2008, filed on September 26. 2008. (3) Incorporated by reference from Annual Report on Form 10-K for the year ended June 30, 2009, filed on October 13, 2009. (4) Incorporated by reference from Report on Form 8-K dated October 1, 2021. (5) Incorporated by reference from Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, filed on November 16, 2015. (6) Incorporated by reference from Report on Form 10-K/A for the year ended June 30, 2020, filed on September 18, 2020. (7) Incorporated by reference from Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, filed on May 10, 2022. (8) Incorporated by reference from Quarterly Report on Form 10-Q for the quarter ended December 31, 2022, filed on February 14, 2023. (c) Supplementary Information None. ITEM 16. FORM 10-K SUMMARY . Not applicable. 25 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 Dated: September 28, 2023 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date Principal Executive Officer /s/ OC KIM President and a Director September 28, 2023 OC Kim Principal Financial Officer /s/ Bill Bauer Acting Chief Financial Officer September 28, 2023 Bill Bauer /s/ GARY NELSON Chairman of the Board of Directors September 28, 2023 Gary Nelson /s/ JOHNATHAN CHEE Director September 28, 2023 Johnathan Chee /s/ HEIDY CHOW Director September 28, 2023 Heidy Chow /s/ KRISTINA KIM Director September 28, 2023 Kristina Kim 26 FRANKLIN WIRELESS CORP. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2023 AND 2022 Page No. Index to Consolidated Financial Statements F-1 Report of Independent Registered Public Accounting Firm (PCAOB ID 6651 ) F-2 Consolidated Balance Sheets as of June 30, 2023 and 2022 F-4 Consolidated Statements of Comprehensive (Loss) Income for the Years ended June 30, 2023 and 2022 F-5 Consolidated Statements of Stockholders' Equity for the Years ended June 30, 2023 and 2022 F-6 Consolidated Statements of Cash Flows for the Years ended June 30, 2023 and 2022 F-7 Notes to Consolidated Financial Statements F-8 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Franklin Wireless Corp. Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Franklin Wireless Corp. and its subsidiary (the “Company”) as of June 30, 2023, and 2022, and the related consolidated statements of comprehensive (loss) income, changes in stockholders’ equity, and cash flows for each of the two years in the period ended June 30, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2023, and 2022 and the results of its operations and its cash flows for each of the two years in the period ended June 30, 2023, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the entity’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate . F- 2 Description of the Matter Legal Proceedings As described in Note 8 to the consolidated financial statements, management records liabilities for legal proceedings in those instances where it can reasonably estimate the amount of the loss and when loss is probable. Where the reasonable estimate of the probable loss is a range, management records as an accrual in its consolidated financial statements the most likely estimate of the loss, or the low end of the range if there is no one best estimate. Management either discloses the amount of a possible loss or range of loss in excess of established accruals if estimable, or states that such an estimate cannot be made. Management discloses significant legal proceedings even where liability is not probable or the amount of the liability is not estimable, or both, if management believes there is at least a reasonable possibility that a loss may be incurred. How We Addressed the Matter in Our Audit The principal considerations for our determination that performing procedures relating to legal proceedings is a critical audit matter are the significant judgment by management when assessing the likelihood of a loss being incurred and when estimating the loss or range of loss for each claim, which in turn led to significant auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s assessment of the liabilities and disclosures associated with legal proceedings. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included determining the likelihood of a loss and whether the amount of loss can be reasonably estimated, as well as evaluating disclosures citing the compliance with the financial reporting framework. These procedures also included, among others, obtaining and evaluating the letters of audit inquiry with internal and external legal counsel, evaluating the reasonableness of management’s assessment regarding whether an unfavorable outcome is reasonably possible or probable and reasonably estimable, and evaluating the sufficiency of the Company’s disclosures related to legal proceedings and accounting in the consolidated financial statements. We have served as the Company’s auditors since 2020. /s/ Kreit and Chiu CPA LLP (formerly as “ Paris, Kreit and Chiu CPA LLP ”). New York, NY September 28, 2023 F- 3 FRANKLIN WIRELESS CORP. Consolidated Balance Sheets As of June 30, 2023 2022 ASSETS Current assets: Cash and cash equivalents $ 12,241,286 $ 26,277,418 Short-term investments 26,728,313 16,336,659 Accounts receivable, net 8,949,802 1,322,619 Other receivables, net 14,438 40,132 Inventories, net 3,741,637 4,197,863 Prepaid expenses and other current assets 36,687 40,939 Loan to an employee 91,057 – Advance payments to vendors 53,875 174,796 Total current assets 51,857,095 48,390,426 Property and equipment, net 101,088 105,952 Intangible assets, net 2,180,884 1,350,056 Deferred tax assets, non-current 2,235,515 1,347,436 Goodwill 273,285 273,285 Right of use assets 152,665 448,621 Other assets 126,546 126,095 TOTAL ASSETS $ 56,927,078 $ 52,041,871 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 12,950,497 $ 8,143,305 Income tax payable 6,556 6,702 Unearned revenue 117,351 231,624 Advance payments from customers 29,137 – Accrued legal contingency expense 2,400,000 – Accrued liabilities 849,605 589,907 Lease liabilities, current 159,104 308,834 Total current liabilities 16,512,250 9,280,372 Lease liabilities, non-current – 159,104 Total liabilities 16,512,250 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 June 30, 2023, and 2022 – – Common stock, par value $ 0.001 per share, authorized 50,000,000 shares; 11,784,280 and 11,684,280 shares issued and outstanding as of June 30, 2023, and 2022, respectively 14,263 14,163 Additional paid-in capital 14,438,196 13,593,426 Retained earnings 29,101,225 31,964,246 Treasury stock, 2,549,208 shares as of June 30, 2023, and 2022 ( 3,554,893 ) ( 3,554,893 ) Accumulated other comprehensive loss ( 1,071,930 ) ( 984,152 ) Total Parent Company stockholders’ equity 38,926,861 41,032,790 Non-controlling interests 1,487,967 1,569,605 Total stockholders’ equity 40,414,828 42,602,395 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 56,927,078 $ 52,041,871 See accompanying notes to consolidated financial statements. F- 4 FRANKLIN WIRELESS CORP. Consolidated Statements of Comprehensive (Loss) Income Fiscal Years Ended June 30, 2023 2022 Net sales $ 45,948,516 $ 23,997,762 Cost of goods sold 38,927,774 20,181,179 Gross profit 7,020,742 3,816,583 Operating expenses: Selling, general and administrative 5,451,653 4,509,344 Research and development 3,918,664 4,282,131 Total operating expenses 9,370,317 8,791,475 Loss from operations ( 2,349,575 ) ( 4,974,892 ) Other income, net: Interest income 459,869 71,375 Income from governmental subsidy 43,784 91,567 Gain from the forgiveness of debts 238,307 38,397 Loss from a legal contingency ( 2,400,000 ) – Other income (expense), net 176,297 64,080 Total other income (expense), net ( 1,481,743 ) 265,419 Loss before benefit for income taxes ( 3,831,318 ) ( 4,709,473 ) Income tax benefit ( 886,659 ) ( 1,037,068 ) Net loss ( 2,944,659 ) ( 3,672,405 ) (Less) non-controlling interests in net (loss) income of subsidiary at 33.7% ( 81,638 ) 90,443 Net loss attributable to Parent Company $ ( 2,863,021 ) $ ( 3,762,848 ) Basic loss per share attributable to Parent Company stockholders $ ( 0.24 ) $ ( 0.32 ) Diluted loss per share attributable to Parent Company stockholders $ ( 0.24 ) $ ( 0.32 ) Weighted average common shares outstanding - basic 11,736,609 11,613,812 Weighted average common shares outstanding - diluted 11,736,609 11,613,812 Comprehensive loss Net loss $ ( 2,944,659 ) $ ( 3,672,405 ) Translation adjustments ( 87,778 ) ( 511,650 ) Comprehensive loss ( 3,032,437 ) ( 4,184,055 ) Less: comprehensive (loss) income attributable to non-controlling interest ( 81,638 ) 90,443 Comprehensive loss attributable to controlling interest $ ( 2,950,799 ) $ ( 4,274,498 ) See accompanying notes to consolidated financial statements. F- 5 FRANKLIN WIRELESS CORP. Consolidated Statements of Stockholders' Equity 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 – – – ( 3,762,848 ) – – – ( 3,762,848 ) Foreign exchange translation – – – – – ( 511,650 ) – ( 511,650 ) Issuance of stock related to stock option exercised 93,999 94 75,351 – – – – 75,445 Comprehensive income attributable to non-controlling interest – – – – – – 90,443 90,443 Stock based compensation – – 545,841 – – – – 545,841 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 – – – ( 2,863,021 ) – – – ( 2,863,021 ) Foreign exchange translation – – – – – ( 87,778 ) – ( 87,778 ) Issuance of stock related to stock option exercised 100,000 100 133,900 – – – – 134,000 Comprehensive loss attributable to non-controlling interest – – – – – – ( 81,638 ) ( 81,638 ) Stock based compensation – – 710,870 – – – – 710,870 Balance - June 30, 2023 11,784,280 $ 14,263 $ 14,438,196 $ 29,101,225 $ ( 3,554,893 ) $ ( 1,071,930 ) $ 1,487,967 $ 40,414,828 See accompanying notes to consolidated financial statements. F- 6 FRANKLIN WIRELESS CORP. Consolidated Statements of Cash Flows Fiscal Years Ended June 30, 2023 2022 CASH FLOW FROM OPERATING ACTIVITIES: Net loss $ ( 2,944,659 ) $ ( 3,672,405 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 51,970 87,743 Amortization of intangible assets 839,595 579,012 Stock based compensation 710,870 545,841 Bad debt expense – 23,780 Forgiveness of debts ( 238,307 ) ( 38,397 ) Amortization of right of use assets 295,956 304,642 Deferred tax benefit ( 888,079 ) ( 959,888 ) Increase (decrease) in cash due to change in working capital: Accounts receivable ( 7,601,489 ) 1,205,938 Inventories 456,226 ( 3,222,344 ) Prepaid expenses and other current assets 4,252 4,045 Advance payments to vendors 120,921 ( 134,166 ) Other assets ( 451 ) 14,444 Accounts payable 4,905,499 ( 1,537,287 ) Income tax payable ( 146 ) ( 326,801 ) Unearned revenue ( 114,273 ) 231,624 Advance payment from customers 29,137 – Accrued legal contingency expense 2,400,000 – Accrued liabilities 399,698 ( 195,618 ) Lease liabilities ( 308,834 ) ( 317,518 ) Net cash used in operating activities ( 1,882,114 ) ( 7,407,355 ) CASH FLOW FROM INVESTING ACTIVITIES: Purchases of short-term investments ( 10,391,654 ) ( 10,950,625 ) Purchases of property and equipment ( 47,106 ) ( 42,085 ) Payments for capitalized product development costs ( 1,631,376 ) ( 658,544 ) Purchases of intangible assets ( 39,047 ) ( 23,774 ) Net cash used in investing activities ( 12,109,183 ) ( 11,675,028 ) CASH FLOW FROM FINANCING ACTIVITIES: Loan to an employee ( 2,057 ) – Cash received from exercise of stock options 45,000 75,445 Net cash provided by financing activities 42,943 75,445 Effect of foreign currency translation ( 87,778 ) ( 511,650 ) Net decrease in cash and cash equivalents ( 14,036,132 ) ( 19,518,588 ) Cash and cash equivalents, beginning of year 26,277,418 45,796,006 Cash and cash equivalents, end of year $ 12,241,286 $ 26,277,418 Supplemental disclosure of cash flow information: Cash paid during the periods for: Income taxes $ ( 800 ) $ ( 200,350 ) See accompanying notes to consolidated financial statements. F- 7 FRANKLIN WIRELESS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - BUSINESS OVERVIEW We are a leading provider of integrated wireless solutions utilizing the latest in 5G (fifth generation) and 4G LTE (fourth generation long-term evolution) technologies including mobile hotspots, routers, fixed wireless routers, 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 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This summary of significant accounting policies of the Company is presented to assist in understanding the Company’s consolidated financial statements. The consolidated financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to GAAP and have been consistently applied in the preparation of the consolidated financial statements. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiary with a majority voting interest of approximately 66.3% (approximately 33.7 % is owned by non-controlling interests) as of June 30, 2023, and 2022. 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 June 30, 2023, or June 30, 2022. Non-controlling Interest in a Consolidated Subsidiary As of June 30, 2023, the non-controlling interest was $ 1,487,967 , which represents a $ 81,638 decrease from $ 1,569,605 as of June 30, 2022. The decrease in the non-controlling interest of $81,638 was from loss in the subsidiary of $ 242,554 incurred for the year ended June 30, 2023. F- 8 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. We shall generate revenues from three geographic areas, consisting of North America, the Caribbean and South America, and Asia. The following enterprise-wide disclosure is prepared on a basis consistent with the preparation of the consolidated financial statements. The following table contains certain financial information by geographic area: Segment information by geographic areas Fiscal Year Ended June 30, Net sales: 2023 2022 North America $ 45,782,084 $ 23,305,366 Caribbean and South America – 2,375 Asia 166,432 690,021 Totals $ 45,948,516 $ 23,997,762 Long lived assets by geographic area Long-lived assets, net (property and equipment and intangible assets): June 30, 2023 June 30, 2022 United States $ 2,083,902 $ 1,374,747 Asia 198,070 81,261 Totals $ 2,281,972 $ 1,456,008 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 (see Note 3). Use of Estimates The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates. Allowance for Doubtful Accounts Based upon our review of our collection history as well as the current balances associated with all significant customers and associated invoices, we do no t believe an allowance for doubtful accounts was necessary as of June 30, 2023, and 2022. F- 9 Cash Flows Reporting We follow ASC 230, Statements of Cash Flows, for cash flows reporting, classifies cash receipts and payments according to whether they stem from operating, investing, or financing activities and provides definitions of each category. We use the indirect or reconciliation method (“Indirect method”) as defined by ASC 230, Statement of Cash Flows, to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities by removing the effects of all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments and all items that are included in net (loss) income that do not affect operating cash receipts and payments. Related Parties We follow ASC 850, “Related Party Disclosures,” for the identification of related parties and disclosure of related party transactions. Related parties are any entities or individuals that, through employment, ownership or other means, possess the ability to direct or cause the direction of our management and policies of the Company. (Refer to NOTE 11–RELATED PARTY TRANSACTIONS) Foreign Currency Translations We have a majority-owned subsidiary in foreign country, South Korea. Fluctuations in foreign currency impact the amount of total assets, liabilities, earnings and cash flows that we report for our foreign subsidiary upon the translation of these amounts into U.S. Dollars for, and as of the end of, each reporting period. In particular, the strengthening of the U.S. Dollar generally will reduce the reported amount of our foreign-denominated cash, cash equivalents, total revenues and total expense that we translate into U.S. Dollars and report in our consolidated financial statements for, and as of the end of, each reporting period. However, a majority of our consolidated revenue is denominated in U.S. Dollars, and therefore, our revenue is not directly subject to foreign currency risk. In accordance with FASB ASC 830, "Foreign Currency Matters" , when an operation has transactions denominated in a currency other than its functional currency, they are measured in the functional currency. Changes in the expected functional currency cash flows caused by changes in exchange rates are included in net income for the period. Leases In accordance with ASC 842, “Leases”, we determine whether an arrangement contains a lease at inception. A lease is a contract that provides the right to control an identified asset for a period of time in exchange for consideration. For identified leases, we determine whether it should be classified as an operating or finance lease. Operating leases are recorded in the balance sheet as right-of-use asset (“ROU asset”) and operating lease obligation. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payment arising from the lease ROU assets and operating lease liabilities are recognized at the commencement date of the lease and measure based on the present value of lease payment over the lease term. The ROU asset also includes deferred rent liabilities. Our lease arrangement generally does not provide an implicit interest rate. As a result, in such situations, we use its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We include options to extend or terminate the lease when it is reasonably certain that it will exercise that option in the measurement of its ROU assts and liabilities. Lease expense for operating lease is recognized on a straight-line basis over the lease term. We are also electing not to apply the recognition requirements to short-term leases of twelve months or less and instead will recognize lease payments as expense on a straight-line basis over the lease term. F- 10 Revenue Recognition Contracts with Customers Revenue from sales of products and services is derived from contracts with customers. The products and services covered by contracts primarily consist of hot spot 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 provisions for the years ended June 30, 2023, and 2022, were not material. Disaggregation of Revenue In accordance with Topic 606, “Revenue from Contracts with Customers”, 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 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: Schedule of receivables June 30, 2023 June 30, 2022 Accounts Receivable, net $ 8,949,802 $ 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 June 30, 2023, and June 30, 2022. Included in the Accounts Receivable balance as of June 30, 2022, is a passthrough amount of $837,000. These transactions were a direct result of an agreement between our vendor and our customer. There is a corresponding balance of $837,000 in our Accounts Payable account as of June 30, 2022, to offset. These balances are removed as of June 30, 2023, since these pass-through charges are unlikely to ever be collected due to the customer's refusal to pay. There were no such balances as of June 30, 2023. Our contract liabilities, which are included in accrued liabilities on our consolidated balance sheets, are as follows: Schedule of contract liabilities June 30, 2023 June 30, 2022 Undelivered products $ 146,488 $ 371,624 F- 11 Performance Obligations A performance obligation is a promise in a contract to transfer a distinct good and/or service to the customer and is the unit of measurement in Topic 606. At contract inception, we assess the products and/or services promised in our contracts with customers. We then identify performance obligations to transfer distinct products and/or services to the customer. To identify performance obligations, we consider all the products or services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices. Our performance obligations are satisfied at a point in time. Revenue from products transferred to customers at a single point in time accounted for over 99% of net sales for the year ended June 30, 2023, and 2022. Revenue for non-recurring engineering projects is based on the percentage completion of a project and accounted for under 1% of net sales for the year ended June 30, 2023, and 2022. Most of our revenue that is recognized at a point in time is for the sale of hot-spot router products. Revenue from these contracts is recognized when the customer can direct the use of and obtain substantially all of the benefits from the product, which generally coincides with title transfer at completion of the shipping process. As of June 30, 2023, and 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 $ 800,000 and $ 500,000 associated with capitalized product development costs associated with complete technology for the years ended June 30, 2023, and 2022, respectively. Capitalized Product Development Costs Accounting Standards Codification (“ASC”) Topic 350, “Intangibles - Goodwill and Other” includes software that is part of a product or process to be sold to a customer and shall be accounted for under Subtopic 985-20. Our products contain embedded software internally developed by FTI, which is an integral part of these products because it allows the various components of the products to communicate with each other and the products are clearly unable to function without this coding. The costs of product development that are capitalized once technological feasibility is determined (noted as Technology in progress in the Intangible Assets table, in Note 2 to Notes to Consolidated Financial Statements) include certifications, licenses, payroll, employee benefits, and other headcount-related expenses associated with product development. We determine that technological feasibility for our products is reached after all high-risk development issues have been resolved. Once the products are available for general release to our customers, we cease capitalizing the product development costs and any additional costs, if any, are expensed. The capitalized product development costs are amortized on a product-by-product basis using the straight-line amortization. The amortization begins when the products are available for general release to our customers. As of June 30, 2023, and June 30, 2022, capitalized product development costs in progress were $ 203,838 and $ 187,343 , respectively, and these amounts are included in intangible assets in our consolidated balance sheets. During the year ended June 30, 2023, we incurred $ 1,631,376 in capitalized product development costs, and all costs incurred before technological feasibility is reached are expensed and included in our consolidated statements of comprehensive income (loss). Research and Development Costs Costs associated with research and development are expensed as incurred. Research and development costs were $ 3,918,664 and $ 4,282,131 for the years ended June 30, 2023, and 2022, respectively. F- 12 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 statements of comprehensive income, were $ 234,681 and $ 246,290 for the years ended June 30, 2023, and 2022, respectively. Cash and Cash Equivalents For the purposes of the consolidated statements of cash flow, we consider all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. We invest our excess cash into financial instruments which management believes are readily convertible into cash, such as money market funds that are readily convertible to cash and have a $1.00 net asset value. Short Term Investments We have invested excess funds in short term liquid assets, such as certificates of deposit or money market funds. Inventories 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 our control. We may write down our inventory value for potential obsolescence and excess inventory. As of June 30, 2023, and 2022, we have recorded inventory reserves in the amount of $ 585,274 and $ 557,155 , respectively, 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 the useful lives of assets are capitalized. Maintenance and repairs of revenue nature are charged to expense as incurred. Depreciation is computed using the straight-line method over the estimated useful lives as follows: 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 F- 13 Goodwill and Intangible Assets Goodwill and certain intangible assets were recorded in connection with the FTI acquisition in October 2009, and were accounted for in accordance with ASC 805, “Business Combinations.” Goodwill represents the excess of the purchase price over the fair value of the tangible and intangible net assets acquired. Intangible assets are recorded at their fair value at the date of acquisition. Goodwill and other intangible assets are accounted for in accordance with ASC 350, “Goodwill and Other Intangible Assets.” Goodwill and other intangible assets are tested for impairment at least annually and any related impairment losses are recognized in earnings when identified. No impairment was recognized during the years ended June 30, 2023, and 2022. Intangible Assets The definite lived intangible assets consisted of the following as of June 30, 2023: 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 – 203,838 – 203,838 Software 5 years 1.6 years 423,762 347,228 76,534 Patents 10 years 7.0 years 59,975 21,108 38,867 Certifications & licenses 3 years 2.0 years 3,759,240 1,897,595 1,861,645 Total as of June 30, 2023 $ 4,465,212 2,284,328 2,180,884 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 2.0 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 years ended June 30, 2023, and 2022 was $ 839,595 and $ 579,012 , respectively. The amortization expenses of the definite lived intangible assets for the next five years and thereafter are as follows: Schedule of future amortization expense FY2024 FY2025 FY2026 FY2027 FY2028 Thereafter Total $ 954,166 $ 721,265 $ 263,918 $ 18,296 $ 11,148 $ 8,253 F- 14 Impairment of 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. We are not aware of any events or changes in circumstances during the year ended June 30, 2023, that would indicate that the long-lived assets are impaired. Stock-based Compensation The Company’s 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. Stock-based compensation is recognized on a straight-line basis over the award’s vesting period. The Company estimates 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. The measurement date of the fair value of the equity instrument issued is the earlier of the date on which the counterparty’s performance is complete or the date on which it is probable that performance will occur. Stock-based compensation costs are reflected in the accompanying consolidated statements of comprehensive (loss) income based upon the underlying recipients' roles within the Company. Income Taxes The Company uses 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. The Company assesses 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, the Company records 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. The Company classifies interest and penalties associated with such uncertain tax positions as a component of income tax expense. (Loss) Earnings per Share Attributable to Common Stockholders In accordance with ASC 260, “Earnings per share”, basic (loss) earnings per share are calculated by dividing the net (loss) income by the weighted-average number of common shares that were outstanding for the period, without consideration for potential common shares. Diluted (loss) earnings per share is calculated by dividing the net (loss) income 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. Diluted EPS excludes all dilutive potential common shares if their effect is anti-dilutive. F- 15 Concentrations of Credit Risk We extend credit to our customers and perform ongoing credit evaluations of such customers. We evaluate our accounts receivable on a regular basis for collectability and provide an allowance for potential credit losses as deemed necessary. 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 year ended June 30, 2023, net sales to our two largest customers represented approximately 61 % and 31 % of our consolidated net sales, respectively, and 27 % and 69 % of our accounts receivable balance as of June 30, 2023. For the year ended June 30, 2022, net sales to our two largest customers represented 70 % and 13 % of our consolidated net sales, respectively, and 0 % of our accounts receivable balance as of June 30, 2022. No other customer accounted for more than ten percent of total net sales. For the year ended June 30, 2023, we purchased the majority of our wireless data products from three manufacturing companies located in Asia. If they 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 our revenue. For the year ended June 30, 2023, we purchased wireless data products from these suppliers in the amount of $ 37,505,858 , or 99.6 % of total purchases, and had related accounts payable of $ 12,598,741 as of June 30, 2023. For the year ended June 30, 2022, we purchased wireless data products from our two suppliers in the amount of $ 22,319,313 , or 98.3 % of total purchases, and had related accounts payable of $ 7,409,273 as of June 30, 2022. 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. Recently Issued Accounting Pronouncements In September 2022, the FASB issued ASU No. 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50) . The ASU requires disclosure of the key terms of outstanding supplier finance programs and a rollforward of the related obligations. The ASU does not affect the recognition, measurement or financial statement presentation of supplier finance program obligations. The ASU is effective for annual and interim periods beginning after December 15, 2022, except for the rollforward requirement, which is effective for annual periods beginning after December 15, 2023. There was no impact to the consolidated financial statements. NOTE 3 - FAIR VALUE MEASUREMENTS Fair value accounting is applied for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis (at least annually). Assets and liabilities recorded at fair value in the financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels, which are directly related to the amount of subjectivity, associated with the inputs to the valuation of these assets or liabilities are as follows: · Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company can access at the measurement date. · Level 2 inputs are observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. · Level 3 inputs are unobservable inputs for the asset or liability. F- 16 The carrying values of the Company’s financial instruments, including cash and cash equivalents, short-term investments, accounts receivable, and accounts payable and debt, are calculated based on their approximate their fair values due to the short period of time to maturity or repayment. We invest our excess cash into financial instruments which management believes are readily convertible into cash, such as money market funds and certificates of deposit. NOTE 4 - PROPERTY AND EQUIPMENT Property and equipment consisted of the following as of: Schedule of property and equipment June 30, 2023 June 30, 2022 Machinery and Commercial Equipment $ 25,146 $ 67,848 Office equipment 233,608 312,785 Molds 479,466 575,552 Vehicle 15,513 15,513 753,733 971,698 Less accumulated depreciation ( 652,645 ) ( 865,746 ) Total $ 101,088 $ 105,952 Depreciation expense associated with property and equipment was $ 51,970 and $ 87,743 for the years ended June 30, 2023, and 2022, respectively, and is included in selling, general, and administrative expenses on the consolidated statements of comprehensive (loss) income. For the years ended June 30, 2023, and 2022, we have written off fully depreciated property and equipment in the amounts of $ 265,071 and $ 4,175 , respectively. NOTE 5 - ACCRUED LIABILITIES Accrued liabilities consist of the following as of: Schedule of accrued liabilities June 30, 2023 June 30, 2022 Accrued payroll deductions owed to government entities $ 52,923 $ 55,387 Accrued salaries and bonuses 375,000 – Accrued vacation 141,590 65,602 Accrued undelivered inventory – 140,000 Accrued commission for service providers 32,500 40,000 Accrued commission to a customer 247,592 288,306 Other accrued liabilities – 612 Total $ 849,605 $ 589,907 F- 17 NOTE 6 - INCOME TAXES Income tax benefit for the years ended June 30, 2023, and 2022 consists of the following: Schedule of income tax benefit Year Ended June 30, 2023 2022 Current income tax (benefit) expense: Federal $ 5,211 $ ( 127,998 ) State 975 975 Foreign ( 4,766 ) 49,843 Total Current income tax expense (benefit) 1,420 ( 77,180 ) Deferred income tax benefit: Federal ( 752,843 ) ( 876,513 ) State ( 6,155 ) ( 83,375 ) Foreign ( 129,081 ) – Total deferred income tax expense (benefit) ( 888,079 ) ( 959,888 ) Benefit for income taxes $ ( 886,659 ) $ ( 1,037,068 ) The benefit for income taxes reconciles to the amount computed by applying the effective federal statutory income tax rate to the income before provision for income taxes as follows: Schedule of effective income tax rate Year Ended June 30, 2023 2022 Federal income tax, at statutory rate of 21% applied to (loss) earnings before income taxes and extraordinary items $ ( 810,281 ) $ ( 982,130 ) State tax, net of federal tax benefit 15,082 ( 82,840 ) Nondeductible expenses 5,850 870 R&D credits ( 51,415 ) ( 46,643 ) Global intangible low-taxed income – 152,930 Foreign rate difference 4,743 ( 16,279 ) Others ( 50,638 ) ( 62,976 ) Change in valuation allowance – – Benefit for income taxes $ ( 886,659 ) $ ( 1,037,068 ) Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets are as follows: Schedule of deferred tax assets June 30, 2023 June 30, 2022 Deferred tax asset: Net operating losses $ 697,431 $ 737,258 State tax 205 – Lease accounting, net 1,359 4,299 Intangibles 735,680 156,334 Tax credits 191,544 202,958 Legal contingency expense reserve 504,000 – Inventory reserve 123,488 155,133 Other, net 104,044 145,679 Total deferred tax assets 2,357,751 1,401,661 Deferred tax liabilities: Deferred state taxes ( 49,787 ) ( 46,565 ) State tax – 205 Property and equipment, net ( 1,652 ) ( 7,865 ) Unrealized gain (loss) ( 70,797 ) – Total deferred tax liabilities ( 122,236 ) ( 54,225 ) Less valuation allowance – – Net deferred tax asset $ 2,235,515 $ 1,347,436 F- 18 Deferred income tax assets and liabilities are recorded for differences between the financial statement and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. We have evaluated the available evidence supporting the realization of our gross deferred tax assets, including the amount and timing of forecasted future taxable income. Management determined it is more likely than not that the federal deferred tax assets will be fully realized, and no valuation allowance is necessary as of June 30, 2023, or 2022. As of June 30, 2023, we have federal and state net operating loss carryforwards of approximately $ 2.5 million and $ 0.5 million , respectively. Under the Tax Cuts and Jobs Act, which was signed into law on December 22, 2017, the federal net operating loss of approximately $ 2.5 million , which was recognized on or after January 1, 2018, will carry forward indefinitely. There is $ 0 federal net operating loss, which was recognized on or before December 31, 2017. The state net operating loss of approximately $ 0.5 million will begin to expire through 2043. The utilization of net operating loss carryforwards may be subject to limitations under provisions of the Internal Revenue Code Section 382 and similar state provisions. We apply the provisions of ASC 740 related to accounting for uncertain tax positions, which prescribes a recognition threshold and measurement process for recording in the financial statements uncertain tax positions taken or expected to be taken in a tax return. Under this provision, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. Tax benefits of an uncertain tax position will not be recognized if it has less than a 50% likelihood of being sustained based on technical merits. A reconciliation of the beginning and ending balance of unrecognized tax benefits, which have been considered in the Company's computation of its deferred tax assets, is as follows: Schedule of unrecognized tax benefits Balance as of June 30, 2021 $ 335,259 Gross increase 29,789 Balance as of June 30, 2022 365,048 Gross increase 23,968 Balance as of June 30, 2023 $ 389,016 We do not anticipate any material change in the total amount of unrecognized tax benefits to occur within the next twelve months. ASC 740 requires us to accrue interest and penalties where there is an underpayment of taxes based on our best estimate of the amount ultimately to be paid. Our policy is to recognize interest accrued related to unrecognized tax benefits and penalties as income tax expense. We have not recorded any interest or penalties as the liability associated with the unrecognized tax benefits is immaterial. We are subject to taxation in the U.S., and various state and foreign jurisdictions. NOTE 7 – (LOSS) EARNINGS PER SHARE We report (loss) earnings per share in accordance with ASC 260, “Earnings Per Share.” Basic (loss) earnings per share are computed using the weighted average number of shares outstanding during the period. Diluted (loss) earnings per share represent basic earnings per share adjusted to include the potentially dilutive effect of outstanding stock options by using the treasury stock method that the proceeds we receive from an in-the-money option exercise are used towards repurchasing common shares in the market. F- 19 For the years ended June 30, 2023, and 2022, we were in a net loss position and have excluded 647,001 and 766,001 stock options from the calculation of diluted net loss per share because these securities are anti-dilutive. The weighted average number of shares outstanding used to compute loss per share is as follows: Schedule of earnings per share Year Ended June 30, 2023 2022 Net loss attributable to Parent Company $ ( 2,863,021 ) $ ( 3,762,848 ) Weighted-average shares of common stock outstanding: Basic 11,736,609 11,613,812 Dilutive effect of common stock equivalents arising from stock options – – Diluted Outstanding shares 11,736,609 11,613,812 Basic loss per share attributable to Parent Company stockholders $ ( 0.24 ) $ ( 0.32 ) Diluted loss per share attributable to Parent Company stockholders $ ( 0.24 ) $ ( 0.32 ) NOTE 8 - COMMITMENTS AND CONTINGENCIES Leases In February 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02 (Topic 842). Topic 842 amended several aspects of lease accounting, including requiring lessees to recognize leases with a term greater than one year as a right-of-use asset and corresponding liability, measured at the present value of the lease payments. In July 2018, the FASB issued supplemental adoption guidance and clarification to Topic 842 within ASU 2018-10 “Codification Improvements to Topic 842, Leases” and ASU 2018-11 “Leases (Topic 842): Targeted Improvements.” The new guidance aims to increase transparency and comparability among organizations by requiring lessees to recognize lease assets and lease liabilities on the balance sheet and requiring disclosure of key information about leasing arrangements. A modified retrospective application is required with an option to not restate comparative periods in the period of adoption. We adopted ASC 842 as of July 1, 2019. We had an operating lease principally for both Franklin Wireless Corp. and Franklin Technologies Inc., in accordance with ASC 842. Adoption of the standard resulted in the initial recognition of operating lease right-of-use (“ROU”) assets and operating lease liabilities of $ 1,501,203 and $ 1,507,367 , respectively, as of July 1, 2019, with the difference due to the existing lease liabilities of $6,164. We determine whether an arrangement contains a lease at inception. A lease is a contract that provides the right to control an identified asset for a period of time in exchange for consideration. Operating leases are recorded in the balance sheet as right-of-use asset (“ROU asset”) and operating lease obligation. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payment arising from the lease ROU assets and operating lease liabilities are recognized at the commencement date of the lease and measure based on the present value of lease payment over the lease term. The ROU asset also includes deferred rent liabilities. Our lease arrangement generally does not provide an implicit interest rate. As a result, in such situations, we use its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We include options to extend or terminate the lease when it is reasonably certain that it will exercise that option in the measurement of its ROU assets and liabilities. Lease expense for operating lease is recognized on a straight-line basis over the lease term. We are also electing not to apply the recognition requirements to short-term leases of twelve months or less and instead will recognize lease payments as expense on a straight-line basis over the lease term . F- 20 On September 9, 2015, we signed a lease for new office space consisting of approximately 12,775 square feet, located in San Diego, California, 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 at a monthly rent of $25,754, 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. 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 expired on August 31, 2023, and were extended by an additional twelve months to August 31, 2024. 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 that expired on September 4, 2023, and were extended by an additional twelve months to September 4, 2024. Short-term leases with initial terms of twelve months or less are not capitalized, and our leases of the South Korean offices and corporate housing facility have been considered as short-term lease. The components of lease expense and supplemental cash flow information related to leases for the years ended June 30, 2023, and 2022 are as follows: As of June 30, 2023, we used discount rates of 4.0 % in determining our operating lease liabilities for the office spaces in San Diego, California. This rate represented our incremental borrowing rates at that time. Short-term leases with initial terms of twelve months or less are not capitalized, and our lease of the South Korean offices has been considered as short-term lease. Our San Diego office lease was extension of previous lease and did not contain any further extension provisions. Rent expenses for the years ended June 30, 2023, and 2022 were $ 445,548 and $ 446,057 , respectively. In accordance with ASC 842, the components of the lease expense were as follows: Schedule of components of lease expense Years ended June 30, 2023 2022 Operating lease expense $ 309,053 $ 328,650 Short term lease cost 136,495 117,407 Total lease expense $ 445,548 $ 446,057 Remaining lease term-operating leases 0.5 year Discount rate-operating lease 4 % In accordance with ASC 842, maturity of operating lease liabilities as of June 30, 2023, was as follows: Schedule of future minimum rental payments for operating leases Payments due by June, 30 2024 Total Administrative office, San Diego, CA $ 160,965 $ 160,965 Total Obligations $ 160,965 $ 160,965 F- 21 Schedule of future minimum rental payments for operating leases Operating Leases Fiscal 2024 $ 160,965 Total lease payments 160,965 Less imputed interest ( 1,861 ) Total $ 159,104 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 was 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 import the devices and supply 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 with Verizon arising from the recall and have not been served with any legal action by Verizon 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. 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 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 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 we 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 June 30, 2023, there is a reasonable possibility we may incur a loss; however, the amount is not estimable at this time. On January 25, 2021, we commenced legal action against Anydata and its principal officers in San Diego Superior Court, case number 37-2021-00003468-CU-BC-CTL. Subsequent to June 30, 2023, a confidential settlement has been reached between the parties for an immaterial amount and as of the date of this report, the action is expected to be dismissed within the next 30 days. F- 22 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 Verizon recall was likely and that we did not disclose that information to investors in a timely manner. The Class and Defendants have executed a Stipulation and Agreement of Settlement under which the Class releases all claims against Defendants in exchange for a payment by Defendants of $ 2.4 million (the “Settlement Amount”), which is reflected in liabilities under “accrued legal contingency expense” with a corresponding charge to “loss from a legal contingency”. The Class has submitted a motion for preliminary approval of the settlement, which the Court has not yet ruled on. If and when the Court grants preliminary approval of the Settlement, Defendants will be required to deposit the Settlement Amount into an escrow account established to administer the Settlement. Harwood / Martin A legal action was filed in the U.S. District Court, Southern District of California (San Diego) against Franklin, as a nominal defendant, by Stephen Harwood, derivatively on behalf of nominal defendant Franklin Wireless Corp. v. O.C. Kim, et al., Case #21cv01837-AJB-MSB, on or about October 29, 2021, claiming among other things, that we had prior knowledge that the recall was likely and that we did not disclose that information to investors in a timely manner. We believe these allegations are not supported by the facts and we will vigorously defend against such claims. A legal action was filed in the U.S. District Court, Southern District of California (San Diego) against Franklin, as a nominal defendant, by Debra Martin, derivatively on behalf of nominal defendant Franklin Wireless Corp. v. O.C. Kim, et al., Case #21cv2091-AJB-MSB, on or about December 15, 2021, claiming among other things, that we had prior knowledge that the recall was likely and that we did not disclose that information to investors in a timely manner. We believe these allegations are not supported by the facts and we will vigorously defend against such claims. The Harwood and Martin actions have been consolidated into a single action in the U.S. District Court, Southern District of California (San Diego) titled “In re Franklin Wireless Corp. Derivative Litigation”, Case No.: 21cv1837-AJB (MSB). 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. O.C. Kim, et al., Case # CV22-00471, on or about March 21, 2022, claiming among other things, that we had prior knowledge that the recall was likely and that we did not disclose that information to investors in a timely manner. 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-RSH-JLB, on or about July 22, 2021, claiming that our Chief Executive Officer, O.C. Kim, violated Section 16(b) of the Securities Exchange Act of 1934 for receiving “short-swing” profits from a sale and purchase of Franklin shares, in violation of that Act. 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. F- 23 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. The Change in Control Agreements, dated October 1, 2020, have been extended through September 30, 2024. Severance Agreement 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 $125,000 for each calendar quarter during the remaining four year term of the employment letter, with the first such bonus due on December 31, 2022. Loan Agreement with Subsidiary On March 21, 2022, Franklin Wireless Corp. (the “Company”) entered into a Loan Agreement with Franklin Technology Incorporation, a Republic of Korea corporation (“FTI”), under which the Company agreed to loan US$ 10,000,000 to FTI. The Company owns a majority of the outstanding equity of FTI. FTI’s primary business is providing design and development services to the Company for our wireless products. As part of the loan transaction, FTI delivered a $10 million Promissory Note to the Company (the “Note”). The purpose of the loan is to allow FTI to purchase a facility in South Korea to house its operations, and to provide it with additional working capital. The purchase of such a facility with the loan proceeds is subject to the Company’s reasonable approval. Upon acquisition of the facility, FTI is required to grant the Company a mortgage on it to secure payment of the Note. The Note is for a term of five years, provides for annual payments of interest at 2% per annum, and is due and payable upon maturity. The Note and Loan Agreement include customary provisions for default and acceleration upon default, and a default interest rate of 7% per annum. F- 24 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. 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. Compensation costs will be recognized over the period that an employee provides service in exchange for the award, i.e. the vesting period. 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, which covers 800,000 shares of Common Stock. The 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 $ 710,870 and $ 545,841 compensation expenses recorded under this method for the years ended June 30, 2023, and 2022, respectively. F- 25 A summary of the status of our stock options is presented below: Schedule of stock option activity Options Shares Weighted- Average Exercise Price Weighted- Average Remaining Contractual Life (In Years) Aggregate Intrinsic Value Outstanding as of June 30, 2021 484,000 $ 3.67 2.83 $ 2,662,830 Granted 388,000 3.38 – – Exercised ( 93,999 ) 0.80 – – Forfeited or expired ( 12,000 ) 5.40 – – Outstanding as of June 30, 2022 766,001 $ 3.85 3.37 $ 183,270 Granted – – – – Exercised ( 100,000 ) 1.34 – – Forfeited or expired ( 19,000 ) 5.40 – – Outstanding as of June 30, 2023 647,001 $ 4.24 2.88 $ 130,200 Exercisable as of June 30, 2023 457,577 $ 4.58 2.63 $ 65,219 The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based upon the Company’s closing stock price of $3.73 as of June 30, 2023, which would have been received by the option holders had all option holders exercised their options as of that date. The weighted-average grant-date fair value of stock options outstanding as of June 30, 2023, in the amount of 647,001 shares was $ 3.34 per share. As of June 30, 2023, there was unrecognized compensation cost of $ 542,807 related to non-vested stock options granted. NOTE 10 – STOCKHOLDERS’ EQUITY Common Stock We have been authorized to issue 50,000,000 shares of common stock, $ 0.001 par value. Each share of issued and outstanding common stock shall entitle the holder thereof to fully participate in all shareholder meetings, to cast one vote on each matter with respect to which shareholders have the right to vote, and to share ratably in all dividends and other distributions declared and paid with respect to common stock, as well as in the net assets of the corporation upon liquidation or dissolution. On December 22, 2022, we issued 100,000 common shares in conjunction with stock-based compensation awards. There were 11,784,280 and 11,684,280 shares issued and outstanding as of June 30, 2023, and 2022, respectively. F- 26 Preferred Stock We have been authorized to issue 10,000,000 shares of preferred stock. $0.001 0.001 par value, but no preferred stock is issued and outstanding as of June 30, 2023 and 2022. Treasury Stock We had 2,549,208 shares of treasury stock, valued at $ 3,554,893 (based on the costs that we agreed to repurchase) as of June 30, 2023 and 2022. NOTE 11 – RELATED PARTY TRANSACTIONS For the years ended June 30, 2023, and 2022, there have not been any transactions, except as disclosed in Note 8, entered into or been a participant in which a related person had or will have a direct or indirect material interest. NOTE 12 - SUBSEQUENT EVENTS The FASB issued ASC 855, “Subsequent Events.” ASC 855 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The Company has evaluated all events or transactions that occurred after June 30, 2023, up through the date the financial statements were available to be issued. During these periods, the Company did not have any material recognizable subsequent events required to be disclosed to the financial statements as of September 28, 2023. F- 27