Franklin Wireless Corp. (FKWL) is a leading provider of integrated wireless solutions, offering a range of products including mobile hotspots, routers, fixed wireless routers, and various trackers. The company has majority ownership of Franklin Technology Inc. (FTI), a research and development company based in Seoul, South Korea, which primarily provides design and development services for Franklin Wireless' products.

Business Overview

Franklin Wireless' products are generally marketed and sold directly to wireless operators and indirectly through strategic partners and distributors. The company's global customer base primarily extends from North America to Asia. Franklin Wireless' integrated software subscription services provide users with remote capabilities, including mobile device management (MDM) and software-defined wide area networking (SD-WAN).

Financial Performance

For the fiscal year ended June 30, 2023, Franklin Wireless reported annual revenue of $45,948,516, a decrease from the prior year. The company's annual net income was -$2,863,021, and its annual operating cash flow and free cash flow were -$1,882,114 and -$3,599,643, respectively.

In the most recent quarter ended March 31, 2024, the company's net sales decreased by 47.9% to $6,176,499, compared to $11,851,971 in the same period of the prior year. This decline was primarily due to a significant decrease in sales to one of the company's major carrier customers, which was partially offset by increased sales to another major carrier customer.

Gross profit for the three months ended March 31, 2024, decreased by 74.7% to $517,449, with the gross profit margin declining from 17.3% in the prior-year period to 8.4%. The decrease in gross profit margin was mainly attributable to the competitive selling prices and increased production costs, as well as higher amortization expenses associated with the company's capitalized product development costs.

Operating expenses for the three-month period ended March 31, 2024, decreased by 17.6% to $2,072,617, primarily due to lower compensation expenses related to stock options granted to employees. Research and development expenses decreased by 22.9% to $811,470, reflecting the timing of research and development activities and the number of active projects.

Geographic Breakdown

For the nine months ended March 31, 2024, net sales in North America accounted for 99.6% of the company's total revenue, while Asia contributed 0.4%. Net sales in North America decreased by 14.6% compared to the same period in the prior year, primarily due to decreased demand from the company's two largest major carrier customers. Net sales in Asia decreased by 41.9% during the same period, mainly due to lower demand for a newly launched wireless product from a customer in the region.

Liquidity and Capital Resources

As of March 31, 2024, Franklin Wireless had cash and cash equivalents, as well as short-term investments, totaling $31,737,201, which the company believes is sufficient to cover its existing operations and obligations for at least the next 12 months. The company's principal source of liquidity consists of this cash and short-term investment position.

Risks and Challenges

Franklin Wireless faces several risks and challenges, including the potential impact of international tariffs on its products, customer concentration risk, and the ongoing legal proceedings related to the Verizon Jetpack recall. The company is also subject to the risks associated with the highly competitive wireless data products market and the need to continuously develop and introduce new products to meet customer demands.

Outlook and Guidance

The company has not provided any specific financial guidance for the upcoming fiscal year. However, management has indicated that it is constantly evaluating opportunities to increase shareholder value, both based on internal initiatives and in response to suggestions from shareholders and others.

Conclusion

Franklin Wireless has faced headwinds in recent quarters, with declining revenue and profitability. The company's gross profit margin has been impacted by competitive pricing pressures and increased production costs, while operating expenses have also remained elevated. Despite these challenges, Franklin Wireless maintains a solid liquidity position, with a significant cash and short-term investment balance that should provide the company with the resources to navigate the current market environment. Investors will be closely watching the company's ability to adapt to the changing market dynamics and develop new products that can drive future growth and profitability.

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