FRANKLIN WIRELESS CORP
For the period ended Sep 30, 2024. Filed Nov 14, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Nov 14, 2024
FKWL$2.11-5.4%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-15.
0001683168-24-003524
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-11-14.
0001683168-24-008127
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 48 previous paragraphs and 44 current paragraphs.
16 unchanged; 16 reworded; 10 added; 15 removed; 1 previous and 2 current paragraphs rearranged.
Tables are not compared: 1 previous and 1 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (10)
Current report
We continuously evaluate the performance of our hardware and software products to discover defects that can adversely affect our revenue, income, and the price of our stock. If defects occur that customers believe are either severe in nature or excessively frequent in occurrence, customers could stop buying our products and services and the value of our stock may decrease.
Current report
We are also seeing that demand from end-users has been shifting in the post-pandemic economy as remote education and work from home trends are declining. Current demand for mobile device management (MDM) services has been declining. We are working to improve and further enhance our software service offerings to address this change in the market.
Current report
Net sales in North America increased by $3,666,902, or 38.0%, to $13,322,448 for the three months ended September 30, 2024 from $9,655,546 for the corresponding period of 2023. The increase in net sales in North America was primarily due to the increased sales of approximately $6.4M for our two wireless products from two major carrier customers for the three months ended September 30, 2024, which was partially offset by the decreased sales of one wireless product by approximately $2.7M, compared to the corresponding period of 2023. Net sales in Asia increased by $464, or 100%, to $464 for the three months ended September 30, 2024 from $0 for the corresponding period of 2023.
Current report
**GROSS PROFIT -**Gross profit increased by $558,342, or 36.9%, to $2,071,502 for the three months ended September 30, 2024 from $1,513,160 for the corresponding period of 2023. The gross profit in terms of net sales percentage was 15.5% for the three months ended September 30, 2024 compared to 15.7% for the corresponding period of 2023.
Current report
Selling, general, and administrative expenses increased by $189,251, or 15.4%, to $1,419,973 for the three months ended September 30, 2024, from $1,230,722 for the corresponding period of 2023. The increase in selling, general, and administrative expenses was primarily due to the increased legal expenses and payroll expenses of approximately $74,000 and $70,000, respectively.
Current report
Research and development expense increased by $157,357, or 18.2%, to $1,024,312 for the three months ended September 30, 2024, from $866,955 for the corresponding period of 2023. The increase in research and development expense was primarily due to the increased sample generations to test new products of approximately $150,000, which typically vary from period to period.
Current report
The $334,785 in net cash used in financial activities for the three months ended September 30, 2024 was from the purchased short-term investments of $291,869 and the payments for property and equipment of $21,544, respectively.
Current report
The $98,759 in net cash used in investing activities for the three months ended September 30, 2023 was primarily due to the increased short-term investments of $73,832 and the payments for capitalized product development of $22,500.
Current report
FINANCING ACTIVITIES - Net cash used in financing activities for the three months ended September 30, 2024, and 2023 was $0 and $1,023, respectively. The $1,023 in net cash used in financial activities for the three months ended September 30, 2023 was from the increased loan interest to an employee.
Current report
Rent expenses for the three months ended September 30, 2024, and 2023 were $112,757 and $111,417, respectively.
Removed paragraphs (15)
Previous report
The Company is constantly evaluating opportunities to increase shareholder value, both based on internal initiatives and in response to suggestions from shareholders and others.
Previous report
There is always a risk of disputes and disagreements with our business partners and suppliers, and the costs associated with enforcing our rights in those matters could negatively impact operating capital and reserves.
Previous report
Net sales in North America decreased by $5,546,567, or 47.3%, to $6,174,327 for the three months ended March 31, 2024 from $11,720,894 for the corresponding period of 2023. The decrease in net sales in North America was primarily due to the lack of sales to one major carrier (which was the largest customer, approximately 52% of the total sales for the three months ended March 31, 2023), which was offset by the increased sales of approximately $1.7M to another major carrier customer. Net sales in Asia decreased by $128,905, or 98.3%, to $2,172 for the three months ended March 31, 2024 from $131,077 for the corresponding period of 2023. The decrease in net sales was primarily due to the lack of the demand for one newly launched wireless product from a customer (approximately $160,000) from FTI.
Previous report
**GROSS PROFIT -**Gross profit decreased by $1,528,061, or 74.7%, to $517,449 for the three months ended March 31, 2024 from $2,045,510 for the corresponding period of 2023. The gross profit in terms of net sales percentage was 8.4% for the three months ended March 31, 2024 compared to 17.3% for the corresponding period of 2023. The decrease in gross profit in terms of net sales percentage for the three months ended March 31, 2024, was primarily due to that a significant portion of the total sales, approximately 96%, was derived from a major carrier customer with a competitive selling price and production costs (approximately gross profit in terms of net sales in percentage of 10%), and the amortization expenses associated with the completed capitalized product development costs that are included in the cost of goods sold.
Previous report
Selling, general, and administrative expenses decreased by $202,286 to $1,261,147 for the three months ended March 31, 2024, from $1,463,433 for the corresponding period of 2023. The decrease in operating expenses was primarily due to the decreased compensation expenses related to stock options granted to employees. Research and development expense decreased by $241,202 to $811,470 for the three months ended March 31, 2024, from $1,052,672 for the corresponding period of 2023. The decrease in research and development expense was primarily due to the decreased research and development costs and the related payroll expense of approximately $125,000 and $116,000, respectively, which is the mixed result of the timing of research and development activities and the number of active projects and typically vary from period to period.
Previous report
OTHER INCOME (LOSS), NET - Other income (loss), net decreased by $171,486, or 165.6%, to $67,916 for the three months ended March 31, 2024 from $103,570 for the corresponding period of 2023. The decrease was primarily due to the decreased gain from the forgiven liability of approximately $190,000 and the increased loss from the unfavorable changes in foreign currency exchange rates of approximately $167,000, which was partially offset by the increased unrealized gain from an investment account of approximately $196,000.
Previous report
NINE MONTHS ENDED MARCH 31, 2024 COMPARED TO NINE MONTHS ENDED MARCH 31, 2023
Previous report
Net sales in North America decreased by $4,195,155, or 14.6%, to $24,583,324 for the nine months ended March 31, 2024 from $28,778,479 for the corresponding period of 2023. The decrease in net sales in North America was primarily due to the decreased demands from our two largest major carrier customers by approximately $4M for our wireless products compared to the corresponding period of 2023. Net sales in Asia decreased by $69,575, or 41.9%, to $96,500 for the nine months ended March 31, 2024 from $166,075 for the corresponding period of 2023. The decrease in net sales in Asia was primarily due to the decreased demand by approximately $98,000 for one newly launched wireless product from a customer by FTI compared to the corresponding period of 2023.
Previous report
OPERATING EXPENSES - Operating expenses decreased by $474,932, or 6.7%, to $6,563,310 for the nine months ended March 31, 2024 from $7,038,242 for the corresponding period of 2023.
Previous report
Selling, general, and administrative expenses decreased by $7,004 to $4,032,031 for the nine months ended March 31, 2024, from $4,039,035 for the corresponding period of 2023. The decrease in selling, general, and administrative expenses was primarily due to the decreased compensation expenses related to stock options granted to employees of approximately $320,000, which was offset by the increased operating lease expense and legal fees of approximately $150,000 and 135,000, respectively. Research and development expense decreased by $467,928 to $2,531,279 for the nine months ended March 31, 2024, from $2,999,207 for the corresponding period of 2023. The decrease in research and development expense was primarily due to the decreased research and development costs and the related payroll expense of approximately $280,000 and $188,000, respectively, which is the mixed result of the timing of research and development activities and the number of active projects and typically vary from period to period.
Previous report
The $1,815,796 in net cash provided by investing activities for nine months ended March 31, 2024 was primarily due to the sales of short-term investments of $1,995,606, which was partially offset by payments for purchase of capitalized product development of $121,708 and purchase of property and equipment of $53,017. The $1,731,707 in net cash used in investing activities for nine months ended March 31, 2023 was primarily due to the payments for purchase of capitalized product development of $1,601,998 and purchase of short-term investments of $71,927.
Previous report
FINANCING ACTIVITIES - Net cash provided by financing activities for the nine months ended March 31, 2024 and 2023 was $1,045 and $43,955, respectively.
Previous report
The $1,045 in net cash provided by financing activities for the nine months ended March 31, 2024 was due to the increase in loan to an employee of $1,045. The $43,955 in net cash provided by financing activities for the nine months ended March 31, 2023 was from cash received from exercise of stock options of $134,000, which was partially offset by the increase in loan to an employee of $90,045.
Previous report
On or about December 7, 2023, we received an invoice from our prior landlord, Hunsaker & Associates, requesting payment of additional rent on our completed and expired lease of office space located at 9707 Waples Street, San Diego, CA as of December 31, 2023. This invoice purports to represent charges for variable cost increases during the prior 7 years of the lease. We are currently reviewing these charges and will be requesting further validation of these charges, in accordance with our rights granted under the lease. For the three months ended December 31, 2023, we recorded an additional rent expense reflecting this pending invoice of $142,978 and a credit of $24,656 for our deposit on the leasehold property.
Previous report
Rent expense for the three months ended March 31, 2024 and 2023 was $117,486 and $111,469, respectively. Rent expense for the nine months ended March 31, 2024 and 2023 was $483,305 and $334,146, respectively.
Reworded paragraphs (16)
Previous wording
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).
Current wording
Doing business as “FranklinAccess”, we are a leading global provider of integrated wireless solutions utilizing the latest 5G (fifth generation) and 4G LTE (fourth generation long-term evolution) technologies including mobile hotspots, fixed wireless routers, and mobile device management (MDM) solutions. We are a leading enabler of the Digital Divide initiative, and our expertise extends to innovation in Internet of Things (IOT) and machine-to-machine (M2M) applications, driving forward seamless communication and connectivity for both individuals and enterprises.
Previous wording
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.
Current wording
Our products are generally marketed and sold directly to wireless operators and indirectly through strategic partners and distributors. Our primary markets are in North America and Asia.
Previous wording
We believe that our revenue growth will be influenced largely by (1) the successful maintenance of our existing customers, (2) the rate of increase in demand for wireless data products, (3) customer acceptance of our new products, (4) new customer relationships and contracts, and (5) our ability to meet customers’ demands.
Current wording
We believe that our revenue growth will be influenced largely by (1) the successful maintenance of our existing customers, (2) the rate of increase in demand for wireless data products, (3) customer acceptance of our new products, (4) new customer relationships and contracts, (5) our ability to meet customers’ demands, (6) our ability to maintain good relationships with our manufacturing partners and suppliers, and (7) the defect rates experienced by end users of our hardware and software products.
Previous wording
We have several critical accounting policies, which were described in our Annual Report on Form 10-K for the year ended June 30, 2023, that are both important to the portrayal of our financial condition and results of operations and require management’s most difficult, subjective, and complex judgments. Typically, the circumstances that make these judgments difficult, subjective, and complex have to do with making estimates about the effect of matters that are inherently uncertain. There were no material changes to our critical accounting policies for the three and nine months ended March 31, 2024.
Current wording
We have several critical accounting policies, which were described in our Annual Report on Form 10-K for the year ended June 30, 2024, that are both important to the portrayal of our financial condition and results of operations and require management’s most difficult, subjective, and complex judgments. Typically, the circumstances that make these judgments difficult, subjective, and complex have to do with making estimates about the effect of matters that are inherently uncertain. There were no material changes to our critical accounting policies for the three months ended September 30, 2024.
Previous wording
The following table sets forth, for the three and nine months ended March 31, 2024 and 2023, our statements of comprehensive (loss) income (unaudited) including data expressed as a percentage of sales:
Current wording
The following table sets forth, for the three months ended September 30, 2024 and 2023, our statements of comprehensive income (loss) including data expressed as a percentage of sales:
Previous wording
NET SALES - Net sales decreased by $5,675,472, or 47.9%, to $6,176,499 for the three months ended March 31, 2024 from $11,851,971 for the corresponding period of 2023. For the three months ended March 31, 2024, net sales by geographic regions, consisting of North America and Asia, were $6,174,327 (100.0% of net sales) and $2,172 (0.0%), respectively. For the three months ended March 31, 2023, net sales by geographic regions, consisting of North America and Asia, were $11,720,894 (98.9% of net sales) and $131,077 (1.1%), respectively.
Current wording
NET SALES - Net sales increased by $3,667,366, or 38.0%, to $13,322,912 for the three months ended September 30, 2024 from $9,655,546 for the corresponding period of 2023. For the three months ended September 30, 2024, net sales by geographic regions, consisting of North America and Asia, were $13,322,448 (100.0% of net sales) and $464 (0.0% of net sales), respectively. For the three months ended September 30, 2023, net sales by geographic regions, consisting of North America and Asia, were $9,655,546 (100.0% of net sales) and $0 (0.0% of net sales), respectively.
Previous wording
**GROSS PROFIT -**Gross profit decreased by $1,717,730, or 37.5%, to $2,867,684 for the nine months ended March 31, 2024 from $4,585,414 for the corresponding period of 2023. The gross profit in terms of net sales percentage was 11.6% for the nine months ended March 31, 2024 compared to 15.8% for the corresponding period of 2023. The decrease in gross profit was primarily due to the change in net sales as described above. The decrease in gross profit in terms of net sales percentage for the nine months ended March 31, 2024, was primarily due to the mixed results of competitive selling prices and the increase in production costs as well as the increased amortization expenses associated with the completed capitalized product development costs that are included in the cost of goods sold compared to the corresponding period of 2023.
Current wording
The increase in gross profit was primarily due to the change in net sales as described above. The decrease in gross profit margin in terms of net sales was primarily driven by a decline in the proportion of high-margin sales while overall sales increased for the three months ended September 30, 2024 compared to the corresponding period of 2023.
Previous wording
OPERATING EXPENSES - Operating expenses decreased by $443,488, or 17.6%, to $2,072,617 for the three months ended March 31, 2024 from $2,516,105 for the corresponding period of 2023.
Current wording
OPERATING EXPENSES - Operating expenses increased by $346,608, or 16.5%, to $2,444,285 for the three months ended September 30, 2024 from $2,097,677 for the corresponding period of 2023.
Previous wording
OTHER INCOME, NET - Other income, net increased by $229,540, or 38.8%, to $820,465 for the nine months ended March 31, 2024 from $590,925 for the corresponding period of 2023. The increase was primarily due to the increased interest income of approximately $280,000 and the increased unrealized gain from an investment account of approximately $261,000, which was offset by the decreased gain from the forgiven liability of approximately $190,000 and the loss from the unfavorable changes in foreign currency exchange rates of approximately $143,000.
Current wording
TOTAL OTHER INCOME, NET - Other income, net increased by $872,063, or 442.1%, to $1,069,319 for the three months ended September 30, 2024 from $197,256 for the corresponding period of 2023. The increase was primarily due to the favorable changes in foreign currency and the gain from the appreciation on the currency exchange rates in FTI of approximately $650,000 and the forgiven accrued commission from a customer of approximately $250,000.
Previous wording
Our historical operating results, capital resources and financial position, in combination with current projections and estimates, were considered in management's plan and intentions to fund our operations over a reasonable period of time, which we define as the twelve-month period ending from the date of the filing of this Form 10-Q. For the purposes of liquidity disclosures, we assess the likelihood that we have sufficient available working capital and other principal sources of liquidity to fund our operating activities and obligations as they become due.
Current wording
Our historical operating results, capital resources and financial position, in combination with current projections and estimates, were considered in management's plan and intentions to fund our operations over a reasonable period of time, which we define as the twelve-month period ending from the date of the filing of this Form 10-Q. For purposes of liquidity disclosures, we assess the likelihood that we have sufficient available working capital and other principal sources of liquidity to fund our operating activities and obligations as they become due.
Previous wording
Our principal source of liquidity as of March 31, 2024 consisted of cash and cash equivalents as well as short-term investments of $31,737,201. We believe we have sufficient available capital to cover our existing operations and obligations through at least one year from the date of the filing of this Form 10-Q. Our long-term future cash requirements will depend on numerous factors, including our revenue base, profit margins, product development activities, market acceptance of our products, future expansion plans and ability to control costs. If we are unable to achieve our current business plan or secure additional funding that may be required, we would need to curtail our operations or take other similar actions outside the ordinary course of business in order to continue to operate as a going concern.
Current wording
Our principal source of liquidity as of September 30, 2024 consisted of cash and cash equivalents, as well as short-term investments, of $40,678,153. We believe we have sufficient available capital to cover our existing operations and obligations through at least one year from the date of the filing of this Form 10-Q. Our long-term future cash requirements will depend on numerous factors, including our revenue base, profit margins, product development activities, market acceptance of our products, future expansion plans and ability to control costs. If we are unable to achieve our current business plan or secure additional funding that may be required, we would need to curtail our operations or take other similar actions outside the ordinary course of business in order to continue to operate as a going concern.
Previous wording
OPERATING ACTIVITIES - Net cash used in operating activities for the nine months ended March 31, 2024 and 2023 was $6,972,515 and $6,954,199, respectively.
Current wording
OPERATING ACTIVITIES - Net cash provided by operating activities for the three months ended September 30, 2024 was $2,670,900, and net cash used in operating activities for the three months ended September 30, 2023 was $5,223,316.
Previous wording
The $6,972,515 in net cash used in operating activities for the nine months ended March 31, 2024 was primarily due to the decrease in accounts payable of $6,668,572 as well as our operating results (net loss of $2,297,180 adjusted for depreciation, amortization, and other non-cash charges), which was partially offset by a decrease in inventories of $2,605,602. The $6,954,199 in net cash used in operating activities for the nine months ended March 31, 2023 was primarily due to the increase in accounts receivable of $5,895,731 and inventories of $1,713,431 as well as our operating results (net loss of $1,298,722 adjusted for depreciation, amortization, and other non-cash charges), which was partially offset by an increase in accounts payable of $1,214,246.
Current wording
The $5,223,316 in net cash used in operating activities for the three months ended September 30, 2023 was primarily due to the decrease in accounts payable of $5,800,795 and the increase of accounts receivable of $978,093 of as well as our operating results (net loss adjusted for depreciation, amortization, and other non-cash charges), which was partially offset by the decrease in inventory of $1,479,279.
Previous wording
INVESTING ACTIVITIES - Net cash provided by investing activities for the nine months ended March 31, 2024 was $1,815,796, and net cash used in investing activities for the nine months ended March 31, 2023 was $1,731,707.
Current wording
INVESTING ACTIVITIES – Net cash used in investing activities for the three months ended September 30, 2024, and 2023 was $334,785 and $98,759, respectively.
Previous wording
We leased approximately 12,775 square feet of office space in San Diego, California, at a monthly rent of $25,754, pursuant to a lease that expired in December 2023. On October 19, 2023, we signed a lease for office space consisting of approximately 11,400 square feet, located in San Diego, California, at a monthly rent of $23,370, which commenced on January 1, 2024. In addition to monthly rent, the lease includes payment for certain common area costs. The term of the lease for the office space is 65 months from the lease commencement date. 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.
Current wording
We lease approximately 11,400 square feet of office space in San Diego, California, at a monthly rent of $27,789, which commenced on January 1, 2024. This lease will expire on May 31, 2029. In addition to monthly rent, the lease includes payment for certain common area costs. Our facility is covered by an appropriate level of insurance, and we believe it to be suitable for our use and adequate for our present needs.
Previous wording
Our Korea-based subsidiary, FTI, leases approximately 10,000 square feet of office space, at a monthly rent of approximately $8,000, and additional office space consisting of approximately 2,682 square feet at a monthly rent of approximately $2,700, both located in Seoul, Korea. These leases will expire on August 31, 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 will expire on September 4, 2024.
Current wording
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, South Korea. These leases expired on August 31, 2024, and were extended for an additional 24 months to August 31, 2026. 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.
Rearranged current paragraphs (2)
Current report — wording carried from elsewhere
The $2,670,900 in net cash provided by operating activities for the three months ended September 30, 2024 was primarily due to the increase in accounts payable of $3,550,907 as well as our operating results (net income adjusted for depreciation, amortization, and other non-cash charges), which was partially offset by the increase of inventories of $1,127,477
Current report — wording carried from elsewhere
We lease one corporate housing facility, located in Seoul, South Korea, primarily for our employees who travel, under a non-cancelable operating lease that expires on September 4, 2025.
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
NET SALES - Net sales decreased by $4,264,730, or 14.7%, to $24,679,824 for the nine months ended March 31, 2024 from $28,944,554 for the corresponding period of 2023. For the nine months ended March 31, 2024, net sales by geographic regions, consisting of North America and Asia, were $24,583,324 (99.6% of net sales) and $96,500 (0.4% of net sales), respectively. For the nine months ended March 31, 2023, net sales by geographic regions, consisting of North America and Asia, were $28,778,479 (99.4% of net sales) and $166,075 (0.6% of net sales), respectively.