Franklin Wireless(FKWL) - 2024 Q1 - Quarterly Report

Financial Performance - Net sales for North America reached $9,655,546 for the three months ended September 30, 2023, a 19.1% increase from $8,107,451 in the same period of 2022[39] - Total net sales for the company were $9,655,546 for the three months ended September 30, 2023, compared to $8,108,940 for the same period in 2022, reflecting an increase of 19.1%[39] - Gross profit decreased to $1,513,160, down 5.0% from $1,593,862 in the prior year[119] - Operating expenses totaled $2,097,677, a decrease of 5.1% from $2,209,755 in the same quarter last year[119] - Net loss attributable to Parent Company was $257,696, significantly improved from a net loss of $1,126,991 in the prior year, representing a reduction of 77.1%[119] - Loss per share attributable to Parent Company stockholders improved to $(0.02) from $(0.10) year-over-year[119] - Interest income increased to $254,015, compared to $60,062 in the same quarter of the previous year, reflecting a significant rise[119] - Total other income (expense), net, was $197,256, a substantial improvement from a loss of $(914,060) in the prior year[119] Accounts and Liabilities - Accounts receivable increased to $9,921,362 as of September 30, 2023, up from $8,949,802 as of June 30, 2023[54] - Contract liabilities for undelivered products rose to $227,455 as of September 30, 2023, compared to $146,488 as of June 30, 2023[54] - Total accrued liabilities as of September 30, 2023, amounted to $989,697, an increase of 16.5% from $849,605 as of June 30, 2023[92] - Accrued salaries and bonuses increased to $500,000 from $375,000, reflecting a 33.3% rise[92] - Inventory reserves for obsolete or slow-moving inventories were recorded at $585,274[67] Research and Development - Research and development costs for the three months ended September 30, 2023, were $866,955, down 10.7% from $970,120 in the same period of 2022[64] - For the three months ended September 30, 2023, capitalized product development costs incurred were $22,500, a decrease of 95.4% compared to $493,250 for the same period in 2022[60] - Capitalized product development costs in progress were $131,588 as of September 30, 2023, down from $203,838 as of June 30, 2023, a decrease of 35.4%[60] Legal Matters - The company is involved in ongoing legal proceedings, including a shareholder action with a potential settlement amount of $2.4 million[111] - The company has not recorded any liability for the litigation as it believes that any such liability is not probable and reasonably estimable at this time[116] Assets and Intangibles - Long-lived assets decreased to $2,050,591 as of September 30, 2023, from $2,281,972 as of June 30, 2023[39] - Total definite lived intangible assets as of September 30, 2023, amounted to $4,487,712, with net intangible assets of $1,958,466 after accumulated amortization[89] - As of September 30, 2023, total net intangible assets amounted to $1,958,466, an increase from $2,180,884 as of June 30, 2023, reflecting a decrease of approximately 10.1%[89] Sales Concentration - Sales to the two largest customers accounted for 91% of consolidated net sales for the three months ended September 30, 2023[81] - The company purchased wireless data products from one manufacturing company in Asia for $6,361,553, representing 99.8% of total purchases for the three months ended September 30, 2023[82] Lease and Rent Expenses - Rent expense for the office space in San Diego was $77,263 for the three months ended September 30, 2023, unchanged from the same period in 2022[95] - Total lease expense for the three months ended September 30, 2023, was $111,417, a slight increase from $111,293 in 2022[100] - The company has a total lease payment of $80,483 for fiscal 2024, with imputed interest of $534, resulting in a total of $79,949[100] - The company’s Korea-based subsidiary has extended its office leases by an additional twelve months to August 31, 2024[96] Accounting Changes - The company adopted the current expected credit loss (CECL) methodology on July 1, 2023, and did not record any reserve for unfunded commitments and doubtful accounts as of September 30, 2023[43] - The company has adopted ASC 842 for lease accounting, impacting the recognition of operating leases on the balance sheet[93] - The Company adopted ASU 2016-13 on July 1, 2023, which changes the methodology for measuring credit losses to the current expected credit loss (CECL) methodology[43] Other Information - The company is currently unable to estimate the financial impact of the Verizon Jetpack recall on future operations[110] - The company believes its products are currently exempt from international tariffs, which could otherwise impose a 10%-25% tariff on sales[131] - The Company did not have any material recognizable subsequent events required to be disclosed to the financial statements as of November 14, 2023[142] - The carrying amounts of financial instruments such as cash equivalents and accounts receivable approximate their fair values due to short-term maturities[40]