Franklin Wireless(FKWL) - 2024 Q3 - Quarterly Report

Financial Performance - Net sales for the three months ended March 31, 2024, were $6,176,499, a decrease of 47.9% compared to $11,851,971 for the same period in 2023[17] - Gross profit for the three months ended March 31, 2024, was $517,449, down 74.7% from $2,045,510 in the prior year[17] - The company reported a net loss of $1,310,320 for the three months ended March 31, 2024, compared to a net income of $211,639 for the same period in 2023[17] - Comprehensive loss for the three months ended March 31, 2024, was $1,457,081, compared to comprehensive income of $71,887 for the same period in 2023[17] - For the nine months ended March 31, 2024, the net loss was $2,297,180 compared to a net loss of $1,298,722 for the same period in 2023, representing an increase in loss of approximately 77%[25] - Net sales for North America decreased to $24,583,324 for the nine months ended March 31, 2024, down 14% from $28,778,479 in the same period of 2023[32] - Net sales decreased by $5,675,472, or 47.9%, to $6,176,499 for the three months ended March 31, 2024, compared to $11,851,971 for the same period in 2023[142] - Gross profit decreased by $1,528,061, or 74.7%, to $517,449 for the three months ended March 31, 2024, with a gross profit margin of 8.4% compared to 17.3% in 2023[144] - Net loss before income taxes for the three months ended March 31, 2024, was $(26.3%) compared to $(3.1%) for the same period in 2023[141] - Net sales for the nine months ended March 31, 2024, decreased by $4,264,730, or 14.7%, to $24,679,824 from $28,944,554 for the same period in 2023[148] - Gross profit for the nine months ended March 31, 2024, decreased by $1,717,730, or 37.5%, to $2,867,684, with a gross profit margin of 11.6% compared to 15.8% in 2023[150] Assets and Liabilities - Total current assets decreased to $43,547,756 as of March 31, 2024, from $51,857,095 as of June 30, 2023, representing a decline of 16.0%[14] - Total liabilities decreased to $11,773,429 as of March 31, 2024, from $16,512,250 as of June 30, 2023, a reduction of 28.5%[14] - The company’s retained earnings decreased to $26,903,234 as of March 31, 2024, down from $29,101,225 as of June 30, 2023, reflecting a decline of 7.5%[14] - The company’s total stockholders' equity decreased to $38,245,390 as of March 31, 2024, from $40,414,828 as of June 30, 2023, a decrease of 5.4%[14] - The total long-lived assets decreased from $2,281,972 as of June 30, 2023, to $1,711,247 as of March 31, 2024, indicating a decline of approximately 25%[33] - Cash and cash equivalents at the end of the period were $7,004,494, a decrease of 60% from $17,569,754 at the end of the same period in 2023[25] Expenses - Research and development expenses for the three months ended March 31, 2024, were $811,470, a decrease of 22.9% compared to $1,052,672 in the same period of 2023[17] - 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 same period in 2023[145] - Research and development costs for the three months ended March 31, 2024, were $811,470, down from $1,052,672 for the same period in 2023, representing a decrease of approximately 22.9%[56] - The company incurred a depreciation expense of $28,059 for the nine months ended March 31, 2024, compared to $41,341 in the same period of 2023[25] - The company recorded an income tax benefit of $312,764 for the three months ended March 31, 2024, compared to $578,664 for the same period in 2023, reflecting a decrease of approximately 45.9%[70] - Shipping and handling costs for the three months ended March 31, 2024, were $28,441, down from $58,730 in the same period of 2023, indicating a reduction of about 51.6%[58] Cash Flow - The company reported a net cash used in operating activities of $6,972,515 for the nine months ended March 31, 2024, compared to $6,954,199 in the same period of 2023[25] - Net cash provided by investing activities for the nine months ended March 31, 2024, was $1,815,796, mainly from sales of short-term investments totaling $1,995,606[159] - The net cash provided by financing activities for the nine months ended March 31, 2024, was $1,045, attributed to an increase in loan to an employee[161] - For the nine months ended March 31, 2024, the net cash used in operating activities was $6,972,515, primarily due to a decrease in accounts payable of $6,668,572 and a net loss of $2,297,180[157] Inventory and Receivables - As of March 31, 2024, accounts receivable increased to $10,262,320 from $8,949,802 as of June 30, 2023, reflecting a growth of approximately 14.7%[46] - The balance of inventory reserves for obsolete or slow-moving inventories was $74,548 as of March 31, 2024, significantly lower than $585,274 as of June 30, 2023, showing a decrease of approximately 87.3%[61] - Contract liabilities for undelivered products rose to $195,599 as of March 31, 2024, compared to $146,488 as of June 30, 2023, indicating an increase of about 33.5%[47] Leases and Commitments - The company signed a new lease for office space in San Diego, California, at a monthly rent of $23,370, which commenced on January 1, 2024[91] - Future minimum payments under operating leases total $1,874,557, with a remaining lease term of 5.2 years[96] - The total lease expenses for the nine months ended March 31, 2024, were $483,305, an increase from $334,146 in the same period of 2023[96] - The company recorded an additional rent expense of $142,978 for pending charges from a prior landlord for variable cost increases over the last seven years[163] Stock and Equity - The company recorded stock-based compensation of $208,860 for the nine months ended March 31, 2024, down from $536,922 in the same period of 2023[25] - As of March 31, 2024, there were 627,001 stock options outstanding with a weighted average exercise price of $4.22[126] - The aggregate intrinsic value of stock options as of March 31, 2024, was based on a closing stock price of $2.99 per share[127] Legal and Regulatory - A settlement of $2.4 million has been agreed upon in the shareholder litigation, which is reflected in liabilities under "accrued legal contingency expense"[105] - The company believes its products are currently exempt from international tariffs, but potential tariffs of 10%-25% could adversely affect sales and operating results if imposed[121] Miscellaneous - The company has not entered into any related party transactions for the three and nine months ended March 31, 2024, and 2023[129] - No material recognizable subsequent events were identified that required disclosure in the financial statements as of March 31, 2024[130] - The company has not been able to recreate any device failures related to the Verizon recall and believes the Jetpack devices are performing within normal parameters[102]