Franklin Wireless Has An Unannounced Megadeal

| About: Franklin Wireless (FKWL)
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Summary

Apparently, the company is manufacturing devices for Verizon.

Q1 earnings will likely take off.

The company only trades at a small premium to cash on hand.

Corporate Overview

There really is not all too much to say about Franklin Wireless (OTCQB:FKWL). The micro-cap company with a market cap of just over $17 million makes 3G and 4G wireless connectivity devices and portable hotspots. The company is hanging on to about $10.2 million of cash, leaving a total enterprise value of $7.4 million. Shares trade at around $1.65, and on a per share basis, the company has $0.98 of cash per share. Since year-end 2011, the company has essentially been breaking even. But that is all about to change.

The Deal With Verizon

It's rare to find an opportunity in the market where information is publicly available to the entire world, yet remains undiscovered. In this case, we will convincingly show that Franklin Wireless has apparently inked a deal with the behemoth Verizon Wireless (NYSE:VZ) to provide them with their flagship mobile personal hotspot device.

How do I know? In mid-December of the current year, Verizon added a new device to its lineup of portable personal hotspots. In place of the MiFi 5510L (made by Novatel (NVTL)), the Jetpack Ellipsis appears as the entry-level portable hotspot device on the Verizon website. So how does the Verizon Jetpack Ellipsis relate to Franklin Wireless? Let's dig down into the device manual. On page 47, under the heading, "Manufacturer's Limited One-Year Warranty" we see the following:

"Franklin Wireless (the "Company") warrants to the original retail purchaser of this device, that should the product or any part thereof, during normal consumer usage conditions, be defective in material or workmanship that results in product failure within the first twelve (12) month period from the date of purchase, such defects will be repaired or replaced, with a new or refurbished product at the Company's discretion, without charge for parts and labor directly related to the defect(s). This warranty extends to consumers who purchase the product in the United States, and it is not transferable or assignable."

Although the device first began to ship on December 18, 2013, we can already see what may be the results of the deal filtering its way into the balance sheet. Firstly, over the past three months, inventories more than doubled after three flat quarters. Secondly, "advanced payments from customers" more than tripled.

What It Means To Investors

To attempt to predict portable hotspot device sell-through at Verizon would be quite audacious, but on the other hand, transitioning from selling to a handful of regional carriers to supplying for the largest U.S. cellular company is tremendous for Franklin Wireless.

Disclosure: I am long FKWL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.