Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
The discussion and analysis set forth below should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the related notes included under Item 1 of this Quarterly Report on Form 10-Q, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended September 30, 2018.
Forward Looking Statements
This report contains certain statements of a forward-looking nature relating to future events or future performance. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not the only means of identifying forward-looking statements. Prospective investors are cautioned that such statements are only predictions and actual events or results may differ materially. In evaluating such statements, prospective investors should specifically consider various factors identified in this report and any matters set forth under Part I, Item 1A (Risk Factors) of our Annual Report on Form 10-K, which could cause actual results to differ materially from those indicated by such forward-looking statements.
Overview
LRAD
®
Corporation is a leading innovator and manufacturer of acoustic communication systems that project audible voice messages, tones, and warning sirens over short and long distances. By broadcasting audible voice messages with exceptional clarity and only where needed, we offer unique sound applications that conventional bullhorns, loudspeakers, and public address and emergency warning systems cannot achieve. With the January 2018 acquisition of Genasys Holding S.L., we combined our advanced mass notification voice broadcast systems with Genasys’ location-based mass messaging solutions. Using our proprietary technologies, we have developed two product lines:
• Acoustic Hailing Devices (“AHDs”), which project audible broadcasts with exceptional intelligibility in a 30° beam from close range out to 5,500 meters, and;
• Public Safety Mass Notification, which include systems that project 60° - 360° audible voice broadcasts with industry leading vocal clarity from close range to over 14 square kilometers from a single installation and geospecific mass messaging mobile alert solutions that are compatible with major emergency warning protocols.
We have created a new worldwide market and a recognized global brand by selling our industry-leading AHDs and advanced public safety mass notification systems into 72 countries. We continue to develop new acoustic innovations and believe we have established a significant competitive advantage in our principal markets.
LRAD systems are a technological breakthrough in broadcasting audible, highly intelligible voice messages and tones over long distances and above high ambient noise using minimal power. Our AHDs meet stringent military specifications and are packaged in several form factors, from portable, hand-held units to permanently installed, remotely operated systems. Through broadcasting directional alert tones and live prerecorded messages, our AHDs are designed to enable users to safely hail and warn, notify and direct, prevent misunderstandings, determine intent, establish large safety zones, resolve uncertain situations, and potentially save lives. We continue to enhance our acoustic communication technologies and product lines to provide a complete range of systems and accessories. Our patented XL driver technology, which generates higher audio output in a smaller and lighter form factor, is being incorporated into many of our AHD and public safety mass notification products.
Our multidirectional product line was built on the success of our AHD’s. Unlike most siren-based public mass notification systems on the market, our public safety mass notification systems broadcast both emergency warning sirens and highly intelligible voice messages with uniform 60° - 360° coverage over local and wide areas. We believe our ability to shape the broadcast coverage area, our industry-leading speech intelligibility, and our multi-modal system activation and control options, make us more competitive in the large and growing mass notification market.
Our products are designed to meet a broad range of diverse applications for emergency warning and mass notification, fixed and mobile military deployments; maritime, critical infrastructure, perimeter, commercial, border, and homeland security; law enforcement, emergency responder and fire rescue communications; asset protection, and wildlife preservation and control.
Business developments
in the fiscal quarter ended June 30, 2019:
|
●
|
Entered into a $4.75 million maintenance agreement for AHD’s deployed by the Indian Navy
|
|
●
|
Announced $1.7 million in defense and homeland security orders
|
|
●
|
Received $0.85 million in international public safety notification and wildlife preservation orders
|
|
●
|
Announced follow-on $0.5 million Canadian Army order
|
|
●
|
Presented a Federal Emergency Management Agency (FEMA) webinar for emergency managers and demonstrated LRAD’s public safety mass notification system compatibility with FEMA’s Integrated Public Alert and Warning System (IPAWS)
|
|
●
|
Announced Mill Valley, CA is installing LRAD public safety notification system hardware packaged with Genasys software
|
Revenues in the third fiscal quarter ended June 30, 2019, were $8.9 million, an increase of $1.4 million from $7.5 million in the third fiscal quarter of 2018. The increase in revenues was primarily driven by an increase in public safety mass notification revenues. Public safety mass notification revenue increased $1,587,711, or 66%, compared to the third fiscal quarter of 2018, offset by a $238,053, or 5%, decrease in AHD revenues. Based on the timing of government budget cycles, financial issues and leadership change in certain areas of the world, delays in awarding contracts often occur, resulting in uneven quarterly revenues. Gross profit increased compared to the same quarter in the prior year primarily as a result of higher sales. Operating expenses were essentially unchanged comparted to the similar prior year period. The third quarter fiscal 2019 results reflect $118,310 of income tax expense which is a non-cash charge that reduced the balance of the deferred tax asset. We reported net income of $638,041 for the quarter, or $0.02 per share, compared to a net loss of $80,219, or $0.00 per share, for the same quarter in the prior year.
Overall Business Outlook
Our products and solutions continue to gain worldwide awareness and recognition through media exposure, trade show participations, product demonstrations and word of mouth as a result of positive responses and increased acceptance. We believe we have a solid global brand, technology and product foundation with our AHD and public safety mass notification systems product lines, which we have expanded over the years to service new markets and customers for greater business growth. We believe that we have strong market opportunities for our directional and multidirectional product offerings within the mass notification, defense, law enforcement, fire rescue, public safety, maritime, homeland security, critical infrastructure security, asset protection, and wildlife control and protection business sectors. We intend to continue expanding our international mass notification business, particularly in the Middle East, Europe and Asia where we believe there are greater market opportunities for our multidirectional products. Our selling network has expanded through the addition of sales consultants as well as continuing to improve and increase our relationships with key integrators and sales representatives within the U.S. and in a number of worldwide locations. However, we may continue to face challenges during the remainder of fiscal 2019 and into fiscal 2020 due to continuing economic and geopolitical conditions in some international regions. We anticipate that the current U.S. government administration will support U.S. military spending, which we believe could benefit us, although there is uncertainty as to priorities and timing. We continue to pursue large business opportunities, but it is difficult to anticipate how long it will take to close these opportunities, or if they will ever ultimately come to fruition. It is also difficult to determine whether our multidirectional products and software will be accepted as viable solutions in the public safety mass notification market, which includes a number of large, well-known competitors.
Critical Accounting Policies
We have identified a number of accounting policies as critical to our business operations and the understanding of our results of operations. These are described in our consolidated financial statements located in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended September 30, 2018. The impact and any associated risks related to these policies on our business operations is discussed below and throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations when such policies affect our reported and expected financial results.
The methods, estimates and judgments we use in applying our accounting policies, in conformity with generally accepted accounting principles in the U.S., have a significant impact on the results we report in our financial statements. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. The estimates affect the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.
Comparison of Results of Operations for the Three Months Ended
June 30
,
201
9
and
201
8
The following table sets forth for the periods indicated certain items of our condensed consolidated statements of operations expressed in dollars and as a percentage of net revenues. The financial information and the discussion below should be read in conjunction with the condensed consolidated financial statements and notes contained in this report.
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
|
June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Total
|
|
|
Fav(Unfav)
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
%
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales
|
|
$
|
8,037,460
|
|
|
|
90.7
|
%
|
|
$
|
6,583,865
|
|
|
|
87.6
|
%
|
|
$
|
1,453,595
|
|
|
|
22.1
|
%
|
Contract and other
|
|
|
826,266
|
|
|
|
9.3
|
%
|
|
|
930,203
|
|
|
|
12.4
|
%
|
|
|
(103,937
|
)
|
|
|
(11.2
|
%)
|
Total revenues
|
|
|
8,863,726
|
|
|
|
100.0
|
%
|
|
|
7,514,068
|
|
|
|
100.0
|
%
|
|
|
1,349,658
|
|
|
|
18.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
4,261,733
|
|
|
|
48.1
|
%
|
|
|
3,815,203
|
|
|
|
50.8
|
%
|
|
|
(446,530
|
)
|
|
|
(11.7
|
%)
|
Gross Profit
|
|
|
4,601,993
|
|
|
|
51.9
|
%
|
|
|
3,698,865
|
|
|
|
49.2
|
%
|
|
|
903,128
|
|
|
|
24.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
2,712,846
|
|
|
|
30.6
|
%
|
|
|
2,904,135
|
|
|
|
38.6
|
%
|
|
|
191,289
|
|
|
|
6.6
|
%
|
Research and development
|
|
|
1,202,686
|
|
|
|
13.6
|
%
|
|
|
972,857
|
|
|
|
12.9
|
%
|
|
|
(229,829
|
)
|
|
|
(23.6
|
%)
|
Total operating expenses
|
|
|
3,915,532
|
|
|
|
44.2
|
%
|
|
|
3,876,992
|
|
|
|
51.6
|
%
|
|
|
(38,540
|
)
|
|
|
(1.0
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
686,461
|
|
|
|
7.7
|
%
|
|
|
(178,127
|
)
|
|
|
(2.4
|
%)
|
|
|
864,588
|
|
|
|
485.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income and expense, net
|
|
|
69,890
|
|
|
|
0.8
|
%
|
|
|
24,159
|
|
|
|
0.3
|
%
|
|
|
45,731
|
|
|
|
189.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations before income taxes
|
|
|
756,351
|
|
|
|
8.5
|
%
|
|
|
(153,968
|
)
|
|
|
(2.0
|
%)
|
|
|
910,319
|
|
|
|
591.2
|
%
|
Income tax expense (benefit)
|
|
|
118,310
|
|
|
|
1.3
|
%
|
|
|
(73,749
|
)
|
|
|
(1.0
|
%)
|
|
|
(192,059
|
)
|
|
|
260.4
|
%
|
Net income (loss)
|
|
$
|
638,041
|
|
|
|
7.2
|
%
|
|
$
|
(80,219
|
)
|
|
|
(1.1
|
%)
|
|
$
|
718,260
|
|
|
|
895.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LRAD
|
|
$
|
8,302,811
|
|
|
|
93.7
|
%
|
|
$
|
7,012,430
|
|
|
|
93.3
|
%
|
|
$
|
1,290,381
|
|
|
|
18.4
|
%
|
Genasys
|
|
|
560,915
|
|
|
|
6.3
|
%
|
|
|
501,638
|
|
|
|
6.7
|
%
|
|
|
59,277
|
|
|
|
11.8
|
%
|
Total net sales
|
|
$
|
8,863,726
|
|
|
|
100.0
|
%
|
|
$
|
7,514,068
|
|
|
|
100.0
|
%
|
|
$
|
1,349,658
|
|
|
|
18.0
|
%
|
Revenues
Revenues increased in the current quarter compared to the corresponding quarter in the prior year due to a larger backlog at March 31, 2019 compared to March 31, 2018. Revenues improved in the current quarter for the public safety mass notification systems product line ($1,587,711, or 66%) compared to the prior year quarter offset by a slight decrease ($238,053, or 5%) in AHD product line revenues. The receipt of orders will often be uneven due to the timing of approvals or budgets. At June 30, 2019, we had aggregate deferred revenue of $1,091,270 for extended warranty obligations and software support agreements.
Gross Profit
The increase in gross profit in the current quarter compared to the prior year was primarily due to the higher level of sales, offset by an increase in manufacturing overhead expenses to support the increased sales.
Our products have varying gross margins, so product mix may affect gross profits. In addition, our margins vary based on the sales channels through which our products are sold in a given period. We continue to implement product updates and changes, including raw material and component changes that may impact product costs. With such product updates and changes we have limited warranty cost experience and estimated future warranty costs can impact our gross margins. We do not believe that historical gross profit margins should be relied upon as an indicator of future gross profit margins.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $191,289 over the prior year quarter. This reflects a decrease to compensation related expenses and smaller decreases in trade show, travel and computer related expenses.
We incurred non-cash share-based compensation expenses allocated to selling, general and administrative expenses in the three months ended June 30, 2019 and 2018 of $242,660 and $123,311, respectively. The increase in the current quarter period is largely due to $101,447 for catch up performance option expense as we now believe that it is probable that certain goals under an employment agreement will be achieved.
We may expend additional resources on the marketing and selling of our products in future periods as we identify ways to optimize potential opportunities. Commission expenses will fluctuate based on the nature of our sales.
Research and Development Expenses
Research and development expenses increased $229,829 in the current quarter compared to the prior year largely due to $199,301 for increased product development and product testing expenses.
Included in research and development expenses for the three months ended June 30, 2019 and 2018 was $11,279 and $20,391 of non-cash share-based compensation costs, respectively.
Research and development costs vary period to period due to the timing of projects, and the timing and extent of the use of outside consulting, design and development firms. We continually improve our product offerings and we expect to continue to expand our product line in 2019 with new products, customizations and enhancements. Based on current plans, we may expend additional resources on research and development in the current year compared to the prior year.
Net
Income
The $718,260 increase in net income in the fiscal year 2019 third quarter was primarily due to the higher gross profit realized from increased sales in the 2019 quarter. Non-cash income tax expense of $118,310 was recognized in the three months ended June 30, 2019 compared to a non-cash income tax benefit of $73,749 in the three months ended June 30, 2018.
Comparison of Results of Operations for the
Nine
Months Ended
June
3
0
, 201
9
and 201
8
The following table sets forth for the periods indicated certain items of our condensed consolidated statements of operations expressed in dollars and as a percentage of net revenues. The financial information and the discussion below should be read in conjunction with the condensed consolidated financial statements and notes contained in this report.
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
|
June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Total
|
|
|
Fav(Unfav)
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
%
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales
|
|
$
|
26,726,151
|
|
|
|
91.4
|
%
|
|
$
|
21,045,148
|
|
|
|
91.5
|
%
|
|
$
|
5,681,003
|
|
|
|
27.0
|
%
|
Contract and other
|
|
|
2,506,825
|
|
|
|
8.6
|
%
|
|
|
1,965,934
|
|
|
|
8.5
|
%
|
|
|
540,891
|
|
|
|
27.5
|
%
|
Total revenues
|
|
|
29,232,976
|
|
|
|
100.0
|
%
|
|
|
23,011,082
|
|
|
|
100.0
|
%
|
|
|
6,221,894
|
|
|
|
27.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
14,351,217
|
|
|
|
49.1
|
%
|
|
|
11,318,697
|
|
|
|
49.2
|
%
|
|
|
(3,032,520
|
)
|
|
|
(26.8
|
%)
|
Gross Profit
|
|
|
14,881,759
|
|
|
|
50.9
|
%
|
|
|
11,692,385
|
|
|
|
50.8
|
%
|
|
|
3,189,374
|
|
|
|
27.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
7,939,232
|
|
|
|
27.2
|
%
|
|
|
7,610,424
|
|
|
|
33.1
|
%
|
|
|
(328,808
|
)
|
|
|
(4.3
|
%)
|
Research and development
|
|
|
3,530,805
|
|
|
|
12.1
|
%
|
|
|
2,664,829
|
|
|
|
11.6
|
%
|
|
|
(865,976
|
)
|
|
|
(32.5
|
%)
|
Total operating expenses
|
|
|
11,470,037
|
|
|
|
39.2
|
%
|
|
|
10,275,253
|
|
|
|
44.7
|
%
|
|
|
(1,194,784
|
)
|
|
|
(11.6
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
3,411,722
|
|
|
|
11.7
|
%
|
|
|
1,417,132
|
|
|
|
6.2
|
%
|
|
|
1,994,590
|
|
|
|
140.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income and expense, net
|
|
|
126,566
|
|
|
|
0.4
|
%
|
|
|
73,894
|
|
|
|
0.3
|
%
|
|
|
52,672
|
|
|
|
71.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations before income taxes
|
|
|
3,538,288
|
|
|
|
12.1
|
%
|
|
|
1,491,026
|
|
|
|
6.5
|
%
|
|
|
2,047,262
|
|
|
|
137.3
|
%
|
Income tax expense
|
|
|
675,457
|
|
|
|
2.3
|
%
|
|
|
2,793,590
|
|
|
|
12.1
|
%
|
|
|
2,118,133
|
|
|
|
75.8
|
%
|
Net income (loss)
|
|
$
|
2,862,831
|
|
|
|
9.8
|
%
|
|
$
|
(1,302,564
|
)
|
|
|
(5.7
|
%)
|
|
$
|
4,165,395
|
|
|
|
319.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LRAD
|
|
$
|
27,606,026
|
|
|
|
94.4
|
%
|
|
$
|
22,094,790
|
|
|
|
96.0
|
%
|
|
|
5,511,236
|
|
|
|
24.9
|
%
|
Genasys
|
|
|
1,626,950
|
|
|
|
5.6
|
%
|
|
|
916,292
|
|
|
|
4.0
|
%
|
|
|
710,658
|
|
|
|
77.6
|
%
|
Total net sales
|
|
$
|
29,232,976
|
|
|
|
100.0
|
%
|
|
$
|
23,011,082
|
|
|
|
100.0
|
%
|
|
$
|
6,221,894
|
|
|
|
27.0
|
%
|
Revenues
Revenues increased 27% for the nine-month period ended June 30, 2019 compared to the same prior year period due to the larger backlog at September 30, 2018 compared to September 30, 2017 and the addition of $520,857 of Genasys sales in the first quarter of fiscal 2019 (no Genasys sales were included in the first quarter of fiscal 2018 as it was acquired on January 18, 2018). AHD revenues were $22,633,707 an increase of $5,566,987, or 33%, compared to the same prior year period, and public safety mass notification systems revenues were $6,599,269, an increase of $654,905, or 11%, compared to the same prior year period. The receipt of orders will often be uneven due to the timing of approvals or budgets. At June 30, 2019, we had aggregate deferred revenues of $1,091,270 for extended warranty obligations and software support agreements.
Gross Profit
The increase in gross profit in the nine months ended June 30, 2019 was primarily due to increased sales volume partially offset by an increase in manufacturing overhead expenses to support increased sales.
Our products have varying gross margins, so product mix may affect gross profits. In addition, our margins vary based on the sales channels through which our products are sold in a given period. We continue to implement product updates and changes, including raw material and component changes that may impact product costs. With such product updates and changes we have limited warranty cost experience and estimated future warranty costs can impact our gross margins. We do not believe that historical gross profit margins should be relied upon as an indicator of future gross profit margins.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $328,808 in the nine months ended June 30, 2019 compared to the prior year period. The increase in selling, general and administrative expenses is primarily due to Genasys selling and general administrative expenses totaling $462,770 in the first quarter of fiscal 2019 compared to zero in 2018. In addition, compensation expense was $191,512 higher than the prior year. This was partially offset by $151,679 in lower information technology related expenses, $115,359 in lower travel expenses and $65,156 in lower commission expense. As a percentage of sales, selling, general and administrative expense decreased to 27% for the nine months ended June 30, 2019 compared to 33% in the prior year period.
We incurred non-cash share-based compensation expenses allocated to selling, general and administrative expenses in the nine months ended June 30, 2019 and 2018 of $508,762 and $352,766, respectively. The increase in the current fiscal year to date period is largely due to $101,447 for catch up performance option expense as we now believe that it is probable that certain goals under an employment agreement will be achieved.
We may expend additional resources on the marketing and selling of our products in future periods as we identify ways to optimize potential opportunities. Commission expenses will fluctuate based on the nature of our sales.
Research and Development Expenses
Research and development expenses increased $865,976 in the nine months ended June 30, 2019 compared to the prior year, primarily due to increased product development activities ($632,892) and compensation and related expenses ($145,655).
Included in research and development expenses for the nine months ended June 30, 2019 and 2018 was $42,499 and $63,930 of non-cash share-based compensation costs, respectively.
Research and development costs vary period to period due to the timing of projects, and the timing and extent of the use of outside consulting, design and development firms. We continually improve our product offerings and we expect to continue to expand our product line in 2019 with new products, customizations and enhancements. Based on current plans, we may expend additional resources on research and development in the current year compared to the prior year.
Net
Income (
Loss
)
The $2,862,831 net income for the first nine months of fiscal year 2019 was an improvement of $4,165,395 over the net loss in the prior year period. The improved results were primarily due to the $2,474,000 tax expense in fiscal year 2018 from the remeasurement of its deferred tax assets as a result of tax reform, plus higher sales in fiscal year 2019.
Liquidity and Capital Resources
Cash and cash equivalents at June 30, 2019 was $11,290,068, compared to $11,063,091 at September 30, 2018. We had short-term marketable securities of $2,978,354 at June 30, 2019, compared to $3,592,175 at September 30, 2018, and long-term marketable securities of $1,499,795 and $1,200,541 at June 30, 2019 and September 30, 2018 respectively. Other than cash and cash equivalents, short and long-term marketable securities, other working capital and expected future cash flows from operating activities in subsequent periods, we have no unused sources of liquidity at this time.
Principal factors that could affect our liquidity include:
|
•
|
ability to meet sales projections;
|
|
•
|
government spending levels;
|
|
•
|
introduction of competing technologies;
|
|
•
|
product mix and effect on margins;
|
|
•
|
ability to reduce current inventory levels;
|
|
•
|
product acceptance in new markets;
|
|
•
|
value of shares repurchased; and
|
|
•
|
value of dividends declared.
|
Principal factors that could affect our ability to obtain cash from external sources include:
|
•
|
volatility in the capital markets; and
|
|
•
|
market price and trading volume of our common stock.
|
Based on our current cash position, and assuming currently planned expenditures and level of operations, we believe we have sufficient capital to fund operations for the twelve-month period subsequent to the issuance of the interim financial information. However, we operate in a rapidly evolving and unpredictable business environment that may change the timing or amount of expected future cash receipts and expenditures. Accordingly, there can be no assurance that we may not be required to raise additional funds through the sale of equity or debt securities or from credit facilities. Additional capital, if needed, may not be available on satisfactory terms, or at all.
Cash Flows
Our cash flows from operating, investing and financing activities, as reflected in the condensed consolidated statements of cash flows, are summarized in the table below:
|
|
Nine months ended
|
|
|
|
June 30, 2019
|
|
|
June 30, 2018
|
|
Cash provided by (used in):
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
2,413,334
|
|
|
$
|
2,154,059
|
|
Investing activities
|
|
$
|
29,759
|
|
|
$
|
(2,285,948
|
)
|
Financing activities
|
|
$
|
(2,133,445
|
)
|
|
$
|
(195,846
|
)
|
Operating Activities
Net income of $2,862,831 for the nine months ended June 30, 2019 was increased by $2,045,884 of non-cash items that included a reduction to deferred income taxes, share-based compensation, depreciation and amortization, warranty provision, and inventory obsolescence. Cash provided by operating activities in the current year reflected a decrease in prepaid expenses and other of $2,330,897, an increase in accrued and other liabilities of $1,766,516, a decrease in inventory of $200,306 and a decrease in other assets of $116,973. Cash used in operating activities included an increase in accounts receivable of $4,029,608, a decrease in accounts payable of $2,267,016 and a decrease in payroll and related liabilities of $583,162.
Net loss of $1,302,564 for the nine months ended June 30, 2018 was decreased by $3,668,190 of non-cash items that included a reduction to deferred income taxes primarily resulting from enactment of the tax reform act, share-based compensation, depreciation and amortization, warranty provision, and inventory obsolescence. Cash provided by operating activities in the prior year reflected an increase in accounts payable of $376,864 due to the timing of payments, decreases in prepaid expenses and other of $153,576 and an increase in accrued and other liabilities of $178,843. Cash used in operating activities included an increase in inventory of $239,360, an increase in accounts receivable of $496,642, an increase in other assets of $60,615, a decrease in payroll and related liabilities of $81,631 and warranty settlements of $42,602.
We had accounts receivable of $6,814,225 at June 30, 2019, compared to $2,785,997 at September 30, 2018. The level of trade accounts receivable at June 30, 2019 represented approximately 70 days of revenues compared to 78 days of revenues at September 30, 2018 due to the timing of shipments and related collections in this quarter compared to the fourth fiscal quarter of 2018. Terms with individual customers vary greatly. We typically require thirty-day terms from our customers if credit is approved. Our receivables can vary dramatically due to overall sales volume, quarterly variations in sales, timing of shipments to and receipts from large customers, payment terms, and the timing of contract payments.
At June 30, 2019 and September 30, 2018, our working capital was $23,886,117 and $21,090,472 respectively. The increase in working capital was primarily due to the net income generated from operations in the first nine months of fiscal year 2019.
Investing Activities
Our net cash provided by investing activities was $29,759 for the nine months ended June 30, 2019, compared to cash used in investing activities of $2,285,948 for the nine months ended June 30, 2018. The 2018 amount included $2,246,545 for the acquisition of Genasys. Cash used in investing activities for the purchase of property and equipment was $303,912 and $166,845 for the nine months ended June 30, 2019 and 2018, respectively. In the nine months ended June 30, 2019, we decreased our holding of short and long-term marketable securities by $314,567, compared to a decrease of $127,442 in the nine months ended June 30, 2018. We anticipate some additional expenditures for tooling and equipment during the balance of fiscal year 2019.
Financing Activities
In the nine months ended June 30, 2019, we used $2,133,445 for financing activities, compared to $195,846 for the nine months ended June 30, 2018. During the first nine months of 2019 we used $2,171,022 to repurchase shares of common stock and paid $17,044 on promissory notes, offset by $54,621 in proceeds from the exercise of stock options. The first nine months of 2018 included net payments of $786,437 to pay down debt assumed in the Genasys acquisition. Proceeds from the exercise of stock options were $1,027,719 for the nine months ended June 30, 2018. Total debt at June 30, 2019 was $324,767.
The Board of Directors approved a share buyback program in 2015 under which the Company was authorized to repurchase up to $4 million of its outstanding common shares. In December 2017, the Board of Directors extended the program through December 31, 2018. There were no shares repurchased during the nine months ended June 30, 2018.
In December 2018, the Board of Directors approved a new share buyback program beginning January 1, 2019, under which the Company is authorized to repurchase up to $5 million of its outstanding common shares. During the quarter ended June 30, 2019, no shares were repurchased. At June 30, 2019, all repurchased shares were retired into treasury. At June 30, 2019, $4.5 million was available for share repurchase under this program.
Recent Accounting Pronouncements
New pronouncements issued for future implementation are discussed in Note 3, Recent Accounting Pronouncements, to our condensed consolidated financial statements.