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 industry leading novel 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;
• Genasys™ Public Safety Mass Notification (“MN”), 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 geospatial, mass messaging mobile alert solutions that are compatible with major emergency warning protocols.
We have sold our AHDs and Genasys solutions into 72 countries and pioneered a worldwide market for AHDs and advanced public safety mass notification solutions. We continue to develop new communication innovations and believe we have established significant competitive advantages 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 MN products.
Building on the success of our AHDs, we launched our multidirectional product line. Unlike most siren-based public safety mass notification systems on the market, our MN 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 multiple 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, including 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. By selling our industry-leading AHDs and advanced MN systems into 72 countries, we have created a new worldwide market and a recognized global brand. We continue to develop new acoustic innovations and believe we have established a significant competitive advantage in our principal markets.
Business developments
in the fiscal quarter ended March 31, 2019:
|
●
|
Reported record second fiscal quarter revenues
|
|
●
|
Conducted several Genasys public safety mass notification demonstrations in California
|
|
●
|
Received an order from a California city for Genasys public safety mass notification systems and software
|
|
●
|
Received $1.2 million in international and domestic AHD naval orders
|
|
●
|
Received $700 thousand in domestic and international AHD law enforcement orders
|
Revenues in the second fiscal quarter ended March 31, 2019, were $10.2 million, an increase from $7.9 million in the second fiscal quarter of 2018. The increase in revenues was primarily driven by an increase in AHD revenue and an increase in public safety mass notification revenues. AHD revenues increased $1,947,475, or 21%, and public safety mass notification revenue increased $375,767, or 51%, compared to the second fiscal quarter of 2018. 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 increased 9% from $3.4 million to $3.8 million in the quarter ended March 31, 2019, primarily due to increased software development expenses in the current year period. The second quarter fiscal 2019 results reflect $274,144 of income tax expense which is a non-cash charge that reduced the balance of the deferred tax asset. We reported net income of $1,178,850 for the quarter, or $0.04 per share, compared to net income of $460,908, or $0.01 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 MN 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 United States and in a number of worldwide locations. However, we may continue to face challenges in fiscal 2019 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
March
31
,
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
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
|
March 31 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Total
|
|
|
Fav(Unfav)
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
%
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales
|
|
$
|
9,340,523
|
|
|
|
91.6
|
%
|
|
$
|
7,125,258
|
|
|
|
90.6
|
%
|
|
$
|
2,215,265
|
|
|
|
31.1
|
%
|
Contract and other
|
|
|
851,168
|
|
|
|
8.4
|
%
|
|
|
743,190
|
|
|
|
9.4
|
%
|
|
|
107,978
|
|
|
|
14.5
|
%
|
Total revenues
|
|
|
10,191,691
|
|
|
|
100.0
|
%
|
|
|
7,868,448
|
|
|
|
100.0
|
%
|
|
|
2,323,243
|
|
|
|
29.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
5,001,183
|
|
|
|
49.1
|
%
|
|
|
3,832,468
|
|
|
|
48.7
|
%
|
|
|
(1,168,715
|
)
|
|
|
(30.5
|
%)
|
Gross Profit
|
|
|
5,190,508
|
|
|
|
50.9
|
%
|
|
|
4,035,980
|
|
|
|
51.3
|
%
|
|
|
1,154,528
|
|
|
|
28.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
2,475,378
|
|
|
|
24.3
|
%
|
|
|
2,517,891
|
|
|
|
32.0
|
%
|
|
|
42,513
|
|
|
|
1.7
|
%
|
Research and development
|
|
|
1,279,744
|
|
|
|
12.6
|
%
|
|
|
913,935
|
|
|
|
11.6
|
%
|
|
|
(365,809
|
)
|
|
|
(40.0
|
%)
|
Total operating expenses
|
|
|
3,755,122
|
|
|
|
36.8
|
%
|
|
|
3,431,826
|
|
|
|
43.6
|
%
|
|
|
(323,296
|
)
|
|
|
(9.4
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
1,435,386
|
|
|
|
14.1
|
%
|
|
|
604,154
|
|
|
|
7.7
|
%
|
|
|
831,232
|
|
|
|
137.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income and expense, net
|
|
|
17,608
|
|
|
|
0.2
|
%
|
|
|
15,205
|
|
|
|
0.2
|
%
|
|
|
2,403
|
|
|
|
15.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations before income taxes
|
|
|
1,452,994
|
|
|
|
14.3
|
%
|
|
|
619,359
|
|
|
|
7.9
|
%
|
|
|
833,635
|
|
|
|
134.6
|
%
|
Income tax expense
|
|
|
274,144
|
|
|
|
2.7
|
%
|
|
|
158,451
|
|
|
|
2.0
|
%
|
|
|
(115,693
|
)
|
|
|
(73.0
|
%)
|
Net income
|
|
$
|
1,178,850
|
|
|
|
11.6
|
%
|
|
$
|
460,908
|
|
|
|
5.9
|
%
|
|
$
|
717,942
|
|
|
|
155.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LRAD
|
|
$
|
9,646,513
|
|
|
|
94.7
|
%
|
|
$
|
7,453,794
|
|
|
|
94.7
|
%
|
|
$
|
2,192,719
|
|
|
|
29.4
|
%
|
Genasys
|
|
|
545,178
|
|
|
|
5.3
|
%
|
|
|
414,654
|
|
|
|
5.3
|
%
|
|
|
130,524
|
|
|
|
31.5
|
%
|
Total net sales
|
|
$
|
10,191,691
|
|
|
|
100.0
|
%
|
|
$
|
7,868,448
|
|
|
|
100.0
|
%
|
|
$
|
2,323,243
|
|
|
|
29.5
|
%
|
Revenues
Revenues increased in the current quarter compared to the prior year due to the larger backlog at December 31, 2018 compared to December 31, 2017. Sales improved in the current quarter for the AHD product line (up $1,947,475 or 21%) and public safety mass notification systems product line ($375,767, or 51%) compared to the prior year quarter. The receipt of orders will often be uneven due to the timing of approvals or budgets. At March 31, 2019, we had aggregate deferred revenue of $602,900 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, partially 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 $42,513 over the prior year quarter. This reflects decreases of $87,319 in travel and related expenses, and $58,322 lower professional services (largely acquisition related). This was offset by a $135,968 increase in compensation expense.
We incurred non-cash share-based compensation expenses allocated to selling, general and administrative expenses in the three-months ended March 31, 2019 and 2018 of $154,250 and $120,133, respectively.
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 $365,809 compared to the prior year primarily due to $303,339 for increased product development and product testing expenses.
Included in research and development expenses for the three months ended March 31, 2019 and 2018 was $13,524 and $20,609 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 $717,942 increase in net income in the fiscal year 2019 second quarter was primarily due to the higher gross profit realized from increased sales in the 2019 quarter and a lower effective tax rate in 2019. Non-cash income tax expense of $274,144 and $158,451 was recognized in the three months ended March 31, 2019 and 2018, respectively.
Comparison of Results of Operations for the Six Months Ended March 31, 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.
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
|
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Total
|
|
|
Fav(Unfav)
|
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
Revenue
|
|
|
Amount
|
|
|
%
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales
|
|
$
|
18,688,691
|
|
|
|
91.7
|
%
|
|
$
|
14,461,283
|
|
|
|
93.3
|
%
|
|
$
|
4,227,408
|
|
|
|
29.2
|
%
|
Contract and other
|
|
|
1,680,559
|
|
|
|
8.3
|
%
|
|
|
1,035,732
|
|
|
|
6.7
|
%
|
|
|
644,827
|
|
|
|
62.3
|
%
|
Total revenues
|
|
|
20,369,250
|
|
|
|
100.0
|
%
|
|
|
15,497,015
|
|
|
|
100.0
|
%
|
|
|
4,872,235
|
|
|
|
31.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
10,089,484
|
|
|
|
49.5
|
%
|
|
|
7,503,494
|
|
|
|
48.4
|
%
|
|
|
(2,585,990
|
)
|
|
|
(34.5
|
%)
|
Gross Profit
|
|
|
10,279,766
|
|
|
|
50.5
|
%
|
|
|
7,993,521
|
|
|
|
51.6
|
%
|
|
|
2,286,245
|
|
|
|
28.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
5,226,386
|
|
|
|
25.7
|
%
|
|
|
4,706,289
|
|
|
|
30.4
|
%
|
|
|
(520,097
|
)
|
|
|
(11.1
|
%)
|
Research and development
|
|
|
2,328,119
|
|
|
|
11.4
|
%
|
|
|
1,691,972
|
|
|
|
10.9
|
%
|
|
|
(636,147
|
)
|
|
|
(37.6
|
%)
|
Total operating expenses
|
|
|
7,554,505
|
|
|
|
37.1
|
%
|
|
|
6,398,261
|
|
|
|
41.3
|
%
|
|
|
(1,156,244
|
)
|
|
|
(18.1
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
2,725,261
|
|
|
|
13.4
|
%
|
|
|
1,595,260
|
|
|
|
10.3
|
%
|
|
|
1,130,001
|
|
|
|
70.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income and expense, net
|
|
|
56,676
|
|
|
|
0.3
|
%
|
|
|
49,735
|
|
|
|
0.3
|
%
|
|
|
6,941
|
|
|
|
14.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations before income taxes
|
|
|
2,781,937
|
|
|
|
13.7
|
%
|
|
|
1,644,995
|
|
|
|
10.6
|
%
|
|
|
1,136,942
|
|
|
|
69.1
|
%
|
Income tax expense
|
|
|
557,147
|
|
|
|
2.7
|
%
|
|
|
2,867,339
|
|
|
|
18.5
|
%
|
|
|
2,310,192
|
|
|
|
80.6
|
%
|
Net income (loss)
|
|
$
|
2,224,790
|
|
|
|
10.9
|
%
|
|
$
|
(1,222,344
|
)
|
|
|
(7.9
|
%)
|
|
$
|
3,447,134
|
|
|
|
282.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LRAD
|
|
$
|
19,303,215
|
|
|
|
94.8
|
%
|
|
$
|
15,082,361
|
|
|
|
97.3
|
%
|
|
|
4,220,854
|
|
|
|
28.0
|
%
|
Genasys
|
|
|
1,066,035
|
|
|
|
5.2
|
%
|
|
|
414,654
|
|
|
|
2.7
|
%
|
|
|
651,381
|
|
|
|
157.1
|
%
|
Total net sales
|
|
$
|
20,369,250
|
|
|
|
100.0
|
%
|
|
$
|
15,497,015
|
|
|
|
100.0
|
%
|
|
$
|
4,872,235
|
|
|
|
31.4
|
%
|
Revenues
Revenues increased 31% for the six-month period ended March 31, 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 reported in the first quarter of fiscal 2018 as it was acquired on January 18, 2018). AHD sales increased $5,805,041, or 49%, and public safety mass notification systems decreased $932,806, or 26%, compared to the same prior year period. The receipt of orders will often be uneven due to the timing of approvals or budgets. At March 31, 2019, we had aggregate deferred revenue of $602,900 for extended warranty obligations and software support agreements.
Gross Profit
The increase in gross profit in the six months ended March 31, 2019 was primarily due to increased sales volume and better product mix, partially offset by an increase in manufacturing overhead expenses, primarily due to increased freight, salaries and benefits, computer related expenses and depreciation expense.
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 $520,097 in the six months ended March 31, 2019 compared to the prior year period. The increase in selling, general and administrative expenses is primarily due to $462,770 of Genasys selling and general administrative expenses in the first quarter of fiscal 2019 compared to zero in 2018 and $288,323 in higher compensation expenses. This was partially offset by $126,465 in lower information technology related expenses and $101,686 in lower travel and related expenses. As a percentage of sales, selling, general and administrative expense decreased to 26% for the six months ended March 31, 2019 compared to 30% in the prior year period.
We incurred non-cash share-based compensation expenses allocated to selling, general and administrative expenses in the six months ended March 31, 2019 and 2018 of $266,101 and $229,455, respectively.
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 $636,147 compared to the prior year, primarily due to increased product development activities ($432,591), occupancy related costs ($108,783) and increased compensation and related expense ($90,161).
Included in research and development expenses for the six months ended March 31, 2019 and 2018 was $31,220 and $43,539 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 $2,224,790 net income for the first six months year to date in fiscal year 2019 was an improvement of $3,447,134 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 March 31, 2019 was $7,723,503, compared to $11,063,091 at September 30, 2018 primarily as a result of cash used in operating activities and cash used to repurchase LRAD common stock. 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:
|
|
Six months ended
|
|
|
|
March 31, 2019
|
|
|
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in):
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(884,260
|
)
|
|
$
|
2,899,336
|
|
Investing activities
|
|
$
|
(301,847
|
)
|
|
$
|
(2,337,170
|
)
|
Financing activities
|
|
$
|
(2,142,894
|
)
|
|
$
|
(165,615
|
)
|
Operating Activities
Net income of $2,224,790 for the six months ended March 31, 2019 was increased by $1,457,900 of non-cash items that included a reduction to deferred income taxes, share-based compensation, depreciation and amortization, warranty provision, and inventory obsolescence. Cash used by operating activities in the current year reflected an increase in accounts receivable of $3,981,947, a decrease in accounts payable of $1,847,512, an increase in inventory of $1,704,919 and a decrease in payroll related liabilities of $553,919. Cash provided by operating activities included a decrease in prepaid expenses and other of $2,401,303 and an increase in accrued and other liabilities of $1,021,149.
Net loss of $1,222,344 for the six months ended March 31, 2018 was decreased by $3,443,194 of non-cash items that included a reduction to deferred income taxes primarily resulting from enactment of tax reform, 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 $502,933 due to the timing of payments, increase in accrued and other liabilities of $622,485, decreases in prepaid expenses and other of $174,589, and a decrease in accounts receivable of $389,434. Cash used in operating activities included a decrease in payroll related liabilities of $656,540 and an increase in inventory of $271,543.
We had accounts receivable of $6,757,217 at March 31, 2019, compared to $2,785,997 at September 30, 2018. The level of trade accounts receivable at March 31, 2019 represented approximately 60 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 March 31, 2019 and September 30, 2018, our working capital was $22,124,231 and $21,090,472 respectively. The increase in working capital was primarily due to the net income generated from operations in the first six months of fiscal year 2019.
Investing Activities
Our net cash used in investing activities was $301,847 for the six months ended March 31, 2019, compared to cash used in investing activities of $2,337,170 for the six months ended March 31, 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 $299,965 and $90,135 for the six months ended March 31, 2019 and 2018, respectively. In the six months ended March 31, 2019, we increased our holding of short and long-term marketable securities by $1,882, compared to an increase of $490 in the six months ended March 31, 2018. We anticipate some additional expenditures for tooling and equipment during the balance of fiscal year 2019.
Financing Activities
In the six months ended March 31, 2019, we used $2,142,894 for financing activities, compared to using $165,615 in financing activities for the six months ended March 31, 2018. During the first six months of 2019 we used $2,171,022 to repurchase shares of common stock, offset by $45,172 in proceeds from the exercise of stock options. The first six months of 2018 included net payments of $414,477 to pay down debt assumed in the Genasys acquisition. Proceeds from the exercise of stock options were $185,718 for the six months ended March 31, 2018. Total debt at March 31, 2019 was $320,472.
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 six months ended March 31, 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 March 31, 2019, 200,000 shares were repurchased for $550,000. At March 31, 2019, all repurchased shares were retired into treasury. At March 31, 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.