Gross Margin
Gross margin for the three months ended February 28, 2019 decreased to 32.8%
as compared to 40.8% for the three months ended February 28, 2018. Gross margin for the nine months ended February 28, 2019 decreased to 37.1% as compared to 44.1% for the nine months ended February 28, 2018. The decreases in gross
margin experienced between the periods presented were primarily influenced by efforts that occurred in the third quarter of Fiscal 2019 to evaluate the types and levels of inventory maintained across the Companys three product lines. This
resulted in a direct adjustment to cost of sales, thereby reducing gross margin from 46.1% to 32.8% for the three months ended February 28, 2019 and from 41.1% to 37.1% for the nine months ended February 28, 2019. In addition, margins were
also influenced by the mix of products sold during the respective periods across the Companys three product lines, decreases in overall product costs incurred, and the shift in SBS product sales between the European, North American and Asian
markets.
Operating Expenses
Operating expenses increased $165,257, or 12.1%, to $1,527,765 for the three months ended February 28,
2019 from $1,362,508 for the three months ended February 28, 2018. These results include
non-recurring
reorganization and legal expenses of $292,888 incurred during the three-month period ended
February 28, 2019, that are not expected to be incurred in future periods.
Other items that impacted operating expenses for the three months ended
February 28, 2019 include:
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Decrease in trade show expenses in the amount of $29,188, or 65.2%, due to timing of certain trade shows for our
three product lines; and
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Decrease in research and development expense in the amount of $55,258, or 72.9%, as a result of the shift of
engineering resources towards support of existing product initiatives rather than research and development.
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Operating expenses
increased $36,272, or 0.8%, to $4,568,784 for the nine months ended February 28, 2019 from $4,532,512 for the nine months ended February 28, 2018. These results include
non-recurring
reorganization,
legal and other professional expenses in the amount of $637,447 incurred during the nine-month period ended February 28, 2019, that are not expected to be incurred in future periods.
Other items that impacted operating expenses for the nine months ended February 28, 2019 include:
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Decrease in commission expense in the amount of $148,131, or 20.8%, as a result of the restructuring of the
Companys sales commissions programs that occurred during Fiscal 2018;
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Decrease in research and development expense in the amount of $136,314, or 53.9%, as a result of the shift of
engineering resources towards support of existing product initiatives rather than research and development.
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Other Income
(Expense)
Other income (expense) consists of foreign currency exchange gain (loss), interest income (expense) and other income (expense). Foreign currency exchange gains were $50,725 and $58,725 for the three months ended
February 28, 2019 and 2018, respectively. The shifts in the foreign currency exchange are related to significant fluctuations of foreign currencies against the U.S. dollar during the current period of Fiscal 2019. Interest income (expense), net
was $(3,957) and $3,090 for the three months ended February 28, 2019 and 2018, respectively. Other income (expense) was $11 for the first quarter of Fiscal 2019 as compared to $0 for the same period in the prior year.
Foreign currency exchange gains (losses) were $(79,397) and $85,913 for the nine months ended February 28, 2019 and 2018, respectively. The shifts in the
foreign currency exchange are related to significant fluctuations of foreign currencies against the U.S. dollar during the current period of Fiscal 2019. Interest income (expense), net was $9,890 and $3,122 for the nine months ended
February 28, 2019 and 2018, respectively. Other income (expense) was $39 for the first half of Fiscal 2019 as compared to $(599) for the same period in the prior year.
Income Taxes
The Companys effective tax rate on consolidated net loss was 2.1% for the nine months ended February 28, 2019. The
effective tax rate on consolidated net loss differs from the federal statutory tax rate primarily due to changes in the deferred tax valuation allowance and certain expenses not being deductible for income tax reporting purposes. Management believes
the effective tax rate for Fiscal 2019 will be approximately 3.2% due to the items noted above.
Net Income (Loss)
Net loss was $475,189, or
$(0.12) per fully diluted share, for the three months ended February 28, 2019 as compared to net income of $15,553, or $0.00 per fully diluted share, for the three months ended February 28, 2018. Net loss was $942,278, or $(0.24) per fully
diluted share, for the nine months ended February 28, 2019 as compared to net loss of $15,297, or $0.00 per fully diluted share, for the nine months ended February 28, 2018.
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