Genasys Inc. (GNSS) Q3 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to LRAD Corporation's Fiscal Third Quarter 2015 Financial Results Conference Call. [Operator Instructions] At this time it is my pleasure to turn the floor over to your host, Brian Harvey. Sir, the floor is yours.

Thank you, Kat. Good afternoon, everyone, and welcome to LRAD Corporation's Fiscal Third Quarter 2015 Financial Results Conference Call. I am Brian Harvey, the Director of Investor Relations for LRAD. And on the call with me this afternoon are Tom Brown, LRAD's President and Chief Executive Officer; and Kathy McDermott, our Chief Financial Officer. Mrs. McDermott will recap our fiscal third quarter financial results, which will be followed by a brief presentation from Mr. Brown. After their presentations, we will open the call to questions. But before I turn the call over to them, I would like to take this opportunity to remind you that during the course of this call, Management will make forward-looking statements. Other than statements as to historical facts, statements made during this call that are forward-looking statements are based on our current expectations. During this call we may discuss the Company's plans, expectations, outlook, or forecasts for future performance. These forward-looking statements are subject to risks and uncertainties, and actual results could differ materially from the views expressed today. For more information regarding potential risks and uncertainties, see the risk factors section of the Company's Form 10-K for the fiscal year ended September 30, 2014. LRAD Corporation disclaims any intent or obligation to update those forward-looking statements, except as otherwise specifically stated. I will now turn the call over to Kathy, for the fiscal third quarter 2015, financial results recap. Kathy?

Thanks, Brian. And thanks, everyone, for joining us today. LRAD Corporation's revenues for the fiscal third quarter ended June 30, 2015, were low at $3.5 million especially when compared to the strong fiscal 2014 third quarter revenues of $8 million, as a result of several large orders shipped last year. We anticipated higher revenues this quarter but fell short due to the timing of orders and delays in contract awards. In the fiscal third quarter of 2015, we delivered $634,000 order to an Asian police force and a number of orders to various foreign militaries, law enforcements, and oil applications and municipalities for mass notification, as well as small but significant mass notification orders to an airport in Asia, and U.S. army installation. We also received a number of significant orders during the quarter, including $550,000 for LRAD X units for the U.S. Navy, and $300,000 orders for another U.S. Government Department for our sound barrier vehicle protection system and to mass motivation units. Our business development team in conjunction with our outside reps and resellers have developed a strong pipeline of opportunities which validates the increase in demand for our products. However, there are often delays in getting a purchase order due to budget cycles, contracting procedures, changes in decision making personnel, or even summer season. We continue to build our pipeline and are optimistic that these opportunities will prove successful in future quarters, both for our directional LRAD product and our mass notification line. Revenues for the third fiscal quarter, ended June 30, 2015, were $3.5 million, a 56% decrease from $8 million reported in the third fiscal quarter of 2014. Revenues for the nine months ended June 30, 2015, were $12.4 million, a 28% decrease from $17.2 million reported for the same period in the prior year. Gross profit for the quarter ended June 30, 2015, was $1.7 million, or 48.5% of net revenues compared to $5 million or 63.1% of net revenues for the third quarter of the prior year. Year-to-date gross profit was $6.4 million or 51.4% of net revenues compared to $9.7 million or 56.5% in net revenues in the prior year. The decrease was primarily due to the decreased volume, and lower absorption of our fixed overhead cost partially offset by lower freight cost and bonus accrual. Our decrease in revenue was partially offset by lower operating expenses. Operating expenses for the third fiscal quarter decreased by $1.3 million or 42% to $1.8 million from $2.1 million for the third fiscal quarter of 2014. The decrease was primarily due to $701,000 for commission expense for our reps, due to lower commissionable sales, and $633,000 for accrued bonus. Year-to-date operating expenses decreased 20% to $5.7 million in the first nine months of 2015 compared to $7.1 million in the first nine months of the prior year. The decrease resulted primarily from a reduction of $675,000 for commission expense, $660,000 for accrued bonus, and $105,000 for travel expenses. Quarterly net loss of $64,000 or $0.00 per share in the third quarter of fiscal 2015 compared to net income of $1.9 million or $0.06 per diluted share for the third quarter of fiscal 2014. Year-to-date net income was $732,000 or $0.02 per diluted share compared to $2.6 million or $0.08 per diluted share in the prior year. Interest income increased by $74,000 year-to-date compared to the prior year. And we did not record a tax provision for either year. On our balance sheet, our cash and cash equivalents as of June 30, 2015, was $17.8 million compared to $23.9 million at September 30, 2014. The decrease of $6.1 million was due and part to investing $4.7 million in short- and long term marketable securities. Working capital remains high at $25.6 million, but $2.1 million lower compared to $27.7 million at September 30, 2014, due to our investment of $2.8 million in long-term instruments. During the quarter we repurchased 335,000 shares of stock at an average price of $2.41 for total of 404,000 shares year-to-date and 682,000 shares since inception. We are continuing to purchase in Q4. And with that I'll turn it back over to Brian.

Well, thank you, Kathy. And I'll turn the call over to Tom, for a brief Management presentation.

Thanks, Brian. And thanks for joining the call. It was a frustrating quarter. We had anticipated closing a number of oil and gas opportunities in Southeast Asia and the Middle East, but they were all pushed out. We're still confident that they will close, that these opportunities will close but they have been delayed. It would have been a much different quarter had we closed these orders. In the quarter, we had two business development personnel, one focused on mass notification, he has a strong background in this market, and one based in the Southeast Asia, a strong and growing market for our products. We're also brining on a VP of marketing who has a strong resume and will enhance our global marketing and sales efforts. We are continuing to work the oil and gas markets in the Middle East, Southeast Asia, and our RX product has been included in a number of proposals by large integrators. We're also working on a number of military opportunities for LRAD product in Asia and the Middle East. I the U.S. as we have previously announced, the U.S. Navy has purchased a number of RX units off of the IDIQ contract that we were awarded back in 2010. The contract has expired and the navy issued a notice of solicitation last week, indicating that a new RFP will be issued in September 2015, next month. And the RFP is to cover the U.S. Navy, military sealift command, and coast guard. We will respond to this RFP. We're still waiting to see an RFP from the U.S. army. We're seeing increased activity from law enforcements, and active military and, national guard as your money is being allocated. Timing of the orders will determine when we can build and ship. Mass notification, we were notified in July that the large Middle East mass notification order that I have been talking about in the last three calls, was awarded to a large competitor. We had the best product and price, but unfortunately the award was given to another company. We continue to pursue smaller opportunities in this country and region to try to get a reference site, as we expect to see a number of other large tenders being issued in the near future, and we will pursue these. Having product installed in territory will help us in this pursuit. While demand for LRAD product continues to expand, mass notification offers us our biggest opportunity for future growth. We have invested in software development, new product development, software engineers, and have had a business development personnel focused on this market, along with partnering with a number of software companies, installation and alarm companies, to expand our business opportunity. With LRAD, we control the market, with the best product offerings and a strong returning customer base and a strong international brand having sold that over 70 countries. In the mass notification market, we are the newcomer, and we're still fully developing our product offerings. But we have been making the investments in product and people without negatively impacting our cash flow, and we are developing the best product in this market. It'll take time for us to develop the presence and we will not win every bid but we will grow this business because best product eventually will win out. We're pursuing a number of opportunities and have a number of outstanding proposals which we hope to close this year. Timing of orders is the issue. Our sales pipeline has never been as large as it is today. Our product development for a small Company is excellent, and we are making the investments to position the Company for sustained growth. We insist they close in the year out on a positive note with a stronger fourth quarter. And now, Brian, let's take some Q&A.

Okay. Thank you John. We'll now open the conference call to questions for Management. We encourage callers with questions to queue up with the operator as soon as possible so that there will be minimal lag time between each caller. Operator please instruct the callers how to queue up with their questions.

[Operator Instructions] And our first question comes from Lloyd Korten from Unique Investments. Lloyd, please state your comment or question.

Hey, hello everybody. A few questions, can you give us a little bit of color on China, this past quarter please?

China, has slowed down a little bit, Lloyd. But we are still doing pretty well in that country. Revenue, Kathy, do you have the revenue?

Revenue was $0.5 million in the quarter, and year-to-date we're about $2.5 million, last year, year-to-date was about $1 million in comparison.

We were anticipating a little larger revenue out of China this year, but we just made a quote for the sizable order today. So, China actually will work out for us, so we are anticipating some additional orders in the fourth quarter for China.

How many different divisions are we selling there, meaning military, coast guard, whatever, are we currently shipping to?

Well, we sold in to their -- what they call their police, which could be -- we might categorize the more at the military, but since it's the police, we also have sold in to the coast guard and we've also sold somewhat mitigation into some of the airports in China. So, we've expanded beyond police into coast guard, we're doing some demos at the Chinese navy right now. They have am RX unit on one of their ships, and we're also working on the border with Korea. So we have 2000x unit that they've been demonstrating on the border. So, we're expanding into different areas, it takes time but our partner in China has been very aggressive and they're doing a good job for us.

Yes, this quarter I was pleased to find out -- I think a particular government magazine rated us number one in LRAD, and number one in Mass Notification, is that correct?

Yes, it is Lloyd. Government security news.

Right, I would assume that it turns to be a fantastic selling tool for offer us.

We're using it. We're using it mad we've -- we've gotten it out to all of our reps and resellers around the globe, and yes, feedback has been very positive.

You mentioned in the call about automobile shipments, is this the second or the third order on that category?

This is the second order. We're hopeful that we're going to see a third order very shortly.

Okay. As far as the stock repurchase program, obviously everyone is aware that the stocks come down significantly, have we been taking advantage of that?

We're buying. We're restricted with the number of shares that we can purchase each day based on the daily float, but we are buying.

Okay. Good, also one more question. Certainly disappointed that we didn't get that Middle East orders which we were anticipating, who did we lose it to?

We lost it to a company called Whelen. Whelen is a very large long-term company in this space and they have a presence in that country. We're very disappointed losing that because it made a very aggressive offer and we've been up against Whelen in Japan and our product has been accepted by the Japanese over the Whelen product. But in terms of this opportunity, unfortunately we felt we had the best product, best price, but sometimes that doesn't always equate to in our work.

I heard the name, I'm not familiar with them. Is our product equivalent to theirs or better?

Better. Lloyd, we're better.

Better.

No question.

Okay. Well, thank you. I hope budgets loosen up and business becomes easier, but thank you for your efforts.

Thank you, Lloyd.

And our next question comes from Steve Wilson, Private Investor. Steve, please state your comment or question. Q – Unidentified Analyst: Hi, you've partially answered all my questions, but I have a couple still. What do you estimate the size of the notification market is and the size of the LRAD market is, and what your shares are in those two markets?

Let me answer the LRAD market. The LRAD market, honestly Steve, the size of the market we really can't determine, it can be extremely large but its also -- right now we have 95% of the global market and our sales are still in the $15 million $25 million range. Q – Unidentified Analyst: So you think the LRAD market is only like in a 10s of millions at best, not in 100s of millions?

I would say, we're still developing. We're the pioneers in this space and we're still developing it, and it's been growing. It’s a lumpy growth but it continues to grow. So we see potential to grow this market much larger than it is today, but to put a number on it, I really can't put a number -- I hate to put numbers on market sizes. Q – Unidentified Analyst: I was just looking at the -- some magnitude, but what about the mass notification market, is that of 10s of millions, 100s of millions, billions market, what size is that? Do you know?

The overall mass notification market, if you look at different trade magazines that are out there, it includes infrastructure, it includes mass notification speakers, it includes software, Brian.

It includes all the integration.

Brian has some of those numbers.

There's been some market research out there that shows that it's currently about $2.5 billion dollar market, that is growing about 20% a year and could be in the $4 billion plus range in the next five years. But that's for the entire marketplace, and as of right now, we have a small market share in the speaker segment, but it is a relatively new product and we are continuing to roll it out and expand it internationally. Q – Unidentified Analyst: But in the segment that you competing currently, do you think you have -- it's a $100 million market?

100s of million. Q – Unidentified Analyst: Excuse me?

100s of millions, yes. Q – Unidentified Analyst: Good. So, there is a huge opportunity in that market and maybe a big opportunity in the other market too.

Yes. And Tom, made reference to that in his remarks that the mass notification is where the larger opportunities lie, and those are the ones that we're aggressively going after having added both people for marketing and sales for that division and a product in the most recent quarter.

But the point Steve, is that the LRAD business is also still a growing market, and we continue to grow. Q – Unidentified Analyst: I understand, but if it was a smaller market, it's not as attractive as if it's a huge market. Apparently it could be a sizeable market as well, not as big as mass notification but maybe a very big market. And that segways in to my next question, there is more and more drones coming out there as you know, and they're becoming more -- people are becoming more and more aware of them, whether its government or consumers or whatever, do you have plans to use your LRAD devices to maybe use as a defense system against these things?

It would be something that we would have to take a hard look at. Right now, Steve, my focus is to grow up the mast notification market, which is short-term and can generate quite a bit of business for us. On the drones side, we have a project and it hasn't really kicked off yet, but its on the drawing board, to actually develop our own drone with a LRAD attached to it along with a camera, so for boarder patrol, for law reinforcement, for firefighters, because right now the drones, they can take pictures, they can fly, but they can't talk. Q – Unidentified Analyst: Well, it sounds like a better opportunity for you to partner up with one of the suppliers, and you've been the selling person on it not doing it yourself, but that's.

That's what we're looking at, we agree with you. Q – Unidentified Analyst: Last question on this Whelen, is there another competitor besides them out there that goes against you a lot?

In the LRAD space, we have a couple of very small competitors. In the mass notification space, there are a number of large competitors. Q – Unidentified Analyst: What's a large competitor in the mass notification space as an example?

Federal Signal, Whelen, Cooper and there are several that have already been entrenched in this space, but we're entering this space with what we feel is the best product, and we've proven that in a number of occasions and we're going after this space hard because it does offer us big opportunities to grow. Q – Unidentified Analyst: That’s great. I am glad you see you picked up a marketing personal to smaller sellers because there's been a lot of inconsistency as you know over the years, and you need to - and you have the best product, so that's what sad about those things so that if you can get some more marketing and sales going, it could really spiral. But thanks for the answers.

You're welcome.

And our next question comes from Jared Cohen from JM Cohen & Company.

Hey, my questions have been answered, thank you.

Okay.

And the next question comes from Walter Ramsey from [indiscernible] Partners.

Thank you. Thanks for taking the questions. The Middle East, situation - was under the impression there were two projects that the Company was attempting to get into – the both of those contracts Whelen, or I mean, what happened there?

The one that we were - if you remember, I was indicating that we were really up to the one city and that city went to Whelen, unfortunately.

Okay. And what was the date that that decision was made public?

It was made public to us, I think it was the day before the beginning of Ramadan. So in July, I don't have the exact date in July, but it was in July.

Okay. All right, and the pursuit of offshore oil business, isn't that kind of like a Moby Dick project these days, with the price of oil as low as it is. I mean why so much effort on that front?

Well, you're right. We've been putting a lot of effort, but this effort has been ongoing for over a year and the opportunities for us, relatively speaking the opportunities are very large and we are positioned to eventually be part of the solution that's going to be placed on these oil platforms. The price of oil is definitely been part of the reason why these programs have been pushed out, but we're in there. So we want to hang in there and we're hopeful that one of them -- we're kind of hopeful that one of them will close in the short term. But there are three major projects that we've been working on, two of them in the Middle East, one is in Southeast Asia, and we have positive feedback on all three but they're in delay right now.

But we think some of that has to do with the price of oil as you indicated -- Cap-Ex budgets are coming down for oil and gases, I'm sure everyone is aware.

Right. Okay, so you mentioned that there were some order, timing issues in the third quarter, can you tell us what the backlog of cash flow closed businesses going into the fourth quarter that didn't get shipped by -- the paper work?

That's something that we don't disclose on a quarterly basis. We disclose that at the end of the year.

Okay. I was just wondering if it really mounted up or if it was just a kind of a secondary consideration?

Yes, we do have a backlog, but we don't disclose that number.

Okay. The U.S. military outlook, could you go over that again. I mean you talked about it earlier but I'm afraid I didn’t catch it all?

What I indicated is that the U.S. Navy's has -- we've announced this, U.S. Navy has procured a number of our RX units in the second and third quarter, we'll be shipping some of those in the fourth quarter. And -- they were buying this off of an IDIQ contract that we had won back in 2010. That contract expired, and all these contracts are pretty much five year programs, that contract expired in August, actually last week I think was the expiration date, and we responded to [indiscernible] recently for this proposed RFP that will be coming out in September. So the Navy is buying, there's going to be a new RFP, they just purchased our product, we feel very confident going into the RFP that we can think of very good proposal. The U.S. army -- we've been waiting on the U.S. army for an RFP for -- actually we've been waiting on this RFP for eight years, and we're still waiting. There was supposed to be an RFP issued earlier this year, and we're still waiting to see the RFP come out and with all the budget conversations going on in DC and possible to tenure resolutions, we're still waiting to see how this is all going to shakeout. But, on a positive note, we are getting orders from the U.S. military right now. So they're still buying -- but they're buying smaller quantities than they would if an RFP were issued and awarded.

Excellent. And you talked about the size and growth for the mass notification market but -- the core business, the LRAD market, could you just take a minute and discuss how that’s faring these days?

Well, it's -- we're continuing to expand, we're continuing to expand in different countries, as Kathy indicated in the last call. In China, last year we had revenue of $1 million, this year – year-to-date we're at $2.5 million. So a lot of countries we're continuing to grow, and that's primarily LRAD business. So, LRAD is growing -- the market, we're creating the market for it. So to put a number on how big the market could be, we're in wild life, we're in military, we're in police, and we have a number of different areas that we're attacking. This product has a lot of capability and a lot of different applications. But to actually put a market value on it, I can't -- the only thing I can see is that we continue to grow it and I have -- one of the new sales people was dedicated to mass notification but the other one is dedicated to selling LRAD. So, we still see upside in the LRAD business.

Okay. And as far as new product development, would you say that more resources are being put behind the mass notification now or, LRAD or, how are you allocating those people?

Well, on the engineering side, we've added couple of new software engineers that are focused primarily on mass notification. And we've added to our engineering team, the engineering team is challenged to work on both product development, we have a lot of enhancements that we're making to the LRAD product line and we've developed a couple of new products for the mass notification product line, and the engineers enjoy working on both product lines. It's a challenge to both -- to work on both.

And if you don't mind, circling back to that big Middle East deal, is there a post mortem that you could kind of give us as to why you think the other company won? What do you think?

We'll there's actually probably a couple of reasons but I would say that we had the best product and we had the best price. So, that doesn't always in an international environment that doesn't always equate to an award.

No, I understand. I am just wondering if they offered better financing or better integration or -- what they have that -- they must have had an advantage somewhere, it can't all be just girls and money.

One thing that they do have is, they have a stronger reputation because they've been in the market for many, many years. And sometimes when you're doing a large -- sometimes when you're doing a very large project you'd rather go with someone who's tried and true than to start with a new comer.

We're hoping that if we can win some of these smaller opportunities over there, that'll get us some in country, examples that we can show the quality of our product and that will hopefully help on future orders.

Okay. Right, looking to the fund sales I was going to ask about that, very good. So just a couple of accounting questions, the bonus reversal, can you tell me how much was that again, I kind of lost that – that one too.

We didn't reverse our bonuses, just we are accruing at a lower level than we did last year when we had shown the results.

Okay, I see. And was there any foreign currency impact on that quarters results?

No. We do everything in USD. The most part.

Okay. Thanks for taking all the questions. Sorry to have such a long list, but there's a lot of thing going on.

No problem, Walter. Thank you.

Thanks, Walter.

And our last question comes from [Joe Carter] [ph]. He is a Shareholder. Joe, please state your question.

Actually I've got few, can you hear me okay, guys?

Yes. Sure.

Okay. Just a comment and a concern that it seems like every conference call, especially at the end of the second quarter, we kind of start off at a pretty average rate and then the commentary is that we will finish the year strongly, and so far -- and that's every year, not just this year, every year. And so far this year, obviously I'm not being impressed by the results, and even looking at this versus last year, we're so far behind. I can't imagine a scenario where we're going to be able to meet last year's sales targets, or last year sales results. And I guess my comment is, can you quantify any of your commentary that the year will finish stronger – still stronger?

We quantify --

Every year -- it seems like every conference call, Tom, you comment that the year will finish strongly, but there is no evidence to that fact, there is no -- hang on a second, your comments are always in the order of our pipeline "is building", which is a word I absolutely hate, because that's the word that was used by Brian's predecessor all the time. But there's never any quantification of that comment, like we have increased sales, quotations are out, our volume is ticking up this quarter even though we haven't reported it yet, so on and so forth, and so I'm asking for it, is there any you can quantify that you feel the year will finish stronger.

Well, I think Joe, if you go back and look at fourth quarter in the past couple of years, we do finished stronger in the fourth quarter. Because money does get allocated and as I indicated in the statements that I made, we are starting to see a loosening of dollars with the military, with law enforcement, we do have a number of outstanding quotes, a lot of quotes that are outstanding, and we were anticipating getting some of those oil and gas deals in the third quarter which would have definitely changed the entire situation that we are looking at for the third quarter. But in terms of quantifying with fourth quarter, its going to come in at. The only thing I can say is that it's going to finish stronger than what we did in the third quarter, and its timing of orders. It depends on when these orders are up in the door, we can get a very large order, if it comes in at the end of September, it's going out next year, it's not going to go out this year. We have built up our inventory, if you look at our balance sheet, inventory is much higher in the third quarter because we are anticipating a pretty strong fourth quarter, and we want to be ready for it. But, again, we're subject to budgets, budget cycles, and if the budget dollars are there, we'll get the orders and we'll ship.

No, I understand all that, but I guess it seems like this is the same thing every year, and now at this point I can't imagine a scenario where you're going to even be able to get to $23 million to $24 million sales a year. And I think last year the number was quite a bit higher than that. So we're taking a step back which seems to be the five year, six year history of the Company, that there -- build up and then all of a sudden kind of a big let off, not even a little one where you matched revenue from previous years, but a significant downward trend. And my question is, are you in the right market, are you in the right -- do you have the right products, is the interest there, do we have the right sales force in place? It just seems likes this is going to be a never ending cycle for the product line.

This is the nature of this business, Joe. It's a long, long, selling cycle, we have to be included in budgets, we have to work our way into a budget. And as - if you've been a long term shareholder, we’ve been looking at an army deal, the U.S. army deal since 2007, and we're still waiting to see if and RFP will hit the street. So, we can't control that, but the only thing we can do is keep on pursuing it. And -- we're frustrated also, but the thing is, the business is generating, we're generating a profit or generating positive cash flow and we're trying to stay within the revenue that were generated to keep this Company growing. And mass notification markets, as I indicated, offers us bigger opportunities, and these deals are much larger and they're spread out over a longer period of time. So, we'd like to try to get some of them stable, revenue base that we can take these blip switches. So we're trying hard, we're in the right markets, we have the best product, we have a decent sales team right now, we have a large pipeline, and I know you hate that word but that's the word that we use, and we just need to get some of these deals closed, and we are working very hard to close them. And once they're closed, business will grow.

Well, no. I understand that one order would have obviously made a significant impact on the business, but that's the danger of, I guess the situation where you're almost putting all your eggs in one basket or at least it seems that way.

We're planting seeds all over the place. We're hoping that they start to grow, we are going after -- we're pursuing every opportunity that we can pursue. We're not just going after one big deal.

No. But we're actually presenting the -- you're presenting the evidence of the increase in opportunities that just seems that the focus is on that one order. And that's why I'm talking about, just quantifying the pipeline is that it's -- I wouldn't think that will be - to look at your outstanding quotations at this time last year or the year before and then to say, well are increased, we've had an increase in the interest or actually increased in outstanding quotations by 30% or 40% whatever the number is. That seems like a pretty basic thing to do when you're trying to develop a sales strategy.

We do that internally.

Yes, but there's something about quantifying it, it didn't seem like that'd be really letting a cat out of the bags to your competitors, if you just say that our outstanding quotations are up 50% versus where they were last year. That seems like a pretty easy number to put out there so that people can at least have some confidence that they -- the Company is seeing new opportunities and will grow down the road.

Joe, I will take that under consideration, I don't have -- I can't give you a number of the top of my head but for the next call, I'll definitely include that information.

Okay. I don't know if there is any other callers, but I was presented as last one, so I do have a couple more questions if you want to indulge me. I was told upfront that we would actually hear a commentary from somebody about the letter that your acquirer sent to the Company a few months ago, and to my knowledge nothing has been mentioned about the items that were raised in that letter, and I'd like to hear some commentary about that letter, please.

The letter has been, it's public and the Board has taken a look at it and the Board is evaluating it.

I've just spent a couple of months, I think that it would be fair to the shareholders to adjust some of the issues that are in that letter.

No. Lot of the issues in the letter were misrepresentation. So, we're evaluating the letter, and that's a Board issue.

Well, but I think that as shareholder, I think that that's only fair to at least let us know on what the conversation is about, Tom? I mean, frankly we're the owners of the Company and I'm not getting a sense that you guys appreciate that fact.

We definitely appreciate that fact, Joe. We work for the shareholders.

But not in an outward way, I mean I don't want to have to fly out to San Diego just to get an audience with you. And I've got questions for a number of years and a very similar manner on what the Company really feels about shareholder value and your willingness to grow that. Even looking at the shares that you purchased this past month, you're still not up to the $4 million that was committed to that. And I have a hard time believing that that 25% threshold is preventing you from buying more shares.

No. We're buying shares, Joe.

No. I understand that. But could you be buying more shares is my question. And if you aren't buying more shares then why are we not spending more money that's already been allocated toward share repurchases?

We're restricted on the number of shares that we can buy based on the float, and we're buying up shares based on what we can buy.

The buyback program is in place and we have been buying quite a bit. This past quarter we bought more than we did the rest of the program combined. So we have, we adjust the price -- the Board provides pricing and we adjust the price quarterly and at that price we buy - we do [indiscernible] set it up ahead of time and buy based on -- it's dependent upon the average yearly trading volume, we've got some limitations but we have been buying.

Why you seen to be buying, obviously there is evidence of that in the report, but my question is, could you be buying more because 300,000 and change shares seems like not quite that much shares for a four quarters worth of purchases based on the volume that we've seen. It's just 25% limited to the -- 25% of the day of that particular days, share exchange or is it based on the trailing average of maybe 30 to 60 days?

I think its 30 days trailing -- average yearly trading volume, in average.

Okay. I sent a note to Brian, the other day, that the share volume on -- the trailing average was in the $60,000 range and the total number of shares purchased, that there was only $14,000. So I'm assuming that the Company feels that the share prices undervalue at that point and that's why I'm asking is why weren't more shares purchased that particular day?

Joe, there's also a time and day when we can buy, we can't buy –

It can't be the first purchases, last purchases.

There's all kind of restrictions on the purchase.

I understand that, and the rest I'm trying to understand is, looking back at the course of the last three months, are you saying that the maximum number of shares that could have been purchased, were purchased.

It's based on the percentage that we put out there, also. But those are all approved by the Board upfront. We don't - we can't, especially when we go to black out, we can't just say, hey the price is low, let's buy more today, we don't have that flexibility just based on the safe harbor rules, we follow the rule 10b-18 to try and manage the process. So, in the course of a quarter and certainly when you spend a lot of time in black out, we're not adjusting that just going based off what the Board had previously approved.

Right. But you had a -- basically an approval for $4 million and I think that at this point you haven’t spent even a $1.5 million half of that, is that correct statement based on the share prices? I'm sorry.

No. We've spent about $1.5 million.

Okay. So, $1.5 million out of $4 million, when -- I thought the program was going to be ending at the end of this year?

The current approval is to the end of this year and then it will be subject to the Board to extend or whatever.

I guess I'm not getting a sense of any kind of urgency that there is a desire on the part of Management or the Board of Directors to increase shareholder value, or to even to stabilize it. I mean, to get the swings that we've got and I know the family trade is stock and has got a low float. But that to me is the opportune time for Management, whether it's the President of the Company or the Board of Directors to say, we need to step in here and stabilize this price for our shareholders, to give our shareholders some confidence that this is a long standing entity. I'm just not getting a sense that there is any concern whatsoever of what the share price is, or the willingness to actually try to put some effort into growing the share price.

Your opinions are incorrect there, Joe. Because our whole focus is on trying to grow this Company, and the only way we can really grow the share price is by increasing the revenue, and we're working extremely hard to do that.

Well, I'm looking forward to better results, but I just don't see a strategy in place to really address shareholders concerns. And I know you have the meeting in March, where you have an opportunity to actually sit down with the Board and with Management, but it's very difficult as a shareholder from across the country to actually get out there for that meeting, so I think a forum where you can actually have call in to address the Board and the Management of the Company would be a valuable tool to try to address some of these concerns.

We'll take that as a consideration, Joe. Thanks for the call.

Thank you.

And we actually do have a few more questions in the queue if you would like to take them.

Sure, thank you

Okay. The next question comes Adolf Herst from First Princeton. Adolf, please state your comment.

Yes. Not quite as long as some of the previous ones, but I will make a comment. I've been around longer than everyone on this call, and I can understand the frustration, will this ever be a big Company or a sizeable Company. Anyway, could you explain to me what’s in this bonus as far as who it goes to? And also I see that the number of diluted shares is going up and who is getting those shares?

I can explain the bonus. The bonus plan is, every employee in the Company is in the bonus plan. And it's based on Board approved earnings projections, and we pay it out at the end of the year if we achieve our results. But everybody in the Company is in the plan.

Is it on track to pay out at the end of this year even if the numbers aren't anywhere near where they were last year?

Well, that's why our accrual is lower this quarter. We aren't accruing at the same level as, for example, last year, where our results were much better.

Yes. If we don't achieve the numbers that were -- and each year the bar gets raised, so if we don’t' achieve our numbers, there will be no bonus, but we are working hard to achieve strong results.

And the diluted shares is just simply a function of -- it's just our stock options and our warrants, in this case the warrants are out of money right now, but it's based on stock options outstanding and where the market price is at the end of the quarter and how that's calculated.

But seems to be up 500,000 over the last year, so you've bought stock in but you haven't bought in enough stock to replace this.

It's just a calculation for the -- it's a treasury method on EPS and kind of what would happen if, it's just based on what the current stock price is versus the price of the options – price options.

But these are options that have been given out to Management and the others, correct?

Correct.

Well, it'd be nice to see the stockholders make some money out of this at a given point. I have 200,000 shares that I own directly or controlled, and they're getting very frustrated just for the record. Thank you.

Most of the options are out of the money also. We're trying to share, it's the same as our shareholders are.

Thank you.

Thank you, Adolf.

And our next question from [David Ladok] [ph] from JP Turner & Company. Please state your comment. Q – Unidentified Analyst: Hi, just for the record, I need to say I'm a registered representative, not an analyst. And my question is, did the Company buy Mr. Brown's sale of 100,000 shares on June 4th, and if so, why?

No. They didn’t. As you can see we purchased the number of shares in the quarter, but those shares were purchased in two large blocks. I don't know by whom, but they were purchased in two large blocks. Q – Unidentified Analyst: Did this show up on the daily trading records? I thought it might have been off the market transaction, 100,000 shares, all at one price, that didn’t happen on the stock market, I didn't see it.

It did, actually. It came across ahead. Q – Unidentified Analyst: I guess my question was, it was not the Company buying back shares?

It was not the Company buying it.

No. The Company doesn't buy that level based on the average daily trading volume, we have the limits on how many we can purchase in a day, and that will not come close. Q – Unidentified Analyst: Okay. And did you enforce sales -- when did you say you knew about missing the Mideast oil and gas deal? When did that come to light?

No. We didn't miss the oil and gas deal, but we were bidding on a mass notification opportunity in the Middle East. Q – Unidentified Analyst: Middle East, the big one, yes.

Yes. We found that we were -- we were told that the award was given to another company in July. Q – Unidentified Analyst: Okay. All right, that's all I have.

Thank you, David.

And our next question comes from Lloyd Korten from Unique Investments.

Hi, guys. I have one more question. I've listened to everybody's call and everybody is looking for the Company to grow. And I think we have the product to grow but that's going to happen only because of the people. I think we have the right product. And I know you mentioned that we hired somebody with extensive experience in mass notification, I think for the domestic market and the foreign, could you give us a little bit of who, where they come from, and what their strengths are? Because I think it's critical for the future growth of the Company to have people that have the connections out there. Thank you.

Well, first let me go down for mass notification, has been in this industry for more than 15 years. Worked at a competitor, and I hit the ground running because he's been in this space, he has a lot of very good contacts and he's a good addition to the team. He joins another member that we had hired more than a year ago, who was also been very instrumental in helping us get our mass notification act together and he has also been selling in this space for more than 15 years. And both are very experienced, both have very good contacts and not easy to find -- it's not easy to find sales people in this market but we've been able to land two very good ones and actually we have the third that came out of EDT, who is also selling in this space.

I know we've always had a lot of cash and I think you love having a lot of cash for a lot of reasons, but certainly it might benefit us to be using some of that to get additional people that have these great connections that when they pick up the phone and call somebody in a foreign country that they've done business with, or in America here, that we'll get the business, we have good product, all we need is the relationships.

Lloyd, we agree. And we're constantly looking for sales people, it's difficult to find the right sales guy, it's difficult, and in this market it's a very long selling cycle, it is difficult to find sales people that have the background to make those connections and move forward, but we're looking, we're constantly looking. If you look at our web site, we are actively working with a number of head hunters and we're working with a number of these online recruiting tools, and we're trying to find people, we're looking right now. We're able to bring someone on in Southeast Asia, he's based in the territory, he's based in Thailand. And we're looking at someone in Europe, right now. We're in interview process. So we're trying to expand our team and get them closer to local market and get them - hire people with the right kinds of sales background and also the right kinds of contacts. So it's not an easy, we've got lot of sales guys over there – and looking.

I'm glad to hear that. One more thing, I know that we've been rolling our product out in Japan, mass notification.

Yes.

I know you don't announce it by country, but is it an aggressive program from them because I would expect telephone numbers -- with the headaches that they've had, I would think that it's a program that they would want to get executed as quickly as possible. What’s. going on with Japan?

Japan, is our best mass notification customer. They are relatively -- we have an order going out this quarter to Japan. They have been very aggressive in marketing the product to replacing the existing units that are in country. And they've been an excellent partner and have really kicked off the mass notification business for us and they continue to grow. But all of these -- again, they're selling into local markets, local cities, and it's budgetary issues that we have to overcome with timing, but we're making very good progress in Japan, and we have a very, very strong partner there.

Gentlemen there is another tsunami coming one day to move their - . Thank you.

Thank you, Lloyd.

And Joe Carter is in the queue as well. Q – Unidentified Analyst: Yes, I'm sorry for coming back guys, but I had a couple of follow up questions, and I think it's important that I ask them. First off, I think we – we were not addressed and this is the main part of that letter from acquirer that I want to have addressed, is that you guys as a Company were purchasing shares on the open market at a price higher than you sold your shares when you exercised your options, and that, Tom and Kathy, if you both would address that issue, I'd appreciate it.

Joe, it's just based on the market price. So, we have -- the reason that we excised it that time was because we had options that were expiring, they expired on June 15. So, as you'll notice we both had waited until the very end, because we aren't interested in exercising or selling, we're interested in holding and waiting for the success of the Company. So, the price that we exercise that is the strike price on the option and the price that we buyback is the current market price. So there's not much we can do about that. Q – Unidentified Analyst: No. The question I asked is, - you obviously optioned, you bought the shares at the option price, but you sold your shares at a price lower than the price that you're buying shares back on the market through the buyback plan. And that's a very confusing thing to see as a shareholder, because you're basically saying, its okay for the Company to spend money on the shares but at the same time I, as a personal owner of shares, I'm not willing to keep my shares at that price.

The shares we sell are at market. We don't determine the – Q – Unidentified Analyst: But you know, there is no obligation to sell those shares, is there? You obviously can exercise the options and keep the shares.

You can. You have to pay a lot -- I mean you pay the price of the options plus the taxes are pretty heavy on that. So, in Tom's case, he sold very little, he held probably over 100,000 shares. He increased his holdings quite a bit. So, Tom increased, he more than doubled his holdings which is exercised and then I have about 50% increase on my holdings. I did hold shares as well. But it's a personal thing whether you have the cash to sign them all.

So, the whole thing is you have to pay tax, and we're in the state of California, so you have to pay federal tax, which is with the Obamacare at 42.3% and you have to pay state tax. In California, it can go up to 13.3%. So you're going to pay roughly 56% tax on the difference between what you sold and the option price. Q – Unidentified Analyst: Okay. I understand all that, there is obviously going to be tax implications to buying and extending options, but I thought you might bring this up and so actually went through all the numbers and I forwarded this to Brian, a few months ago -- actually couple of weeks ago. And in your history Tom, you've exercised at the neighborhood of 600,000 shares and you sold 422,000 thousand of those shares. You kept 177,000 of those shares. So, I'm having a hard time believing that all of that is for tax implication.

That's not true. Tell the truth, that's not true. Come on. Q – Unidentified Analyst: That is true, you can look at the numbers, that's all on form-4, its the absolute truth.

No. You're not telling the truth, Joe.

Joe, I'm happy to get in touch with you and go through your numbers and see where there's a disconnect there, if you want to, after the call.

Say hello to [Ritch] [ph], from me. Q – Unidentified Analyst: I'm sorry.

Say hello to Ritch, from me. Q – Unidentified Analyst: I don't know who Ritch is, but Tom I can certainly do the numbers on my own. And again I'm addressing the issue of whether the Company Management has confidence in the share price going forward if you're selling shares at any price regardless of tax implications.

So, Joe, again, Tom has doubled his holdings, he went from 112,000 shares that he owned to 214. I'm at a lower low, I increased from 27 to 38, so we both bought some shares in the process of the exercise and then did sell some. It's primarily, it's all to cover, in Tom's case mine a little less than that, but it's just based on everyone's individual ability to pay. Q – Unidentified Analyst: Does the company have any plans in making public the bonus numbers that each individual person and Management gets, at the end of the year based on -- I think it was $1.6 million bonus payout that was paid last year based on fiscal 2014.

In the proxy.

The proxy includes the reporting's for the officers. Q – Unidentified Analyst: I did not see it, so I will take a look at it.

Okay. Q – Unidentified Analyst: The other thing is, when is the blackout period ending after this conference call?

Monday. Q – Unidentified Analyst: Monday. Okay. Can anybody in Management state that they are going to be a buyer once the blackout is lifted? Will there be a concentrated effort by the Board to increase the share buyback once the buyback is lifted, and new parameters can be established?

We really can't speak for the Board, Joe. Q – Unidentified Analyst: I understand that, but we look to get addressed. You guys have $30 million basically sitting around collecting dust, and that's a number that's just far from me, but that's not being put to some kind of good use.

Not sure where the $30 million is coming from, but. Q – Unidentified Analyst: I'm looking at the balance sheet. Am I misreading that?

Yes. You are.

That's 30 million.

You are misreading it, Joe. But thanks for the call. We appreciate it.

That's all the questions you have in the queue at this time.

Thank you, Kat. And thank you everyone for listening and participating in our call. A replay of the webcast will be available in about two hours through the same link issued in our July 29, press release. Thank you.

Thank you. This does conclude today's conference. We thank you for your participation, you may disconnect your lines at this time and have a great day.