Good day, ladies and gentlemen, and welcome to the LRAD Q4 and FY '14 Financial Results Conference Call. All lines have been placed on a listen-only mode and the floor will be open for questions and comments following the presentation. [Operator Instructions]. At this time, it is my pleasure to turn the floor over to your host, Brian Harvey. Sir, the floor is yours.

Thanks you, Catherine. Good afternoon, everyone, and welcome to LRAD Corporation’s fiscal year 2014 financial results conference call. My name is Brian Harvey. I’m the Director of Investor Relations and Capital Markets for LRAD. On the call with me this afternoon are Tom Brown, our Chairman, President and CEO; and Kathy McDermott, our Chief Financial Officer. Ms. McDermott will recap our fourth quarter and fiscal year 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 that are 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 forecast 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 year 2014 financial results recap. Kathy?

Thanks, Brian. Thanks everyone for joining us today. Fiscal 2014 was a very successful year for us. After sluggish revenues in the first few quarters of fiscal 2013, we ended the fourth quarter of 2013 with one of our strongest results [ph]. We continue to report strong revenues through fiscal 2014. While our revenues for the fourth quarter of 2014 of 7.4 million was down from the prior year, our total year revenues for fiscal 2014 were 24.6 million, a 44% increase over the prior year. Our quarterly revenues have continued to fluctuate based on the timing of deliveries. U.S. defense budget constraints reduced our military revenues to less than 10% of total revenues this year compared to almost half of our revenues just a couple of years ago. But strong efforts to expand our international revenues has more than compensated for the decline. We have added new partners and began selling into a number of new countries in Western Asia and in Africa where crowd control and border and perimeter security are a priority. We’ve also continued to increase revenues in already established countries based on increased requirements for navy and Coast Guard ships, military vehicles, public safety, emergency notification, bird mitigation and oil and gas. Revenues into China more than doubled in fiscal 2014 as a result of establishing a new partner there in 2013. We launched a number of new products in fiscal 2014 including an expansion of our omnidirectional line, which have and will continue to help expand revenues into the mass notification market. We developed new sound technology to help us to produce louder, lighter and smaller products, which are even incorporated into our new LRAD 450XL product, which we just launched in October. In combination, the international expansion and our new products will help…

Thank you, Kathy. I’ll now turn the call over to Tom for a brief management presentation. Tom?

Thank you, Brian. Thanks for joining our call. I keep bringing this up but I need to once again mention that since we made changes to our sales organization, over the last five quarters we have generated over 33 million in revenue and over 6 million in net income. Again, that is over five quarters but still excellent performance. We are extremely pleased with the team we have assembled and we feel confident we can further grow our business in 2015. As Kathy indicated, briefly looking back at 2014, we increased revenue by 44% and our bottom line by 164%. We increased our working capital by approximately 4 million or more than 15% of revenue, the second best financial performance in company history. As we say on all calls, we cannot be evaluated on quarterly performance as we are subject to government budgets and government delays. We need to be measured year-over-year. Our first quarter is usually our worst, however, in 2015 we are off to a good start. For 2015, we see continued growth for our LRAD business both internationally and with the new Republican Congress, we are anticipating an increase in the U.S. defense budget. The current continuing resolution expires on 12/11 is an extension or the so-called on the bus [ph] budget will be decided at that time. Once the budget gets signed and we are not under a continuing resolution, we anticipate that an RFP from the U.S. army should be issued, because as I previously stated in previous calls, there is a line item for acoustic hailing devices in all three budget initiatives; President’s, House and Senate. U.S. military demand for our product is still there as evidenced by approximately $1 million of new orders received and shipped to Afghanistan in our fourth quarter. We…

Catherine, we’ll open it up for Q&A please.

Thank you. The floor is now open for questions. [Operator Instructions]. The first one is from Josh Nichols from B. Riley. Josh, please state your question.

Yes. Looking at the mass notification market, it maybe a small percentage of total revenue, but you mentioned it had doubled year-over-year. Looking forward for this fiscal year, is that type of growth rate you think something that might be achievable as well?

Josh, we feel that’s achievable. Actually, we’re hoping it to grow at a much larger rate than that. We have a number of opportunities that we’ve submitted based on and if we’re successful, you’ll see significant growth in that area. And we feel that’s the biggest opportunity for us to grow our business. The LRAD business will continue to grow. We expect increased revenue in that area but mass notification offers us some pretty significant business opportunities and significant revenue opportunities.

Right. And then looking here, I saw that there was a contract that was won but then contested. Are you seeing in the market as a whole that that’s kind of a more continuing trend and becoming more prevalent than what it may be used to be?

It is a continuing trend. When we won our first RFP with the U.S. navy back in 2007, that was also protested and eventually it worked out to our favor. In the mass notification space, especially with military bases, there is one or two competitors that will protest everything. So we’ll go through that process but we feel very confident since we met the spec and the spec also requires not just our mass notification product but also our LRAD product, and I think we’re the only guys who can provide LRADs right now. So we feel pretty confident that we’ll go back rebid and hopefully see this resolve by January.

Okay. And then looking here, the new products seems to be some pretty big improvements here with the 450XL. I would think because it’s smaller and also lighter weight, are you also expecting better margins on this product?

We are expecting good margins, yes.

Okay.

It’s a great product. And we just demoed it at the JIP, which is Joint Industry Program with the government yesterday and it was very well received by border patrol and by the U.S. army, so it was a nice successful demonstration.

Okay, sounds good. Thanks a lot. I appreciate it.

Okay. Thank you.

Thank you, Josh.

Our next question comes from Les Sulewski from Sidoti & Company. Les, please state your question.

Thank you. Good evening.

Hi, Les.

Can you guys talk a little bit more about – especially when you mentioned in your press release about the addition of channel partners, I’m not sure if you’re referring to a partner in China or others? If you could just give a little bit more color on that, that’d be helpful?

Sorry, additional channel partners?

Yes.

Les, we added a couple of new partners. We are adding some new partners in Southeast Asia. China we added back in 2012-2013 and got them off the ground really in 2013. But in terms of channel partners, we are always looking at the performance of the current existing channel partners and looking at other partners that we can add to our list. We’re in the process of looking at partners in Africa and also in Europe, and constantly going through that process because if the current partner is not performing to the level that we expect then we’re looking to replace them, because right now our product is pretty well demanded in all the territories across the world. We sold into over 70 countries and this past year we have a long list of countries where we made sales. So, we’re always looking at new channel partners. We did some significant new channel partners mostly in Southeast Asia this past year.

Thank you. That’s helpful. Looking at perhaps some of the OpEx spending, maybe if you can perhaps give us a little bit of a better breakdown on SG&A and R&D kind of run rates, what we will expect? I know that you had some new products coming out recently. I don’t know if you’re spending more in 2015 to get something or I’m not sure if you can talk more about it, but as far as modeling purposes if you can guide us towards that, that would be helpful?

SG&A is always going to be fluctuated based on whether we sell a product direct or we have a reseller or rep involved. If we have a rep, we pay a commission. So that would impact our SG&A. But in terms of the overhead organization on the SG&A side, we probably will add one, maybe two new business development people during the year so there will be some slight upticks in spending but we probably won’t have them until after the first of the year. In terms of R&D, we will have some increased R&D spending because we are looking to expand some software applications for our mass notification package. We need to do some software upgrades and we also need to do some tooling costs. And we will introduce a number of new products, but basically our R&D spending while it will increase it’s not going to increase significantly. We manage our cost per well. And as I’ve said before on these calls, we can significantly increase revenue without adding too much on our overhead base. So we’re hopeful that we can continue to grow the top line in 2015, which we feel confident we will and we can pretty much keep most of our spending intact.

Okay. One more from me, I guess. I’m not sure if you mentioned during your prepared remarks, but did you have a breakdown of U.S. and international sales? What was the percentage of international for the fourth quarter?

Kathy can give you that.

Yes. So our international sales were 78% of our total.

Okay. Thank you.

Thank you, Les.

Our next question comes from Mike Davis from Millennium. Mike, please state your question.

Hi. I got a few questions if you don’t mind. Congratulations first of all on a tremendous year. And just by the way, to start off, wasn’t that the analyst that downgraded your shares not too long ago.

I think that was.

Yes, I just wanted to throw that out there. Not really sure that it was important to mention that. But is there any way you could somehow give the street some information about the bid backlog for 2015? Maybe you can’t say the full amount, but is there any type of number you could release that you think you might get business from?

The backlog that we reported in our 10-K 5.5 million for the next 12 months, so we do report that in total and those aren’t orders. That’s not just forecast. Those are actual purchase orders received that are deliverable in the next year.

Right. What about the potential bid backlog of business, which is the number I’m trying to get at? Is it 50 million, it is 75 million, is it a 100 million? You guys are the pioneers, so what can we get excited about as far as the potential number that you could get business from?

We never give our any guidance. But I think that the thing you can get excited about is that we’re going to grow this business pretty significantly in 2015. We feel pretty confident that we’re at the good tipping point for making this company grow. I will say, I’ll give you one bid that we have in the Middle East on a city, it’s roughly between 8 million to 10 million.

Okay.

If we’re successful there and we should know hopefully within the next couple of months. The problem is when you deal with these international governments, stated dates always slip but we should feel pretty confident about that and hopefully we’ll have that before the next earnings call.

Right, that’s great. And also, I believe you have mentioned on another significant potential contract somewhere 10 to 15 or wasn’t there another one besides that you mentioned?

No, that’s the one that we’ve been working on. We’re in two cities, so there is two bids out there but we, as I said in the last earnings call and I feel confident in this call that there’s one that we’re really chasing after now. That being said, there are three cities behind this all of equal size that we’ll find out. If we’re successful on the first city, there’ll be three more bids coming out of that country in the July-July timeframe and if we’re successful on one, we feel pretty confident we can grab one or two of the following ones.

Okay, that’s very helpful. That’s great. Let me ask you this also. You mentioned competitors. You guys are the pioneers still, right, of course, but who are these competitors that you mentioned that perhaps gave you a problem with the RFP. They protested that one. Can you mention who they are or is it…?

The army didn’t clearly explain who the protestor was but in terms of the LRAD business – we have two businesses here. So in terms of LRAD, we have competitors but we own more than 90% of the worldwide market. So LRAD is one piece. We have a number of small competitors. We’re pretty confident when we go in and try to win a piece of business, we’re going to win it. In terms of mass notification, we’re the new kid on the block and mass notification there’s a lot of long-term players in this space, big companies; Federal Signal, Whelen, Siemens, Cooper. So there’s a bunch of big companies but most of their systems are siren based whereas ours is very clear highly intelligible voice and we can also put out a siren that it’s louder than the sirens that they’re emitting. So we were the new kids. We feel we have a better product and we also feel once we start to land one or two of these larger deals, word of mouth will spread and we’ll start to take some market share and that’s our plan.

That’s great. And can you may any other comments about the stock buyback plan that you’ve initiated and you’ve also extended throughout 2015? Is there any – do you plan on doing a full buyback? Is there a plan for that or are you just waiting for if there’s a potential pullback? What’s the management strategy with that?

Well, we instituted the buyback last year. The Board approved it and we made some small purchases. Fortunately, our stock went up pretty significantly over the course of the year, so it has increased the buyback point. We feel very confident and we’ve done it for six years in a row that we continue to generate positive cash flow. And we have a healthy balance sheet with no debt. So if the stock pulls back a little bit, yes, we’ll be buying some shares.

Right, well, that’s great. And also you do have a significant cash balance, so is there any potential acquisition that you could possibly make or do you have any type of poison pill that can prevent someone else taking you out?

No real poison pill but in terms of – we’ve looked at a number of acquisitions, smaller companies, companies that are somewhat in our space but honestly there’s a lot of baggage. So what we decided to do is take our LRAD product, the clarity of the LRAD product and bring it into this mass notification space, which is growing pretty much at least in balance across the globe. And if you look at all the different brands that are out there, they’ll explain that they see some significant growth in this space. So we decided to use our internal resources and our internal engineering team which we’re expanding by bringing in some software engineers to get into this space. So our acquisition is actually growing into this new market of mass notification with a real good product.

And what is the synthesis [ph] in the new market for you, the mass notification market? Is there any type of number out there what the market could possibly or what it’s currently at now and then what the potential is in the future?

I’ll let Brian give you that information because he’s been following it.

Sure, Mike. There’s a number of research reports out there, market research reports that show that the market is going to grow from about 2.5 billion at its current state to over 6 billion in the next few years. And a lot of that is going to be driven by an upgrade cycle as people replace old siren based systems with new ones that allow for better communication rather than just a blaring siren. So that’s why we’re very excited about it and see it as really the next big opportunity for this company is to really start taking market share from an entrenched competitor base into what’s a huge market for us.

The one thing I need to add, Mike, is that that 6 billion in total includes the complete turnkey solution not just the speaker component but also includes the installation costs and the permanent fixtures that are put into an installation poles and all the other paraphernalia. But it is a growing market and the bid at Fort Irwin that we won is a replacement. So Brian’s right, there is a lot of replacement going on because a lot of these systems that are out there are old and not performing.

That’s a tremendous amount of opportunity for you and no wonder why you guys are so excited about that type of market now. And the final question would be regarding this contract that you said, if we can just go back, the $8 million or $10 million order you’re saying within the first quarter possibly or maybe in the second quarter is when we could see something there?

Well, we were hoping it would be in our first quarter but in contact with people this week, I was told that it could stretch into January before a final award is made. So hopefully, we’ll hear something. If you’re new to our business, this is not uncommon for us to hurry up and wait. And when you’re dealing with governments, they tend to go very slowly not at the same pace as a corporation but we are hopeful that we’ll hear something by January. And obviously, as soon as we do, that will be a nice announcement – hopefully a nice announcement not a bad announcement.

Right. Okay, well, thank you very much. I appreciate your time and keep up the great work.

Thank you, Mike.

Thank you.

Our next question comes from Andrew Grone from Dougherty & Company. Andrew, please state your question.

Hi, guys. Congrats on a great year.

Thank you, Andrew.

Most of my questions have been answered, so I’ll keep this brief, just hoping for maybe a little bit of additional color on a couple. So, you did talk a little bit about SG&A expenses and how it is difficult to predict as a percent of sales as it depends on the avenue that the sales comes through. But we didn’t see any leverage this year. I think SG&A as a percent of sales went up around 60 basis points. Do you have a target range that you shoot for as you continue to scale the business for SG&A as a percent of sales?

Andrew, the one thing that you’ll see that we lost leverage on this in the current year versus prior year was the bonus, and the bonuses we don’t always know until we get into the year where we’ll end up on, what expenses will be? And so last year, we didn’t pay out bonuses, it’s zero expense and this year we paid out a nice – or accruing a bonus. So that piece is kind of a big question mark often times when you try to model it.

We run pretty much on an incentive pay structure here. We keep our base pay low and we have an incentive plan in place that if the company hits the targets that are established and approved by the Board, then we have a chance to get a bonus. Now in the past couple of years, we have not received a bonus even though we’ve been profitable. We missed our targets but this year we were successful in achieving those targets. So that has skewed our SG&A. But on the base SG&A, my plan is to keep it as flat as possible. If you look at it over the years, we’ve done that.

Okay. That’s helpful. I mean there was definitely significant leverage in some of the other metrics in terms of gross margins and R&D, so that’s helpful. In terms of backlog, I do believe in one of the questions you did just quantify that it’s around 5.5 million. Could you just provide any color on how that compares to the last year, what we’re looking at year-over-year here?

The last year was a little bit over 4 million, I think it was around 4.5, so it’s increased a little bit. But our backlog, as Kathy indicated, unlike most companies this is true POs that we have in-house that will actually get out the door. It’s not…

On a pipeline basis.

What’s an average delivery timeframe within that backlog?

I would say the average delivery time should be 45 days. We have one order in there that would take – would be spread out over 12 months because it’s going to be put on naval vessels and those need to be build before they take the LRAD order, but for the most part we’ll see some of these orders going out the door this quarter.

Okay, that’s helpful. Thank you. Last one from me here. So in terms of the mass notification market, specifically domestic, what application are you most focused on or more excited about? I mean we’ve talked about FEMA purchasing a few in the past. I think there were some pilots at a couple of universities that you’ve talked about in previous calls. So maybe just an update on some of the different applications domestically and where you think the biggest opportunity is?

Right now, we think that one of our big opportunities is going into the military bases and putting in upgrades of [indiscernible] different bases. So the Fort Irwin award which we’re very excited about and then we had the award rescinded after the protest was put out there would have been a nice opening to get into that space. We still feel that we have some good opportunities there. We’re doing a demo today exactly for those opportunities with the army. We were this week at the International Emergency Management show in San Antonio, Texas with our trailer, which is a complete mobile mass notification setup and the reception was extremely good. And this is an area that we also want to push domestically. So we did sell some trailers in the past into FEMA. We’ve upgraded the trailer. It’s a much better system that what had been originally put out there. You always improve your product as you go along and we think that we have some good opportunities to move the trailer business, because bringing quality of mass notification, quality sound to if we’re going to need it is very important and it’s not so readily available in this country. We have a lot of natural disasters and usually when those disasters occur, somebody’s out there with a bullhorn and nobody understands what’s been conveyed. So we think that we have an opportunity there, but those military bases are intriguing. We think we have some good opportunity to get in and get some good business from them.

Okay, great. Thank you so much for the time, guys.

Okay. Thank you, Andrew.

Our next question comes from Richard Abbe from Iroquois Capital. Richard, please state your question.

Hi, guys. How are you?

Great, Richard. How are you?

Not bad. Tom, congratulations. You guys are doing a great job. Most of my questions were answered. I just wanted to ask you on the mass notification, with everything that’s going on in Ferguson and today what happened in Florida State with the shooting. Are you seeing any pickup from universities or are they just so far behind that they haven’t woken up to thinking about it?

We just made a couple of bids, some quotes to universities here in California and – unfortunately, with most of our product we need to have an event like a shooting or some kind of a problem to get some interest. And we will follow up with Florida State and we will follow – we’re following up in the university area. We’ve made some quotes and we think that there is opportunities, but a lot of these universities are unfunded and don’t want to spend the money to be very honest. So the army bases we think offer us some bigger opportunities in the short term.

Okay, I understand. I would think that the Ivy League schools that are over in doubt would be probably a good place to start.

I will follow up on one of your recommendations on one of those Ivy League schools. We do have our trailer now, we have it out there, so we’re going to drive it around. Bring it to the campuses, do some demonstrations and that’s where we’ll get the interest. Once you demo the product, people start saying, yes, that’s pretty cool.

Right. Are the margins different on that product versus [indiscernible] product?

The margins are pretty good. Right now I would say that the margins are pretty comparable, a little bit lower than LRAD but pretty comparable. But if we can start getting some volume in that space, yes, we’ll have some nice margins there.

Okay, great. Listen, you guys are doing a great job. Congratulations and thanks again.

I appreciate the call, Rich.

Our next question comes from Lloyd Korten from Unique Investments. Lloyd, please state your question.

Hi, Tom, Kathy and Brian, congratulations on a nice year of growth.

Thank you, Lloyd.

A few, could you – obviously China is intriguing and it has tremendous potential for growth. Can you give us some more color on China and what they’re buying and where do you see it a year from now? I know that your business doubled this year [indiscernible]?

What we’re selling into China, Lloyd, is pretty much LRAD product right now. We haven’t tried to promote the mass notification space. We have been selling our complete product line right now. We’ve sold all the way from 100X up to RX and we have an order in-house that we probably – I don’t know if we’re going to get it out the door this quarter or next quarter, but for our RX product for some Chinese Coast Guard vessels and we’ve already successfully deployed some units on their vessels. It’s a repeat order. China is tough though. China is a tremendous opportunity but it’s tough, because there’s a lot of little knockoffs over there and that’s why we decided to partner with a local company to try to make some inroads against those guys. And we’re being pretty successful. As Kathy indicated, we grew our business by…

We went from 1.4 to 2.7, so we almost doubled.

So we’re – one thing I am going to do, Lloyd, is I am going to donate a mass notification speaker. Our partner has a building in Beijing with a roof and we’re going to put the speaker up on the roof because I want to start to promote mass notification, because China doesn’t really have much in the way of mass notification systems in the country. They have some old sirens but we want to start promoting that product and we think that there is big opportunities there. We also expect the LRAD business to continue to grow in China. As I said, we have $1 million going out the door this quarter and we think that there is good opportunity there. So China has been a very good customer and we think we can continue to grow, but like I said with the Chinese there’s going to be some knockoff and we just have to overcome that.

Okay. Is Fort Irwin been ordered, can you talk about how big an order it is or can you?

Well, Ford Irwin order was – I really can’t say the amount because we’re in this process and it’s not an open – it’s a bid but it’s not an open bid, so I don’t want to give the price. But it’s an entry level position. It’s not a large fort. There are larger forts in the United States, so we’d like to chase after this, but it’s a good size order for us. And it’s a good start and more importantly than the dollar amount, it gets us in the door and that’s really what we want.

Right. Also, what are we up against first quarter last year, what was our revenue?

We did 3.8 million in the first quarter last year.

Actually last year and that was one of our better first quarters if you look back over history. First quarter is usually a bad quarter for us, but last year we did 3.8 million and a little bit – a small profit.

And you’re anticipating beating that for this quarter?

We’re hopeful, Lloyd. We’re hopeful. We get these orders in, we get these orders out. I hate to give any guidance. We’re hopeful.

Right. All right, well anyway. Listen, most of anything else certainly good luck for 2015 and if the budget gets signed, I don’t know, nothing’s changed.

Well, we’re hopeful that this whole thing with immigration is going to be a little bit of roadblock I think, but we’re sort of hopeful that the Republican Congress will come together and get a budget passed that the President will sign. And once that happens, we feel pretty confident we’ll see an army RFP.

Well, I hope you get washed in because I’m sure there’s plenty of companies knocking on their door to get the budget down.

Yes, I think you’re right. It’s been a long time. We keep on going through those continuing resolutions.

Great. Thank you, guys.

Thanks, Lloyd.

Our next question comes from Steven Sicinski [ph]. He’s a private investor. Steve, please state your question.

Yes. I have a question about local municipalities here in the United States. What kind of sales and marketing do you have planned for large metropolitan areas across the country? Thank you.

We have already been selling into a number of law enforcement groups across the United States, a number of large cities, a number of small cities. We continue to go after that business. It’s been very successful for us. There are not large-scale orders. They’re usually ones and twos but we appreciate that business. And we have direct sales into those customers. We also have a very large group that handles the Eastern part of the country and a group that handles the Western part of the country. They go after both law enforcement and fire. We’re going after the fire group pretty well. We had the fire people here yesterday. We’re talking about trying to sell them some LRADs. So we think that there is opportunity there. Law enforcement, municipal budgets are tight but there is grant money and when the grant money comes in, we tend to get some orders. And usually it comes in around towards the end of our fiscal year but we’ve been very successful and there’s a number of major metropolitan areas that have our product and you will probably – if there is rioting in Ferguson, you’re probably going to hear us on TV.

Okay. Thank you.

Our next question comes from Jared Cohen from JM Cohen & Co. Jared, please state your question.

Hi. Just two questions please. One, just a financial question. I just noticed that the share count was up quarter-to-quarter about 200,000 shares on a diluted basis. I was just curious why? Does it have to do with bonuses in terms of options given out or – since there have been buybacks over the last year or so?

On the overall shares outstanding, we had some exercises and we bought some back. We bought the shares back over the year, but the diluted shares is really based on what your share price is at, at the end of the quarter on how you calculate the diluted shares.

Okay. And just secondly, is there anything new just in terms of in the commercial area dealing with commercial airports, because I know you’re in New York Minor but there was something with [indiscernible] and then I looked it up and I know that they’re in the process of upgrading the radar system with the company they’re dealing with. It turns out I forget the name of it. You have some partnership with it.

E-Tech has the navy and radar. We’re working with E-Tech on a number of opportunities right now and E-Tech usually gets the radar installation that will bring us in later. Some of the airports, they get a little concerned about putting – because they’re near residential areas, a little concerned about putting loud noise out there. But we’ve been very effective and we’re working very closely with E-Tech. So we think that we’ll see some business from them in the near term. They’re working on a number of good projects and we’ve been good partners with them. They’ve been good partners with us for the last couple of years.

And that being addressed in the near horizon, I guess, or nothing…

We’re talking about – they’re threatening to buy some product from us. Until I see a PO, I don’t count on it.

Okay. All right. Thank you.

Thank you, Jared.

Our next question comes from Paul O'Keefe [ph] from Edge. Paul, please state your question.

Congrats on a great year guys. I just have one question and I believe it’s to Ms. McDermott. Can you break out the percentage of sales by channel and reseller and direct for me please?

We don’t actually track that. That’s not something that we will report. I would say though, I mean if you look at our overall revenues, probably three-quarters of it maybe goes through resellers. Does that make sense? Something about a quarter may be direct. When we get more business with the U.S. military that would have boosted up our direct sales, but internationally it’s kind of a mix but probably more through resellers.

Yes, to sell internationally you need a local partner in these countries and that’s why we established the rep and reseller network through these different countries because you need to have that local presence. And I would agree with Kathy. More than three-quarters of our revenue this year was through the rep, resell network and the business that we sell through the military can sometimes go through a third party also, because they have the contracting vehicle to make that happen. But our sales team is out there side by side with the local resellers or reps helping to get that product sold.

Thank you.

Thanks, Paul.

Our next question comes from Eli Grog [ph]. He’s independent. Eli, please state your question.

Hi, guys. In terms of the mass market – and I only have one question. In terms of the mass market, you guys say that you have a pretty dominant product and obviously there’s some longer term contract. So are you guys thinking about maybe making strategic partnerships with some of the guys that have a longer term contract so that you can try to combine your great technology with maybe their connections, just make the whole process a little bit easier?

Eli, we’re working with a couple of software companies that offer a package of text messaging, other software solutions for mass notification in addition to putting in speakers. So we are looking at partnering with some of the integrators that already have established business and we’re working with one right now that has pretty good established business within the U.S. military. But when it comes to partnering with other competitors, we want to beat. I’m not looking to partner with them. I have a better product. I’m going to go out there and beat them.

Right. It just makes sense. And listen, obviously you guys know your business a thousand times more than I do, but I know that you guys want to beat them but it just may make sense at some point if someone has said, hey, listen, we’ll all partner with you. You guys keep X, we’ll keep X and then sort of everybody’s happy and instead of having maybe like a three, four, five, six month, 12 month, maybe something in the future, maybe things get sped up a little bit faster. I mean, I don’t know. I just want to hear your thoughts on it. Thanks, guys.

My thought is we’re chasing a couple of good opportunities and if we land those opportunities, we had a door. Somebody wants to knock on that door, we’ll open it and hear what they have to say. But in terms of right now we’re looking to land the opportunities that we’re after and then as businesses start to – in my view start to take off.

Okay, guys. Thanks so much.

Thank you, Eli.

Our next question comes from John Grimly [ph], a private investor. John, please state your question.

Hi, guys. Congrats on a great fiscal 2014. Just a couple quick questions. First off, you guys mentioned a competitor kind of low bid and couldn’t fulfill the order and you guys are – they’re resubmitting the RFP. Can you disclose kind of a rough range to what size that RFP is or what size that you might be?

Yes. I mentioned that before, John. The thing is I don’t want to say the amount because it was – we both put a bid in. We know that they were a lower bid, but I don’t want to say the amount because we’re going to rebid this thing.

Got it. But is it a meaningful piece of business, would it be material to your quarter or fiscal year?

It’s a good size piece of business for us. It would be something that we would definitely announce because it’s an announceable piece of business for us. But more importantly, as I said before, more importantly it’s a door opener. It gets us into the army bases, which we’re targeting this year. And once you get one and you do a very good installation, then that word of mouth travels. And I know a number of bases are looking to upgrade some of their systems, so we’re trying to get this first foot in the door.

Got it. And then just capacity utilization, that might not be the best way to ask you, but you guys are going after such big markets. You’ve got cash on the balance sheet now. How much investment would you need to make if you – over the next couple of years are well about your expectations in your internal model? And where are you at moment from a capacity standpoint?

Well, from a capacity standpoint – from a production standpoint, we’re fine. We can always expand our production base and we can – if need be, we can figure out if we need to outsource some of our components. But that’s a problem I’d like to have. From a financial standpoint, we’re modeling in, in this year’s plan some additional expenditures in the mass notification space, but we’re okay. We can manage with existing cash, with existing cash flow and we expect to – if we land a few of these pieces of business, we expect to generate positive cash flow and profitability once again.

Thanks. And the last question, you touched on it on some of the other questions. You guys do a very strong balance sheet. You said you’re going to – or at least reauthorize the share buyback. Can we assume that you probably raised the level given the stock’s higher than it was a year ago? And then, you said you were going to invest in new products in mass notification. Is there any chance for a dividend or does that not make sense at this point?

Not at this point, but in terms of the share price, yes, the Board approved an increase in the buyback price but in terms of dividend, let’s land a few of these big deals and then we can consider that. But right now, we are going to need some of this cash. We’ll replenish it once we place the order and do the installation. But we’re going to need some cash to get some of this product in the door built and out the door and then our receivables are going to go up pretty significantly if we’re successful.

That’s my last question. Thank you. Congrats on a good year and another great year and also a lot of hard work over the years, so congrats on getting where you’re at and look forward to 2015.

All right. Thanks, John.

Our next question comes from Jonathan Manela from Rainmaker Associates. Jonathan, please state you question.

Yes. Thank you for botching that. First of all, great year guys and I think more importantly it wasn’t spoken about much on this call, but I think management has really, really come leaps and bounds [ph] from where you guys were a couple of years ago in terms of shareholder friendliness and that sort of thing, so I appreciate that. Looking forward 14 months, I think the last caller kind of touched on it, you responded a little bit, but I wanted to dig in. 14 months from now if things go just in line with your expectations, there will be additional $4.5 million cash coming into the company plus the cash flow from this year. You guys will be sitting on $35 million, maybe $40 million of cash and there’s certainly an opportunity to create value from that. It sounds like that’s probably more than you’ll need to support future orders. Is there any discussion happening amongst the management team or the Board about being a little bit more opportunistic or at least starting to think that way?

There’s been a little bit of discussion, Jonathan, and that’s why we decided, okay, we’re looking at the year. We feel it’s going to be another good year. We feel we’re going to generate positive cash flow, so we’re keeping the buyback in place and we’ve raised the targets on the buyback, so we’ll see how that goes. Hopefully, I’d rather see the stock price go up instead of buying back stock. And I think if we can bring in a few of these nice deals, that could happen. But I can’t control the stock price. All I can do is perform. And we feel very positive. We’ve always been friendly, Jonathan. The thing is when positive – when you have good results and we have a good team now. If you listen to my tone over the last five calls, we have a real good team now, so we feel really good about our business and we feel really good about the opportunities that we’re chasing and things have improved. And it takes some time when you’re a small company with – when I came in, we had no product. Now we have some really good products. We have a good team that can get out in the field and sell them. We feel really good about our business right now.

There’s lot more to talk about.

So one other question and I think it’s come up again. I heard it asked a few times on this conference call. I keep contemporaneous notes from prior conference calls in terms of opportunities and I could tell you it’s becoming very difficult to really follow all the things you’re saying in terms of opportunities, size of opportunities, RFPs, they come, they go, they pop back up, some were same from prior, some are brand new, mass notification, China, Asia. There is definitely two large ones, now there’s one large one. Maybe one large one got kicked into first quarter, then there’s three behind that. Is there a way to try to do something to streamline for shareholders as one person put it, so that we could stay excited about looking forward 12 to 24 months in terms of at least large opportunities?

I try to do that, Jonathan. Before I make a presentation, I go back and make sure that what I’ve said before and usually what I say we deliver on. But what I’ve said before is consistent. So, in the last call – if you go back to the last call and you look at the transcript, you’ll find that we were always targeting one of these cities in the Middle East. We can’t be too greedy. If we’re focused on one, we have a good chance of winning that one city. If we try to do a shotgun approach in my view, we’re going to come up a loser. And we feel pretty confident about that one city, but again we’re in the Middle East. It’s an international way of doing business. We feel like we’re in a good position and we’ve been told that consistently that we’re in a good position. So hopefully we can bring that home. But I hear you. In terms of these RFPs, they come out all the time. I’ll try to work with Brian. We’ll see if we can come up with a better trail for everybody. But it’s a changing environment and the RFP now with the army, we’ve been chasing this thing for – since the first RFI that came out was in 2007. We won that first RFP with the army for small units that they tested the hell out over the next couple of years and then in 2010, if you remember, RFI came out, big program, one unfunded. 2011, RFI came out, big program, unfunded. This time, the RFI that came out it’s still our product. This time it looks like there’s going to be some funding. So we’re feeling like this could turn into an RFP early next year. We’ve been chasing this for seven years, we’re not going to give and we’re going to win it. And we’re very confident that we’re finally going to see something come out. But I’ll try to work with Brian and try to a give better – we try to give you guys as much information as we can. And I think if you – you’ve been following me for years. There no bullshit. We’re trying to bring you stuff across the board.

Well, listen, it used to be much easier to follow because there wasn’t as many opportunities, so I guess that’s a good thing. But that would be great even if it was just top five opportunities and then people understand that you don’t win everything. In fact, you probably don’t win most and that’s fine. But if there’s a way to stay current with the story, I think it’s a healthy thing. It’s certainly something that become attractive in terms of following the story.

So let me work with Brian and we’ll try to make that…

All right, cool. I appreciate it. Have a great year.

Thanks, Jonathan.

Thanks, Jonathan.

Thanks, guys.

Our next call comes from Walter Ramsley from Walrus Partners. Walter, please state your question.

Thank you. I got a couple of questions for Kathy. One of the other callers referred to it but I could track it down myself. Could you just tell me what the diluted share count for the fourth quarter all by itself was?

Just for the fourth quarter.

Yes.

We were at 33,231,708 was the diluted shares.

That was for the year or for the quarter.

For the quarter, at the end of the quarter. So it’s 32,635 is the shares outstanding and then we’ve got 596,000 diluted shares. So the total diluted share base is 33,231,708.

Okay. Thank you. And the stock option…

I’m sorry. I correct myself. I look [indiscernible]. So it’s 33,720 is the diluted shares for fourth.

Okay. Wait a minute, let me get that one down. Okay, thanks. And the stock option expense for the fourth quarter all by itself, do you have that one?

Yes. Stock option for fourth quarter in total is about 97,000.

Okay. That’s it. So that was lower than it had been in previous quarters.

Right.

And do you think that’s the number going forward or – I mean I know that’s a tough calculation.

Well, we do annual grants. Part of it is based on the valuation and what the prices at the time of grants and that kind of thing, so it’s kind of a hard thing to forecast. But it will probably increase back up. We’ve had some that are becoming fully vested, so it drops off and then as new ones are granted, it will come back up. So it will probably increase a little bit over the next year.

Okay. And I don’t know if you’re planning to do it, but hypothetically if the company was to credit deferred tax asset out of its NOL and we start reporting a tax rate for financial purposes. What would the normalized tax rate be?

The normal tax rate would be the full rate would be at 34% for federal and 8.75% for state. Right now we’ve gotten that operating losses, we’ve got R&D credits. They are offsetting those. We’ve got a little bit of AMT for state that we’re reporting right now. But our tax liability right now is pretty low.

No, I understand for real it’s low. I’m just curious what the normalized rate would be assuming you burned up all those NOLs and you had to start paying, like what the normal rate would be. So it sounds like it would be 37 maybe after you pull down R&D credits or I’m not sure how much that would be, but is that 35, 37. Is that a normal, like a realistic way to look at it?

Yes, that’s about right. We’ve got quite a bit of R&D cut out there yet, but yes.

Okay. And then I got a question for Brian. I don’t know how detailed the market research is but the 2.5 billion that he was commenting on as the potential market for the mass notification. Can you break that down into international, domestic? What sort of industries or applications are the biggest areas? Is there any…?

Yes, we don’t have specifics of that breakdown. I can try to find that out for you but we don’t have it offhand.

Okay. Congratulations. It looks great, so if you were to just – I got a question for Tom I guess but I don’t know if he’ll answer it. If you were to exclude that big order in the Middle East and just kind of put that off to the side and look at the regular business, is it 20% growth rate a realistic target?

Well, we don’t give out any guidance but our target, from a target standpoint, yes we’re targeting that kind of growth.

Okay. That’s good enough for me. Thank you. Okay. Thanks a lot. Congratulations.

Thank you, Walter.

Is that all, Catherine?

Sir, we have one last question from…

Okay. We’ll take that as the last one. Thanks.

Okay. Thank you. Lloyd Korten from Unique Investments, Lloyd please state your comment.

Hi, guys. A couple more things real quick. You read an announcement that [indiscernible] automobile installation, do you see that as a potentially growing lucrative business for you? And also the other question was you also did a test on a highway in a right work zone which I thought was brilliant and I like to know what’s happening with that end of your business?

So the auto business, Lloyd, we’ve shipped our first product. It was again a small buy by a government agency. They’ve deployed the product and feedback is very, very positive and actually one of our business development people was meeting with that group today in Washington to get some follow up. We think that that business does have some potential and we think it can be expanded. So our initial feedback has been really good. But it takes a little bit of time to grow that market because it’s a totally new business and it’s dealing with government agencies, but the initial feedback is positive. In terms of the Department of Transportation, our trials were extremely good. But we ran into some protestors, some environmental protestors that were complaining. So the Department of Transportation for the state of Missouri decided to delay any further demonstrations, but it actually worked very well and we thought that it was going to lead to a lot of business, but protestors have a loud voice, so they delayed it.

I know there’s a group of numbers [indiscernible] and I would think that it’s [indiscernible] unless somebody comes up with a better way to warn people?

We agree.

We agree completely, Lloyd. It was a very successful test and we hope for the resumption in Missouri at some point but again these things take on a life of their own especially with all that’s going on in Missouri with regards to LRAD these days.

Great. I’m glad to see so much interest in the company on this call and have a great year. Thank you.

Great. Thank you, Lloyd.

Thank you everyone for participating and listening to our conference call. A replay will be available in approximately two hours at the same webcast link that was issued in November 11 press release. Thank you.

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