Genasys Inc (GNSS) 2008 Q4 法說會逐字稿

Welcome to the American Technology Corporation conference call.

Good morning or good afternoon if you are on the east coast, welcome to American Technology Corporation's fiscal year end 2008 conference call. I am Robert Putnam, Investor Relations for the Company, also present today are Tom Brown, our President and Chief Executive Officer, and Katherine McDermott, our Chief Financial Officer.

Except for historical information contained in this conference call, the matters discussed are forward-looking statements within the meaning of Section 21-E of the Securities and Exchange Act. You should not place undue reliance on these statements. We base these statements on particular assumptions that we have made in light of our industry experience, the stage of product and market development, as well as our perception of historical trends, current market conditions, current economic data, expected future developments, and other factors that we believe are appropriate under the circumstances.

These statements involve risks and uncertainties that could cause actual results to differ materially from those suggested in the forward-looking statements, including but not limited to the performance of our management team, market acceptance of our directed sound technologies and products, entry of competitors, the possibility our intellectual property protections will not prevent others from marketing products similar to or competitive with our products, potential technical or manufacturing difficulties that could delay product deliveries or increase warranty costs, and other risks identified and discussed in our filings with the Securities and Exchange Commission.

These forward-looking statements are based on information and management's expectations as of the date here of. Future results may differ materially from our current expectations. For more information regarding other potential risks and uncertainties, see the Risk Factors section of the Company's Form 10-K, for the fiscal year ended September 30th, 2008 filed yesterday. American Technology disclaims any intent or obligation to update these forward-looking statements, except as otherwise specifically stated.

During this conference call, we will have a brief presentation by Kathy McDermott going through our financials for the last quarter and last fiscal year. Following her, Tom Brown will give a presentation that will be followed by questions and answers. At this time, we will turn it over to Kathy.

Thank you, Robert. Welcome to our fiscal 2008 year end conference call. Our net revenues for the fourth quarter ended September 30th, 2008 were 3.9 million, up 144% over net revenues of 1.6 million for Q4 and the prior year. We nearly tripled sales of our LRAD products compared to last year, where we are seeing growing acceptance and demand for our LRAD-X product line that was launched in March. Our SoundSaber sales, which is the primary product in our NeoPlanar product line were also very strong, offset by a decline in our HSS product line for the quarter compared to prior year.

Our net revenues for the 2008 fiscal year ended September 30th, 2008 were 11.2 million, up 13% from net revenues 9.9 million for the 2007 fiscal year, for the year LRAD products represented 82% of our revenue, and grew by 19% over the prior year, in spite of slower sales in first half as we upgraded our product line. SoundSaber grew by 53%, and HSS revenue showed a 45% decline. The launch of our new LRAD product line was very successful, and we have seen growing opportunities in various military and commercial markets.

As we have previously discussed our sales cycle is often long, and our quarterly revenues will often fluctuate, due to the timing of large orders to a limited number of customers. Approximately half of our business in the past year was made directly or indirectly to the US Government, which is subject to budget and appropriation decisions, and is difficult to forecast.

Gross profit for the quarter ended September 30th, 2008 was 1.5 million, or 38% of net revenues, compared to a negative gross profit for $662,000 for the same quarter in the prior year, representing an increase of 2.1 million, this is primarily driven by the revenue growth.

Also in Q4 of last year, we recorded an inventory obsolescence reserve of 1.3 million, related to excess HSS components that were purchased on a sales contract for a customer who significantly reduced their order. Gross profit for fiscal 2008 was 4.4 million, or 39% of net revenue, compared to 3.4 million, or 34% of net revenue for fiscal 2007. The increase in gross margin is due to increased sales volume of approximately $792,000, and 1.1 million lower obsolescence charges.

This was primarily offset by lower product margins of $459,000, primarily due to a change in product mix, and increased production and freight costs associated with the initial builds of our new LRAD-X products, some increased warranty expenses of $252,000 for some older generation LRAD products, and increased overhead. We expect our product margins to improve, as we reduce costs and improve efficiencies on the new products, and as we improve our fixed overhead absorption as volumes increase.

Operating expenses for the fourth quarter increased $189,000 to 2.5 million, from 2.3 million for the same quarter in the prior fiscal year. For the full year operating expenses increased 1.5 million to 10.9 million, from 9.3 million for the prior fiscal year. The increase in expenses for the year is due to increased non-cash share based compensation expense of $818,000, increased development costs of $516,000 for the new LRAD-X products, particularly the new pan and tilt drive, increased commissions for our outside reps of $315,000, and increased impairment of patents of $319,000 that are no longer consistent with our business strategy.

This was partially offset by reduced professional fees of $439,000 from the prior year. The share based compensation and the impairment of patents are both non-cash expenses, which make up 1.1 million of the 1.5 million year-to-date increase. With the reduction of our development spending to normal levels, and continued expense management, we expect our operating expenses to remain flat or decrease in fiscal 2009.

Net loss for fiscal Q4 was $983,000, or $0.03 a share, compared to a loss of 2.9 million, or $0.09 per share in the prior year. Net loss for the 2008 fiscal year was $6.4 million, or $0.21 per share, compared to $5.6 million, or $0.18 per share for the prior year. The $799,000 increase in net loss for the year is primarily due to increased non-cash expenses of 1.1 million for share based compensation and the impairment of patents, and increased development costs of $516,000 for the new LRAD products, offset by 1 million in favorable gross profit.

On the Company's balance sheet, cash and cash equivalents decreased by 3.7 million year-to-date to 2.7 million. We burned $457,000 of cash in the fourth fiscal quarter. The year-to-date decrease primarily due the the net loss in 2008, increased receivables compared to September 2007 year end, partially offset by a reduction in inventory.

In 2009 we expect the cash burn to continue at a slower rate than in 2008, due to expected higher revenues, and the reduction of development spending. We continue to manage our cash closely to work through the unsteady flow of revenue. Net inventory decreased by $913,000 year-to-date, to 2.9 million at the end of the fiscal year. We are working closely with suppliers to minimize lead times, while still being able to meet delivery times for our customers.

Net receivables at September 30th, 2008 was 2.2 million, which represents approximately 72 days of receivables year-to-date, compared to 35 days of revenue year-to-date at September 30th, 2007. The increase is due to much higher revenues in Q4 2008 compared to Q4 2007. At September 30th, 2008 we had working capital of 6.1 million, compared to working capital of 9.8 million at September 30th, 2007. This reduction is primarily due to the 3.7 million of reduced cash during the period.

With that, I would like to turn the call back to Robert.

Thank you, Kathy. At this time, we will turn the time over to Tom Brown, for a presentation from management.

Thank you, Robert. I would like to briefly go through the highlights of the past year. As we look at the last 12 to 18 months, ATC has made more progress in product design and development than in it's previous history.

We have totally redesigned and redeveloped the LRAD product offering to strong market acceptance. We have created a complete product line up, from our handheld 100-X, which we started to sell in the second half of 2008. We will launch after the first of the year, to the 500X, the 100X, and the RX, the remotely-controlled IP-addressable unit which is mounted on our internally designed and developed pan and tilt mechanism.

We are seeing strong market acceptance for each of these product. The X series is the more-rugged highly intelligible hailing and warning device, that has much greater range and superior performance to our previous model, and is pound-for-pound the best acoustic hailing device in the market today. As Kathy stated SoundSaber sales increased by 53% year-over-year. We have made some significant enhancements to this product line, and we will focus more effort, to continue to expand this into the mass notification market, which has many opportunities.

We have continued to expand our international market penetration, by expanding our international rep network, we have received for the most part favorable and strong product interest, favorable press and strong product interest as a result of the pirate attacks occurring around this Somalia and Nigerian coast, and the Indonesian coast, we are targeting our marketing efforts in this area.

In 2008 we increased revenue by 13%, while enhancing our product line and controlling our spending, while at the same time undertaking some major R&D initiatives. LRAD sales grew 19% year-over-year, but grew 40% in the second half of 2008, when compared to first half of 2008, after we launched the X series.

As we look at 2009, we are cautiously optimistic, that we will continue to grow our business, and exceed 2008 revenues. The caution is based on the world market situation, but our optimism comes from a number of large products that we are working on, that look very promising at this time. For 2009, we will continue to grow revenue, the major focuses of our revenue growth is on LRAD, we will continue to manage and control our costs, which we done very well over the past two years, while expanding and enhancing the product line. And we will manage our cash flows so that we can continue to fund our business from operations, and not look to raise financing in the public markets.

At this time, I will turn it back to you Robert.

Thank you, Tom, appreciate that presentation. Operator if you would go ahead and start queueing people up for the Q&A. We have received some questions in through email. We will start with those. First question to us is, do you expect to make a net profit this year, if not, when?

The goal of the business is to make a profit. We have been working very hard over the past two years to try to position this Company to achieve a profit. And as we look at Q4, as Kathy outlined in her presentation on a operating basis, taking out our non-cash expenses we actually lost $77,000. So we got very close to making a breakeven for the first time in the Company's 12 year history. Our goal as we go forward is to achieve profitability, and the key to that success is to try to increase our revenues, which we are working very hard. Now we feel that we have the product offering that will help us try to achieve that goal.

Thank you. The next question is, how close are we to bringing HSS pricing town to a level our target markets will accept?

The HSS product is much, much different than a conventional speaker, in that it has, it is a turnkey solution, it has self-amplification, most speakers you have to hook it up to amplifiers and other electronics, the HSS is a fully integrated unit. So the cost structure is much different than a conventional speaker. It is a much higher cost structure.

Right now we feel in the directed speaker market, we have the lowest price product in the market today. And we also have the best performing product in the market today. But the market itself, as you look at the world market and the retail market in particular, digital signage, it is a slowing market. We still see some potential growth and the recent hiring of a new distributor in an international market, hopefully is going to expand our HSS reach, and we will see some improvement in the sales.

Honestly, the cost structure of that product is where it is going to be for the short-term and the long-term. It is a different type of product than a conventional speaker.

I think that is the point on this one, it is compared against a conventional versus a directed speaker, we are competing in a directed speaker market. As far as price point, that has not been the issue. It really comes down to performance and also having the customer understand we have got a fully integrated solution, versus just a regular loud speaker.

Operator, at this time we are ready for the first call.

Okay. Thank you. (OPERATOR INSTRUCTIONS). One moment for our first question. Our first question comes from Michael Ciarmoli, you may begin.

Thank you for taking my call. Can you give us an update on what is happening with potential deployments to the Army, to the Navy, and if you guys think you are close, or where you stand on getting line item funding for the LRAD, which might put you, give you better visibility and give you the opportunity to deploy units on a regular basis there?

Michael, we are still increasing sales into both branches of the military. Our sales in to the Navy have been very good. We continue to see some strong sales in to the Navy. That is looking very positive. Army sales, we are in the process of receiving an order if you look online you will see that there is a sole source solicitation write-up in the market today. So we see continuing sales in to the military, and we are looking and working to try to get that line item budget in 2010, because that is the budget cycle that will we are in right now.

What was the size of that order that you said there was something posted today from the Army?

It is roughly a $200,000, depending on amounts and depending on other accessories, the base order is roughly $200,000.

Then just maybe in order of magnitude increasing revenue growth, are you talking total revenues of 11 or 12 million, or substantially higher?

Well, our plan is based on a very conservative number. But we are hopeful to try to increase significantly higher than the $11 million that we ended at 2008.

Okay. Thanks, guys.

Thank you. Next question, please.

Our next question comes from [Gary Grobel]. You may ask your question.

Thank you. I know it is difficult, sometimes dangerous to project profitability, as to when and how, but going at it a different way, could you give a run rate that you have to achieve, in order for us to go black on the bottom line? Can you play around with that at all?

Well, it depends on the product mix.

Right.

If we take a look at an LRAD product mix, we need roughly a run rate of $16 million to achieve profitability.

All right.

We are not that far away from that.

No. You are not. What kind of resources are we addressing the various markets for LRAD? The more I look at this, and the products you have already turned out based on the platform, I see more and more applications and places to go with it.

Obviously the military is a big potential customer here, and all of the military arms, but what kind of resources are we devoting to this product, and are they enough, or do we need to do something else, to max out our ability to go after this market, and kick down stores and doors instead of knocking on doors?

That is a good question. The thing is we have limited resources to work with. But we have been expanding our international rep network, and we are starting to see some dividends coming from that. We have an internal sales team that is focused on geographic regions around the globe. We are looking to sell our products internationally, not just in to the US.

Our #1 markets are the military, obviously, and that is our largest market opportunity, but also Homeland Security, and not just Homeland Security in the US, but Homeland Security internationally, the recent incident in Mumbai, is a good example of opportunities where we can deploy our products. We are focused on commercial maritime, shipping, and the cruise line industry, and we are also focused on oil and gas offshore platforms and pipeline protection.

So we are working with L3 in that area, we have been working with other partners in different parts of the market. But we are a small company, we have a niche product and limited resources. So we are trying to bang on as many door as we can with the limited resources that we have, but we are making progress.

The positive thing is we are making progress. There has been positive press about the product recently because of the pirate attacks, and that press starts to spur more and more word of mouth about the product, and hopefully we can see some increased revenue from it.

Also adding to Tom's comments, we are working with ADT with the SoundSaber product line for mass notification, again partnering with them, and then also with the introduction of the LRAD 100-X, the first portable LRAD, we are looking in to expand into law enforcement, fire departments, and other local opportunities.

We are not adverse to going JV on this or alliance, I mean I think we have a very unique product here, that I think you own the space for the niche. Has it been the case maybe that other companies have contacted us, in terms of wanting to be our friends in terms of getting especially the portable LRAD, getting this out in the various different markets?

We are working more and more with I don't want to call them an inside joint venture, but more and mor partners around the globe, and we are getting better interest from the bigger integrators to work with the product, because they see the advantage of incorporating us into an overall package.

So we are heading in that direction, and we are not adverse to partnering with the right players, to get the product out there, players with greater resources than we have, and are talking to them, and the recent example is the Marubeni distribution agreement that we signed in Japan, we are hoping to open up the Japanese market. Marubeni has a nice reach in that market. So we are looking to do more and more of that as we go forward. Because we don't have the resources to do it ourselves.

My last question is about resources. And resourcing those products in terms of getting our costs down, how many can we build comfortably, or are we limited in any way by a size of an order that might come in that is just too big for us?

No. We are not. We have in-house and outside capability to meet any order requirement. Obviously time is in place, because we have some long lead time parts that we have to order, and want to build to order, we don't want to carry a lot of inventory, we don't have that capability. But we are not limited, If we can get a large order, if you would like to give me a large order, I can definitely deliver.

Alright, thanks very much.

Thank you, Gary. Next question, please.

Our next question comes from [Richard Abbey], you may ask your question.

Hi, Tom. This is Rich Abbey, I am from [Iriquay]. How are you?

Good, Rich, how are you?

Good. Couple of things, you continue to bring up about limited resources, and I want to hit on that in a couple of different areas, one is with the cash balance where you are, and being that you are getting lumpy orders, how does yourself and the Board at this point if you miss something, or something gets pushed back one quarter you are out of cash, based on your current cash position. Two, with the limited resources and you can't hit every different market. You know that we have offered to we actually given you guys names of different people in the military space, you have said you're looking to beef up the Board on the military side, that can actually help you on the distribution, and get you into the right areas, I haven't seen any of that being added on to the Company whatsoever, I haven't seen any new Board members that are strategic.

Looking at it as a shareholder, seeing a stock at $0.50 and being a large shareholder, we say okay, the Company has very little cash, they are in a great space right now, they haven't beefed up their Board at all. They keep talking about limited resources, at what point do you say, the limited resources are running out. When would you have to put capital on, would it be at $0.05 or $0.01, or are we rolling the dice hoping the orders are coming in here. And is it doesn't, we are out of business, because it doesn't seem like the right way to run a business.

Is that a question?

It is a question. I am trying to figure out what you guys are doing with the stock at $0.50, and 2.5 million in cash on your balance sheet?

What we are doing is running a business, we are growing a business.

You said the orders are lumpy. That is what your CFO was saying in the beginning.

The orders are lumpy they always have been.

Exactly, if you miss a quarter.

There is never a quarter that has been absent revenue there, that is what you are missing, there are larger opportunities that we are chasing, and yes lumpy, but the lumps are growing up not down. So I don't think it is a zero some game, where you miss one quarter and you are out of business, we don't see it that way.

We have a very, very conservative business plan we put in place, that even if we have a situation where we don't grow the business at all, we will continue to have enough cash to finance this business on a go-forward basis. So we are managing the business extremely well.

We haven't raised money in two years, we have done a lot of product development, we have done an awful lot of product enhancements, and we have made a lot of inroads into a customer base, that frankly was the doors were shut. Now they have been re-opened and our product is considered, as I indicated earlier pound-for-pound the best acoustic hailing device in the market today, by the US military and by many other customers. We are growing a business.

In order to grow a business you need to take some steps, and we are taking steps we expect this year to continue to see some strong growth. And Boards are more from a governance standpoint. A Board member is not going to, it is a different world today for a corporate Board. I think you need to understand what a corporate Board does, and what a corporate Board doesn't do.

I think I do understand. We are only invested in about 1,000 companies. With a lot of different Boards, and have dealt with actually throwing management out, and putting new Board members in. From our standpoint, I think it does help to have strategic people on a Board who actually have experience on the military side.

We do have an Admiral on the Board, and he has helped open up some doors for us. We do have some strong business people with a lot of military background. We are working the markets today, and that is what is helping increase sales and our reputation with the military, and also we have new product that is a hell of a lot better than any product we had on the marketplace before. So in order to really grow a business, the first thing is you need to have is a product that is accepted by the market. That is what we working on and that is what we now have. We feel good about.

That in terms of managing a business, we have done a very good job with a Company that was very dysfunctional. Now we have a functioning business that is generating consistent revenue, and has started to grow, and costs are under control. We are not looking to raise money in the marketplace, we feel that we can manage our business with funds that we have, and we are locking to continue to grow this business. There are not too many businesses in the market today, that can say our stock price is going up. Because if you look at the entire market, everybody's shares are down. This a difficult market for any corporation.

Thank you, Rich. Next question, please.

Thank you. Our next question comes from [Jack Shaw]. You may ask your question.

Hi. Thank you for taking my call. I heard you saying that the year end results included $800,000 in non-cash compensation, I am curious to know how that breaks down, as far as dilution to existing shareholders?

There is no dilution. There is no dilution.

It is a FAS 123-R requirement that we record non-cash compensation expense, based on stock options that have been issued, all of the stock options are currently under water. So there is no dilution to any of the shareholders, and in terms of the non-cash compensation, for the full year it was over 2.5 million.

Okay. My following question then is, can you give me an idea at what point the options will become in to the black, at what point we can expect those options will go in to the black, and the total what we might expect would be?

The options granted over a number of periods. And they range from--

$1.88 to $9.50 I believe.

$1.88 to $9.50.

They are at all different grants. So I say on average we would need to see the stock price up above $4 before--

Okay. What will be the total number of options do you think, number of shares represented by the options?

I would say it is about, it is close to maybe close to 3 million. I don't have the exact number off the top of my head.

That is good enough.

That is pretty fair.

Thanks very much.

Thank you , Jack. Next question, please.

Our next question comes from [Steve Wagner], you may ask your question.

Thank you. Good morning everybody. Thank you for your time. I would commend you guys on two great quarters in a row. I mean that is a big improvement over the last several quarters prior to these last two quarters. I am encouraged from that standpoint.

A question that I have, I have a few questions, the LRAD 100, I had the opportunity as you know Robert, being down there two or three months ago, to have it demonstrated, I think it os an outstanding high quality product, you guys mentioned in your presentation that you have begun to sell these things in the second half of '08, but you are going to officially roll it out and introduce it next year. Can you be specific as to when and how you are going to do that? I will stop with that question.

Okay. What we have done is we have developed the product prototype form. We taken that prototype out to the marketplace, and we have demonstrated the prototype to law enforcement, to military, and actually we have received such a strong response, we sold prototypes, we have asked people that are very interested and they bought prototypes, we have gone on we have tooled the product. We have a much more cost-effective product than we had as a prototype.

We will launch product in the January timeframe, and how we are going to launch it, we are hitting a couple of the trade magazines, that are focused on law enforcement and the military, with articles and we will have some demos, we have been doing demos at trade shows, we were at the International Chief of Police Show that was here in San Diego, we demoed the product, we demoed it at the security show, we have demoed it at the Work Boat Show, which is going on in New Orleans as we speak.

But the best thing for us to do with this product is to demo, it is very difficult for anyone to get an appreciation for the capability of the product in a press release or in an advertisement, you really need to hear it, so we are trying to get in to the right venues to get it demonstrated, and as we demo it we are getting strong interest so we hope that this product will really be a strong product for the overall line starting in January of next year.

I would agree with that 100%. Let me ask you this, Tom, can you give us an idea what a unit will sell for, and what the margin is on it? What you expect the margin will be for it next year?

I hate to say the margin over the phone. But in terms of the unit price, right now we are selling it for $5000. And on a go forward basis we may trim that slightly, but the product margins, since we have tooled the product, product margins are very good.

And again I appreciate you not being able to be super specific on that, but indeed an exciting product, are you finding it's great that you are hearing interest, are you finding the $5000 price tag, or maybe I know you mentioned it might be less than that, are you finding that to be something in the realm that these organizations are able to handle? I am thinking more in terms of place departments, other law enforcement agencies, is that something that, are they balking at that figure, or saying that is a figure that makes sense to them?

We have had no push-back on that pricing. Actually if we can price it under $5000 mark, that seems to be below the capital expense requirements in most of these police forces, and also on some of the military areas. But the one thing we are considering in order to expand this market, is we may offer a lease program, we started offering a lease program this past year to some customers, and it is structured in a way that it is profitable for us to offer the program, and that will we hope spur some additional sales into the smaller police markets.

Okay. One other thought on the LRAD 100 before I have a couple of questions on other areas, are you planning on, I I think your absolutely right, you have got to hear this you have to see it, and you have feel it to really appreciate it, as I learned a couple of months ago, are you going to have a dedicated sales team just for LRAD 100 to go after specific areas of the market, is that how you are going to position, as far as the sales push on this, or just current sales staff handling the way they are handling all lines?

What we have done is, there are in the police market, especially in the US market, there are specific reps that carry different things in their bag into the market. And we have basically hired a number of reps in different regions in the US, and they were very excited about the 100X. They feel like it is a product they can move. We are working with a number of different reps.

I have one individual who manages those reps, so we are putting the product in their hands, they go in and demo to their regions, and hopefully that is going to generate sales for us. I don't have the capability, financial capability to put a lot of feet on the street, but if I can get reps working for me I don't have to pay them unless they deliver sales, and that is the best way to do business for a small company.

That is why we like you Tom, you are frugal in that way, and I appreciate that very much. One more question about the LRAD 100 market. I understand that the military is a good prospect for this, and that is the initial push I think it will be, but with regard to law enforcement, that is where I personally see just massive opportunities, what are they saying as far as how they will use it, in terms of would they like buy one for every police car, or how exactly would they deploy these things and what would they use them for?

I would love to see them buy one for every car. But basically, they operate with a low-cost bull horn, no one can understand what is being said said out of that bull horn, and the capability of it is totally ineffective. So what we would like to do, and we are right now when I mention the $5000 price target on the 100X, that is the fully-loaded 100X. So we are thinking of stripping that unit down, we have an MP3 player that is very costly, because it is a mili-spec MP3 player, if we take that unit off and have just a microphone capability with that unit, we can reduce the price significantly, and hopefully get it into every police car.

I agree with you that law enforcement offers us bigger opportunities than the military for this product. We are looking to structure it, as opposed to structuring the military products, structure it for the marketplace, try to get the price down, try to get it accepted in every car, how do they use it? They are going to use it to hail, warn and communicate. We have had the Sheriff's Department here in San Diego use the unit to call people out of a house, and it has been effective. The feed back has been very positive. So they will use it in the normal operations to be able to hail and warn people.

Crowd control situations traffic situations, things of that nature where they really want to communicate, and have people understand what is being told them.

The best thing about it is very it is a very rugged unit, and it is extremely loud, has a very long reach, and the best thing is it is extremely intelligible, you can understand what is being said over a long distance.

I love all of these other LRAD suite, and certainly the potential for the military down the road is significant, but I just see this as the wild card for you guys, it this can be in the many thousands of units. I mean if these things are adopted police department by police department. So I appreciate your candor on that and feed back.

I wanted to ask a question with regard to an earlier comment that was made. That you are cautiously optimistic, and we can completely understand that in the world we live in, with the credit issues, and seemingly of dark clouds everywhere, you mentioned though that you are working on a number of large projects.

I know that the military for the 2010 line item issue would certainly be one of those. In past calls you talked about interest from oil companies, oil rigs, pipeline protection, et cetera, are those the large products that you are still working on, are you at liberty to talk about, not names obviously, but concepts of where it might be used? Oil rigs you have mentioned before, is that an area you are seeing interest in?

Yes. We are actually shipping four RX units out early next week for deployment on oil platforms off the coast of Africa. We also sold one of our RX units for a platform deployment off the coast of Indonesia. So we are still working that area, we are working with one of our partners on a couple of proposals.

And it is a complete package, we are part of the package, we are part of the infrastructure package. We are definitely focused on trying to grow that business, because the RX product it is an exceptional product, that is the product I would like to see us sell more of in the 2009 year, because I think it is a great product, and it fits into an overall port security, or oil platform, oil pipeline type protection. It is an unmanned perimeter security package.

I would think that at least in those areas this whole credit issue isn't much of an issue, because in spite of the drop of the price of oil, most of these companies just have hordes of cash, and while they may be a bit more conservative about spending it. Certainly protection of their oil rigs has to be high on their mind, especially with recent events, it would seem to be that wouldn't be much of a barrier, is that how you guys feel?

These guys are very, very conservative when it comes to spending cash. Their rollout is very, very slow. But you are right, they do have a lot of cash, and they do have assets that are very valuable that need protection, and we are seeing slow, it is really a slow development of this market. We were hoping for a faster development but the thing is that it is developing, and we are making sales. That is the positive thing. But they are very tight with their funds.

Okay. And talking about credit and not so much with the military, but obviously with all of this TARP money, and we have got the Little 3 on Capitol Hill now begging for 30 to $50 billion. Are you folks concerned at all, or have you had any communication with the military with regard to any fears that the line item issue might be scratched, or put off or reduced dramatically? What indications are you getting there?

At this point, it seems like everything is still proceeding the way we were hoping they would proceed. But that being said, we are still unsure which direction the new administration may take. We have a device that we feel saves lives, it is not a weapon. It is something that provides the ability to escalate force, and determine intent at a distance.

We feel that we have something that is going to save lives on both sides of the device, and hopefully we are going to continue to see some increased sales into those areas, right now we are getting strong interest and we are getting orders, so we believe everything is going to continue to go along according to our plan, but we are cautious because things could change very quickly.

One of the other areas too Steve we are highly encouraged to see the Department of Homeland Security, especially around the port security issue starting to be proactive. Those guys have been notoriously slow in spending money on anything other than new uniforms for the TSA guys at the airport. But we are starting to see some real interest and push through, and maybe start to see some orders go out in that direction, it could turn out to be very substantial for us.

On the SoundSaber you mentioned a nice increase there as well as the sales and interest for the mass notification market. Again in recent calls we had some commentary with regard to interest by colleges, as a result of the various mass shootings, has there been any progress there in that lane?

That has been part of the increase in the sales that we saw last year. As Robert indicated earlier, we are working with ADT, ADT provides the complete solution, we have been part of that solution on some of those campus installations. So we don't have the capability to do the compete installation, but we have partnered with a strong player that does have that capability. So and they have been very pleased with the product, and we are hoping to continue that relationship, and continue to build that revenue.

We are also seeing some strong sales and interest from military bases, who are equipping their mass notification systems with SoundSaber products. That is also been something that has been very good for us.

One thing that we haven't done is we haven't really tried to market the SoundSaber product internationally. We have been, we were doing a bunch of enhancements to the product line. Now we are looking to get out there go over the mass communication market on an international basis. That is going to be a focus in 2009 to try to increase the sales of that product line. We got the cost structure in place so that we can actively market the product, and actually contribute to the bottom line.

Is that going to be part of the agreement that you made, the distribution agreement with the Marubeni information systems?

Yes it is.

Marubeni has HSS, SoundSaber, and LRAD.

Great. By the way congratulations on that I thought that was a very, very not only nice announcement, with potential for more sales, but again an endorsement of the marketplace for the products that you guys offer.

That is the way we see it Steve, it is a very positive step in the right direction.

Not only that, they have a lot of reach in to a number of different industries in Japan too. As you were saying earlier, there are so many applications for this product, with a strong partner like that, we may start tapping in to some areas that we haven't been able to get in to before.

This may not be something you can comment on, on that line in our dealings with them and inking the deal, obviously I don't think that ,obviously a parent company a multi-billion dollar company, it just doesn't seem to me like they would enter into something like this, if they didn't feel like #1) there was a market or #2) if they could make a profit from that market. Have they given you any indication of any anticipated revenue or sales numbers on their end, that you can anticipate?

I have a meeting with the senior management of Marubeni, they are coming to visit on December 18th. That is the purpose of that visit, to sit down and go through a business plan for them for 2009. We have had preliminary discussions. They have a number of projects that they have been working already, but we are going to sit down and try to get some structure around that at that time.

I know one of their affiliated companies of the parent company, I think they do some work on oil tankers, or they actually manufacture oil tankers, is that correct?

They have got a lot of interest in a lot of different industries, that wouldn't surprise us, but I wouldn't know that for certain.

One other just detailed question then I will have a closing comment, with regard to your gross margins, I think you mentioned they were 38 or 39%. I mean again I know that is on the low side, I know your goal is to get it up around 50% or higher, that s that attributable to the non-cash charges, and is that pretty much the reason why it was lower than what your goal is, and do you see that coming up in the coming fiscal year?

Some of that is non-cash charges. Some of that is the launch of the new product lines, where you have some inefficiencies on your first volumes, your first units, prototype units, and so forth, where you are not getting quite the margins you want to see. Some of that is from volume sales that we have made.

But we do expect that as we start expanding the product line, and developing the product line, we will gain efficiencies in manufacturing, and we will also get some better fixed absorption, as we bump up our revenue levels, which is what is expected.

Again assuming better revenue numbers next year, you mentioned earlier the potential for significantly higher numbers over your previous fiscal year, which I personally hope would be resulting in profit for the Company, so that would be in excess of 16 million. You have the capacity to handle that, do you anticipate any issue with supply of components, that you don't feel like there is going to be an issue there at all?

At that level, we don't have any issue. We have the capability. It is a matter of timing, but we feel we can manage definitely manage at that level.

Okay. Then just a comment. I really appreciate the hard work you guys are doing. I know this has been a trying time for you, it has obviously been a trying time for shareholders. We are all in the same boat.

I can honestly say, it is so ironic, life is ironic, and company valuations are ironic, two or three years ago the Company had a valuation of 120, 130 to $140 million market cap, now it has got a market valuation of 15 million, or whatever it is depending upon the day. Obviously the Company is a far better operating company today. A far more successful company when you look at it aside from the share price, than it has ever really been. Yet here we are at $0.50. I recognize that you feel that.

I want to thank you guys for the hard work that you have done, and are continuing to do. It is very much appreciated Tom to see an insider purchase on your part. Pass along to Woody his continued support, as well as even the director earlier, Daniel Hunter earlier in the year buying a pretty significant amount of shares a at couple of bucks.

We shareholders out there at least we intelligent shareholders really see that as a sign of confidence, and we thank you for it, and hope that that continues, and certainly continued much success going forward.

Thank you, Steve, I appreciate that comment.

Have a nice day.

Thank you Steve. Next question, please.

Our next question comes from [Gerald Tweedwell], you may ask your question.

I have also been following the Company for a long time, and everybody has been reading about the pirates, and just asking in the commercial maritime market, with all of the publicity, which seemed to an outsider with waning patience that that market ought to absolutely explode. Your percentage gains quarter-to-quarter and year-to-year have been impressive, but in real dollar terms less so. Could you enlarge a little on, all I see is an alternative for your product, which is the only one on the market is a fire hose. I am just curious why you haven't seen a greater demand, a real explosion as far as dollars?

We seen an explosion in sales and marketing activity Jerry, but a lot of these companies we have been working with for quite a while. They recognize also what is going on. They need to look at a political solution.

We do expect that this explosion in sales and marketing activity will translate in to more orders for us. We are working these opportunities, we are taking advantage of this great publicity for LRAD out there. At the same time, it doesn't mean that somebody calls up and places an order the next day, they still have to go through due diligence, they still have to work with other companies on what their protocols are going to be, and I think at this point that we will see some increased sales from it, but not something that is just going to turn in to it overnight. Next question please.

Thank you, our next question comes from [Charles Tull], you may ask your question.

Yes, I am asking about the selection of your device last year by the US Army and Navy for the small vessels and vehicles, and the Navy on the large vessels. My question is, what does that mean in practical terms, in relation to exclusivity, or the competitive bidding process? What does that mean for ATC?

I am trying to understand your question. Trying to digest it here. We won those awards last year. We have been shipping on the Navy contract, we have shipped on the Army contract. We expect to continue to ship on both in fiscal 2009.

And those awards provided the framework for continued procurement of LRAD 500Xs and 1000Xs into large vessels, small vessels, and vehicles. At this point, we expect those to continue. There is some flexibility within those awards, where the Army and the Navy can move orders up, change order numbers, change quantities, do different things. And at this point we feel very good about the relationship that we have built with both of those organizations, and expect continued sales into them, both under those awards and under new awards.

Okay, but that doesn't bar them from putting out a competitive bid still for those applications?

I don't think there is any exclusivity in any kind of government contract. I don't believe that those awards, they were given to us, and as far as business going forward, that would be up to them to make decisions. But there was a lot of work and a lot of bake-offs done the previous two to three years before those awards were granted. So we think a lot of the heavy lifting has been completed.

Those awards were granted based on a Request For Proposal, and it was based on a very competitive approach as Robert is saying. So we were the winner of those awards. They weren't just given to us, we won. We were proven as the best device in the market. So if there are future RFPs, we will respond and we will position ourselves so that we can win.

Next question, please. Go ahead, Charles.

Just one more question. On the failure rate for the devices. Do you have comments on what the failure rates are?

The failure rate on the LRAD itself is extremely low.

As Kathy indicated, we did have some increased warranty expense related to the LRAD and actually it was related to the LRAD R, which was our first version of remotely-controlled LRAD, and the main failure was not the LRAD itself, it was the pan and tilt mechanism. And the pan and tilt mechanism was procured from a third party.

Given that the pan and tilt mechanism hurt our future sales opportunities in that area, we decided to design and develop our own device, which we did, and we have effectively started to sell that device in the marketplace today, and we anticipate that it will perform much better than the unit that we were buying from a third party.

One more question. The orders for the Picatinny Arsenal that you alluded to earlier, the announcement mentioned destructive testing, could you just explain what that means?

Basically the Arctic Group at Picatinny, that is the group that awarded us the initial contract for small vessels and small vehicles, they are going through a series of testing of the products, and beating it up, performing all kinds of environmental tests to the product, to make sure that it is going to stand up in the field. We have passed those tests, they are ordering more.

This is hopefully the entry that will take us in to a line item budget. That is what we are working. Does it do that? We are not sure, but that is the direction that we are trying to head with that.

Thank you.

Thank you. Next question, please.

We are showing no further questions.

All right. Thank you very much. We appreciate everyone's participation in our fiscal year 2008 conference call. We expect a replay of this conference call will be available towards the end of the day. Thank you for your participation.