LSI(LYTS) - 2019 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Overview of LSI Industries Inc.'s unaudited financial statements, management's analysis, market risk, and internal controls ITEM 1. Financial Statements (Unaudited) Presents LSI Industries Inc.'s unaudited condensed consolidated financial statements, including operations, balance sheets, and cash flows, with notes on accounting policies and goodwill impairment Condensed Consolidated Statements of Operations Details LSI Industries Inc.'s unaudited financial performance, including net sales, gross profit, operating income, and net loss for specified periods Three Months Ended December 31 (in thousands) | Metric | 2018 | 2017 | | :-------------------------------- | :----- | :----- | | Net sales | $89,541 | $92,305 | | Gross profit | $19,656 | $25,307 | | Operating (loss) income | $(20,271) | $4,547 | | Net loss | $(15,782) | $(1,468) | | Basic loss per common share | $(0.61) | $(0.06) | Six Months Ended December 31 (in thousands) | Metric | 2018 | 2017 | | :-------------------------------- | :----- | :----- | | Net sales | $174,498 | $179,771 | | Gross profit | $40,917 | $49,010 | | Operating (loss) income | $(17,337) | $(20,267) | | Net loss | $(14,033) | $(17,097) | | Basic loss per common share | $(0.54) | $(0.66) | - The company incurred significant restructuring costs of $376 thousand and severance costs of $23 thousand for the three months ended December 31, 2018, with no comparable costs in the prior year[12] - A goodwill impairment charge of $20.2 million was recorded for the three and six months ended December 31, 2018, contributing significantly to the operating loss[12] Condensed Consolidated Balance Sheets Presents LSI Industries Inc.'s financial position, detailing assets, liabilities, and equity as of December 31, 2018, and June 30, 2018 As of December 31, 2018 (in thousands) | Asset Category | Amount | | :--------------------------------------- | :----- | | Cash and cash equivalents | $9,563 | | Total current assets | $125,022 | | Net property, plant and equipment | $41,249 | | Goodwill | $10,373 | | Total assets | $225,078 | As of June 30, 2018 (in thousands) | Asset Category | Amount | | :--------------------------------------- | :----- | | Cash and cash equivalents | $3,178 | | Total current assets | $110,081 | | Net property, plant and equipment | $43,703 | | Goodwill | $30,538 | | Total assets | $229,517 | As of December 31, 2018 (in thousands) | Liability & Equity Category | Amount | | :--------------------------------------- | :----- | | Total current liabilities | $50,409 | | Long-Term Debt | $48,372 | | Total shareholders' equity | $124,325 | | Total liabilities & shareholders' equity | $225,078 | As of June 30, 2018 (in thousands) | Liability & Equity Category | Amount | | :--------------------------------------- | :----- | | Total current liabilities | $42,199 | | Long-Term Debt | $45,360 | | Total shareholders' equity | $139,251 | | Total liabilities & shareholders' equity | $229,517 | - Goodwill decreased significantly from $30.5 million at June 30, 2018, to $10.4 million at December 31, 2018, primarily due to an impairment charge[14][17] Condensed Consolidated Statements of Cash Flows Outlines LSI Industries Inc.'s cash inflows and outflows from operating, investing, and financing activities for the six months ended December 31 Six Months Ended December 31 (in thousands) | Cash Flow Activity | 2018 | 2017 | | :--------------------------------------- | :----- | :----- | | Net cash flows provided by (used in) operating activities | $7,628 | $(43) | | Net cash flows (used in) provided by investing activities | $(1,569) | $337 | | Net cash flows provided by (used in) financing activities | $326 | $(156) | | Increase in cash and cash equivalents | $6,385 | $138 | | Cash and cash equivalents at end of period | $9,563 | $3,177 | - Operating activities generated $7.6 million in cash for the six months ended December 31, 2018, a significant improvement from a $43 thousand use of cash in the prior year, driven by changes in accounts payable and receivables[20] - Investing activities used $1.6 million in cash in 2018, compared to generating $0.3 million in 2017, primarily due to increased capital expenditures and the absence of a significant sale of fixed assets like the prior year[20] Notes to Condensed Consolidated Financial Statements Provides detailed disclosures on accounting policies, segment reporting, goodwill, and other financial information supporting the statements NOTE 1 - INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Explains the basis of preparation for the unaudited interim financial statements, adhering to GAAP for interim reporting - The interim financial statements are unaudited and prepared in accordance with GAAP for interim financial information, including all normal adjustments and disclosures necessary for fair presentation[23] NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Details the key accounting principles and policies, including revenue recognition and the adoption of new accounting standards - The Company adopted ASU 2014-09, "Revenue from Contracts with Customers" (Topic 606), on July 1, 2018, using the modified retrospective method, resulting in a $591,000 net increase to beginning retained earnings[32][33] - Revenue is recognized when performance obligations are satisfied, typically at the point of shipment for standard products, and over time for highly customized products and installation services using a cost-based input method[25][27][28] Disaggregation of Revenue (Three Months Ended December 31, 2018, in thousands) | Segment | Products/Services Transferred at a Point in Time | Products/Services Transferred Over Time | Total | | :---------------- | :--------------------------------------------- | :------------------------------------ | :----- | | Lighting Segment | $57,318 | $6,336 | $63,654 | | Graphics Segment | $14,758 | $11,129 | $25,887 | Disaggregation of Revenue (Six Months Ended December 31, 2018, in thousands) | Segment | Products/Services Transferred at a Point in Time | Products/Services Transferred Over Time | Total | | :---------------- | :--------------------------------------------- | :------------------------------------ | :----- | | Lighting Segment | $111,567 | $13,519 | $125,086 | | Graphics Segment | $32,452 | $16,960 | $49,412 | - The Company is evaluating ASU 2016-02, "Leases," which requires recognition of lease assets and liabilities, effective for fiscal year 2020[35] - Michael C. Beck was appointed Senior Vice President - Operations, effective February 11, 2019[37] NOTE 3 - SEGMENT REPORTING INFORMATION Provides financial data disaggregated by the Company's operating segments: Lighting and Graphics, including net sales and operating income - The Company operates in two segments: Lighting (outdoor/indoor lighting, LED, electronic circuit boards) and Graphics (visual image elements, digital signage, installation services)[39][40][41] Net Sales by Segment (in thousands) | Segment | Three Months Ended Dec 31, 2018 | Three Months Ended Dec 31, 2017 | Six Months Ended Dec 31, 2018 | Six Months Ended Dec 31, 2017 | | :---------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Lighting Segment | $63,654 | $69,174 | $125,086 | $137,602 | | Graphics Segment | $25,887 | $23,131 | $49,412 | $42,169 | | Total | $89,541 | $92,305 | $174,498 | $179,771 | Operating (Loss) Income by Segment (in thousands) | Segment | Three Months Ended Dec 31, 2018 | Three Months Ended Dec 31, 2017 | Six Months Ended Dec 31, 2018 | Six Months Ended Dec 31, 2017 | | :------------------------ | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Lighting Segment | $(18,452) | $5,275 | $(14,602) | $(17,655) | | Graphics Segment | $861 | $2,255 | $3,248 | $3,731 | | Corporate and Eliminations | $(2,680) | $(2,983) | $(5,983) | $(6,343) | | Total | $(20,271) | $4,547 | $(17,337) | $(20,267) | NOTE 4 - EARNINGS PER COMMON SHARE Presents the calculation of basic and diluted earnings per common share, including the impact of outstanding options Earnings Per Common Share (in thousands, except per share data) | Metric | Three Months Ended Dec 31, 2018 | Three Months Ended Dec 31, 2017 | Six Months Ended Dec 31, 2018 | Six Months Ended Dec 31, 2017 | | :------------------------------------ | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net (loss) | $(15,782) | $(1,468) | $(14,033) | $(17,097) | | Basic loss per share | $(0.61) | $(0.06) | $(0.54) | $(0.66) | | Diluted (loss) per share | $(0.61) | $(0.06) | $(0.54) | $(0.66) | | Weighted average common shares outstanding (Basic) | 26,083 | 25,858 | 26,058 | 25,824 | - Options to purchase 3,536,732 common shares (3 months) and 3,356,101 common shares (6 months) for 2018 were not included in diluted EPS calculation as their exercise price exceeded the average fair market value, and there was a net loss for the period[47] NOTE 5 - INVENTORIES Details the composition of inventories, including raw materials, work-in-process, and finished goods, at specified dates Inventories (in thousands) | Category | December 31, 2018 | June 30, 2018 | | :---------------- | :------------------ | :---------------- | | Raw materials | $33,467 | $31,795 | | Work-in-process | $2,116 | $3,833 | | Finished goods | $18,510 | $15,366 | | Total Inventories | $54,093 | $50,994 | NOTE 6 - ACCRUED EXPENSES Itemizes accrued liabilities such as compensation, customer prepayments, sales commissions, and warranty expenses Accrued Expenses (in thousands) | Category | December 31, 2018 | June 30, 2018 | | :------------------------ | :------------------ | :---------------- | | Compensation and benefits | $6,842 | $9,394 | | Customer prepayments | $1,476 | $1,070 | | Accrued sales commissions | $1,702 | $2,274 | | Accrued warranty | $7,136 | $6,876 | | Other accrued expenses | $6,574 | $4,658 | | Total Accrued Expenses | $23,730 | $24,272 | NOTE 7 - GOODWILL AND OTHER INTANGIBLE ASSETS Discusses goodwill impairment, changes in goodwill, and the carrying values of other amortized and indefinite-lived intangible assets - A goodwill impairment test was triggered by a significant decline in the Company's stock price in Q2 FY2019, resulting in a $20.2 million impairment charge for one reporting unit in the Lighting Segment as of December 31, 2018[52] Goodwill, Net (in thousands) | Segment | June 30, 2018 | December 31, 2018 | | :---------------- | :-------------- | :------------------ | | Lighting Segment | $29,373 | $9,208 | | Graphics Segment | $1,165 | $1,165 | | Total | $30,538 | $10,373 | Other Intangible Assets, Net (in thousands) | Asset Class | December 31, 2018 | June 30, 2018 | | :-------------------------- | :------------------ | :---------------- | | Amortized Intangible Assets | $30,607 | $31,987 | | Indefinite-lived Intangible Assets | $3,422 | $3,422 | | Total Other Intangible Assets | $34,029 | $35,409 | - Amortization expense for intangible assets was $689 thousand for the three months ended December 31, 2018, and $1.38 million for the six months ended December 31, 2018[55] NOTE 8 - REVOLVING LINE OF CREDIT Provides details on the Company's secured revolving line of credit, including available capacity and compliance with covenants - The Company has a $100 million secured revolving line of credit expiring in Q3 FY2022. As of December 31, 2018, $48.4 million was borrowed, with $51.6 million available[56] - Interest on the line of credit is LIBOR-based plus an increment (125-250 basis points), and the Company was in compliance with all loan covenants as of December 31, 2018[56][57] NOTE 9 - CASH DIVIDENDS Reports on cash dividends paid and declared, including the quarterly rate and annual indicated rate - Cash dividends of $2.587 million were paid in the six months ended December 31, 2018. The Board declared a quarterly cash dividend of $0.05 per share in January 2019, indicating an annual rate of $0.20 per share[58] NOTE 10 - SUPPLEMENTAL CASH FLOW INFORMATION Presents supplemental cash flow details, specifically cash payments for interest and income taxes Cash Payments (Six Months Ended December 31, in thousands) | Category | 2018 | 2017 | | :----------- | :----- | :----- | | Interest | $1,133 | $767 | | Income taxes | $3 | $1,232 | NOTE 11 - COMMITMENTS AND CONTINGENCIES Addresses the Company's involvement in legal proceedings and management's assessment of their potential financial impact - The Company is involved in various legal proceedings but management believes their ultimate disposition will not materially adversely affect financial position, results of operations, cash flows, or liquidity[60] NOTE 12 – SEVERANCE COSTS Details severance expenses incurred and the accrued severance liability, primarily due to staffing reductions - Severance expense was $492 thousand for the six months ended December 31, 2018, compared to $83 thousand in the prior year, related to staffing reductions not tied to plant restructuring[62] Accrued Severance Liability (in thousands) | Metric | Six Months Ended Dec 31, 2018 | Six Months Ended Dec 31, 2017 | | :-------------------------- | :---------------------------- | :---------------------------- | | Balance at beginning of period | $1,772 | $235 | | Accrual of expense | $492 | $83 | | Payments | $(549) | $(218) | | Balance at end of period | $1,715 | $86 | NOTE 13 – RESTRUCTURING COSTS Outlines costs associated with facility closures and restructuring initiatives, including severance, asset impairment, and inventory write-downs - The Company announced plans to close its New Windsor, NY lighting facility (expected annual savings of $4.0 million) and its Hawthorne, CA warehouse/assembly facility, incurring restructuring costs of $401 thousand and $155 thousand respectively, as of December 31, 2018[63][64] Restructuring Costs Incurred (in thousands) | Category | Three Months Ended Dec 31, 2018 | Six Months Ended Dec 31, 2018 | | :------------------------------------------ | :------------------------------ | :---------------------------- | | Severance and other termination benefits | $202 | $221 | | Facility repairs | $7 | $47 | | Impairment of fixed assets and accelerated depreciation | $185 | $228 | | Other restructuring costs | $7 | $60 | | Total | $401 | $556 | - Additional inventory write-downs of $632 thousand (three months) and $1.067 million (six months) related to facility closures were recorded as cost of sales[65] NOTE 14 – INCOME TAXES Discusses deferred tax assets, the impact of tax law changes, and the reconciliation of the effective tax rate - A deferred tax asset of $4.8 million was created in Q2 FY2019 due to goodwill impairment in the Lighting reporting unit[69] - The U.S. corporate income tax rate was reduced to 21% effective January 1, 2018, impacting the Company's statutory rate for fiscal 2019 and beyond[70] Effective Tax Rate Reconciliation | Metric | Three Months Ended Dec 31, 2018 | Three Months Ended Dec 31, 2017 | Six Months Ended Dec 31, 2018 | Six Months Ended Dec 31, 2017 | | :-------------------------------------------------------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Provision for income taxes at the anticipated annual tax rate | 23.0% | 28.9% | 23.0% | 28.9% | | Enactment of tax law changes | -- | 111.2% | -- | (22.2)% | | Difference between deferred and current tax rate related to goodwill impairment | 0.6% | -- | 0.7% | 12.1% | | Effective tax rate | 24.4% | 135.6% | 24.0% | 18.9% | ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's analysis of financial performance, detailing decreased net sales, significant operating loss from goodwill impairment, segment performance, and liquidity Summary Comments Provides an overview of net sales and operating income changes for the quarter and six months, highlighting key drivers like goodwill impairment - Q2 FY2019 net sales decreased by $2.8 million (3%) to $89.5 million, with Graphics Segment sales up 12% ($2.8 million) offset by Lighting Segment sales down 8% ($5.5 million)[76] - First half FY2019 net sales decreased by $5.3 million (3%) to $174.5 million, with Graphics Segment sales up 17% ($7.2 million) offset by Lighting Segment sales down 9% ($12.5 million)[77] - Q2 FY2019 operating loss was $(20.3) million, a $24.8 million change from prior year's operating income, primarily due to a $20.2 million goodwill impairment charge in the Lighting Segment[78] - Adjusted Q2 FY2019 operating income decreased by $3.1 million (66%) to $1.5 million, driven by lower net sales and gross profit, partially offset by reduced selling and administrative expenses[78] Non-GAAP Financial Measures Reconciles GAAP operating income and net loss to adjusted non-GAAP measures, excluding specific non-recurring costs for performance assessment - The Company uses adjusted operating income, net income, and EPS (excluding goodwill impairment, severance, transition/realignment, and restructuring costs) to assess business performance, as these items are not representative of ongoing operations[81] Reconciliation of Operating (Loss) Income to Adjusted Operating Income (in thousands) | Metric | Q2 FY2019 | Q2 FY2018 | H1 FY2019 | H1 FY2018 | | :---------------------------------------------------------------- | :-------- | :-------- | :-------- | :-------- | | Operating (loss) income as reported | $(20,271) | $4,547 | $(17,337) | $(20,267) | | Adjustment for goodwill impairment | $20,165 | -- | $20,165 | $28,000 | | Adjustment for severance cost | $492 | $83 | $492 | $83 | | Adjustment for transition and re-alignment costs | $120 | -- | $120 | -- | | Adjustment for restructuring, plant closure costs, and related inventory write-downs | $1,033 | -- | $1,623 | -- | | Adjusted operating income | $1,539 | $4,630 | $5,063 | $7,816 | Reconciliation of Net Loss to Adjusted Net Income (in thousands, except per share data) | Metric | Q2 FY2019 | Diluted EPS | Q2 FY2018 | Diluted EPS | H1 FY2019 | Diluted EPS | H1 FY2018 | Diluted EPS | | :-------------------------------------------------------------------------------- | :-------- | :---------- | :-------- | :---------- | :-------- | :---------- | :-------- | :---------- | | Net (loss) and (loss) per share as reported | $(15,782) | $(0.61) | $(1,468) | $(0.06) | $(14,033) | $(0.54) | $(17,097) | $(0.66) | | Adjustment for goodwill impairment, inclusive of income tax effect | $15,361 | $0.60 | -- | -- | $15,361 | $0.60 | $17,361 | $0.67 | | Adjustment for severance costs, inclusive of income tax effect | $385 | $0.01 | $59 | -- | $385 | $0.01 | $59 | -- | | Adjustment for transition and re-alignment costs, inclusive of income tax effect | $94 | -- | -- | -- | $94 | -- | -- | -- | | Tax impact from the reduction of the deferred tax assets | -- | -- | $4,676 | $0.18 | -- | -- | $4,676 | $0.18 | | Adjustment for restructuring, plant closure costs, and related inventory write-downs inclusive of income tax effect | $817 | $0.03 | -- | -- | $1,271 | $0.05 | -- | -- | | Adjusted net income and earnings per share | $875 | $0.03 | $3,267 | $0.12 | $3,078 | $0.12 | $5,001 | $0.19 | Results of Operations Analyzes the Company's financial performance for the three and six months ended December 31, comparing current and prior year results THREE MONTHS ENDED DECEMBER 31, 2018 COMPARED TO THREE MONTHS ENDED DECEMBER 31, 2017 Compares the Company's financial results for the three months ended December 31, 2018, against the same period in 2017 Lighting Segment Details the Lighting Segment's net sales, gross profit, and operating loss for the three months, impacted by market conditions and impairment - Lighting Segment net sales decreased 8% to $63.7 million in Q2 FY2019 due to softness and competitiveness in project and stock and flow markets[84] - Gross profit decreased 23% to $14.7 million, with gross margin falling from 27.4% to 22.8%, impacted by restructuring costs ($1.0 million), reduced sales volume, competitive pricing, and inflationary pressures[85] - Operating loss was $(18.5) million, a $23.7 million decrease from prior year's operating income, primarily due to the $20.2 million goodwill impairment charge[87] Graphics Segment Reviews the Graphics Segment's net sales, gross profit, and operating income for the three months, driven by market growth and project mix - Graphics Segment net sales increased 12% to $25.9 million in Q2 FY2019, mainly driven by growth in the Petroleum market[88] - Gross profit decreased 19% to $4.9 million, with gross margin declining from 25% to 19%, attributed to a mix shift towards large, competitive projects with initially lower margins[89] - Operating income decreased 62% to $0.9 million, primarily due to the customer mix shift on higher sales and increased selling and administrative expenses[91] Corporate and Eliminations Discusses changes in administrative expenses and other corporate-level financial impacts for the three-month period - Administrative expenses decreased by $0.3 million in Q2 FY2019, mainly due to reduced wage and benefit expense, partially offset by higher legal and professional fees[93] Consolidated Results Summarizes the overall net interest expense, net loss, and diluted loss per share for the consolidated entity over three months - Net interest expense increased to $615 thousand in Q2 FY2019 from $417 thousand in Q2 FY2018, due to higher interest rates and commitment fees on the line of credit[94] - The Company reported a net loss of $(15.8) million in Q2 FY2019, compared to $(1.5) million in Q2 FY2018, primarily driven by the $20.2 million goodwill impairment charge[96] - Diluted loss per share was $(0.61) in Q2 FY2019, compared to $(0.06) in Q2 FY2018[96] SIX MONTHS ENDED DECEMBER 31, 2018 COMPARED TO SIX MONTHS ENDED DECEMBER 31, 2017 Compares the Company's financial results for the six months ended December 31, 2018, against the same period in 2017 Lighting Segment Details the Lighting Segment's net sales, gross profit, and operating loss for the six months, influenced by market conditions and impairment - Lighting Segment net sales decreased 9% to $125.1 million in the first half of FY2019 due to continued market softness and competitiveness[98] - Gross profit decreased 20% to $30.2 million, with gross margin falling from 27.2% to 23.9%, impacted by restructuring costs ($1.6 million), reduced sales volume, and competitive pricing[99] - Operating loss improved by $3.1 million to $(14.6) million, primarily due to a lower goodwill impairment charge ($20.2 million in FY2019 vs. $28 million in FY2018)[101] Graphics Segment Reviews the Graphics Segment's net sales, gross profit, and operating income for the six months, driven by market growth and project mix - Graphics Segment net sales increased 17% to $49.4 million in the first half of FY2019, driven by growth in Petroleum and Quick Service Restaurant markets, including digital technology[102] - Gross profit decreased 4% to $10.7 million, with gross margin declining from 25.7% to 21.6%, due to a mix shift towards large, competitive projects with initially lower margins[103] - Operating income decreased 13% to $3.2 million, primarily due to the customer mix shift on higher sales and a modest increase in selling and administrative expenses[106] Corporate and Eliminations Discusses changes in administrative expenses and other corporate-level financial impacts for the six-month period - Administrative expenses decreased by $0.3 million in the first half of FY2019, mainly due to reduced wage and benefit expense, partially offset by higher legal and professional fees[108] Consolidated Results Summarizes the overall net interest expense, net loss, and diluted loss per share for the consolidated entity over six months - Net interest expense increased to $1.1 million in the first half of FY2019 from $0.8 million in the prior year, due to higher interest rates and commitment fees[109] - The Company reported a net loss of $(14.0) million in the first half of FY2019, an improvement from $(17.1) million in the prior year, primarily due to a lower goodwill impairment charge in FY2019[111] - Diluted loss per share was $(0.54) in the first half of FY2019, compared to $(0.66) in the prior year[111] Liquidity and Capital Resources Assesses the Company's working capital, cash flow from operations, and available credit facilities to meet financial obligations - Working capital increased by $6.9 million to $74.8 million at December 31, 2018, from $67.9 million at June 30, 2018, primarily due to increased cash, accounts receivable, and inventory, partially offset by increased accounts payable[113] - Operating activities generated $7.6 million in cash in the first half of FY2019, a $7.7 million increase from a use of cash in the prior year, mainly due to favorable changes in accounts payable and receivables[114] - The Company's primary liquidity sources are cash from operations and its $100 million revolving line of credit, with $48.4 million available as of January 28, 2019. Management believes these are adequate for FY2019 needs[117] Off-Balance Sheet Arrangements Confirms the absence of material off-balance sheet financial instruments or arrangements, aside from operating leases - The Company has no financial instruments with off-balance sheet risk or arrangements, except for various operating leases, none of which are material[121] Cash Dividends Reports on the declaration of quarterly cash dividends and the indicated annual rate, subject to Board discretion - The Board declared a regular quarterly cash dividend of $0.05 per share in January 2019, with an indicated annual rate of $0.20 per share, subject to Board discretion based on financial performance and other factors[122] Critical Accounting Policies and Estimates Refers to the Company's Annual Report for a comprehensive summary of significant accounting policies and estimates - A summary of significant accounting policies is available in Note 1 to the audited consolidated financial statements of the fiscal 2018 Annual Report on Form 10-K[123] New Accounting Pronouncements Discusses the Company's ongoing evaluation of new accounting standards, specifically ASU 2016-02 on Leases - The Company is evaluating ASU 2016-02, "Leases," which requires recognition of lease assets and liabilities, effective for fiscal year 2020, and is compiling related data[124] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there have been no material changes in the Company's exposure to market risk since June 30, 2018, referring to the Annual Report on Form 10-K for additional details - No material changes in the Company's exposure to market risk have occurred since June 30, 2018[125] ITEM 4. Controls and Procedures This section confirms the effectiveness of the Company's disclosure controls and procedures as of December 31, 2018, and notes the implementation of additional controls related to the adoption of new revenue recognition guidance (ASU 2014-09) Disclosure Controls and Procedures Confirms the effectiveness of the Company's disclosure controls and procedures as assessed by executive officers - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of December 31, 2018[127] Changes in Internal Control Notes the implementation of additional internal controls related to the adoption of new revenue recognition accounting guidance - Additional controls were enacted during the first six months ended December 31, 2018, related to the adoption of ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)"[128] PART II. OTHER INFORMATION Covers additional disclosures including risk factors, equity security sales, and a list of exhibits filed with the report ITEM 1A. Risk Factors This section highlights a new risk factor concerning the significant decline in the Company's stock price, which could negatively impact its ability to raise additional capital and is subject to various market and operational fluctuations - The Company's stock price experienced a significant decline, from a high of $8.69 in February 2018 to a low of $3.17 on January 30, 2019, which could adversely affect its ability to raise additional capital[130] - Stock price volatility is influenced by product development, operating results, competitive announcements, economic conditions, and strategic relationships[130] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds This section states that there were no unregistered sales of equity securities or use of proceeds during the reporting period - There were no unregistered sales of equity securities or use of proceeds[131] ITEM 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including an employment offer letter, certifications from executive officers, and XBRL-related documents - Exhibits include the Employment Offer Letter with Michael C. Beck, certifications from the Principal Executive Officer and Principal Financial Officer, and various XBRL documents[133]