In a new filing with the U.S. Securities and Exchange Commission, Iroquois Capital Management, led by Joshua Silverman and Richard Abbe, disclosed a letter it sent to the Board of the Directors of LRAD Corp (NASDAQ:LRAD). Iroquois Capital criticized the company’s Board for not taking actions to properly manage capital resources, and raised concerns about the company’s failure to capitalize on potentially significant business opportunities and insider sales of the company’s stock. Taking into account concerns raised, Iroquois Capital has decided to go activist on LRAD Corp (NASDAQ:LRAD)’s stock. The filing showed that Iroquois Capital holds 1.88 million shares of LRAD Corp (NASDAQ:LRAD), representing an increase from 1.77 million shares most recently reported as being held by the fund. The stake is equal to 5.6% of the company’s outstanding common stock.
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New York-based Iroquois Capital is worried about LRAD Corp (NASDAQ:LRAD)’s share price, which has lost 17.58% year-to-date (YTD). The investor states in the letter that the company’s Board and management do not seem to be acting with a proper sense of urgency in terms of capitalizing on available opportunities to enhance shareholder value. Iroquois Capital believes that the Board has failed to effectively manage the company’s capital resources, including the excess cash on the balance sheet and the lack of share repurchases under the existing buyback plan. At the same, Iroquois Capital states that LRAD Corp (NASDAQ:LRAD) has failed to capitalize on available sales opportunities in emergency or general campus notifications, emergency warnings for natural disasters, and even the recent shark attacks in North Carolina.
Citing the company’s latest Quarterly Report, Iroquois Capital notes that LRAD Corp (NASDAQ:LRAD) had over $23 million in cash and marketable securities on its balance sheet as of March 31. The fund believes that returning such cash to shareholders is the best approach, in absence of a compelling strategy. Moreover, the investor urged the Board to increase the amount of share repurchases under the program or issue a large, one-time cash dividend to shareholders.
Another of Iroquois Capital’s concerns is the failure of the company to capitalize on potentially significant business opportunities, particularly in areas in which the company could realize substantial growth.
“Given the highly-publicized nature of many events for which LRAD’s products are typically utilized, there is no excuse in our mind that the Company has failed to recognize and capitalize on these growth opportunities,” the letter states.
Another concern raised by Iroquois Capital is the sale of LRAD Corp (NASDAQ:LRAD)’s shares by certain insiders, including the company’s Chief Executive Officer Thomas R. Brown, and Chief Financial Officer Katherine H. McDermott. The fund adds that these insiders have recently unloaded the company’s shares immediately upon the exercise of options, thus sending the wrong message to shareholders. The two executives have sold over 200,000 shares collectively in June alone, through 24 separate transactions. Iroquois Capital is concerned that Brown and McDermott have been exercising their options and immediately selling large amounts of stock at a substantial profit, higher than the price at which the company has offered to repurchase its own shares from its shareholders, according to the letter.
“In light of these concerns, we have converted our Schedule 13G back to a Schedule 13D so that we may be able to more actively engage with the Company and shareholders regarding these concerns and the most effective manner for addressing them,” Iroquois Capital’s letter states.
Lastly, Iroquois Capital notes that it is open to discussing the best ways to work together with LRAD Corp (NASDAQ:LRAD)’s Board to create value for the benefit of shareholders.
LRAD Corp (NASDAQ:LRAD) is engaged in the making of directed sound technologies and products. The company provides long-range acoustic hailing devices (AHDs), and advanced mass notification systems, and has a market cap of $71.23 million. For its fiscal second quarter ended March 31, the company’s financial results were not very impressive, with net income declining to $291,000, compared to $526,000 in the same period last year. Revenues also dropped to $4.5 million, compared to $5.4 million in the same quarter a year ago. Nonetheless, during the past year, shares of the company have risen by 4.95%.
Other big shareholders of LRAD Corp (NASDAQ:LRAD) include Mark Broach’s Manatuck Hill Partners and Chuck Royce’s Royce & Associates, owning 2.58 million shares and 965,100 shares, respectively, as of March 31.