“Forward-Looking” Information

This Form10-K contains certain “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which represent the Company’s expectations and beliefs, including, but not limited to, statements concerning gross margins, sales of the Company’s products and future financing plans, income from investees and litigation. These statements by their nature involve substantial risks and uncertainties, certain of which are beyond the Company’s control. Actual results may differ materially depending on a variety of important factors, including the financial condition of the Company’s customers, changes in the economic and competitive environments, the performance of the investment portfolio and the demand for the Company’s products.

For information concerning these factors and related matters, see “Risk Factors” in Part I, Item 1A in this Report. However, other factors besides those referenced could adversely affect the Company’s results, and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties. Any forward-looking statements made by the Company herein speak as of the date of this Report. The Company does not undertake to update any forward-looking statement,statements, except as required by law.

Overview

Gencor Industries, Inc. (the “Company”), is a leading manufacturer of heavy machinery used in the production of highway construction materials synthetic fuels, and environmental control equipment. The Company’s core products include asphalt plants, combustion systems and fluid heat transfer systems. The Company’s products are manufactured in two facilities in the United States.

Because the Company’s products are sold primarily to the highway construction industry, the business is seasonal in nature. Traditionally, the Company’s customers do not purchase new equipment for shipment during the summer and fall months to avoid disrupting their peak season for highway construction and repair work. The majority of orders for the Company’s products are thus received between October and February, with a significant volume of shipments occurring prior to June. The principal factors driving demand for the Company’s products are the overall economic conditions, the level of government funding for domestic highway construction and repair, Canadian infrastructure spending, the need for spare parts, fluctuations in the price of crude oil (liquid asphalt as well as fuel costs)asphalt), and a trend towards more efficient, larger plants resulting from industry consolidation.plants.

On July 6, 2012, President Obama signed a $118 billion transportation bill, Moving Ahead for Progress in the 21st Century Act(“MAP-21”). MAP-21.MAP-21 included a final three-month extension of the previousSAFETEA-LU bill at then current spending levels combined with a newtwo-year, $105 billion authorization of the federal highway, transit, and safety programs effective October 1, 2012. The bill provided states with two years of funding to build roads, bridges, and transit systems. On August 8, 2014, President Obama signed a $10.8 billion ten monthten-month bill to fund Federal highway and mass-transit programs through May 31, 2015. On May 29, 2015,MAP-21 was extended through July 31, 2015.

On July 31, 2015, President Obama signed a three monththree-month extension ofMAP-21, which providesprovided $8 billion in funding for the Highway Trust Fund from August 1, 2015 through October 29, 2015. Two additional short-term extensions were approved between October 29, 2015 and December 4, 2015.

On December 4, 2015, President Obama signed into law a five-year, $305 billion transportation bill, Fixing America’s Surface Transportation (“FAST”Act (the “FAST Act”) Act.. The FAST Act reauthorizesreauthorized the collection of the 18.4 cents per gallon gas tax that is typically used to pay for transportation projects. It also includesincluded $70 billion from other areas of the federal budget to close a $16 billion annual funding deficit. The bill includes spending of more than $205 billion on roads and highways over the next five years. The 2016 funding levels are approximately 5% above 2015 projected funding, with annual increases between 2.0% and 2.5% from 2016 through 2020.

California’s Senate Bill 1 (“SB1”), the Road Repair and Accountability Act of 2017, was signed into law on April 28, 2017. The Canadian government enacted major infrastructure stimulus programs, which benefittedlegislative package invests $54 billion over the Companynext decade to fix roads, freeways and bridges in prior years. In 2007, the Building Canada Plan provided $33 billion in infrastructure funding through 2014. As part of the Building Canada Plan, the Gas Tax Fund was approved in 2009, providing $2 billion in annual infrastructure spending.

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In addition to government funding and overall economic conditions, fluctuations in the price of oil, which is a major component of asphalt mix, may affect the Company’s financial performance. An increase in the price of oil increases the cost of liquid asphalt and could therefore, decrease demand for hot mixhot-mix asphalt paving materials and certain of the Company’s products. Increases in oil prices also drive up the cost of gasoline and diesel, which results in increased freight costs. Where possible, theThe Company will pass increased freight costs on to its customers. However, the Company may not be able to recapture all of the increased costs and thus could have a negative impact on the Company’s financial performance.

Steel is a major component used in manufacturing the Company’s equipment. The Company is subject to fluctuations in market prices for raw materials, such as steel. If the Company is unable to purchase materials it requires or is unable to pass on price increases to its customers or otherwise reduce its cost of goods sold, its business results of operations and financial condition may be adversely affected.

For the long term, theThe Company believes theits strategy of continuing to invest in product engineering and development and its focus on delivering high-qualitythe highest quality products and superior service will strengthen the Company’s market position. The Company took aggressive actions to conserve cash, right-size its operations and cost structure. These actions included adjustments to workforce, reduced purchases of raw materials and reductions in selling, general, and administrative expenses. The Company continues to review its internal processes to identify inefficiencies and cost reductioncost-reduction opportunities. The Company will continue to scrutinize its relationships with external suppliers to ensure it is achieving the highest quality materials and services at the most competitive cost.

Results of Operations

Year ended September 30, 20152018 compared with the year ended September 30, 20142017

Net revenuesrevenue for the year ended September 30, 2015 were $39.22018 was $98.6 million, a decreasean increase of 2.0%22.3% or $0.8$18.0 million from $40.0$80.6 million for the year ended September 30, 2014.2017. Net revenuesrevenue for the fourth quarter of 2015 were2018 was up $3.310.7% or $2.0 million or 68% over the fourth quarter of 2014. Through2017. The FAST Act, along with increased domestic infrastructure spending at the first three quarters of 2015,federal level, continued to generate strong demand for the Company’s products from domestic highway construction industry continued to languish with the shortfallcontractors through fiscal 2018.

Gross profit for fiscal 2018 was 27.0% of net revenue versus 26.2% of net revenue in Federal funding of the Highway Trust Fundfiscal 2017. The Company faced significant inflationary pressures from steel and the lack of an approved multi-year highway bill. During the latter part of the fourth quarter of 2015, the Company’s quoting activity and order input picked up significantly and has continued to be robust. Numerous customers who had previously deferred equipment purchases are showing a renewed optimism. On December 4, 2015, President Obama signed a five-year, $305 billion transportation bill which should give our U.S. customers the confidence to invest in new equipment for production capacity expansion and replacement of older, inefficient equipment. In Canada, order inquiries had been solid,related purchased parts, but a ten year high in the U.S. dollar has caused some Canadian customers to delay purchases. The recently elected Prime Minister in Canada is focused on continuingwas able to improve Canada’s infrastructure which should bode well for our Canadian customers.

Grossits gross margins for fiscal 2015 were $7.5 million, or 19.1% ofthrough higher net revenues, versus $7.8 million or 19.5% of net revenues in 2014. The gross margin decrease in 2015 was due to overall lower net revenuescost management and production volumes.operational improvements implemented over the past few years.

Product engineering and development (“PED”) expenses were unchangedincreased $768,000 or 35.8% from 2014.fiscal 2017 due to increased headcount and salaries to meet the higher demand for its products. Selling, general and administrative (“SG&A”) expenses increased $451,000$1,215,000 or 7.0%13.8% to $6,878,000$9,991,000 from $6,427,000$8,776,000 in fiscal 2014. The 2014 general2017. SG&A expenses increased due to increased headcount, increased sales commissions due to higher revenues, and administrativeincreased advertising and trade show expenses were reduced byto capture the optimism within the highway construction industry. As a $393,000 second fiscal quarter recoverypercentage of a previously reserved receivable.net revenue, SG&A expenses declined to 10.1%, compared to 10.9% in the prior year.

Fiscal 20152018 had an operating lossincome of $(794,000)$13,715,000 versus an operating loss of $(26,000)$10,236,000 in fiscal 2014. As compared2017. The improved operating results were due primarily to fiscal 2014, the increased operating losshigher net revenue and gross margins, partially offset by increases in 2015 was due to lower revenuesPED and the positive impact on the fiscal 2014 results of the $393,000 recovery of a previously reserved receivable.SG&A expenses.

As of September 30, 20152018 and 2014,2017, the cost basis of the investment portfolio was $87.1$103.8 million and $85.0$87.0 million, respectively. For the years ended September 30, 20152018 and 2014,2017, net investment interest and dividend income (“Investment Income”) was $0.9$1.5 million and $1.8$0.7 million, respectively. Investment Income was down in 2015 as the Company disposed of its investments in corporate and municipal bonds in March 2014. The net

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realized and unrealized lossesgains (losses) on marketable securities were $(3.6)$(0.4) million in 2015fiscal 2018 versus gains of $2.2$1.3 million in 2014. Totalfiscal 2017. The total cash, cash equivalents and investmentinvestments balance at September 30, 20152018 was $95.5$112.1 million, compared to the September 30, 20142017 cash, cash equivalents and investmentinvestments balance of $94.3$110.8 million, an increase of $1.3 million. During

On December 22, 2017, the year ended September 30, 2014,U.S. Tax Cuts and Jobs Act (the “Tax Reform Act”) was signed into law by President Donald Trump. The Tax Reform Act significantly lowered the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018, while also repealing the deduction for domestic production activities, implementing a territorial tax system and imposing repatriation tax on deemed repatriated earnings of foreign subsidiaries. U.S. GAAP requires that the impact of tax legislation be recognized in the period in which the law was enacted. As a result of the Tax Reform Act, the Company recognized in other incomerecorded a gaintax benefit of $442,000 on$0.7 million due tore-measurement of its deferred tax liability, during the disposalfirst quarter of propertyfiscal 2018. The Company recorded an additional $0.1 million of tax benefits related to the Tax Reform Act in the United Kingdom which was previously used as an operating facility.fourth quarter of fiscal 2018.

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The effective income tax rate for fiscal 20142018 was 21.3%15.6% versus a benefit of (48.7%)30.9% in fiscal 2015. 2017 due primarily to lowering of the corporate income tax rate under the Tax Reform Act.

As of September 30, 20132017, the Company had $805,000 inno federal research and development tax credits (“R&D Credits”) carry-forwards. Of this amount, $313,000 reduced the Company’s current federal income taxes payable for the year ended September 30, 2014, leaving $492,000 incarryforwards. In fiscal 2018, $249,000 of new credits were generated, all of which were used. There are no R&D Credits carry-forwards in the net deferred and other income tax liabilities of $693,000 in the consolidated balance sheetcarryforwards as of September 30, 2014. After2018.

As of September 30, 2017, the Company’s 2014 federal incomeCompany had $155,000 in Florida state research and development tax return was filed, there was a net increase adjustment incredits (“Florida R&D Credits”) carryforwards. The Company received additional Florida R&D Credits carry-forwards of $275,000 taking the total to $767,000 from the original estimate$25,000 in fiscal 2018 and used $93,000, leaving $87,000 of $492,000. In fiscal 2015, additional netFlorida R&D Credits carry-forwardscarryforwards as of $133,000 were added bringing the totalSeptember 30, 2018. The $87,000 of Florida R&D Credits, carry-forwards to $900,000 at September 30, 2015. The $900,000 of R&D Credits carry-forwards, which are included in net deferred and other income tax assetsliabilities of $1,114,000$(2,358,000) at September 30, 2015,2018, expire in fiscal years 2031 through 2034.

During fiscal 2014, the Company also received $244,000 of Florida state research and development credits. $65,000 of these credits reduced the Company’s state income taxes payable in fiscal 2014 and $179,000 was included in the net deferred and other income tax liabilities of $693,000 in the consolidated balance sheet as of September 30, 2014. After the Company’s 2014 state income tax return was filed, there was a net increase adjustment in the Florida state research and development credits of $35,000 taking the total carry-forwards to $214,000 from the original estimate of $179,000. The $214,000 of Florida state research and development credits carry-forwards, which are included in net deferred and other income tax assets of $1,114,000 at September 30, 2015, expire in fiscal 2019. The Company did not receive any Florida state research and development credits in fiscal 2015.2022.

Net lossincome for the year ended September 30, 20152018 was $(1,819,000)$12,564,000 or $(0.19)$0.85 per diluted share versus net income of $3,473,000$8,418,000 or $0.36$0.57 per diluted share for the year ended September 30, 2014.2017. The increase in net income was primarily due to the improved net revenue and higher gross profit margins.

Liquidity and Capital Resources

The Company generates capital resources through operations and returns on its investments.

The Company had no long-term debt outstanding at September 30, 20152018 or 2014. The Company does not currently require a credit facility but continues to review and evaluate its needs and options for such a facility.

2017. As of September 30, 2015,2018, the Company has funded $135,000 in cash deposits at insurance companies to cover collateral needs.

As of September 30, 2015,2018, the Company had $11.2$8.0 million in cash and cash equivalents, and $84.4$104.1 million in marketable securities. The marketable securities are invested through a professional investment management firm.firms. The securities may be liquidated at any time into cash and cash equivalents.

The Company’s backlog, which includes orders received through the date of this filing, was $18.7$43.8 million at September 30, 20152018 versus $4.8$61.3 million at September 30, 2014.2017. The Company’s working capital (defined as current assets less current liabilities) was $105.0$136.6 million at September 30, 20152018 versus $107.7$124.7 million at September 30, 2014. 2017.

The significant purchases, sales and maturities of marketable securities shown on the consolidated statements of cash flows reflectsreflect the sale of all corporate and municipal bonds in March 2014 and subsequent recurringfrequent purchase and sale of United States treasury bills throughbills.

Year ended September 30, 2018 compared with the year ended September 30, 2017

Cash used in operations in fiscal 2015. The change in deferred income taxes between years is2018 of $(11,995,000) was primarily due to the tax impact on unrealized gains (losses) oninvesting an additional $15.0 million of operating cash in marketable securities which were an unrealized gain of $2.1 million at September 30, 2014 versus an unrealized loss of $(2.7) million at September 30, 2015. Costsequity securities. The increase in costs and estimated earnings in excess of billings of $5.1 million reflects significant progress on largepercentage-of-completion jobs prior to final billing and payment of amounts due in advance of shipment. Similarly, customer deposits increased $2.1decreased $4.1 million, reflecting the increase in the numberapplication of open percentage-of-completion jobs as of September 30, 2015 versus 2014.down payments on these jobs.

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Cash provided by operations duringin fiscal 2017 of $6,108,000 was primarily from increases in net revenue. The increase in inventories of $5.1 million reflected the year ended September 30, 2015 was $4,512,000. ongoing need for additional equipment to meet the increased demand for the Company’s products. Similarly, customer deposits increased $4.1 million, reflecting the down payments related to increased backlog of orders.

Cash used forin investing activities during the year ended September 30, 20152018 of $689,000$3,550,000 and $1,617,000 for the year ended September 30, 2017, related primarily to capital expenditures for manufacturing equipment. Cash provided by financing activities of $136,000$624,000 in fiscal 20152018 and $223,000 in fiscal 2017 related to proceeds from the exercise of stock options.

Critical Accounting Policies, Estimates and Assumptions

The Company believes the following discussion addresses it’sits most critical accounting policies, which are those that are most important to the portrayal of the Company’s financial condition and results of operations and require management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Accounting policies, in addition to the critical accounting policies referenced below, are presented in Note 1 to the Consolidated Financial Statements, “Accounting Policies.”

Estimates and Assumptions

In preparing the Consolidated Financial Statements, the Company uses certain estimates and assumptions that may affect reported amounts and disclosures. Estimates and assumptions are used, among other places, when accounting for certain revenue (e.g., contract accounting), expense, and asset and liability valuations. The Company believes that the estimates and assumptions made in preparing the Consolidated Financial Statements are reasonable, but are inherently uncertain. Assumptions may be incomplete or inaccurate and unanticipated events may occur. The Company is subject to risks and uncertainties that may cause actual results to differ from estimated results.

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Revenues & Expenses

Revenues from contracts for the design, manufacture and sale of asphalt plants are recognized under thepercentage-of-completion method. Thepercentage-of-completion method of accounting for these contracts recognizes revenue, net of any promotional discounts, and costs in proportion to actual labor costs incurred as compared with total estimated labor costs expected to be incurred during the entire contract.Pre-contract costs are expensed as incurred. Changes to total estimated contract costs or losses, if any, are recognized in the period in which they are determined. Revenue recognized in excess of amounts billed is classified as current assets under “costs and estimated earnings in excess of billings.” The Company anticipates that all incurred costs associated with these contracts at September 30, 2015,2018 will be billed and collected within one year.

Revenues from all other contracts for the design and manufacture of custom equipment, for service and for parts sales, net of any discounts and return allowances, are recorded when the following four revenue recognition criteria are met: product is delivered/ownership is transferred or service is performed, persuasive evidence of an arrangement exists, the selling price is fixed or determinable, and collectability is reasonably assured.

ReturnsIn May 2014, the FASB issued ASUNo. 2014-09,Revenue from Contracts with Customers: (Topic 606) (“ASU2014-09”), amending its accounting guidance related to revenue recognition. Under this ASU and allowances,subsequently issued amendments, revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which reduce product revenue, are estimatedthe entity expects to be entitled in exchange for those goods or services. The standard is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. ASU 2014-09 is effective for the Company starting in the first quarter of its fiscal 2019. The Company elected to adopt the standard using historical experience. the modified retrospective method. The Company has substantially completed its analysis of the impact of the adoption, and expects that the adoption of this guidance will not have a material impact on its consolidated financial statements.

Provisions for estimated returns and allowances and other adjustments are provided for in the same period the related sales are recorded. Returns and allowances, which reduce product revenue, are estimated using historical experience.

Product warranty costs are estimated using historical experience and known issues and are charged to production costs as revenue is recognized.

All product engineeringPED and development costs, and selling, general and administrativeSG&A expenses are charged to operations as incurred. Provision is made for any anticipated contract losses in the period that the loss becomes evident.

The allowance for doubtful accounts is determined by performing a specific review of all account balances greater than 90 days past due and other higher risk amounts to determine collectability and also adjusting for any known customer payment issues with account balances in theless-than-90-day past due aging buckets. Account balances are charged off against the allowance for doubtful accounts when they are determined to be uncollectable. Any recoveries of account balances previously considered in the allowance for doubtful accounts reduce future additions to the allowance for doubtful accounts.

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Inventories

Inventories are valued at the lower of cost or market, with cost being determined principally by using thelast-in,first-out (“LIFO”) method and market defined as replacement cost for raw materials and net realizable value for work in process and finished goods (see Note 2 to Consolidated Financial Statements). Appropriate consideration is given to obsolescence, excessive levels, deterioration, possible alternative uses and other factors in determining net realizable value. The cost of work in process and finished goods includes materials, direct labor, variable costs and overhead. The Company evaluates the need to record inventory adjustments on all inventories, including raw material,materials, work in process, finished goods, spare parts and used equipment. Used equipment acquired by the Company ontrade-in from customers is carried at estimated net realizable value. Unless specific circumstances warrant different treatment regarding inventory obsolescence, the cost basis of inventories three to four years old are reduced by 50%, while the cost basis of inventories four to five years old are reduced by 75%, and the cost basis of inventories greater than five years old are reduced to zero. Inventory is typically reviewed for obsolescence on an annual basis computed as of September 30,^th, the Company’s fiscal year end. If significant known changes in trends, technology or other specific circumstances that warrant consideration occur during the year, then the impact on obsolescence is considered at that time.

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Investments

Marketable debt and equity securities are categorized as trading securities and are thus marked to market and stated at fair value. Fair value is determined using the quoted closing or latest bid prices for Level 1 investments and market standard valuation methodologies for Level 2 investments. Realized gains and losses on investment transactions are determined by specific identification and are recognized as incurred in the consolidated statements of operations.income statements. Net changes in unrealized gains and losses are reported in the consolidated income statements of operations and represent the change in the fair value of investment holdings during the period.

Long Lived Asset Impairment

Property and equipment, and intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable. An impairment loss would be recognized when the carrying amount of an asset exceeds the estimated undiscounted cash flows expected to result from the use of the asset and its eventual disposition. The amount of the impairment loss to be recorded is calculated by the excess over its fair value of the asset’s carrying value. Fair value is generally determined using a discounted cash flow analysis.

Inflation

The overall effects of inflation on the Company’s business during the periods discussed have not been significant. The Company monitors the prices it charges for its products and services on an ongoing basis and believes that it will be able to adjust those prices to take into account future changes in the rate of inflation.

Contractual Obligations

The following table summarizes theThere were no outstanding borrowings andor long-term contractual obligations at September 30, 2015:2018.

The Company had no long-term or short-term debt as of September 30, 2015.2018. There was no long-term debt facility in place and there were no outstanding letters of credit at September 30, 2015.2018.

Off-Balance Sheet Arrangements

None

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INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

GENCOR INDUSTRIES, INC.

All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Gencor Industries, Inc.:

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Gencor Industries, Inc. (the “Company”) as of September 30, 20152018 and 2014,2017, and the related consolidated statements of operations,income, shareholders’ equity, and cash flows for each of the years in thetwo-year period ended September 30, 2015. Gencor’s2018, and the related notes (collectively referred to as the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of September 30, 2018, based on criteria established inInternal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

In our opinion, the consolidated financial statements referred to in the first paragraph present fairly, in all material respects, the consolidated financial position of the Company as of September 30, 2018 and 2017, and the consolidated results of its operations and its cash flows for each of the years in thetwo-year period ended September 30, 2018, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2018, based on criteria established inInternal Control – Integrated Framework (2013) issued by COSO.

Basis for Opinion

The Company’s management is responsible for these consolidated financial statements.statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on thesethe Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not requiredmisstatement, whether due to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration oferror or fraud, and whether effective internal control over financial reporting as a basis for designing auditwas maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includesrespond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statement presentation.statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinion.opinions.

In our opinion,Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the consolidatedreliability of financial reporting and the preparation of financial statements referredfor external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to above presentthe maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are

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recorded as necessary to permit preparation of financial statements in all material respects, the consolidated financial position of Gencor Industries, Inc. as of September 30, 2015 and 2014,accordance with generally accepted accounting principles, and the consolidated resultsreceipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its operations,inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in shareholders’ equity, and its cash flows for eachconditions, or that the degree of compliance with the years inpolicies or procedures may deteriorate.

MOORE STEPHENS LOVELACE, P.A.

Certified Public Accountants

We have served as the two-year period ended September 30, 2015 in conformity with accounting principles generally accepted in the United States of America.Company’s auditor since 2001.

Orlando, Florida

December 13, 2018

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Part I. Financial Information

GENCOR INDUSTRIES, INC.

Consolidated Balance Sheets

As of September 30, 20152018 and 20142017

See accompanying Notes to Consolidated Financial Statements

2421

GENCOR INDUSTRIES, INC.

Consolidated Income Statements of Operations

For the Years Ended September 30, 20152018 and 20142017

See accompanying Notes to Consolidated Financial Statements

2522

GENCOR INDUSTRIES, INC.

Consolidated Statements of Shareholders’ Equity

For the Years Ended September 30, 20152018 and 20142017

See accompanying Notes to Consolidated Financial Statements

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GENCOR INDUSTRIES, INC.

Consolidated Statements of Cash Flows

For the Years Ended September 30, 20152018 and 20142017

See accompanying Notes to Consolidated Financial Statements

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GENCOR INDUSTRIES, INC.

Notes to Consolidated Financial Statements

For the Years Ended September 30, 20152018 and 20142017

NOTE 1—1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Gencor Industries, Inc. and its subsidiaries (collectively, the “Company”) is a diversified, heavy machinery manufacturer for the production of highway construction materials synthetic fuels and environmental control machinery and equipment.

These consolidated financial statements include the accounts of Gencor Industries, Inc. and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

New Accounting Pronouncements and Policies

In November 2015,May 2014, the Financial Accounting Standards BoardFASB issued ASUNo. 2014-09,Revenue from Contracts with Customers (Topic 606) (“ASU2014-09”), amending its accounting guidance onrelated to revenue recognition. Under this ASU and subsequently issued amendments, revenue is recognized to depict the balance sheet classificationtransfer of deferred taxes,goods or services to customers in an amount that reflects the consideration to which requires that deferred tax liabilitiesthe entity expects to be entitled in exchange for those goods or services. Additional disclosures are required to provide the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets be classified as noncurrent inrecognized from costs incurred to obtain or fulfill a classified balance sheet.contract. The guidancestandard is effective for financial statements issued for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. ASU 2014-09 is effective for the Company starting in the first quarter of its fiscal 2019. The Company elected to adopt the standard using the modified retrospective method. The Company has substantially completed its analysis of the impact of the adoption, and expects that the adoption of this guidance will not have a material impact on its consolidated financial statements.

In February 2016, the FASB issued ASU No.2016-02, Leases (Topic 842) (“ASU2016-02”). With adoption of this standard, lessees will have to recognize most leases as aright-of-use asset and a lease liability on their balance sheet. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are similar to those applied in current lease accounting. ASU2016-02 must be applied on a modified retrospective basis and is effective for fiscal years beginning after December 15, 2018, and interim periods within those years, with earlier applicationearly adoption permitted. The Company applied thisdoes not expect the new accounting standard to have a significant impact on its financial results when adopted.

In May 2017, the FASB issued ASU 2017-09, “Compensation - Stock Compensation” (Topic 718): Scope of Modification Accounting (“ASU 2017-09”). The new guidance clarifies when a change to their financial statementsthe terms or conditions of a share based payment award must be accounted for as a modification. ASU 2017-09 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. ASU 2017-09 is effective for the year ended September 30, 2015 and retrospectivelyCompany in the first quarter of its fiscal 2019. The Company does not expect the adoption of this standard to all periods presented. The retrospective implementation did not result in any changes to the Company’shave a significant impact on its financial statements for the year ended September 30, 2014.results when adopted.

No other new accounting pronouncements recently issued or newly effective during the fiscal year have had or are expected to have a material impact on the Company’s consolidated financial statements.

Use of Estimates

The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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Earnings per Share (“EPS”)

The consolidated financial statements include basic and diluted earnings (loss) per share (“EPS”) information. Basic earnings per share areEPS is based on the weighted averageweighted-average number of shares outstanding. Diluted earnings per share areEPS is based on the sum of the weighted averageweighted-average number of shares outstanding plus common stock equivalents. Weighted-average

The weighted-average shares issuable upon the exercise of stock options included in the diluted earnings per shareEPS calculation as ofat September 30, 20142018 were 337,000367,000, which equates to 72,000231,000 dilutive common stock equivalents. For the year ended September 30, 2015, there were no common2017, the weighted-average shares issuable upon the exercise of stock equivalentsoptions included in the diluted earnings per share calculations, asEPS calculation were 463,000, which equates to do so would have been anti-dilutive.284,000 dilutive common stock equivalents. Weighted-average shares issuable upon the exercise of stock options, which were not included in the diluted earnings per shareEPS calculation because they were anti-dilutive, were 341,000zero in 20152018 and 8,000 in 2014.2017.

The following presents the calculation of the basic and diluted earnings (loss) per shareEPS for the years ended September 30, 20152018 and 2014:2017:

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Cash Equivalents

Cash equivalents consist of short-term certificates of deposit and deposits in money market accounts with original maturities of three months or less.

Marketable Securities

Marketable debt and equity securities are categorized as trading securities and are thus marked to market and stated at fair value. Fair value is determined using the quoted closing or latest bid prices for Level 1 investments and market standard valuation methodologies for Level 2 investments. Realized gains and losses on investment transactions are determined by specific identification and are recognized as incurred in the consolidated statements of operations.income statements. Net changes in unrealized gains and losses are reported in the consolidated income statements of operations in the current period and represent the change in the fair value of investment holdings during the period.

Fair Value Measurements

The fair value of financial instruments is presented based upon a hierarchy of levels that prioritizes the inputs of valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The fair value of marketable equity securities, mutual funds, exchange-traded funds, andcorporate bonds, government securities, and cash and money funds are substantially based on quoted market prices (Level 1). Corporate and municipal bonds are valued using market standard valuation methodologies, including: discounted cash flow methodologies, and matrix pricing or other similar techniques. The inputs to these market standard valuation methodologies include, but are not limited to: interest rates, credit standing of the issuer or counterparty, industry sector of the issuer, coupon rate, call provisions, maturity, estimated duration and assumptions regarding liquidity and estimated future cash flows. In addition to bond characteristics, the valuation methodologies incorporate market data, such as actual trades completed, bids and actual dealer quotes, where such information is available. Accordingly, the estimated fair values are based on available market information and judgments about financial instruments (Level 2). Fair values of the Level 2 investments (if any) are provided by the Company’s professional investment management firm.firms.

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The following table sets forth by level, within the fair value hierarchy, the Company’s assets measured at fair value as of September 30, 2018:

Net unrealized losses reported during fiscal 2018 on trading securities still held as of September 30, 2018, were $612,000. There were no transfers of investments between Level 1 and Level 2 during the year ended September 30, 2018. In September 2018, the Company invested an additional $15.0 million of its operating cash in government securities.

The following table sets forth by level, within the fair value hierarchy, the Company’s assets measured at fair value as of September 30, 2015:2017:

Net unrealized gains and (losses) recognizedreported during fiscal 20152017 on trading securities still held as of September 30, 2015,2017, were $(4,882,000).$1,183,000. There were no transfers of investments between Level 1 and Level 2 during the year ended September 30, 2015.

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The following table sets forth by level, within the fair value hierarchy, the Company’s assets measured at fair value as of September 30, 2014:

Net unrealized gains and (losses) recognized during fiscal 2014 on trading securities still held as of September 30, 2014, were $167,000. There were no transfers of investments between Level 1 and Level 2 during the year ended September 30, 2014.2017.

The carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable, customer deposits and accrued expenses approximate fair value because of the short-term nature of these items.

Foreign Currency Transactions

Gains and losses resulting from foreign currency transactions are included in income and were not significant during the years ended September 30, 20152018 and 2014.2017.

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Risk Management

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, marketable securities, and accounts receivable. The Company maintains its cash accounts in various domestic financial institutions which may from time to time exceed federally insured limits. Operating cash is retained overnight innon-interest-bearing accounts which allow for offsets to treasury service charges. The marketable securities are invested in cash and money funds, mutual funds, exchange-traded funds (ETF’s)(“ETF’s”), corporate bonds, government securities and stocks through a professional investment advisor. Investment securities are exposed to various risks, such as interest rate, market and credit risks.

The Company’s customers are not concentrated in any specific geographic region, but are concentrated in the road and highway construction industry. The Company extends limited credit to its customers based upon their credit- worthiness and generally requires a significantup-front deposit before beginning construction and full payment subject to hold-back provisions prior to shipment on complete asphalt plant and component orders. The Company establishes an allowance for doubtful accounts based upon the credit risk of specific customers, historical trends and other pertinent information.

Inventories

Inventories are valued at the lower of cost or market, with cost being determined principally by using thelast-in,first-out (“LIFO”) method and market defined as replacement cost for raw materials and net realizable value for work in process and finished goods (see Note 2). Appropriate consideration is given to obsolescence, excessive levels, deterioration, possible alternative uses and other factors in determining net realizable value. The cost of work in process and finished goods includes materials, direct labor, variable costs and overhead. The Company evaluates the need to record inventory adjustments on all inventories, including raw material, work in process, finished goods, spare parts and used equipment. Used equipment acquired by the Company ontrade-in from customers is carried at estimated net realizable value. Unless specific circumstances warrant different treatment regarding inventory obsolescence, the cost basis of inventories three to four years old are reduced by 50%, while the cost basis of inventories four to five years old are reduced by 75%, and the cost basis of inventories greater than five years old are reduced to zero. Inventory is typically reviewed for obsolescence on an annual basis computed as of September 30, the Company’s fiscal year end. If significant known changes in trends, technology or other specific circumstances that warrant consideration occur during the year, then the impact on obsolescence is considered at that time.

Changes in the allowance for slow moving and obsolete inventories are as follows:

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Property and Equipment

Property and equipment are stated at cost (see Note 4). Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the related assets, as follows:

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Impairments

Property and equipment and intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable. An impairment loss would be recognized when the carrying amount of an asset exceeds the estimated undiscounted cash flows expected to result from the use of the asset and its eventual disposition. The amount of the impairment loss to be recorded is calculated by the excess over its fair value of the asset’s carrying value over its fair value. Fair value is generally determined using a discounted cash flow analysis. No such impairment loss waslosses were recorded during the years ended September 30, 20152018 and 2014.2017.

Revenues and Expenses

Revenues from contracts for the design, manufacture and sale of asphalt plants are recognized under thepercentage-of-completion method. Thepercentage-of-completion method of accounting for these contracts recognizes revenue, net of any promotional discounts, and costs in proportion to actual labor costs incurred, as compared with total estimated labor costs expected to be incurred during the entire contract.Pre-contract costs are expensed as incurred. Changes to total estimated contract costs or losses, if any, are recognized in the period in which they are determined. Revenue recognized in excess of amounts billed is classified as current assets under “costs and estimated earnings in excess of billings.” The Company anticipates that all incurred costs associated with these contracts at September 30, 2015,2018, will be billed and collected within one year.

Revenues from all other contracts for the design and manufacture of custom equipment, for service and for parts sales, net of any discounts and return allowances, are recorded when the following four revenue recognition criteria are met: product is delivereddelivered/ownership is transferred or service is performed, persuasive evidence of an arrangement exists, the selling price is fixed or determinable, and collectability is reasonably assured.

The Company’s customers may qualify for certain cash rebates generally based on the level of sales attained during a twelve-month period. Provisions for these rebates, as well as estimated returns and allowances and other adjustments, are provided for in the same period the related sales are recorded. Return allowances, which reduce product revenue, are estimated using historical experience.

Product warranty costs are estimated using historical experience and known issues and are charged to production costs as revenue is recognized.

Changes in the accrual for warranty and related costs are composed of the following:

All product engineering and development costs, and selling, general and administrative expenses are charged to operations as incurred. Provision is made for any anticipated contract losses in the period that the loss becomes evident.

The allowance for doubtful accounts is determined by performing a specific review of all account balances greater than 90 days past due and other higher risk amounts to determine collectability, and also adjusting for any known customer payment issues with account balances in theless-than-90-day past due aging category. Account balances are charged off against the allowance for doubtful accounts when they are determined to be uncollectable. Any recoveries of account balances previously considered in the allowance for doubtful accounts reduce future additions to the allowance for doubtful accounts.

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Changes in the allowance for doubtful accounts are composed of the following:

Shipping and Handling Costs

Shipping and handling costs are included in production costs in the consolidated statements of operations.income statements.

Income Taxes

Income taxes are provided for the tax effects of transactions reported in the consolidated financial statements and consist primarily of taxes currently due, plus deferred taxes (see Note 6).

The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns using current tax rates. The Company and its domestic subsidiaries file a consolidated federal income tax return.

Deferred tax assets and liabilities are measured using the rates expected to apply to taxable income in the years in which the temporary differences are expected to reverse and the credits are expected to be used. The effect on deferred tax assets and liabilities of the change in tax rates is recognized in income in the period that includes the enactment date. All available evidence, both positive and negative, is considered to determine whether, based on the weight of that evidence, the Company is more likely than not to realize the benefit of a deferred tax asset and whether a valuation allowance is needed for some portion or all of a deferred tax asset. No such valuation allowances were recorded as of September 30, 20152018 and 2014.2017.

On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “Tax Reform Act”) was signed into law by President Donald Trump. The Tax Reform Act significantly lowered the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018, while also repealing the deduction for domestic production activities for tax years beginning after December 31, 2017, implementing a territorial tax system and imposing repatriation tax on deemed repatriated earnings of foreign subsidiaries. U.S. GAAP requires that the impact of tax legislation be recognized in the period in which the law was enacted. As a result of the Tax Reform Act, the Company recorded a tax benefit of $0.7 million due tore-measurement of its deferred tax liability, in the three months ended December 31, 2017. The Company recorded an additional $0.1 million of tax benefits related to the Tax Reform Act in the fourth quarter of fiscal 2018.

The Company’s income tax provision is based on management’s estimate of the effective tax rate for the full year. The tax provision in any period will be affected by, among other things, permanent, as well as temporary differences in the deductibility of certain items, in addition to changes in tax legislation. As a result, the Company may experience significant fluctuations in the effective book tax rate (that is, its tax expense divided bypre-tax book income) from period to period. For fiscal 2018, the Company’s effective tax rate declined compared to fiscal 2017, primarily due to the implementation of the Tax Reform Act.

Comprehensive Income

For the years ended September 30, 20152018 and 2014,2017, other comprehensive income is equal to net income.

Reporting Segments and Geographic Areas

Information concerning principal geographic areas is as follows:

The Company has one reportable segment. For fiscal 2018 and 2017, total revenues of $98,614,000 and $80,608,000, and total long-term assets of $7,942,000 and $5,775,000, respectively, were attributed to the United States. Revenues are attributed to geographic areas based on the location of the assets producing the revenues. Assets associated with the United Kingdom were disposed of during fiscal 2014.

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Customers with 10% (or greater) of Net Revenues

Approximately 34%3% of total net revenue in the quarteryear ended September 30, 20152018 and 5%13% of total net revenue for the quarteryear ended September 30, 20142017, was from one or more separate U.S. corporate entities ultimately affiliated withowned by a foreign-based global company. For

One other customer accounted for approximately 10% of net revenue for the yearsyear ended September 30, 20152017. No customer accounted for 10% or more of fiscal 2018 net revenue.

Subsequent Events

Management has evaluated events occurring from September 30, 2018 through the date these financial statements were filed with the SEC for proper recording and 2014, this company represented 15% and 16% of total net revenue, respectively.disclosures therein.

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NOTE 2—2 - INVENTORIES, NET

Net inventories consist of the following: