We intend to continue operating with financial discipline in order to create value for our shareholders. We are focused on growing top line revenue by successfully entering new markets
We minimize inventories and maximize the efficiency of our supply chain by having a large number of components and sub-assemblies produced by outside suppliers mostlymainly located within 50 miles of our facility. The Company relies on one supplier for compression drivers for its LRAD products and is making effortsworking to obtain alternative suppliers to reduce such reliance. The Company’s ability to manufacture its LRAD products could be adversely affected if it were to lose this sole source supplier and was unable to find an alternative supplier. We also purchase several key components and sub-assemblies from foreign suppliers. Consequently, we are subject to the impact that supply chain issues and economic conditions can have on such suppliers and thesuppliers. The fluctuations of foreign currency exchange rates which could also impact our lead times and product costs. We have developed strong relationships with a number of our key suppliers. If these suppliers should experience supply chain issues, quality problems or part shortages, our production schedules could be significantly delayed, or our costs could significantly increased.increase.
We have a global reputation for providing high quality, innovative voice broadcast systems and mobile alert solutions that have made Genasys and LRAD internationally recognized product brands. We actively promote our brands and products through our website, trade shows, and advertising. We intend to increase the use of our trademarks throughout our product distribution chain and believe growing brand awareness will assist in expanding our business. We believe our reputation for technological expertise, quality products, and strong service and support provide us competitive advantages.
Our revenues to date have relied on a few major customers. The loss of any customer could have a materially adverse effect on our financial condition, results of operations, and cash flows. We have made progress diversifying our revenues and expect to continue to do so in future periods.
Our order backlog for products that are deliverable in the next 12 months was approximately $27,014,253 at$21.7 million as of September 30, 2019,2022, compared to $23,646,910 atwith $36.0 million as of September 30, 2018.2021. The amount of backlog at any point in time is dependent upon scheduled delivery dates to our customers and product lead times. Our backlog orders are supported by firm purchase orders.
We generally warrant our products to be free from material and workmanship defects for a period up to one year from the date of purchase. The warranty is generally a limited warranty, and in some instances imposes certain shipping costs on the customer. We generally provide direct warranty service, but at times we may establish warranty service through third parties.
We also provide repair and maintenance agreements and extended warranty contracts at market rates, with terms ranging from one year to several years, as an additional source of revenue and to provide increased customer satisfaction.
Our technologies and products compete with those of other companies. CommercialOur LRAD AHDs and advanced mass notification speakers are part of the commercial and government audio industry and mass notification markets that are fragmented and include numerous manufacturers with audio products that vary widely in price, quality, and distribution channels. Present and potential competitors have, or may have, substantially greater resources to devote to product development. We believe we compete primarily on the originality of our products, the uniqueness of our technology and designs, and our responsiveness to customers and the ability to meet their needs. We believe the quality, durability,reliability and superior performance of our products, which have been developed by incorporating feedback from our customers and our desire to provide the highest quality products, also provide us competitive advantages.
Because our sales are primarily to domestic and international government departments or agencies, our selling cycles tend to be long and difficult to forecast. We have not experienced any significant seasonality trends to date, but we may experience increased seasonality in the future.
We are subject to a variety of government laws and regulations that apply to companies engaged in international operations, including, among others, the Foreign Corrupt Practices Act, U.S. Department of Commerce export controls, local government regulations and procurement policies and practices (including regulations relating to import-export control, investments, exchange controls, and repatriation of earnings). We maintain controls and procedures to comply with laws and regulations associated with our international operations. If we are unable to remain compliant with such laws and regulations, our business may be adversely affected.
Our products are produced to comply with standard product safety requirements for sale in the U.S. and similar requirements for sale in Europe and Canada. We expect to meet the electrical and other regulatory requirements for electronic systems or components we sell throughout the world.
Financial information regarding our segments and the geographic areas in which we operate is contained in Note 17,18, Segment Information, and Note 18,19, Major Customers, Suppliers and Related Information to our consolidated financial statements.
We operate in an industry where innovation, investment in new ideas, and protection of resulting intellectual property rights are important drivers of success. We rely on a variety of intellectual property protections for our products and technologies, including patent, trademark and trade secret laws, and contractual obligations. We pursue a policy of vigorously enforcing our intellectual property rights.
In addition to such factors as innovation, technological expertise, and experienced personnel, we believe strong product offerings that are continually upgraded and enhanced will keep us competitive, and we will seek patent protection on important technological improvements that we make. We have an ongoing policy of filing patent applications to seek protection for novel features of our products and technologies. Prior to the filing and granting of patents, our policy is to disclose key features to patent counsel and maintain these features as trade secrets prior to product introduction. Patent applications may not result in issued patents covering all-important claims and could be denied in their entirety. We also file for trade name and trademark protection when appropriate. We are the owner of federallyseveral registered trademarks, including LRAD®, LONG RANGE ACOUSTIC DEVICE®, LRAD-X®, LRAD-RX®, and SOUNDSABER®. Manymany of our registered trademarkswhich have earned worldwide brand recognition.
Our policy is to enter into nondisclosure agreements with each employee and consultant or third party to whom any of our proprietary information is disclosed. These agreements prohibit the disclosure of confidential information to others, both during and subsequent to employment, or the duration of the working relationship. These agreements may not prevent disclosure of confidential information or provide adequate remedies for any breach.
Our shares of common stock trade on the NASDAQ Capital Market under the symbol “GNSS”. Our address is 16262 West Bernardo Drive, San Diego, California, 92127, our telephone number is 858-676-1112, and our website is located at www.genasys.com. We make available, free of charge through our website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, reports filed by our directors, executive officers and certain significant shareholders pursuant to Section 16 of the Securities Exchange Act, and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act of 1934, as soon as reasonably practical after the reports are electronically filed with or furnished to the Securities and Exchange Commission (“SEC”). The information on our website is not incorporated by reference into this report nor is it part of this report.
Our operations and performance depend significantly on worldwide economic and political conditions and their impact on levels of capital investment and government spending. Global economic and political uncertainties and foreign currency rate fluctuations could adversely influence demand for our products leading to reduced levels of investments, reductions in government spending and budgets and changes in spending priorities and behavior.
We may need additional capital to support our growth. While we expect to generate these funds from operations, we may not be able to do so. Principal factors that could affect the availability of our internally generated funds include:
Should we require additional funds, general market conditions or the then-current market price of our common stock may not support capital raising transactions and any such financing may require advance approval of our stockholders under the rules of the NASDAQ Stock Market. Our ability to obtain financing may be further constrained by prevailing economic conditions. We may be required to reduce costs, including the scaling back of research and development into new products, which could have a negative impact on our ability to compete and to innovate. If we raise additional funds by selling additional shares of our capital stock or securities convertible into or exercisable for common stock (assuming we are able to obtain additional financing), the ownership interest of our stockholders will be diluted, which could have a material negative impact on the market value of our common stock.
Financial markets in the U.S., Europe, and Asia have experienced extreme volatility and uncertainty in recent years. Governments have taken unprecedented actions intended to address these market conditions. It is difficult to assess the extent to which these conditions have impacted our business, and the affect this has had on certain of our customers and suppliers. These economic developments affect businesses such as ours in a number of ways. TheAny tightening of credit in financial markets may adversely affectsaffect the ability of commercial customers to finance purchases and operations and could result in a decrease in orders and spending for our products as well as create supplier disruptions. Reductions in tax revenues, rating downgrades and other economic developments could also reduce future government spending on our products. There can be no assurance that there will not be a further volatility and uncertainty in financial markets, which can then lead to challenges in the operation of our business. We are unable to predict the likely effects that negative economic conditions will have on our business and financial condition.
We purchase a number of key components and sub-assemblies from foreign suppliers. Consequently, we are subject to the impact economic conditions can have on such suppliers and fluctuations in foreign currency exchange rates. Increases in our cost of purchasing these items could negatively impact our financial results if we are not able to pass these increased costs on to our customers.
To grow our business, in addition to continuing to obtain additional orders from our existing customers, we must develop relationships with new customers and obtain and fulfill orders from new customers. We are competing against a number of large competitors in the mass notification market, and we need to establish our product offerings as viable competitors in this market to allow uscompetitive to win awards against these competitors, increase our customer base and gain market share. We cannot guarantee that we will be able to increase our customer base. Further, even if we do obtain new customers, we cannot guarantee that those customers will purchase from us enoughin sufficient quantities of our product or at product prices that will enable us to recover our costs in acquiring those customers and fulfilling those orders. Whether we will be able to sell more of our products will depend on a number of factors, including:
| • | our ability to design and manufacture reliable products that have the features that are required by our customers; |
| • | our ability to expand relationships with existing customers and to develop relationships with new customers that will lead to additional orders for our products; |
| • | our ability to develop and expand new markets for directed sound products, mobile mass messaging services, and integrated solutions; and |
our ability to expand relationships with existing customers and to develop relationships with new customers that will lead to additional orders for our products;
our ability to develop and expand new markets for directed sound products, mobile mass messaging services and integrated solutions; and
our ability to develop international product distribution directly or through strategic partners.
| • | our ability to develop international product distribution directly or through strategic partners. |
We may not be able to successfully integrate acquisitions in the future, and we may not be able to realize anticipated cost savings, revenue enhancements, or other synergies from such acquisitions.
On January 18, 2018, we acquired all of the issued and outstanding shares of capital stock of Genasys Holding S.L. (“Genasys Spain”), on October 2, 2020, we acquired substantially all of the assets and business of Amika Mobile Corporation (“Amika Mobile”) and on June 7, 2021, we completed the acquisition of Zonehaven Inc. (“Zonehaven”). Our ability to successfully implement our business plan and achieve targeted financial results and other benefits including, among other things, greater market presence and development, and enhancements to our product portfolio and customer base, is dependent on our ability to successfully identify, consummate and integrate acquisitions.acquisitions, including Genasys Spain, Amika Mobile and Zonehaven, as well as other businesses we may acquire in the future. We may not realize the intended benefits of the Genasys Spain, Amika Mobile or Zonehaven acquisitions or the acquisition of other businesses in the future as rapidly as, or to the extent, anticipated by our management. There can be no assurance that we will be able to successfully integrate the Genasys Spain, Amika Mobile or Zonehaven businesses or any other acquired businesses, products or technologies without substantial expenses, delays or other operational or financial problems. Acquisitions, including our acquisition of Genasys Spain, Amika Mobile and Zonehaven, involve a number of risks, some or all which could have a material adverse effect on our acquired businesses, products or technologies. Furthermore, there can be no assurance that the Genasys Spain, Amika Mobile and Zonehaven businesses or any other acquired business, product, or technology will be profitable or achieve anticipated revenues and income. Our failure to manage our acquisition and integration strategy successfully could have a material adverse effect on our business, results of operations, and financial condition. The process of integrating an acquired business involves risks, including but not limited to:
demands on management related to changes in the size and possible locations of our businesses and employees;
| • | demands on management related to changes in the size and possible locations of our businesses and employees; |
diversion of management's attention from the management of daily operations;
| • | diversion of management's attention from the management of daily operations; |
difficulties in the assimilation of different corporate cultures, employees and business practices;
| • | difficulties in the assimilation of different corporate cultures, employees and business practices; |
difficulties in conforming the acquired businesses’ accounting policies to ours;
| • | difficulties in conforming the acquired businesses’ accounting policies to ours; |
retaining the loyalty and business of the employees or customers of acquired businesses;
| • | retaining the loyalty and business of the employees or customers of acquired businesses; |
retaining employees that may be vital to the integration of acquired businesses or to the future prospects of the combined businesses;
| • | retaining employees that may be vital to the integration of acquired businesses or to the future prospects of the combined businesses; |
difficulties and unanticipated expenses related to the integration of departments, information technology systems, including accounting systems, technologies, books and records, and procedures, and maintaining uniform standards, such as internal accounting controls, procedures, and policies;
| • | difficulties and unanticipated expenses related to the integration of departments, information technology systems, including accounting systems, technologies, books and records, and procedures, and maintaining uniform standards, such as internal accounting controls, procedures, and policies; |
costs and expenses associated with any undisclosed or potential liabilities;
| • | costs and expenses associated with any undisclosed or potential liabilities; |
the use of more cash or other financial resources on integration and implementation activities than we expect; and
| • | the use of more cash or other financial resources on integration and implementation activities than we expect; and |
our ability to avoid labor disruptions in connection with any integration, particularly in connection with any headcount reduction.
| • | our ability to avoid labor disruptions in connection with any integration, particularly in connection with any headcount reduction. |
Failure to successfully integrate anGenasys Spain, Amika Mobile, Zonehaven or any other acquired business in the future may result in reduced levels of anticipated revenue, earnings, or operating efficiency than might have been achieved if we had not acquired such businesses.
In addition, the acquisition of Genasys Spain, Amika Mobile, Zonehaven and any future businesses could result in the incurrence of additional debt and related interest expense, contingent liabilities, and amortization expenses related to intangible assets, as well as the issuance of our common stock, which could have a material adverse effect on our financial condition, operating results, and cash flow.
The growth of our product revenues is dependent on continued acceptance of our products by government, military and developing force protection and emergency response agencies. If these agencies do not purchase our products, our revenues will be adversely affected.
Although our products are designed for use by both government and commercial customers, the government market represents a significant revenue opportunity for our products. Revenues from government agencies, including military, force protection and emergency response agencies, fluctuate each year depending on available funding and demand from our government customers. While acceptance of our products has been increasing, there are many more prospective customers within this market that could provide future growth for us, as well as international government markets which often follow the lead of the U.S. Furthermore, the force protection and emergency response market is itself an emerging market that is changing rapidly. If our products are not widely accepted by the government, military and the developing force protection and emergency response markets, we may not be able to identify other markets, and we may fail to achieve our sales projections.
Perceptions that long-range hailing devices are unsafe or may be used in an abusive manner may hurt sales of our LRAD products, which could cause our revenues to decline.
Potential customers for our LRAD products, including government, military, and force protection and emergency response agencies, may be influenced by claims or perceptions that long-range hailing devices are unsafe or may be used in an abusive manner. These claims or perceptions, whilewhich we believe are unsubstantiated, could reduce our product sales.
A significant portion of our revenue is derived from our core product category.
We are dependent on our core directional product category to generate our revenues. While we have expanded our product offering to include omnidirectional products and SaaS systems and solutions, no assurance can be given that our core directional products will continue to have market acceptance or that they will maintain their historical levels of sales. The loss or reduction of sales of this product category could have a material adverse effect on our business, results of operations, financial condition, and liquidity.
We may not be successful in penetratingsuccessfully penetrate the mass notification market.
The mass notification market is substantial in size and is projecting growthprojected to grow globally over the next five years to help provide public safety and communication during natural disasters and emergency situations. Thereyears. While there are a number of large credible companies already established in this market. Wemarket, we believe our unique SaaS systems and solutions, the clear, intelligible voice capability of our PSMNGenasys speaker products, and our unique designunified software/hardware platform provide us with competitive advantages. Based on the increase in global public safety and durability make our product offerings very competitive in this market. We have added selling resources to focus on this market andenterprise threats, we have invested and plancontinue to invest additional resources in toolingmarketing, selling, and software development resources to become successful in this growing market. However, we are competing in a market withagainst established competitors that have greater resources and presence in this globalhave successfully penetrated the market.
Our margins could be impacted as we expand into the emergency response and mass notification market.
Our sales strategy for fiscal year 20202023 and beyond is to increase our market share of the growing emergency response and mass notification market with our LRAD voice broadcast systems, CCaaS software and integratedcritical communications solutions. A number of large companies compete in this market and dominatecurrently have a substantial share of the market share. Wemarket. While we believe we have a strong product platform that can successfully compete against these larger players, butgiven the highly competitive environment, we expect to confront pricing pressures, given this highly competitive environment, which may negatively impact our overall margins.
We may incur significant and unpredictable warranty costs.
Our products are substantially different from proven, mass produced sound transducer designs and are often employed in harsh environments. We may incur substantial and unpredictable warranty costs from post-production product or component failures. We generally warrant our products to be free from defects in materials and workmanship for a period up to one year from the date of purchase. We also sell extended repair and maintenance contracts with terms ranging from one to several years, which provide repair and maintenance services after expiration of the original limited warranty. AtAs of September 30, 2019,2022, we had a warranty reserve of $150,229.$0.1 million. While our warranty experience with our LRAD product line has been favorable, as we build more complexity into the product, and as we expand our supplier base, issues could arise that could affect future warranty costs, which could adversely affect our financial position, results of operations and business prospects.
System disruptions and security threats to our computer networks, including breach of our or our customers’customers’ confidential information, could have a material adverse effect on our business and our reputation.reputation.
Our computer systems as well as those of our service providers are vulnerable to interruption, malfunction or damage due to events beyond our control, including malicious human acts committed by foreign or domestic persons, natural disasters, and network and communications failures. We periodically perform vulnerability self-assessments and engage service providers to perform independent vulnerability assessments and penetration tests. However, despite network security measures, our servers and the servers at our service providers are potentially vulnerable to physical or electronic unauthorized access, computer hackers, computer viruses, malicious code, organized cyber attackscyberattacks, and other security problems and system disruptions. Increasing socioeconomic and political instability in some countries has heightened these risks. Despite the precautions we and our service providers have taken, our systems may still be vulnerable to these threats. A user who circumvents security measures could misappropriate proprietary information or cause interruptions or malfunctions in operations.
Additionally, the confidential information that we collect subjects us to additional risks and costs that could harm our business and our reputation. We collect, retain and use personal information of our employees, including personally identifiable information, tax return information, financial data, bank account information, and other data. Although we employ various network and business security measures to limit access to and use of such personal information, we cannot guarantee that a third party will not circumvent such security measures, resulting in the breach, loss or theft of the personal information of our employees. Possession and use of personal information in our operations also subjects us to legislative and regulatory burdens that could restrict our use of personal information and require notification of data breaches. A violation of any laws or regulations relating to the collection, retention or use of personal information could also result in the imposition of fines or lawsuits against us.
Sustained or repeated system failures or security breaches that interrupt our ability to process information in a timely manner or that result in a breach of proprietary or personal information could have a material adverse effect on our operations and our reputation. Although we maintain insurance in respect of these types of events, available insurance proceeds may not be adequate to compensate us for damages sustained due to these events.
We could incur additional charges for excess and obsolete inventory.
While we strive to effectively manage our inventory, rapidly changing technology and uneven customer demand may result in short product cycles and thecycles. The value of our inventory may be adversely affected by changes in technology that affect our ability to sell the products in our inventory. If we do not effectively forecast and manage our inventory, we may need to write off inventory as excess or obsolete, which in turn can adversely affect cost of sales and gross profit.
We have previously experienced, and may in the future experience, reductions in sales of older generation products as customers delay or defer purchases in anticipation of new product introductions. We have established reserves for slow moving or obsolete inventory of $530,583 at$0.9 million as of September 30, 2019.2022. The reserves we have established for potential losses due to obsolete inventory may, however, prove to be inadequate and may give rise to additional charges for obsolete or excess inventory.
We do not have the ability to accurately predict future operating results. Our quarterly and annual revenues are likely to fluctuate significantly due to many factors, most of which are beyond our control and could result in our failure to achieve our revenue expectations.
We expect our proprietary acoustic products, software products and integrated solutions will be the source of substantially all our revenues for at least the near future. Revenues from these products and solutions are expected to vary significantly due to a number of factors, many of which are beyond our control. Any one or more of the factors listed below or other factors could cause us to fail to achieve our revenue expectations. These factors include:
our ability to develop and supply sound reproduction components to customers, distributors or original equipment manufacturers (“OEMs”) or to license our technologies;
market acceptance of and changes in demand for our products or products of our customers;
gains or losses of significant customers, distributors or strategic relationships;
unpredictable volume and timing of customer orders;
delays in funding approval by U.S. and foreign government and military customers;
the availability, pricing and timeliness of delivery of components for our products and OEM products;
fluctuations in the availability of manufacturing capacity or manufacturing yields and related manufacturing costs;
the timing of new technological advances, product announcements or introductions by us, by OEMs or licensees and by our competitors;
production delays by customers, distributors, OEMs, or by us or our suppliers;
increased competition in this market;
the conditions of other industries, such as military and commercial industries, into which our technologies may be sold;
general electronics industry conditions, including changes in demand and associated effects on inventory and inventory practices;
general economic conditions that could affect the timing of customer orders and capital spending and result in order cancellations or rescheduling; and
general political conditions in this country and in various other parts of the world that could affect spending for the products that we offer.
Some or all of these factors could adversely affect demand for our products or technologies, and therefore adversely affect our future operating results.
Most of our operating expenses are relatively fixed in the short term. We may be unable to rapidly adjust spending to compensate for any unexpected sales shortfalls, which could harm our quarterly operating results. We do not have the ability to predict future operating results with any certainty.
Many potential competitors who have greater resources and experience than we do may develop products and technologies that make ours obsolete or inferior.
Technological competition from larger, more established electronic and loudspeaker manufacturers and software providers is expected to increase. Most of the companies with which we expect to compete have substantially greater capital resources, research and development staffs, marketing and distribution programs, and facilities, and many of them have substantially greater experience in the production and marketing of products. In addition, one or more of our competitors may have developed, or may succeed in developing, technologies and products that are more effective than any of ours, rendering our technology and products obsolete or noncompetitive.
Adverse resolution of disputes, litigation and claims may harm our business, operating results or financial condition.
We may become a party to other litigation, disputes, and claims in the normal course of our business. Litigation is by its nature uncertain and unpredictable and there can be no assurance that the ultimate resolution of such claims will not exceed the amounts accrued for such claims, if any. Litigation can be expensive, lengthy, and disruptive to normal business operations. An unfavorable resolution of a legal matter could have a material adverse effect on our business, operating results or financial condition.
Our competitive position will be seriously damaged if we cannot protect intellectual property rights and trade secrets in our technology.
We rely on a combination of contracts, trademarks, and trade secret laws to establish and protect our proprietary rights in our technology. However, we may not be able to prevent misappropriation of our intellectual property, and our competitors may be able to independently develop competing technologies, or the agreements we enter into may not be enforceable. A competitor may independently develop or patent technologies that are substantially equivalent to, or superior to, our technology. If this happens, our competitive position could be significantly harmed.
We may face personal injury and other liability claims that harm our reputation and adversely affect our operating results and financial condition.condition.
While our products have been engineered to reduce the risk of damage to human hearing or human health, we could be exposed to claims of hearing damage if the product is not properly operated. A person injured in connection with the use of our products may bring legal action against us to recover damages on the basis of theories, including personal injury, negligent design, dangerous product or inadequate warning. We may also be subject to lawsuits involving allegations of misuse of our products. Our product liability insurance coverage may be insufficient to pay all such claims. Product liability insurance may also become too costly for us or may become unavailable forto us in the future. We may not have sufficient resources to satisfy any product liability claims not covered by insurance, which would materially and adversely affect our operating results and financial condition. Significant litigation could also result in negative publicity and a diversion of management’s attention and resources.
Our international operations could be harmed by factors including political instability, natural disasters, fluctuations in currency exchange rates, and changes in regulations that govern international transactions.
We sell our products worldwide. In fiscal years 20192022 and 2018,2021, revenues outside of the U.S. accounted for approximately 30%15% and 44%19% of net revenues, respectively. The risks inherent in international trade may reduce our international sales and harm our business and the businesses of our customers and our suppliers. These risks include:
• changes in tariff regulations;
• political instability, war, terrorism, and other political risks;
• foreign currency exchange rate fluctuations;
• establishing and maintaining relationships with local distributors and dealers;
• lengthy shipping times and accounts receivable payment cycles;
• import and export control and licensing requirements;requirements, particularly in connection with sales and licensing to foreign governments and other customers;
• compliance with a variety of U.S. laws, including the Foreign Corrupt Practices Act, by us or key subcontractors;
• compliance with a variety of foreign laws and regulations, including unexpected changes in taxation and regulatory requirements;
• greater difficulty in safeguarding our technology, proprietary data, and intellectual property in international jurisdictions than in the U.S.; and
• difficulty in staffing and managing geographically diverse operations.
These and other risks may preclude or curtail international sales or increase the relative price of our products compared to those manufactured in other countries, reducing the demand for our products. Failure to comply with U.S. and foreign governmental laws and regulations applicable to international business, such as the Foreign Corrupt Practices Act or U.S. export control regulations, could have an adverse impact on our business with the U.S. and foreign governments.
Current environmental laws, or laws enacted in the future, may harm our business.
Our operations are subject to environmental regulation in areas in which we conduct business. Our product design and procurement operations must comply with new and future requirements relating to the materials composition of our products, including restrictions on lead, cadmium, and other substances. We do not expect that the impact of these environmental laws and other similar legislation adopted in the U.S. and other countries will have a substantial unfavorable impact on our business. However, the costs and timing of costs under environmental laws are difficult to predict.
Errors or defects contained in our products, failure to comply with applicable safety standards or a product recall could result in delayed shipments or rejection of our products, damage to our reputation, and expose us to regulatory or other legal action.
Any defects or errors in the operation of our products may result in delays in their introduction. In addition, errors or defects may be uncovered after commercial shipments have begun, which could result in the rejection of our products by our customers, damage to our reputation, lost sales, diverted development resources, and increased customer service and support costs and warranty claims, any of which could harm our business. Third parties could sustain injuries from our products, and we may be subject to claims or lawsuits resulting from such injuries. There is a risk that these claims or liabilities may exceed, or fall outside the scope of, our insurance coverage. We may also be unable to obtain adequate liability insurance in the future. Because we are a smaller company, a product recall would be particularly harmful to us because we have limited financial and administrative resources to effectively manage a product recall and it would detract management’s attention from implementing our core business strategies. A significant product defect or product recall could materially and adversely affect our brand image, causing a decline in our sales, and could reduce or deplete our financial resources.
Costs associated with our multi-year maintenance contract with a foreign military customer could be higher than expected.
We are obligated under a five-year repair and maintenance agreement with a foreign military. We have contracted with a third party service provider to administer the required services under the terms of the maintenance agreement. The revenue from the maintenance agreement with our customer is fixed and paid annually upon completion of each year through May 2024. It is possible that the cost to repair and maintain the products and the cost to contract with our third party service provider could exceed the revenue generated by the maintenance agreement.
We rely on outside manufacturers and suppliers to provide a large number of components and sub-assemblies incorporated in our products.products, and the ability of these manufacturers and suppliers to deliver components to our manufacturing facilities, and our ability to manufacture without disruption, could affect our results of operations.
Our products are made from a wide range of materials and have a large number of components and sub-assemblies (including semiconductors and other electronic components) produced by numerous outside suppliers. In addition,suppliers around the world. Because not all of our supply arrangements provide for certain of these items, we qualifyguaranteed supply and some key parts may be available only from a single source, which can magnify the risksupplier or a limited group of shortagessuppliers, we are subject to supply and decrease our ability to negotiate withpricing risk. Our operations and those of our suppliers onare subject to disruption for a variety of reasons, including COVID-19-related supplier plant shutdowns or slowdowns, transportation delays, work stoppages, labor relations, labor shortages, price inflation, governmental regulatory and enforcement actions, intellectual property claims against suppliers, financial issues such as supplier bankruptcy, information technology failures, and hazards such as fire, earthquakes, flooding, or other natural disasters. For example, we expect to continue to be impacted by the basisfollowing supply chain issues, due to economic, political and other factors largely beyond our control: increased input material costs and component shortages; supply chain disruptions and delays and cost inflation, all of price.which could continue or escalate in the future. The effects of climate change, including extreme weather events, long-term changes in temperature levels, water availability, increased cost for decarbonizing process heating, supply costs impacted by increasing energy costs, or energy costs impacted by carbon prices or offsets may exacerbate these risks. If shortagesthese disruptions occur, or if we experience quality problems with suppliers, then our production schedules could be significantly delayed or costs significantly increased, which would have a material adverse effect on our business, liquidity, results of operationoperations, and financial position.
Although we assemble our products internally, we have some sub-assemblies and components produced by third party manufacturers. We may be required to outsource manufacturing if sales of our products increase significantly. We may be unable to obtain acceptable manufacturing sources on a timely basis. In addition, from time to time we may change manufacturers and any new manufacturer engaged by us may not perform as expected. An extended interruption in the supply of our products could result in a substantial loss of sales. Furthermore, any actual or perceived degradation of product quality as a result of our reliance on third party manufacturers may have an adverse effect on sales or result in increased warranty costs, product returns, and buybacks. Failure to maintain quality manufacturing could reduce future revenues, adversely affecting our financial condition and results of operations.
Material supply disruptions and delays in deliveries, along with other factors such as price inflation, can also result in increased pricing. While many of our customers permit quarterly or other periodic adjustments to pricing based on changes in component prices and other factors, we may bear the risk of price increases that occur between any such repricing or, if such repricing is not permitted, during the balance of the term of the particular customer contract.
We derive revenue from government contracts and subcontracts, which are often non-standard, may involve competitive bidding, may be subject to cancellation with or without penalty, and may produce volatility in earnings and revenue.revenue.
Our sales to government customers have involved, and are expected in the future to involve, providing products and services under contracts or subcontracts with U.S. federal, state, local, and foreign government agencies. Obtaining contracts and subcontracts from government agencies is challenging, and contracts often include provisions that are not standard in private commercial transactions. For example, government contracts may:
include provisions that allow the government agency to terminate the contract without penalty under some circumstances;
| • | include provisions that allow the government agency to terminate the contract without penalty under some circumstances; |
| • | be subject to purchasing decisions of agencies that are subject to political influence; |
be subject to purchasing decisions of agencies that are subject to political influence;
| • | contain onerous procurement procedures; and |
contain onerous procurement procedures; and
be subject to cancellation if government funding becomes unavailable.
| • | be subject to cancellation if government funding becomes unavailable. |
Securing government contracts can be a protracted process involving competitive bidding. In many cases, unsuccessful bidders may challenge contract awards, which can lead to increased costs, delays, and possible loss of the contract for the winning bidder.
Our success is dependent on the performance of our executive team, and the cooperation, performance, and retention of our executive officers and key employees.
Our business and operations are substantially dependent on the performance of our current executive team including our Chief Executive Officer and our Chief Financial Officer. We do not maintain “key person” life insurance on any of our executive officers. The loss of one or several key employees could seriously harm our business. We cannot assure that employees will not leave and subsequently compete against us.
We are also dependent on our ability to retain and motivate high quality personnel, especially sales and skilled engineering personnel. Competition for such personnel is intense, and we may not be able to attract, assimilate or retain other highly qualified managerial, sales, and technical personnel in the future. The inability to attract and retain the necessary managerial, sales and technical personnel could cause our business, operating results or financial condition to suffer.
Risks Related to Our disclosure controlsFinancial Statements and procedures may not prevent or detect all acts of fraud.Operating Results
We do not have the ability to accurately predict future operating results. Our disclosure controlsquarterly and proceduresannual revenues are designedlikely to reasonably assure that information required to be disclosed in reports filed or submitted under the Securities Exchange Act is accumulated and communicated to management and is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Our management expects that our disclosure controls and procedures and internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, they cannot provide absolute assurance that all control issues and instances of fraud, if any, within our company have been prevented or detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by an unauthorized override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and we cannot assure that any design will succeed in achieving its stated goals under all potential future conditions. Accordingly, because of the inherent limitations in a cost effective control system, misstatementsfluctuate significantly due to error or fraud may occurmany factors, most of which are beyond our control and not be detected.
Failure to maintain an effective system of internal control over financial reporting could harm stockholder and business confidence in our financial reporting, our ability to obtain financing and other aspects of our business.
Maintaining an effective system of internal control over financial reporting is necessary for us to provide reliable financial reports. Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules and regulations promulgated by the SEC require us to include in our Form 10-K a report by management regarding the effectiveness of our internal control over financial reporting. The report includes, among other things, an assessment of the effectiveness of our internal control over financial reporting as of the end of the respective fiscal year, including a statement as to whether or not our internal control over financial reporting is effective. This assessment must include disclosure of any material weaknesses in our internal control over financial reporting identified by management. While our management has concluded that our internal control over financial reporting was effective as of September 30, 2019, it is possible that material weaknesses will be identified in the future. In addition, components of our internal control over financial reporting may require improvement from time to time. If management is unable to assert that our internal control over financial reporting is effective in any future period, investors may lose confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on the Company’s stock price.
Our common stock could be delisted from the Nasdaq Stock Market.
Nasdaq’s continued listing standards for our common stock require, among other things, that (i) we maintain a closing bid price for our common stock of at least $1.00, and (ii) we maintain: (A) stockholders’ equity of $2.5 million; (B) market value of listed securities of $35 million; or (C) net income from continuing operations of $500,000 in the most recently completed fiscal year or in two of the last three most recently completed fiscal years. Any failures to satisfy any continued listing requirements could lead to the receipt of a deficiency notice from Nasdaq and ultimately to a delisting from trading of our common stock. If our common stock were delisted from Nasdaq, among other things, this could result in a number of negative implications, including reduced liquidity in our common stock as a result of the loss of market efficiencies associated with Nasdaq and the loss of federal preemption of state securities laws as well as the potential loss of confidence by suppliers, customers and employees, institutional investor interest, fewer business development opportunities, greater difficulty in obtaining financing and breaches of certain contractual obligations.
Sales of common stock issuable on the exercise of outstanding options, may depress the price offailure to achieve our common stock.
As of September 30, 2019, we had outstanding options granted to our employees and directors to purchase 2,219,268 shares of our common stock and we had 274,849 restricted stock units outstanding. At September 30, 2019, the exercise prices for the options ranged from $1.31 to $3.17 per share. The issuance of shares of common stock upon the exercise of outstanding options and the release of outstanding restricted stock units could cause substantial dilution to holders of our common stock, and the sale of those shares in the market could cause the market price of our common stock to decline. The potential dilution from these shares could negatively affect the terms on which we could obtain equity financing.revenue expectations.
We may issue preferred stock inexpect our proprietary acoustic products, software products, and integrated solutions will be the future,source of substantially all our revenues for at least the near future. Revenues from these products and the termssolutions are expected to vary significantly due to a number of the preferred stock may reduce the valuefactors, many of your common stock.
Wewhich are authorized to issue up to 5,000,000 shares of preferred stock inbeyond our control. Any one or more series. Our board of directors may determine the termsfactors listed below or other factors could cause us to fail to achieve our revenue expectations. These factors include:
| • | our ability to develop and supply sound reproduction components to customers, distributors or original equipment manufacturers (“OEMs”) or to license our technologies; |
| • | market acceptance of and changes in demand for our products or products of our customers; |
| • | gains or losses of significant customers, distributors or strategic relationships; |
| • | unpredictable volume and timing of customer orders; |
| • | delays in funding approval by U.S. and foreign government and military customers; |
| • | the availability, pricing, and timeliness of delivery of components for our products and OEM products; |
| • | fluctuations in the availability of manufacturing capacity or manufacturing yields and related manufacturing costs; |
| • | the timing of new technological advances, product announcements or introductions by us, by OEMs or licensees, and by our competitors; |
| • | production delays by customers, distributors, OEMs, or by us or our suppliers; |
| • | increased competition in this market; |
| • | the conditions of other industries, such as military and commercial industries, into which our technologies may be sold; |
| • | general electronics industry conditions, including changes in demand and associated effects on inventory and inventory practices; |
| • | general economic conditions that could affect the timing of customer orders and capital spending and result in order cancellations or rescheduling; and |
| • | general political conditions in this country and in various other parts of the world that could affect spending for the products that we offer. |
Some or all of these factors could adversely affect demand for our products or technologies, and therefore adversely affect our future preferred stock offerings without further action by our stockholders. If we issue preferred stock, it could affect the rights or reduce the valueoperating results.
Most of our common stock. In particular, specific rights grantedoperating expenses are relatively fixed in the short term. We may be unable to future holders of preferred stockrapidly adjust spending to compensate for any unexpected sales shortfalls, which could be used to restrictharm our quarterly operating results. We do not have the ability to mergepredict future operating results with or sell our assets to a third party. These terms may include voting rights, preferences as to dividends and liquidation, conversion and redemption rights, and sinking fund provisions.any certainty.
Our stock price is volatile and may continue to be volatile in the future.
The market price of our common stock has fluctuated significantly to date. In the future, the market price of our common stock could be subject to significant fluctuations due to general market conditions and in response to quarter-to-quarter variations in:
our anticipated or actual operating results;
developments concerning our sound reproduction technologies;
technological innovations or setbacks by us or our competitors;
announcements of merger or acquisition transactions;
changes in personnel within our company; and
other events or factors and general economic and market conditions.
The stock market in recent years has experienced extreme price and volume fluctuations that have affected the market price of many technology companies, and that have often been unrelated or disproportionate to the operating performance of companies.
Changes in laws or regulations or the manner of their interpretation or enforcement could adversely impact our financial performance and restrict our ability to operate our business or execute our strategies.
New laws, regulations and standards, or changes in existing laws or regulations or the manner of their interpretation or enforcement, could increase our cost of doing business and restrict our ability to operate our business or execute our strategies. This includes, among other things, compliance costs and enforcement under the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd Frank Act”), XBRL interactive SEC filings, new SEC regulations, and NASDAQ Stock Market rules. For example, under Section 1502 of the Dodd-Frank Act, the SEC has adopted additional disclosure requirements related to the source of certain “conflict minerals” for issuers for which such “conflict minerals” are necessary to the functionality or production of a product manufactured, or contracted to be manufactured, by that issuer. The metals covered by the rules include tin, tantalum, tungsten, and gold, commonly referred to as “3TG.” Our suppliers may use some or all of these materials in their production processes. The rules require us to conduct a reasonable country of origin inquiry to determine if we know or have reason to believe any of the minerals used in the production process may have originated from the Democratic Republic of the Congo or an adjoining country. If we are not able to determine the minerals did not originate from a covered country or conclude that there is no reason to believe that the minerals used in the production process may have originated in a covered country, we would be required to perform supply chain due diligence on members of our supply chain. Global supply chains can have multiple layers, thus the costs of complying with these new requirements could be substantial. These new requirements may also reduce the number of suppliers who provide conflict free metals and may affect our ability to obtain products in sufficient quantities or at competitive prices. Compliance costs and the unavailability of raw materials could have a material adverse effect on our results of operations.
We continually evaluate and monitor developments with respect to new and proposed rules and cannot predict or estimate the amount of the additional costs we may incur or the timing of such costs. These new or changed laws, regulations, and standards are subject to varying interpretations, in many cases due to their lack of specificity, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.
Our disclosure controls and procedures may not prevent or detect all acts of fraud.
Our disclosure controls and procedures are designed to reasonably assure that information required to be disclosed in reports filed or submitted under the Securities Exchange Act is accumulated and communicated to management and is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Our management expects that our disclosure controls and procedures and internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, they cannot provide absolute assurance that all control issues and instances of fraud, if any, within our company have been prevented or detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by an unauthorized override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and we cannot assure that any design will succeed in achieving its stated goals under all potential future conditions. Accordingly, because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected.
Failure to maintain an effective system of internal control over financial reporting could harm stockholder and business confidence in our financial reporting, our ability to obtain financing, and other aspects of our business.
Maintaining an effective system of internal control over financial reporting is necessary for us to provide reliable financial reports. Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules and regulations promulgated by the SEC require us to include in our Form 10-K a report by management regarding the effectiveness of our internal control over financial reporting. The report includes, among other things, an assessment of the effectiveness of our internal control over financial reporting as of the end of the respective fiscal year, including a statement as to whether or not our internal control over financial reporting is effective. This assessment must include disclosure of any material weaknesses in our internal control over financial reporting identified by management. While our management has concluded that our internal control over financial reporting was effective as of September 30, 2022, it is possible that material weaknesses will be identified in the future. In addition, components of our internal control over financial reporting may require improvement from time to time. If management is unable to assert that our internal control over financial reporting is effective in any future period, investors may lose confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on the Company’s stock price.
Risks Related to Our Capital Stock
Sales of common stock issuable on the exercise of outstanding options, may depress the price of our common stock.
As of September 30, 2022, we had outstanding options granted to our employees, consultants, advisors, and directors to purchase 3,940,899 shares of our common stock and we had 343,175 restricted stock units outstanding. As of September 30, 2022, the exercise prices for the options ranged from $1.31 to $8.03 per share. The issuance of shares of common stock upon the exercise of outstanding options and the release of outstanding restricted stock units could cause substantial dilution to holders of our common stock, and the sale of those shares in the market could cause the market price of our common stock to decline. The potential dilution from these shares could negatively affect the terms on which we could obtain equity financing.
We may issue preferred stock in the future, and the terms of the preferred stock may reduce the value of your common stock.
We are authorized to issue up to 5,000,000 shares of preferred stock in one or more series. Our board of directors may determine the terms of future preferred stock offerings without further action by our stockholders. If we issue preferred stock, it could affect the rights or reduce the value of our common stock. In particular, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with or sell our assets to a third party. These terms may include voting rights, preferences as to dividends and liquidation, conversion and redemption rights, and sinking fund provisions.
Our stock price is volatile and may continue to be volatile in the future.
The market price of our common stock has fluctuated significantly to date. In the future, the market price of our common stock could be subject to significant fluctuations due to general market conditions and in response to quarter-to-quarter variations in:
• our anticipated or actual operating results;
• developments concerning our software and sound reproduction technologies;
• technological innovations or setbacks by us or our competitors;
• announcements of merger or acquisition transactions;
• changes in personnel within our company; and
• other events or factors and general economic and market conditions.
The stock market in recent years has experienced extreme price and volume fluctuations that have affected the market price of many technology companies, and that have often been unrelated or disproportionate to the operating performance of companies.
Item 1B.Unresolved Staff Comments. | Unresolved Staff Comments.
|
None.
Item
Item2.Properties | Properties
|
Our executive offices, sales, research and development and production facilities are located at 16262 West Bernardo Drive, San Diego, California. The lease of 54,76655,766 square feet commenced July 1, 2018 and expires August 31, 2028. The aggregate monthly payments, with abatements, average $36,146are $81 thousand, $84 thousand, $86 thousand, $89 thousand, $92 thousand and $94 thousand per month for the first fourteen months, and are $74,460, $76,694, $78,994, $81,364, $83,805, $86,319, $88,909, $91,576 and $94,324 per month for the secondfifth through tenth years of the lease, respectively, plus other certain costs and charges as specified in the lease agreement, including the Company’s proportionate share of the building operating expenses and real estate taxes.
Item
Item3.Legal Proceedings | Legal Proceedings
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We may at times be involved in litigation in the ordinary course of business. We will also, from time to time, when appropriate in management’s estimation, record adequate reserves in our financial statements for pending litigation.
Item
Item4.Mine Safety Disclosure | Mine Safety Disclosure
|
Not applicable.
PART II
Item
Item5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
|
Market Information
Our common stock is traded and quoted on the NASDAQ Capital Market under the symbol “GNSS.” The market for our common stock has often been sporadic and limited.
The following table sets forth the high and low reported sales prices for our common stock for the fiscal years ended September 30, 20192022 and 2018:2021:
| | | Sales Prices | | | Sales Prices | |
| | | High | | | Low | | | High | | | Low | |
Fiscal Year Ending September 30, 2018 | | | | | | | | | |
| | | |
Fiscal Year Ending September 30, 2021 | | |
First Quarter | | $ | 2.58 | | | $ | 1.86 | | | $ | 7.32 | | | $ | 5.79 | |
Second Quarter | | $ | 2.55 | | | $ | 1.94 | | | $ | 8.33 | | | $ | 6.16 | |
Third Quarter | | $ | 2.67 | | | $ | 1.94 | | | $ | 7.50 | | | $ | 5.01 | |
Fourth Quarter | | $ | 3.58 | | | $ | 2.52 | | | $ | 5.89 | | | $ | 4.92 | |
Fiscal Year Ending September 30, 2019 | | | | | | | | | |
| | | |
Fiscal Year Ending September 30, 2022 | | |
First Quarter | | $ | 3.11 | | | $ | 2.08 | | | $ | 5.43 | | | $ | 3.30 | |
Second Quarter | | $ | 2.89 | | | $ | 2.14 | | | $ | 4.17 | | | $ | 2.67 | |
Third Quarter | | $ | 3.69 | | | $ | 2.81 | | | $ | 4.07 | | | $ | 2.40 | |
Fourth Quarter | | $ | 4.24 | | | $ | 3.02 | | | $ | 3.62 | | | $ | 2.63 | |
The above quotations reflect inter-dealer prices, without retail markup, markdown or commission and may not represent actual transactions.
Holders
We had 32,978,33036,703,471 shares issued and outstanding held by 1,024928 holders of record of our common stock at November 30, 2019.as of December 5, 2022.
Dividends
There were no dividends declared and paid during the years ended September 30, 20192022 and 2018.2021. The declaration of future cash dividends, if any, will be at the discretion of the Board of Directors and will depend on the Company’s earnings, if any, capital requirements and financial position, general economic conditions and other pertinent conditions. It is our present intention not to pay any cash dividends in the near future.
Equity Compensation Plan Information
The information required by this item is incorporated by reference to the information set forth in Item 12 of this Annual Report on Form 10-K.
Recent Sales of Unregistered Securities
No securities were sold within the past three years that were not registered under the Securities Act and not previously reported.
Issuer Purchases of Equity Securities
The Board of Directors approved a share buyback program in 2015 under which the Company was authorized to repurchase up to $4 million of its outstanding common shares. In December 2017,2022, the Board of Directors extended the Company’s share buyback program through December 31, 2018. In December 2018,2024. Under the Board of Directors approved a new share buyback program, beginning January 1, 2019 and expiring on December 31, 2020, under which the Company iswas authorized to repurchase up to $5 million of its outstanding common shares exclusive of any fees, commissions or other expenses related to such repurchases. Atshares.
During the year ended September 30, 2019, $4.52022, 259,310 shares were repurchased for $1.0 million. There were no shares repurchased during the year ended September 30, 2021. As of September 30, 2022, all repurchased shares were retired. As of September 30, 2022, $3.0 million was available for share repurchase under this program.
During the year ended September 30, 2019, 788,425 shares were repurchased for $2,171,022 under these programs. During the year ended September 30, 2018, 286,746 shares were repurchased for $725,445 under these programs. At September 30, 2019, all repurchased shares were retired.
Item 6.Reserved
Item 6.
| Selected Financial Data
|
Information requested by this Item is not included as we are electing scaled disclosure requirements available to Smaller Reporting Companies.7.Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Item 7.
| Management’s Discussion and Analysis of Financial Condition and Results of Operations.
|
The discussion and analysis set forth below should be read in conjunction with the information presented in other sections of this Annual Report on Form 10-K, including “Item 1. Business,” “Item 1A. Risk Factors,” and “Item 8. Financial Statements and Supplementary Data.” This discussion contains forward-looking statements which are based on our current expectations and industry experience, 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.
Overview
Genasys Inc. is a global provider of critical communications hardware and software solutions designed to help keep people safe.alert, inform, and protect people. Our unified software/hardware platform providesreceives information from a multi-channel approachwide variety of sensors and Internet-of-Things (IoT) inputs to deliveringcollect real-time information on developing and active emergency situations. The Genasys critical communications platform uses this information to create and disseminate alerts, warnings, notifications, and instructions to at-risk individuals and informationpopulations through multiple channels before, during, and after public safety and enterprise threats, critical events, and other crisis situations. We are
Our unified critical communications platform includes:
Software
GEMPublic Safety
GEM Public Safety is an interactive, cloud-based SaaS solution that enables State, Local and Education (“SLED”) customers to send critical information to at-risk individuals or groups when an emergency occurs. GEM acts as both a leading innovatorcommunications input and manufactureroutput, receiving information from state-of-the-art sensors and emergency services, and quickly relaying notifications, alerts, and instructions to at-risk populations and first responders. GEM customers can create and send critical, verified, and secure notifications and messages using emails, voice calls, text messages, panic buttons, desktop alerts, television, social media, and more.
GEMEnterprise
GEM Enterprise empowers businesses and organizations to send critical communications to at-risk employees, contractors, visitors, or groups based on geographic location or team status. Operated and controlled via a single dashboard that includes two-way polling, duress buttons, field check-ins and recipient locations, GEM Enterprise solutions integrate with data sources, including active directories, human resources, visitor management, and building control systems to find and deliver safety alerts and notifications to employees, staff, contractors, temporary workers, and visitors.
Zonehaven
Zonehaven is a multipronged SaaS application that serves both first responders and the jurisdictions they protect. Emergency services agencies can prepare for natural or man-made disasters by developing evacuation plans that map routes, shelters, traffic control locations, and road closures using Zonehaven's extensive public safety resources and mapped zones. This information is easily shared with the public and reduces the time it takes to execute emergency evacuations and conduct orderly repopulations.
NEWS
NEWS provides multichannel public safety notifications and instructions to designated areas, groups, or agencies when a crisis occurs. The NEWS platform is cloud-based, geo-redundant, and end-to-end encrypted. NEWS is a SaaS product that requires mobile telecom services for installation and integration. Genasys partners with mobile telecom networks to provide the channels to deliver NEWS SMS and CBC alerts and notifications that can be sent to anyone, anywhere, with no recipient opt-in, registration or download required.
Hardware
IMNS
The IMNS product line unites Genasys next generation of acoustic communicationmass notification speaker systems with GEM command-and-control software. Most legacy mass notification systems sound sirens, but have limited, if any, voice broadcast capability. Genasys' advanced mass notification systems feature the industry's highest STI, large directional and omni-directional broadcast coverage areas, and an array of options that project audible voice messages, tones,enable the systems to continue to operate when power and warning sirens over distance. In addition, our proprietary software platform includes mobile mass messaging and integrated solutions for business and public safety. Our products, systems and solutions include:telecommunications infrastructure goes down.
LRAD
The LRAD (Long Range Acoustic Devices) that project sirensis the world’s leading AHD. Projecting alert tones and audible voice messages with exceptional vocal clarity in a 30° beam from close range out to 5,500 meters;meters, LRADs are used throughout the world in multiple applications and circumstances to safely hail, warn, inform, direct, prevent misunderstandings, determine intent, establish large safety zones, resolve uncertain situations, and save lives. LRADs have been deployed on military vehicles, at corporate headquarters, in hostage negotiations, aboard private yachts, and in numerous other situations where clear and intelligible voice communications are essential.
CCaaS (Critical Communications asOur critical communications platform is being used in more than 100 countries to help safeguard millions of people in a Service) softwarerange of diverse applications that isa reliable, fast and intuitive software solution for sending SMS, text, email and social media messages to mobile devices in defined geographic areas and
Integrated Solutions that span multiple hardware and software mobile notification channels so that information is delivered to the people who need it. These solutions include LRAD systems that project sirens and audible voice messages 60° - 360° with industry-leading vocal clarity from close range to over 14 square kilometers from a single installation, and CCaaS software for sending SMS, text, email and social media messages to mobile devices in defined geographic areas. Our integrated solutions are compatible with the FEMA‘s IPAWS and other majorpublic safety, emergency warning, protocols.
We have sold our products, systems and solutions into 72 countries and pioneered a worldwide market for acoustic hailing devices and advanced mass notification, solutions.defense, law enforcement, border and homeland security, critical infrastructure protection, and many more. We continue to develop new communicationcritical communications innovations and believe we have established significant competitive advantages in our principal markets.
Recent Developments
In the fiscal year ended September 30, 2019,2022, we accomplished the following:
| ● | Validated SaaS platform and business model |
| ● | Accelerated momentum in software service sales |
| ● | Received multi-year enterprise SaaS contract from a second global automaker |
| ● | Landed new SaaS contracts in the Utility sector |
| ● | Captured 10 cross-selling opportunities |
| ● | Expanded geographic reach in 19 new U.S. states |
| ● | Significantly increased the number of customers for Genasys’ comprehensive suite of public safety, emergency warning, and evacuation solutions |
| | ● | Announced $20.2 millionGEM government and enterprise software contracts and expanded GEM and Zonheaven software services in LRAD 450XL systemsmultiple cities, counties, and accessories orders from the U.S. Army to meet its critical communications and scalable escalation of force requirementsstates |
| ● | Awarded NEWS contract to power Slovenia’s nationwide public warning system |
| ● | Grew hardware sales by 15% due to a 457% increase in Integrated Mass Notification System revenue |
| | ● | Received $4.75$15.7 million follow-on AHD systems maintenance agreementLRAD order from the Indian NavyU.S. Army under AHD Program of Record |
| | ● | Announced $3.8 millionGEM government and enterprise software contracts and expanded GEM and Zonehaven software services in domesticmultiple cities, counties, and international defense and homeland security ordersstates |
| ● | Awarded NEWS contract to power Slovenia’s nationwide public warning system |
| ● | Announced next generation IMNS installations in Japan and with the U.S. Army order |
| | ● | Received $3.2 million inand shipped orders for the new LRAD 100X MAG-HS kits order from950NXT, the National Guard |
| ●
| Announced $1.2 million in international and domestic naval ordersCompany’s next generation remotely operated long-range communications system
|
● Received $1.1 million in a follow-on AHD order from the U.S. Air Force
| ●
| Announced $1.1 million in mass notification orders from the U.S. Army and a Eurasian oil and gas company
|
| ●
| Received $850,000 in international public safety notification and wildlife preservation orders
|
| ●
| Received follow-on orders from the Canadian Army
|
| ●
| Announced critical communications systems installations in the City of Mill Valley, CA
|
Business Outlook
Our product line-up continuesproducts, systems, and solutions continue to gain worldwide awareness and recognition through media exposure, trade shows, product demonstrations, and word of mouth as a result of positive responses and increased acceptance of our products.acceptance. We believe we have a solid global brand, technology, and product foundation, with our LRAD AHD and PSMN systems product lines, which we have expanded over the yearscontinue to expand to serve new markets and customers for greater business growth. We believe that we have strong market opportunities for our LRAD AHD and PSMN product offerings throughout the world in the homeland securitydefense, public safety, emergency warning, mass notification, critical event management, and defenselaw enforcement sectors as a result of increasing threats to government, commerce, law enforcement, borders,homeland security, and critical infrastructure. Our directionalproducts, systems, and multidirectional product offeringssolutions also have many applications within the fire rescue, public safety, maritime, asset protection, and wildlife control and preservation business segments.
Genasys has developed a global market and an increased demand for LRADs and advanced mass notification speakers. We have a reputation for producing quality products that feature industry-leading broadcast area coverage, vocal intelligibility, and product reliability. We intend to expandcontinue building on our AHD market leadership position by offering enhanced voice broadcast systems and accessories for an expanding range of applications. In executing our strategy, we use direct sales to governments, militaries, large end-users, system integrators, and prime vendors. We have built a worldwide distribution channel consisting of partners and resellers that have significant expertise and experience selling integrated communication solutions into our various target markets. As our primary AHD sales opportunities are with domestic and international governments, military branches, and law enforcement agencies, we are subject to each customer’s unique budget cycle, which leads to long selling cycles and uneven revenue flow, complicating our product planning.
The proliferation of natural and man-made disasters, emergency events, and civil unrest require technologically advanced, multi-channel solutions to deliver clear and timely critical communications to help keep people safe during crisis situations. Businesses are also incorporating critical communication and emergency management systems that locate and help safeguard employees when crises occur.
By providing the only SaaS platform that unifies sensors and IoT inputs with multichannel, multiagency alerting and notifications, Genasys seeks to deliver reliable, fast, and intuitive solutions for creating and disseminating geolocation-targeted warnings, information, and instructions before, during, and after public safety and enterprise threats.
While the software and hardware mass notification business, particularlymarkets are more mature with many established manufacturers and suppliers, we believe that our advanced technology and unified platform provides opportunities to succeed in the U.S., Middle East, Europe,large and Asia wheregrowing public safety, emergency warning and critical communications markets.
In fiscal 2023, we believe thereintend to continue pursuing domestic and international business opportunities with the support of business development consultants, key representatives, and resellers. We plan to grow our revenues through increased direct sales to governments and agencies that desire to integrate our communication technologies into their homeland security and public safety systems. This includes building on fiscal 2022 domestic defense sales by pursuing further U.S. military opportunities. We also plan to pursue emergency warning, enterprise and critical event management, government, law enforcement, fire rescue, homeland and international security, private and commercial security, border security, maritime security, and wildlife preservation and control business opportunities. In addition to the matters above, we are greater market opportunitiesauthorized for the performance of services and provision of goods pursuant to Delaware General Corporation Law.
Our research and development strategy involves incorporating further innovations and capabilities into our multidirectional PSMNGEM, Zonehaven, NEWS, IMNS and LRAD products, systems, and solutions to meet the needs of our target markets.
Our GEM, Zonehaven, and NEWS software solutions are more complex offerings. We are pursuing certain certifications, which are often required when bidding on government and mass messaging solutions. In fiscal year 2019, we increasednotification opportunities. We intend to invest engineering resources to enhance our global selling network, which consistsGEM, Zonehaven, and NEWS software solutions to compete for larger emergency warning and critical communications business opportunities. We are also configuring alternative solutions to achieve lower price points to meet the needs of marketingcertain customers or applications. We also engage in ongoing value engineering to reduce the cost and business development personnel,simplify the manufacturing of our products.
A large number of components and sub-assemblies manufactured by outside suppliers within our supply chain are produced within 50 miles of our facility. We do not source component parts from suppliers in China. It is likely that some of our suppliers source parts in China. The aftermath of the COVID-19 pandemic continues to impact worldwide supply chains and the ability to obtain sufficient amounts of component parts, including semiconductor chips and integrated circuits, resins, coating and other equipment and components. Negative impacts on our supply chain could have a material adverse effect on our business. We communicate with our suppliers regarding measures to alleviate ongoing worldwide supply chain issues.
We have been affected by price increases from our suppliers and logistics as well as relationships with key integratorsother inflationary factors such as increased salary, labor, and sales representatives within the U.S. and around the world. In addition, we utilize part-time consultants with expertise in various U.S. government and defense areas, to advise us on procedures and budgetary policies in an effort to be successful in these areas. However, we may continue to face challenges in fiscal 2020 due to budget uncertainties and continuing economic and geopolitical conditions in some international regions and the U.S. We anticipate continued U.S. Military spending uncertainty due to possible defense budget delays. We are pursuing large business opportunities, but it is difficult to anticipate how long it will take to close these opportunities, or if they will ultimately come to fruition. It is also difficult to determine whether our integrated solutions will be accepted in the mass notification market, which includes a number of competitors.
Our products have varying gross margins, and therefore product sales mix materially affects gross profit. In addition, the margins differ based on the channel of trade through which the products are sold. We implement product updates and changes, including raw material and component changes that may impact productoverhead costs. We also have increased competition inregularly review and adjust the mass notification market, where there are a numbersales price of established companies thatour finished goods to offset these inflationary factors. Although we expect will create pricing pressure on our PSMN product line and mobile alert solutions. We do not believe that historicalinflation has had a material impact on our financial results through September 30, 2022, sustained or increased inflation in the future may have a negative effect on our ability to achieve certain expectations in gross profit margins shouldmargin and operating expenses. If we are unable to offset the negative impacts of inflation with increased prices, our future results could be relied upon as an indicator of future gross profit margins. materially affected.
During fiscal year 2020, we had approximately 16 full-time business development and marketing personnel at the Company, which includes four business consultants. In addition, we utilize various part-time sales consultants with experience and knowledge in various government and defense areas to assist with specific markets we are pursuing. We exhibit at domestic and international trade shows, attend industry events, and hold system demonstrations. Also, commission expense will fluctuate based on the level of commissionable sales incurred.
Research and development (“R&D”) expenses vary period to period due to the timing of projects, and the timing, extent and use of outside consulting, design and development firms. Our R&D expenses were primarily for in-house development; however, we continue to supplement our in-house development with third-party services, such as product testing and certification.
Critical Accounting Policies and Estimates
We have identified the policies below as critical to our business operations and to understanding our results of operations. Our accounting policies are more fully described in our consolidated financial statements and related notes located in “Item 8. Financial Statements and Supplementary Data.” The impact and any associated risks related to these policies on our business operations are discussed in “Item 1A. Risk Factors” and throughout “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” when such policies affect our reported and expected financial results.
The methods, estimates, and judgments we use in applying our accounting policies, in conformity with generally accepted accounting principles in the U.S., have a significant impact on the results we report in our financial statements. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. These estimates affect the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.
Revenue Recognition. On October 1, 2019, we adopted
Accounting Standards Update (“ASU”) No. 2014-09, Codification 606, Revenue from Contracts with Customers (Topic 606) and its amendments using the full retrospective approach.
Topic 606(“ASC 606”), outlines a, new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most revenue recognition guidance, including industry-specific guidance. This new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized:
| | 1. | Identify the contract(s) with customers |
| | 2. | Identify the performance obligations |
| | 3. | Determine the transaction price |
| | 4. | Allocate the transaction price to the performance obligations |
| | 5. | Recognize revenue when the performance obligations have been satisfied |
TopicASC 606 requires revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services.
We derive our revenue from the sale of products and services to customers, contracts, license fees, other services, and freight. The Company sells its products and services through its direct sales force and through authorized resellers and system integrators. The Company recognizes revenue for goods, including software, when all the significant risks and rewards have been transferred to the customer, no continuing managerial involvement usually associated with ownership of the goods is retained, no effective control over the goods sold is retained, the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the transactions will flow to the Company, and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Software license revenue, maintenance and/or software development service fees may be bundled in one arrangement or may be sold separately.
Product Revenue
Product revenue is recognized as a distinct single performance obligation when products are tendered to a carrier for delivery, which represents the point in time that our customer obtains control of the products. A smaller portion of product revenue is recognized when the customer receives delivery of the products. A portion of products are sold through resellers and system integrators based on firm commitments from an end user, and as a result, resellers and system integrators carry little or no inventory. Our customers do not have a right to return product unless the product is found defective and therefore our estimate for returns has historically been insignificant
Perpetual licensed software
The sale and/or license of software products is deemed to have occurred when a customer either has taken possession of, or has the ability to take immediate possession of, the software and the software key. Perpetual software licenses can include one-year maintenance and support services. In addition, the Company sells maintenance services on a stand-alone basis and is therefore capable of determining their fair value. On this basis, the amount of the embedded maintenance is separated from the fee for the perpetual license and is recognized on a straight-line basis over the period to which the maintenance relates.
Time-based licensed software
The time-based license agreements include the use of a software license for a fixed term, generally one-year, and maintenance and support services during the same period. The Company does not sell time-based licenses without maintenance and support services and therefore revenues for the entire arrangements are recognized on a straight-line basis over the term.
Warranty, maintenance, and services
We offer extended warranty, maintenance and other services. Extended warranty and maintenance contracts are offered with terms ranging from one to several years, which provide repair and maintenance services after expiration of the original one-year warranty term. Revenues from separately priced extended warranty contracts are recognized on a straight-line basis over the warranty period and maintenance contracts are recognized based on time elapsed over the service period. Revenue from other services such as training or installation is recognized when the service is completed. Warranty, maintenance and services are classified as contract and other revenues.
Multiple element arrangements
The Company has entered into a number of multiple element arrangements, such as when selling a product or perpetual licenses that may include maintenance and support (included in the price of the perpetual licenses) and time-based licenses (that include embedded maintenance and support, both of which may be sold with software development services, training, and other product sales). In some cases, the Company delivers software development services bundled with the sale of the software. In multiple element arrangements, the Company uses either the stand-alone selling price or an expected cost plus margin approach to determine the fair value of each element within the arrangement, including software and software-related services such as maintenance and support. In general, elements in such arrangements are also sold on a stand-alone basis and stand-alone selling prices are available.
Revenue is allocated to each deliverable based on the fair value of each individual element and is recognized when the revenue recognition criteria described above are met, except for time-based licenses, which are not unbundled. When software development services are performed to customize the functionality of the software, the Company recognizes revenue from the software development services on a stage of completion basis, and the revenue from the software when the related development services have been completed.
We currently disaggregate revenue by reporting segment (LRAD(Hardware and Genasys Spain)Software) and geographically to depict the nature of revenue in a manner consistent with our business operations and to be consistent with other communications and public filings. Refer to Note 17,18, Segment Information and Note 18,19, Major Customers, Suppliers and Related Information for additional details of revenues by reporting segment and disaggregation of revenue.
Share-Based Compensation. We account for share-based compensation in accordance with the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 718, “Compensation—“Compensation—Stock Compensation”Compensation” (“ASC 718”) using the modified prospective method which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees, consultants and directors based on estimated fair values. ASC 718 requires the use of subjective assumptions, including expected stock price volatility and the estimated term of each award. We estimate the fair value of stock options granted using the Black-Scholes option-pricing model, which is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. This model also utilizes the fair value of our common stock and requires that, at the date of grant, we use the expected term of the share-based award, the expected volatility of the price of our common stock over the expected term, the risk freerisk-free interest rate and the expected dividend yield of our common stock to determine the estimated fair value. We determine the amount of share-based compensation expense based on awards that we ultimately expect to vest, reduced for estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Allowance for doubtful accounts. Our products are sold to customers in many different markets and geographic locations. We estimate our bad debt reserve on a case-by-case basis due to a limited number of customers. We base these estimates on many factors, including customer credit worthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms. Our judgments and estimates regarding collectability of accounts receivable have an impact on our financial statements.
Valuation of Inventory. Our inventory is comprised of raw materials, assemblies and finished products. We must periodically make judgments and estimates regarding the future utility and carrying value of our inventory. The carrying value of our inventory is periodically reviewed and impairments, if any, are recognized when the expected future benefit from our inventory is less than its carrying value.
Valuation of Intangible Assets. Intangible assets consist of technology, customer relationships, trade name portfolio, and non-compete agreements acquired in the acquisitionacquisitions of Genasys Spain and Zonehaven and the Amika Mobile asset purchase and patents and trademarks that are amortized over their estimated useful lives. We must make judgments and estimates regarding the future utility and carrying value of intangible assets. The carrying values of such assets are periodically reviewed and impairments, if any, are recognized when the expected future benefit to be derived from an individual intangible asset is less than its carrying value. This generally occurs when certain assets are no longer consistent with our business strategy and whose expected future value has decreased.
Valuation of Goodwill. Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the acquired net tangible and intangible assets acquired. We evaluate goodwill for impairment on an annual basis in our fiscal fourth quarter or more frequently if indicators of impairment exist that would more likely than not reduce the fair value of a single reporting unit below the carrying amount. We assess qualitative factors in order to determine whether it is more likely than not that the fair value of a reporting unit is less than the carrying amount. The qualitative factors evaluated by management include: macro-economic conditions of the local business environment, overall financial performance, and other entity specific factors as deemed appropriate. If, through this qualitative assessment, the conclusion is made that it is more likely than not that a reporting unit’s fair value is less than the carrying amount, a two-step impairment test is performed. For reporting units where we perform the quantitative goodwill impairment test, an impairment loss is recorded to the extent that the reporting unit’s carrying amount exceeds the reporting unit’s fair value. An impairment loss cannot exceed the total amount of goodwill allocated to the reporting unit.
Derivatives. We use derivative financial instruments to manage risk related to changes in foreign currency exchange rates. We do not hold derivative financial instruments of a speculative nature or for trading purposes. We record all derivatives on the consolidated balance sheet at fair value using available market information and other observable data. See Note 5, Fair Value Measurements for further discussion.
Accrued Expenses. We establish a warranty reserve based on anticipated warranty claims at the time product revenue is recognized. This reserve requires us to make estimates regarding the amount and costs of warranty repairs we expect to make over a period of time. Factors affecting warranty reserve levels include the number of units sold, anticipated cost of warranty repairs, and anticipated rates of warranty claims. Warranty expense is recorded in cost of revenues. We evaluate the adequacy of this reserve each reporting period.
We use the recognition criteria of ASC 450-20, “Loss Contingencies” to estimate the bonus amount of bonuses when it becomes probable a bonus liability will be incurred and we recognize expense ratably over the service period. We accrue bonus expense each quarter based on estimated year-end results, and then adjust the actual in the fourth quarter based on our final results compared to targets.
Deferred Tax Asset. We evaluate quarterly the realizability of the deferred tax assets and assess the need for a valuation allowance. We record valuation allowances to reduce our deferred tax assets to an amount that we believe is more likely than not to be realized. Realization is dependent on generating sufficient taxable income prior to expiration of the loss carryforwards. Utilization of the net operating loss (“NOL”) carryforwards in future years could be substantially limited due to restrictions imposed under federal and state laws upon a change in ownership or control. Included in the NOL carryforwards are deductions from stock options that, if recognized, will be recorded as a credit to additional paid-in capital rather than through our results of operations. In determining taxable income for financial statement reporting purposes, we must make certain estimates and judgments. These estimates and judgments are applied in the calculation of certain tax liabilities and in the determination of the ability to recover deferred tax assets. The Company will continue to evaluate the ability to realize its net deferred tax assets on an ongoing basis to identify whether any significant changes in circumstances or assumptions have occurred that could materially affect the ability to realize deferred tax assets and will adjust the valuation accordingly.
Recent Accounting Pronouncements
New pronouncements issued for future implementation are discussed in Note 3, Recent Accounting Pronouncements, to our consolidated financial statements.
Segment and Related Information
We are engaged in the design, development, and commercialization of sound technologies, voice broadcast productscritical communications hardware and location-based mass messagingsoftware solutions for emergency warningdesigned to alert, inform and workforce management.protect people. The Company operates in two business segments: LRADHardware and Genasys SpainSoftware and its principleprincipal markets are North and South America, Europe, Middle East and Asia. As reviewed by the Company’s chief operating decision maker, the Company evaluates the performance of each segment based on sales and operating income. Cash and cash equivalents, marketable securities, accounts receivable, inventory, property and equipment, deferred tax assets, goodwill, and intangible assets are primary assets identified by segment. The accounting policies for segment reporting are the same for the Company as a whole and transactions between the two operating segments are eliminated in consolidation. Refer to Note 17,18, Segment Information, in our consolidated financial statements for further discussion.
Comparison of Results of Operations for Fiscal Years Ended September30, 20192022 and 20182021
The following table provides for the periods indicated certain items of our consolidated statements of operations expressed in thousands of dollars and as a percentage of net sales. The financial information and discussion below should be read in conjunction with the consolidated financial statements and notes contained in this Annual Report.
| | | Year Ended | | | | | | | | | |
| | | September 30, 2019 | | | September 30, 2018 | | | | | | | | | |
| | | | | | | % of | | | | | | | % of | | | | | | | | | |
| | | | | | | Total | | | | | | | Total | | | Favorable (Unfavorable) | |
| | | Amount | | | Revenue | | | Amount | | | Revenue | | | Amount | | | % | |
Revenues: | | | | | | | | | | | | | | | | | | | | | | | | |
Product sales | | $ | 33,384,175 | | | | 90.3 | % | | $ | 23,495,788 | | | | 89.3 | % | | $ | 9,888,387 | | | | 42.1 | % |
Contract and other | | | 3,594,880 | | | | 9.7 | % | | | 2,811,002 | | | | 10.7 | % | | | 783,878 | | | | 27.9 | % |
Total revenues | | | 36,979,055 | | | | 100.0 | % | | | 26,306,790 | | | | 100.0 | % | | | 10,672,265 | | | | 40.6 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Cost of revenues | | | 18,522,548 | | | | 50.1 | % | | | 13,567,076 | | | | 51.6 | % | | | (4,955,472 | ) | | | (36.5 | %) |
Gross Profit | | | 18,456,507 | | | | 49.9 | % | | | 12,739,714 | | | | 48.4 | % | | | 5,716,793 | | | | 44.9 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Operating expenses | | | | | | | | | | | | | | | | | | | | | | | | |
Selling, general and administrative | | | 10,792,401 | | | | 29.2 | % | | | 10,692,681 | | | | 40.6 | % | | | (99,720 | ) | | | (0.9% | ) |
Research and development | | | 4,527,741 | | | | 12.2 | % | | | 3,523,498 | | | | 13.4 | % | | | (1,004,243 | ) | | | (28.5% | ) |
Total operating expenses | | | 15,320,142 | | | | 41.4 | % | | | 14,216,179 | | | | 54.0 | % | | | (1,103,963 | ) | | | (7.8% | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Income (loss) from operations | | | 3,136,365 | | | | 8.5 | % | | | (1,476,465 | ) | | | (5.6 | %) | | | 4,612,830 | | | | 312.4 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Other income and expense, net | | | 220,827 | | | | 0.6 | % | | | 107,023 | | | | 0.4 | % | | | 113,804 | | | | 106.3 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Income (loss) from operations before income taxes | | | 3,357,192 | | | | 9.1 | % | | | (1,369,442 | ) | | | (5.2% | ) | | | 4,726,634 | | | | 345.2 | % |
Income tax expense | | | 572,200 | | | | 1.5 | % | | | 2,375,600 | | | | 9.0 | % | | | 1,803,400 | | | | 75.9 | % |
Net income (loss) | | $ | 2,784,992 | | | | 7.5 | % | | $ | (3,745,042 | ) | | | (14.2% | ) | | $ | 6,530,034 | | | | 174.4 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
US v International Sales | | | | | | | | | | | | | | | | | | | | | | | | |
US Revenue | | | 26,046,968 | | | | 70.4 | % | | | 14,793,243 | | | | 56.2 | % | | | 11,253,725 | | | | 76.1 | % |
International Revenue | | | 10,932,087 | | | | 29.6 | % | | | 11,513,547 | | | | 43.8 | % | | | (581,460 | ) | | | (5.1% | ) |
Total | | | 36,979,055 | | | | 100.0 | % | | | 26,306,790 | | | | 100.0 | % | | $ | 10,672,265 | | | | 40.6 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Net sales | | | | | | | | | | | | | | | | | | | | | | | | |
LRAD | | $ | 34,931,448 | | | | 94.5 | % | | $ | 24,836,795 | | | | 94.4 | % | | | 10,094,653 | | | | 40.6 | % |
Genasys Spain | | | 2,047,607 | | | | 5.5 | % | | | 1,469,995 | | | | 5.6 | % | | | 577,612 | | | | 39.3 | % |
Total net sales | | $ | 36,979,055 | | | | 100.0 | % | | $ | 26,306,790 | | | | 100.0 | % | | $ | 10,672,265 | | | | 40.6 | % |
| | | Years ended | | | | | | | | | |
| | | September 30, 2022 | | | September 30, 2021 | | | | | | | | | |
| | | | | | | % of | | | | | | | % of | | | | | | | | | |
| | | | | | | Total | | | | | | | Total | | | Fav(Unfav) | |
| | | Amount | | | Revenue | | | Amount | | | Revenue | | | Amount | | | % | |
Revenues: | | | | | | | | | | | | | | | | | | | | | | | | |
Product sales | | $ | 48,637 | | | | 90.0 | % | | $ | 41,602 | | | | 88.5 | % | | $ | 7,035 | | | | 16.9 | % |
Contract and other | | | 5,398 | | | | 10.0 | % | | | 5,401 | | | | 11.5 | % | | | (3 | ) | | | (0.1 | %) |
Total revenues | | | 54,035 | | | | 100.0 | % | | | 47,003 | | | | 100.0 | % | | | 7,032 | | | | 15.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Cost of revenues | | | 27,693 | | | | 51.3 | % | | | 23,577 | | | | 50.2 | % | | | (4,116 | ) | | | (17.5 | %) |
Gross Profit | | | 26,342 | | | | 48.7 | % | | | 23,426 | | | | 49.8 | % | | | 2,916 | | | | 12.4 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Operating expenses | | | | | | | | | | | | | | | | | | | | | | | | |
Selling, general and administrative | | | 21,688 | | | | 40.1 | % | | | 17,424 | | | | 37.1 | % | | | (4,264 | ) | | | (24.5 | %) |
Goodwill impairment | | | 13,162 | | | | 24.4 | % | | | - | | | | 0.0 | % | | | (13,162 | ) | | | (100.0 | %) |
Research and development | | | 7,023 | | | | 13.0 | % | | | 4,918 | | | | 10.5 | % | | | (2,105 | ) | | | (42.8 | %) |
Total operating expenses | | | 41,873 | | | | 77.5 | % | | | 22,342 | | | | 47.5 | % | | | (19,531 | ) | | | (87.4 | %) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
(Loss) income from operations | | | (15,531 | ) | | | (28.7 | %) | | | 1,084 | | | | 2.3 | % | | | (16,615 | ) | | | (1532.7 | %) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Other income, net | | | 60 | | | | 0.1 | % | | | 54 | | | | 0.1 | % | | | 6 | | | | 11.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
(Loss) income before income taxes | | | (15,471 | ) | | | (28.6 | %) | | | 1,138 | | | | 2.4 | % | | | (16,609 | ) | | | (1459.5 | %) |
Income tax expense | | | 741 | | | | 1.4 | % | | | 434 | | | | 0.9 | % | | | (307 | ) | | | (70.7 | %) |
Net loss | | $ | (16,212 | ) | | | (30.0 | %) | | $ | 704 | | | | 1.5 | % | | $ | (16,916 | ) | | | (2402.8 | %) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Net revenues | | | | | | | | | | | | | | | | | | | | | | | | |
Hardware | | $ | 50,938 | | | | 94.3 | % | | $ | 44,233 | | | | 94.1 | % | | | 6,705 | | | | 15.2 | % |
Software | | | 3,097 | | | | 5.7 | % | | | 2,770 | | | | 5.9 | % | | | 327 | | | | 11.8 | % |
Total net revenues | | $ | 54,035 | | | | 100.0 | % | | $ | 47,003 | | | | 100.0 | % | | $ | 7,032 | | | | 15.0 | % |
Revenues
Revenues increased $10,672,265,$7.0 million, or 40.6%15%, in the fiscal year ended September 30, 2019. Higher backlog entering fiscal 2019, compared to the prior year and record orders in fiscal 2019 of $45.9 million contributed to higher revenue in fiscal 2019. The larger fiscal 2019 revenues were from both the LRAD AHD and PSMN products. PSMN revenue increased $969,349, or 13%, over2022. Current fiscal year 2018 and LRAD AHD revenue increased $9,702,916,was $39.5 million, IMNS revenue was $11.4 million, and software revenue was $3.1 million. This represented increases of $9.4 million, or 51.5%457%, overfor IMNS and $0.3 million, or 11%, for software, offset by a decrease of $2.7, or 6%, for AHD revenue compared with the prior year. Domestic revenues increased 76.1% overThe receipt of orders is often uneven due to the priortiming of government budgets or approvals. The increase in software revenue in this fiscal year while international revenues decreased 5.1% over the prior year. Weis largely due to growth in SaaS revenue, partially offset by lower professional services revenue on new software contracts. As of September 30, 2022, we had aggregate deferred revenue of $5,571,613 and $736,054 for prepayments from customers in advance of product shipment at September 30, 2019 and 2018, respectively.of $6.8 million. The receipt of orders will often be uneven due to the timing of customer’scustomers’ approval or budget cycles.
Gross Profit
Gross profit for the year ended September 30, 2019 grew $5,716,793,2022, increased $2.9 million or 44.9% higher sales and, over12.4% compared to fiscal year 2018,2021. This was primarily due to higher sales volume, offset by increased revenue.costs associated with continued investment in personnel to support the growth of our software products and higher product costs in the second half of fiscal year 2022. Gross margin as a percentage of sales increasedwas 48.7% this year, compared to 49.8% in the prior year primarily due to lower manufacturing overhead expenses as a percentage of sales.year.
Our products have varying gross margins, so product mix may affect gross profits. In addition, our margins vary based on the sales channels through which our products are sold in a given period. We continue to implement product updates and changes, including raw material and component changes that may impact product costs. With such product updates and changes we have limited warranty cost experience and estimated future warranty costs can impact our gross margins. We do not believe that historical gross profit margins should be relied upon as an indicator of future gross profit margins.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by $99,720,$4.3 million, or 0.9%24.5%. ThisThe increase iswas primarily due to Genasys selling general$1.9 million of additional employee related costs, largely associated with our 13% increase in sales and administrativeadministration personnel over the prior year to support software revenue growth opportunities. In addition, amortization expense increased $1.0 million, and marketing related, and travel expenses totaling $462,770 inincreased $1.2 million over the first quarter of fiscal 2019 compared to zero in 2018. This was offset by decreases in 2019 for computer expenses, commission and bad debt expense.prior year.
We incurred non-cash share-based compensation expenses allocated to selling, general and administrative expenses for fiscal 20192022 and 20182021 of $665,295$2.1 million and $479,165,$1.3 million, respectively.
We may expend additional resources on the marketing and selling of our products in future periods as we identify ways to optimize potential business opportunities. Commission expense will fluctuate based on the nature of our sales.
Goodwill Impairment
As a result of the annual goodwill impairment analysis, we recognized a $13.2 million non-cash goodwill impairment charge in our Software segment for the year ended September 30, 2022. For more information, refer to Note 2, Basis of Presentation and Significant Accounting Policies and Note 8, Goodwill and Intangible Assets.
Research and Development Expenses
R&D expenses increased by $1,004,243,$2.1 million, or 28.5%42.8%, primarily due to a $290,745$2.0 million increase in salaries and benefits and $545,506 increase for software development, and product development and testing.employee-related costs associated with our growth in staffing from 79 to 96.
Included in R&D expenses for the year ended September 30, 20192022 was $53,916$70 thousand of non-cash share-based compensation expenses, compared to $84,320$40 thousand for the year ended September 30, 2018.2021.
Other Income, net
Other income, net, increased by $113,804 primarily$6 thousand due to the $84,651 ofchanges in interest income and a decrease of $20,949 in interest expense in fiscal 2019 compared to fiscal 2018.realized gains and losses on foreign currency translation.
Net (Loss) Income Income (Loss)
The net incomeloss of $2,784,992$16.2 million for fiscal 20192022 was an improvementa decrease of $6,530,034 over the net loss in fiscal year 2018. Fiscal year 2019 had higher revenue, comparable selling, general and administrative expenses and decreased income tax provision$16.9 million compared to fiscal year 2018. In addition, we generated2021. This was primarily due to a greater operating loss$13.2 million goodwill impairment charge taken in the fourth quarter of fiscal 2022. Pretax income in fiscal year 2018 due to additional investments in2022 was $16.9 million less than the business, including information technology, product development and selling and marketing, costs associated with the new facility and acquisition related expenses.
In theprior year ended September 30, 2019, we recorded an income tax provision of $572,200. In the year ended September 30, 2018, we recorded a $2,375,000 of tax expenseprimarily due to a $13.2 million goodwill impairment charge and $3.5 million increase in operating expenses. Income tax expense increased in fiscal year 2022 primarily due to a $1.0 million non-cash charge related to a valuation allowance against deferred tax assets. For additional details, refer to Note 13, Income Taxes, in our consolidated financial statements.
Other Metrics
We monitor a number of financial and operating metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions. Our other business metrics may be calculated in a manner different than similar other business metrics used by other companies (in thousands):
Adjusted EBITDA
Adjusted EBITDA represents our net income before other income, net, income tax expense (benefit), depreciation and amortization expense and stock-based compensation. We do not consider these items to be indicative of our core operating performance. The items that are non-cash include depreciation and amortization expense and stock-based compensation. Adjusted EBITDA is a measure used by management to understand and evaluate our core operating performance and trends and to generate future operating plans, make strategic decisions regarding allocation of capital, and invest in initiatives that are focused on cultivating new markets for our solutions. In particular, the exclusion of certain expenses in calculating adjusted EBITDA facilitates comparisons of our operating performance on a period-to-period basis. Adjusted EBITDA is not a measure calculated in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). We believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors. Nevertheless, use of adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under U.S. GAAP. Some of these limitations are: (1) although depreciation and amortization are non-cash charges, the intangible assets that are amortized and property and equipment that is depreciated, will need to be replaced in the future, and adjusted EBITDA does not reflect cash capital expenditure requirements for such replacement or for new capital expenditure requirements; (2) adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; (3) adjusted EBITDA does not reflect the potentially dilutive impact of equity-based compensation; (4) adjusted EBITDA does not reflect tax payments or receipts that may represent a reduction or increase in cash available to us; and (5) other companies, including companies in our industry, may calculate adjusted EBITDA or similarly titled measures differently, which reduces the usefulness of the deferred tax asset resulting frommetric as a comparative measure. Because of these and other limitations, you should consider adjusted EBITDA alongside our other U.S. GAAP-based financial performance measures, net income, and our other U.S. GAAP financial results.
The following table presents a reconciliation of adjusted EBITDA to net income, the changemost directly comparable U.S. GAAP measure, for each of the periods indicated (in thousands):
| | | Years ended | |
| | | September 30, | |
| | | 2022 | | | 2021 | |
Net (loss) income | | $ | (16,212 | ) | | $ | 704 | |
Other income, net | | | (60 | ) | | | (54 | ) |
Income tax (benefit) expense | | | 741 | | | | 434 | |
Depreciation and amortization | | | 2,556 | | | | 1,597 | |
Impairment of goodwill | | | 13,162 | | | | - | |
Stock-based compensation | | | 2,227 | | | | 1,424 | |
Adjusted EBITDA | | $ | 2,414 | | | $ | 4,105 | |
Segment Results
Segment results include net sales and operating income by segment. Corporate expense including various administrative expenses and costs of a publicly traded company are included in the Hardware segment as per historical financial reporting.
| | | Software | | | Hardware | |
| | | Years ended September 30, | | | | | | | | | | | Years ended September 30, | | | | | | | | | |
| | | 2022 | | | 2021 | | | $ | | | % | | | 2022 | | | 2021 | | | $ | | | % | |
Revenue | | $ | 3,097 | | | $ | 2,771 | | | $ | 326 | | | | 11.8 | % | | $ | 50,938 | | | $ | 44,232 | | | $ | 6,706 | | | | 15.2 | % |
Operating (loss) income | | | (24,791 | ) | | | (6,787 | ) | | | (18,004 | ) | | | 265.3 | % | | | 9,260 | | | | 7,871 | | | | 1,389 | | | | 17.6 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Reconciliation of GAAP to Non-GAAP | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Goodwill impairment | | | 13,162 | | | | - | | | | 13,162 | | | | 100.0 | % | | | - | | | | - | | | | - | | | | 0.0 | % |
Depreciation and amortization | | | 2,176 | | | | 1,222 | | | | 954 | | | | 78.1 | % | | | 380 | | | | 375 | | | | 5 | | | | 1.3 | % |
Stock-based compensation | | | 244 | | | | 110 | | | | 134 | | | | 121.8 | % | | | 1,983 | | | | 1,314 | | | | 669 | | | | 50.9 | % |
Adjusted EBITDA | | $ | (9,209 | ) | | $ | (5,455 | ) | | $ | (3,754 | ) | | | 68.8 | % | | $ | 11,623 | | | $ | 9,560 | | | $ | 2,063 | | | | 21.6 | % |
Software Segment
Software segment revenue increased 11.8% over the prior fiscal year. This reflects a 427.3% increase in recurring revenue in the Americas offset by a 41.8% decrease in professional services and licensing revenue compared to the U.S. corporateprior fiscal year.
Operating loss increased $18.0 million in the current fiscal year due to a $13.2 million goodwill impairment charge, $1.0 million in additional intangible asset amortization, the inclusion of a full year of Zonehaven operations, and increases in payroll and benefits costs due to increased hiring to support software development and sales.
Hardware Segment
Hardware segment revenue increased $6.7 million, or 15.2%, over the prior year. The increase was largely due to the higher backlog at the start of this fiscal year compared to the prior year amount.
Operating income tax rate effective forincreased $1.4 million in the calendarcurrent fiscal year ended December 31, 2018.due to higher revenue and lower professional services expenses offset by higher non-cash compensation, higher computer related expenses and increased travel expenses
Liquidity and Capital Resources
Cash and cash equivalents atas of September 30, 2019 was $18,819,078,2022 were $12.7 million, compared to $11,063,091 atwith $13.2 million as of September 30, 2018.2021. In addition, we havehad $6.4 million in short-term marketable securities as of $3,695,364 at September 30, 2019,2022, compared to $3,592,175 atwith $5.7 million as of September 30, 20182021, and long-term marketable securities of $1,384,819$0.8 million and $1,200,541 at$1.9 million as of September 30, 20192022 and 2018,2021, respectively. We also havehad restricted cash of $697,840 at$0.9 million as of September 30, 20192022 and $742,983 at$1.4 million as of September 30, 2018.2021. In addition, we have a $10 million line of credit with MUFG Bank. As of September 30, 2022, the Company had no outstanding balances against the line of credit. The credit agreement requires the Company to comply with various financial and operating covenants and as of September 30, 2022, the Company was in compliance with these covenants. Other than cash and expected future cash flows from operating activities in subsequent periods and the line of credit, we have no other unused sources of liquidity at this time.
Principal factors that could affect the availability of our internally generated funds include:
• ability to meet sales projections;
• government spending levels;
• introduction of competing technologies;
• product mix and effect on margins;
• ability to reduce and manage inventory levels; and
• product acceptance in new markets.
Principal factors that could affect our ability to obtain cash from external sources include:
• volatility in the capital markets; and
• market price and trading volume of our common stock.
Our Board of Directors approved a share buyback program under which the Company may utilize up to $4 million in cash to repurchase outstanding common shares using available cash and future cash flows from operations through December 31, 2018. In December 2018, the Board of Directors approved a new share buyback program beginning January 1, 2019, under which the Company wasis authorized to repurchase up to $5 million of its outstanding common shares. In December 2020, the Board of Directors extended the buyback program until December 31, 2022. Based on our current cash position, our order backlog, and assuming the accuracy of our currently planned expenditures, we believe we have sufficient capital to fund planned levels of operations for at least the next twelve months. However, we operate in a rapidly evolving and often unpredictable business environment that may change the timing or amount of expected future cash receipts and expenditures. Accordingly, there can be no assurance that we may not be required to raise additional funds through the sale of equity or debt securities or from credit facilities. Additional capital, if needed, may not be available on satisfactory terms, if at all.
Cash Flows
Our cash flows from operating, investing and financing activities, as reflected in the consolidated statements of cash flows, are summarized in the table below:below (in thousands):
| | | | Years ended | |
| | | Year ended September 30, | | | September 30, | |
| | | 2019 | | | 2018 | | | 2022 | | | 2021 | |
Cash provided by (used in): | | | | | | | | | |
Operating activities | | $ | 9,855,031 | | | $ | 1,251,819 | | | $ | 468 | | | $ | 6,150 | |
Investing activities | | $ | (610,286 | ) | | $ | (2,787,366 | ) | | (89 | ) | | (15,554 | ) |
Financing activities | | $ | (1,484,753 | ) | | $ | 596,894 | | | (1,063 | ) | | 13 | |
Operating Activities
Net incomeloss of $2,784,992$16.2 million for the fiscal year ended September 30, 2019, includes $2,333,8512022, included a $13.2 million goodwill impairment charge and $6.7 million of other non-cash items including share-based compensation expense, deferred income taxes, depreciation andoperating right of use lease amortization, inventory obsolescence and a provision for warranty. Cash provided by operating activities reflected an $854,676 increase in accounts receivable resulting from higher current year fiscal fourth quarter shipments, a decrease of $2,211,695 in accounts payable and a $5,570,164 increase in accrued and other liabilities, which included customer deposits, deferred revenue, deferred rent and leasehold incentives. Cash provided by operating activities also reflects a decrease in inventory of $756,732 and a decrease of $1,475,663 for prepaid expenses and other, which includes deposits paid on inventory purchases, prepaid rent, and prepaid insurance.
Net loss of $3,745,042 for the fiscal year ended September 30, 2018, includes $3,780,973 of non-cash items including share-based compensation expense, deferred income taxes, depreciation and amortization, inventory obsolescence, and a provision for warranty. Cash provided by operating activities reflected a $3,149,579 decrease$0.2 million increase in accounts receivable resulting from lower fiscal year 2018 fourth quarter shipments, an increase of $192,638 for higher accounts payable and a $1,541,865$4.6 million decrease in accrued and other liabilities, which included customer deposits, accrued payroll, deferred revenue, and operating lease liabilities. This was partially offset by a $0.2 million decrease in prepaid expenses and other, which includes deposits paid on inventory purchases, prepaid rent and prepaid insurance, and a $0.8 million decrease in accounts receivable.
Net income of $0.7 million for the fiscal year ended September 30, 2021, included $4.6 million of non-cash items including share-based compensation expense, deferred income taxes, operating right of use lease amortization, unrealized loss on a foreign currency forward contract, depreciation and amortization, inventory obsolescence, and a provision for warranty. Cash provided by operating activities reflected a $0.6 million increase in accounts payable and a $4.9 million increase in accrued and other liabilities, which included customer deposits, accrued payroll, deferred rentrevenue, and leasehold incentives,operating lease liabilities. This was partially offset by ana $1.6 million increase in inventory of $1,648,484 to support higher year-end 2018 backlog, an increase of $2,075,323 for prepaid expenses and other, primarily forwhich includes deposits paid on inventory purchases, to fulfill backlogprepaid rent and outstanding receivables for tenant improvements on the Company’s new operating facility.prepaid insurance, a $2.1 million increase in accounts receivable that resulted from higher current year fiscal fourth quarter shipments, and a $0.8 million increase in inventory.
We had accounts receivable of $3,644,059$6.7 million and $2,785,997 at$7.7 million as of September 30, 20192022 and 2018,2021, respectively. Terms with individual customers vary greatly. We often offer net thirty-day terms to our customers. Our receivables can vary dramatically due to overall sales volume and quarterly variations in sales and timing of shipments to and receipts from large customers.
AtAs of September 30, 20192022 and 2018,2021, our working capital was $24,765,178$20.2 million and $21,090,472,$18.0 million, respectively. The increase in working capital was largely the result of net income generated from operations.a decrease in customer deposits of $3.9 million offset by a $0.8 million decrease in accounts receivable and a $0.2 million decrease in prepaid expenses.
Investing Activities
In the fiscal year ended September 30, 2019,2022, we used $4,495,228$6.8 million of cash to purchase short and long-term marketable securities, compared towith using $4,920,547$5.1 million to purchase short and long-term marketable securities in the fiscal year ended September 30, 2018. Also, during fiscal year 2018, we used $2,431,795 to purchase Genasys Spain.2021. In the fiscal year ended September 30, 2019,2022, we had proceeds from maturities of available for sale marketable securities of $4,228,068$7.1 million, compared to $5,190,821with $5.6 million in fiscal year 2018.2021.
In the fiscal year ended September 30, 2021, we used $15.8 million in cash to complete the Amika Mobile asset purchase and Zonehaven acquisition in the first and third quarters of fiscal year 2021.
We also used cash in investing activities primarily for the purchase of product tooling, computer equipment, and leasehold improvements for the new largerour operating facility.facilities. Cash used for capital expenditures was $343,123$0.4 million and $625,845$0.2 million in the fiscal years ended September 30, 20192022 and 2018,2021, respectively. In fiscal 2017, we began to expense patent and trademark costs as incurred. We anticipate additional expenditures for patents and capital expenditures in fiscal year 20202023 as we continue to invest in new products and technologies.
Financing Activities
In the years ended September 30, 20192022 and 2018,2021, we received proceeds from the exercise of stock options of $703,313$0.3 million and $2,434,888,$0.2 million, respectively. The Board of Directors approved a share buyback program in 2015 under which the Company was authorized to repurchase up to $4 million of its outstanding common shares. In December 2017, the Board of Directors extended the program through December 31, 2018.
In December 2018, the Board of Directors approved a new share buyback program beginning January 1, 2019 and expiring on December 31, 2020, under which the Company was authorized to repurchase up to $5 million of its outstanding common shares. In December 2020, the Board of Directors extended the buyback program until December 31, 2022. The previous program expired on December 31, 2018.
During the year ended September 30, 2019, the Company2022, 259,310 shares were repurchased 788,425for $1.0 million. There were no shares at an average price per share of $2.75 for a total cost of $2,171,022. Duringrepurchased during the year ended September 30, 2018, the Company repurchased 286,746 shares at an average price per share2021. As of $2.53 for a total cost of $725,445. At September 30, 2019,2022, all repurchased shares were retired. As of September 30, 2022, $3.0 million was available for share repurchase under this program.
Commitments
We are committed for our facility lease through August 30, 2028, as more fully described in Note 13, Commitments and Contingencies, to12, Leases, in our consolidated financial statements.
The Company has a bonus plan for employees, in accordance with their terms of employment, whereby they can earn a percentage of their salary based on meeting targeted objectives for orders received, revenue, operating income, and operating cash flow. All of the Company’s key employees are entitled to participate in the bonus plan. During the years ended September 30, 20192022 and 2018,2021, the Company accrued $1,295,338recorded $1.7 million and $1,205,468$2.6 million, respectively, for bonuses,in bonus expense, and related payroll tax expense in connection with the bonus plans. Bonus related expense is included in “Accrued liabilities” on the Consolidated Balance Sheet.
We are aThe Company is party to an employment agreement with our chief executive officer that provides for severance benefits, including twelve months’ salary and health benefits, a pro-rata share of his annual cash bonus for the fiscal year in which the termination occurs to which he would have become entitled had he remained employed through the end of suchthe fiscal year, and vesting of a shareportion of the stock options held by him that are subject to performance-based vesting.at the time of termination. The agreement also has a change ofin control clause whereby the chief executive officer would be entitled to receive specifiedspecific severance and equity vesting benefits if specified termination events occur.
There arewere no other employment agreements with executive officers or other employees providing future benefits or severance arrangements.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, financings or other relationships with unconsolidated entities or other persons.
Item 7A. | Quantitative and Qualitative Disclosures about Market Risk. |
Information requested by this Item is not included as we are electing scaled disclosure requirements available to Smaller Reporting Companies.
Item 8. | Financial Statements and Supplementary Data. |
The financial statements required by this item begin on page F-1 with the index to financial statements followed by the consolidated financial statements.
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. |
There have been no disagreements or any reportable events requiring disclosure under Item 304(b) of Regulation S-K.
Item 9A. | Controls and Procedures. |
We are required to maintain disclosure controls and procedures designed to ensure that material information related to us, including our consolidated subsidiaries, is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in our Exchange Act Reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Our disclosure controls and procedures are also designed to ensure that information required to be disclosed in our Exchange Act Reports is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 20192022 and, based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective at a reasonable assurance level.
Management’sManagement’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of September 30, 20192022, based on the guidelines established in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Our internal control over financial reporting includes policies and procedures that provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles in the U.S. Based on this evaluation, management has concluded that the Company’s internal control over financial reporting was effective as of September 30, 2019.2022.
This Annual Report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Pursuant to rules of the SEC, such attestation is not required for smaller reporting companies, which permit the Company to provide only management’s report in this Annual Report.
Changes in Internal Controls
There have been no changes in our internal control over financial reporting since JuneSeptember 30, 2019,2021, in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Our process for evaluating controls and procedures is continuous and encompasses constant improvement of the design and effectiveness of established controls and procedures and the remediation of any deficiencies, which may be identified during this process.
Item
Item9B.Other Information. | Other Information.
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None
Item9C.Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not Applicable
PART III
Certain information required by this Part III is omitted from this report and is incorporated by reference to our Definitive Proxy Statement to be filed with the SEC in connection with the Annual Meeting of Stockholders to be held in 20202023 (the “Proxy Statement”).
Item
Item10.Directors, Executive Officers and Corporate Governance. | Directors, Executive Officers and Corporate Governance.
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The information with respect to our executive officers is set forth in the section entitled “Executive Officers” in Part I of this Annual Report on Form 10-K. The information required by this item with respect to our directors and corporate governance matters is incorporated by reference to the information under the captions “Election of Directors,”Directors”, “Board and Committee Matters and Corporate Governance Matters” and “Section“Delinquent Section 16(a) Beneficial Ownership Reporting Compliance”Reports” contained in Proxy Statement.
Item
Item11.Executive Compensation. | Executive Compensation.
|
The information required by this item is incorporated by reference to the information in the Proxy Statement under the caption “Executive Compensation.”
Item
Item12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
|
The information required by this item is incorporated by reference to the information in the Proxy Statement under the captions “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information.”
Item 13.
| Item 13.Certain Relationships and Related Transactions,, and Director Independence. |
The information required by this item is incorporated by reference to the information in the Proxy Statement under the captions “Certain Transactions” and “Independence of the Board of Directors.”
Item 14.Principal Accounting Fees and Services. | Principal Accounting Fees and Services.
|
The information required by this item is incorporated by reference to the Proxy Statement, under the heading “Principal Accountant Fees and Services.”
PART IV
Item
Item15.Exhibits and Financial Statement Schedules. | Exhibits, Financial Statement Schedules.
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Index to Consolidated Financial Statements
The financial statements required by this item are submitted in a separate section beginning on page F-1 of this annual report.
Financial Statement Schedules:
None.
Exhibits:
The following exhibits are incorporated by reference or filed as part of this report.
2. | Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession |
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2.1 | Asset Purchase Agreement, dated August 9, 2020, among Genasys Inc., Genasys Communications Canada ULC, Amika Mobile Corporation and the other parties listed therein. Incorporated by reference to Exhibit 10.1 on Form 10-Q for the quarter ended December 31, 2020, filed February 10, 2021. |
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2.2 | Agreement and Plan of Merger and Reorganization, dated June 7, 2021, among Genasys Inc., ZH Acquisition I Inc., ZH Acquisition II LLC, Zonehaven Inc. and the other parties listed therein. Incorporated by reference to Exhibit 2.1 on Form 8-K filed June 10, 2021. |
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3. | Articles of Incorporation and Bylaws |
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3.1 | Certificate of Incorporation dated March 1, 1992. Incorporated by reference to Exhibit 2.1 on Form 10-SB effective August 1, 1994. |
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3.1.1 | Amendment to Certificate of Incorporation dated March 24, 1997 and filed with Delaware on April 22, 1997. Incorporated by reference to Exhibit 3.1.1 on Form 10-QSB for the quarter ended March 31, 1997, datedfiled May 13, 1997. |
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3.1.2 | Certificate of Amendment to Certificate of Incorporation filed with Delaware on September 26, 2002. Incorporated by reference to Exhibit 3.1.6 on Form 10-K for the year ended September 30, 2002, datedfiled December 23, 2002. |
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3.1.3 | Amendment to Certificate of Incorporation dated March 24, 2010. Incorporated by reference to Exhibit 3.1 on Form 8-K datedfiled March 31, 2010. |
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3.1.4 | Amendment to Certificate of Incorporation dated January 6, 2020. Incorporated by reference to Exhibit 3.1 on Form 8-K filed January 13, 2020. |
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3.1.5 | Amendment to Certificate of Incorporation dated March 16, 2021. Incorporated by reference to Exhibit 3.1 on Form 8-K filed March 19, 2021. |
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3.2 | Restated Bylaws. Incorporated by reference to Exhibit 3.1 on Form 10-Q for the quarter ended March 31, 2006, datedfiled May 10, 2006. |
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4. | Instruments Defining the Rights of Securities Holders, |
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4.1 | Description of the Securities of the Registrant. Incorporated by reference to Exhibit 4.1 on Form 10-K for the year ended September 30, 2020, filed December 10, 2020. |
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10. | Material Contracts |
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10.1 | American Technology Corporation 2005 Equity Incentive Plan (as Amended March 15, 2007). Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on May 14, 2007.+ |
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10.2 | Form of Stock Option Agreement under the 2005 Equity Incentive Plan for grants on or after August 5, 2005. Incorporated by reference to Exhibit 10.11 on Form 10-Q for the quarter ended June 30, 2005 datedfiled August 9, 2005.+ |
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10.3 | Form of Indemnification Agreement. Incorporated by reference to Exhibit 10.1 on Form 8-K filed June 27, 2013. |
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10.4 | LRAD Corporation Amended and Restated 2015 Equity Incentive Plan. Incorporated by reference to Exhibit 10.1 on Form 8-K filed March 16, 2017.+ |
10.5 | First Amendment to the Amended and Restated 2015 Equity Incentive Plan. Incorporated by reference to Exhibit 10.1 on Form 8-K filed March 19, 2021.+ |
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10.510.6
| Form of Stock Award Agreement under the Amended and Restated 2015 Equity Incentive Plan. Incorporated by reference to Exhibit 10.2 on Form 8-K filed March 24, 2015.+ |
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10.610.7
| Form of Restricted Stock Unit Award Agreement For Non-Employee Directors under the Amended and Restated 2015 Equity Incentive Plan. Incorporated by reference to Exhibit 10.2 on Form 8-K filed March 16, 2017.+ |
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10.710.8
| Form of Restricted Stock Unit Award Agreement For Employees under the Amended and Restated 2015 Equity Incentive Plan. Incorporated by reference to Exhibit 10.8 on Form 10-K for the year ended September 30, 2018, datedfiled December 21, 2018.21,2018.+ |
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10.810.9
| Amended and Restated Employment Agreement, dated August 1, 2016,November 29, 2022, by and among LRAD CorporationGenasys Inc. and Richard Danforth. Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934. Incorporated by reference to Exhibit 10.1 on Form 8-K filed August 3, 2016.November 30, 2022. + |
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10.910.10
| Employment Offer Letter, dated September 18, 2017, between LRAD Corporation and Dennis Klahn. Incorporated by reference to Exhibit 10.1 on Form 8-K filed on September 21, 2017.+ |
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10.1010.11
| Stock PurchaseLoan Agreement, dated January 18, 2018,effective March 12, 2021, by and among LRAD Corporation,between Genasys Holding S.L., the stockholders of Genasys Holdings S.L.,Inc. and the representatives of the stockholder.MUFG Union Bank, N.A. Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on January 22, 2018.March 17, 2021.
|
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10.12 Commercial Promissory Note, effective March 12, 2021, issued by Genasys Inc. in favor of MUFG Union Bank, N.A. Incorporated by reference to Exhibit 10.3 on Form 8-K filed March 17, 2021. | | | 10.13 | Security Agreement, effective March 12, 2021, issued by Genasys Inc. and MUFG Union Bank, N.A. Incorporated by reference to Exhibit 10.3 on Form 8-K filed March 17, 2021. | | | 10.14 | Board Adviser Agreement, dated November 1, 2021, between Genasys Inc. and John G. Coburn. Incorporated by reference to Exhibit 10.14 on Form 10-K for the year ended September 30, 2021, filed November 23, 2021.+ | | | 10.15 | Change in Control Severance Benefit Plan. Incorporated by reference to Exhibit 10.01 on Form 10-Q for the quarter ended December 31, 2021 filed February 7, 2022.+ | | | 21. | Subsidiaries of the Registrant | | | | 21.1 | Subsidiaries of the Registrant. Incorporated by reference to Exhibit 21.1 on Form 10-K for the year ended September 30, 2018, dated December 21, 2018.2021, filed November 23, 2021. | | | | 23. | Consents of Experts and Counsel | | | | 23.1 | Consent of Squar MilnerBaker Tilly US, LLP.* | | | | 24. | Power of Attorney | | | | 24.1 | Power of Attorney. Included on signature page.* | | | | 31. | Certifications | | | | 31.1 | Certification of Richard S. Danforth, Principal Executive Officer, pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* | | | | 31.2 | Certification of Dennis D. Klahn, Principal Financial Officer, pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* | | | | 32.1 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by Richard S. Danforth, Principal Executive Officer, and Dennis D. Klahn, Principal Financial Officer.* | | | | 99. | Additional Exhibits | | | | 101.INS | inline XBRL Instance Document | | | | 101.SCH | inline XBRL Taxonomy Extension Schema Document | | | | 101.CAL | inline XBRL Taxonomy Extension Calculation Linkbase Document | | | | 101.DEF | inline XBRL Taxonomy Extension Definition Linkbase Document | | | | 101.LAB | inline XBRL Taxonomy Extension Label Linkbase Document | | | | 101.PRE | inline XBRL Taxonomy Extension Presentation Linkbase Document | | | |
*
104 | Filed herewith.
Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101) | +
| |
* Filed herewith. + Management contract or compensatory plan or arrangement. |
LRAD CorporationGenasys Inc.
Index to ConsolidatedConsolidated Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB ID 23) | F-1 |
Consolidated Balance Sheets as of September 30, 20192022 and 20182021 | F-2F-3
|
Consolidated Statements of Operations for the Years Ended September 30, 20192022 and 20182021 | F-3F-4
|
Consolidated Statements of Comprehensive Loss(Loss) Income for the Years Ended September 30, 20192022 and 20182021 | F-3F-4
|
Consolidated Statements of Stockholders’ Equity for the Years Ended September 30, 20192022 and 20182021 | F-4F-5
|
Consolidated Statements of Cash Flows for the Years Ended September 30, 20192022 and 20182021 | F-5F-6
|
Notes to the Consolidated Financial Statements | F-7F-8 – F-29F-30
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
LRAD Corporation:Genasys Inc.:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of LRAD Corporation and its subsidiariesGenasys Inc. (the Company) as of September 30, 20192022 and 2018,2021, the related consolidated statements of operations, comprehensive loss,(loss) income, stockholders' equity, and cash flows for each of the two years thenin the period ended September 30, 2022, and the related notes (collectively referred to as the consolidated“consolidated financial statements (collectively, the financial statements)statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 20192022 and 2018,2021, and the results of its operations and its cash flows for each of the two years thenin the period ended September 30, 2022, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)("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 PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting 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.
Our audits 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 respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. 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 statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Valuation of Goodwill for the software reporting unit
Critical Audit Matter Description
As discussed in Note 8 of the consolidated financial statements, goodwill is tested at the reporting unit level for impairment at least annually, and more frequently if the Company believes indicators of impairment exist. The Company determined that the software reporting unit’s goodwill was impaired and recorded an impairment loss of approximately $13.2 million. As a result, the Company's remaining consolidated goodwill balance was $10.1 million as of the year ended September 30, 2022.
Management's estimate of the fair value of the reporting unit was determined using the guideline public company method and guideline merged and acquired company method, both of which are forms of the market approach.
The determination of fair value using these techniques includes assumptions about sales growth and valuation multiples which consider marketplace data.
We identified the goodwill impairment assessment of the software reporting unit as a critical audit matter due to: (i) the significant judgment by management when developing the fair value measurements of the reporting unit, (ii) the high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence related to management’s anticipated future cash flows and significant assumptions related to sales growth and valuation multiples, and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
How We Addressed the Matter in Our Audit
The primary procedures we performed to address this critical audit matter included:
| ■ | Obtaining an understanding and evaluating the design and implementation of the Company's controls over the goodwill impairment assessment process. |
| ■ | Reviewing management's goodwill impairment analysis memorandum including the fair value of reporting unit. |
| ■ | Evaluating whether the assumptions used were reasonable by considering the past performance of the reporting units and third-party market data, and whether such assumptions were consistent with evidence obtained in other areas of the audit. |
| ■ | Comparing the actual results to those historically forecasted by the Company. |
| ■ | Utilizing an auditor-engaged valuation specialist to assist in evaluating the valuation methodologies used by the Company for the goodwill impairment assessment by comparing the methodologies to those utilized by other companies holding similar assets, and to compare management's assumption inputs to information from external sources and available economic forecasts and data. |
/s/ SQUAR MILNERBAKER TILLY US, LLP
We have served as the Company's auditor since 2007.
San Diego, California
December 9, 201916, 2022
LRAD CorporationGenasys Inc.
Consolidated Balance Sheets
| | | September 30, | |
| | | 2019 | | | 2018 | |
ASSETS | | | | | | | | |
Current assets: | | | | | | | | |
Cash and cash equivalents | | $ | 18,819,078 | | | $ | 11,063,091 | |
Short-term marketable securities | | | 3,695,364 | | | | 3,592,175 | |
Restricted cash | | | 263,136 | | | | 403,427 | |
Accounts receivable, net | | | 3,644,059 | | | | 2,785,997 | |
Inventories, net | | | 5,835,163 | | | | 6,734,183 | |
Prepaid expenses and other | | | 1,781,837 | | | | 3,091,401 | |
Total current assets | | | 34,038,637 | | | | 27,670,274 | |
| | | | | | | | | |
Long-term marketable securities | | | 1,384,819 | | | | 1,200,541 | |
Long-term restricted cash | | | 434,704 | | | | 339,556 | |
Deferred tax assets, net | | | 5,387,000 | | | | 5,957,000 | |
Property and equipment, net | | | 2,269,506 | | | | 2,448,725 | |
Goodwill | | | 2,305,750 | | | | 2,445,990 | |
Intangible assets, net | | | 1,175,634 | | | | 1,557,346 | |
Other assets | | | 123,933 | | | | 241,365 | |
Total assets | | $ | 47,119,983 | | | $ | 41,860,797 | |
| | | | | | | | | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | |
Current liabilities: | | | | | | | | |
Accounts payable | | $ | 859,530 | | | $ | 3,083,344 | |
Accrued liabilities | | | 8,134,341 | | | | 3,199,864 | |
Notes payable, current portion | | | 279,588 | | | | 296,594 | |
Total current liabilities | | | 9,273,459 | | | | 6,579,802 | |
| | | | | | | | | |
Notes payable, less current portion | | | 32,903 | | | | 52,358 | |
Other liabilities, noncurrent | | | 2,432,272 | | | | 1,739,430 | |
Total liabilities | | | 11,738,634 | | | | 8,371,590 | |
| | | | | | | | | |
Stockholders' equity: | | | | | | | | |
Preferred stock, $0.00001 par value; 5,000,000 shares authorized; none issued and outstanding | | | - | | | | - | |
Common stock, $0.00001 par value; 50,000,000 shares authorized; 32,949,987 and 33,176,146 shares issued and outstanding, respectively | | | 330 | | | | 332 | |
Additional paid-in capital | | | 89,571,641 | | | | 90,251,145 | |
Accumulated deficit | | | (53,731,903 | ) | | | (56,516,895 | ) |
Accumulated other comprehensive loss | | | (458,719 | ) | | | (245,375 | ) |
Total stockholders' equity | | | 35,381,349 | | | | 33,489,207 | |
Total liabilities and stockholders' equity | | $ | 47,119,983 | | | $ | 41,860,797 | |
See accompanying notes(in thousands, except par value and share amounts)
LRAD Corporation
Consolidated Statements of Operations
| | | Years ended September 30, | |
| | | 2019 | | | 2018 | |
Revenues: | | | | | | | | |
Product sales | | $ | 33,384,175 | | | $ | 23,495,788 | |
Software, contract and other | | | 3,594,880 | | | | 2,811,002 | |
Total revenues | | | 36,979,055 | | | | 26,306,790 | |
Cost of revenues | | | 18,522,548 | | | | 13,567,076 | |
| | | | | | | | | |
Gross Profit | | | 18,456,507 | | | | 12,739,714 | |
| | | | | | | | | |
Operating expenses | | | | | | | | |
Selling, general and administrative | | | 10,792,401 | | | | 10,692,681 | |
Research and development | | | 4,527,741 | | | | 3,523,498 | |
Total operating expenses | | | 15,320,142 | | | | 14,216,179 | |
| | | | | | | | | |
Income (loss) from operations | | | 3,136,365 | | | | (1,476,465 | ) |
| | | | | | | | | |
Other income and expense, net | | | 220,827 | | | | 107,023 | |
| | | | | | | | | |
Income (loss) from operations before income taxes | | | 3,357,192 | | | | (1,369,442 | ) |
Income tax expense | | | 572,200 | | | | 2,375,600 | |
Net income (loss) | | $ | 2,784,992 | | | $ | (3,745,042 | ) |
| | | | | | | | | |
Net income (loss) per common share | | | | | | | | |
Basic | | $ | 0.09 | | | $ | (0.12 | ) |
Diluted | | $ | 0.08 | | | $ | (0.12 | ) |
| | | | | | | | | |
Weighted average common shares outstanding: | | | | | | | | |
Basic | | | 32,689,028 | | | | 32,492,645 | |
Diluted | | | 33,397,095 | | | | 32,492,645 | |
LRAD Corporation
Consolidated Statements of Comprehensive Income (Loss)
| | | Years ended September 30, | |
| | | 2019 | | | 2018 | |
Net income (loss) | | $ | 2,784,992 | | | $ | (3,745,042 | ) |
Other comprehensive income (loss) | | | | | | | | |
Unrealized gain (loss) on marketable securities | | | 20,307 | | | | (7,676 | ) |
Unrealized foreign currency loss | | | (233,651 | ) | | | (236,430 | ) |
Comprehensive income (loss) | | $ | 2,571,648 | | | $ | (3,989,148 | ) |
| | | September 30, | |
| | | 2022 | | | 2021 | |
| ASSETS | | | | | | | | |
| Current assets: | | | | | | | | |
Cash and cash equivalents | | $ | 12,736 | | | $ | 13,167 | |
Short-term marketable securities | | | 6,397 | | | | 5,686 | |
Restricted cash | | | 100 | | | | 279 | |
Accounts receivable, net of allowance for doubtful accounts of $181 and $127 | | | 6,744 | | | | 7,682 | |
Inventories, net | | | 6,008 | | | | 6,416 | |
Prepaid expenses and other | | | 3,577 | | | | 2,255 | |
Total current assets | | | 35,562 | | | | 35,485 | |
| | | | | | | | | |
Long-term marketable securities | | | 781 | | | | 1,875 | |
Long-term restricted cash | | | 823 | | | | 1,082 | |
Deferred tax assets, net | | | 7,373 | | | | 8,039 | |
Property and equipment, net | | | 1,757 | | | | 1,755 | |
Goodwill | | | 10,118 | | | | 23,834 | |
Intangible assets, net | | | 10,505 | | | | 12,804 | |
Operating lease right of use assets | | | 4,541 | | | | 4,862 | |
Other assets | | | 394 | | | | 392 | |
Total assets | | $ | 71,854 | | | $ | 90,128 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | |
| Current liabilities: | | | | | | | | |
Accounts payable | | $ | 2,334 | | | $ | 2,160 | |
Accrued liabilities | | | 12,083 | | | | 14,111 | |
Notes payable | | | - | | | | 296 | |
Operating lease liabilities, current portion | | | 948 | | | | 899 | |
Total current liabilities | | | 15,365 | | | | 17,466 | |
| | | | | | | | | |
Other liabilities, noncurrent | | | 907 | | | | 995 | |
Operating lease liabilities, noncurrent | | | 5,189 | | | | 5,709 | |
Total liabilities | | | 21,461 | | | | 24,170 | |
| | | | | | | | | |
| Stockholders' equity: | | | | | | | | |
Preferred stock, $0.00001 par value; 5,000,000 shares authorized; none issued and outstanding | | | - | | | | - | |
Common stock, $0.00001 par value; 100,000,000 shares authorized; 36,611,240 and 36,403,833 shares issued and outstanding, respectively | | | - | | | | - | |
Additional paid-in capital | | | 108,551 | | | | 107,110 | |
Accumulated deficit | | | (57,366 | ) | | | (41,154 | ) |
Accumulated other comprehensive income (loss) | | | (792 | ) | | | 2 | |
Total stockholders' equity | | | 50,393 | | | | 65,958 | |
Total liabilities and stockholders' equity | | $ | 71,854 | | | $ | 90,128 | |
See accompanying notes
LRAD CorporationGenasys Inc.
Consolidated Statements of Stockholders’ EquityOperations
(in thousands, except per share amounts)
| | | | | | | | | | | | | | | | | | | Accumulated | | | | | |
| | | | | | | | | | | Additional | | | | | | | Other | | | Total | |
| | | Common Stock | | | Paid-in | | | Accumulated | | | Comprehensive | | | Stockholders' | |
| | | Shares | | | Amount | | | Capital | | | Deficit | | | Loss | | | Equity | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at September 30, 2017 | | | 32,158,436 | | | | 322 | | | $ | 87,956,839 | | | $ | (52,771,853 | ) | | $ | (1,269 | ) | | $ | 35,184,039 | |
Share-based compensation expense | | | - | | | | - | | | | 584,873 | | | | - | | | | - | | | | 584,873 | |
Issuance of common stock upon exercise of stock options, net | | | 1,179,456 | | | | 12 | | | | 2,434,875 | | | | - | | | | - | | | | 2,434,887 | |
Issuance of common stock upon vesting of restricted stock units | | | 125,000 | | | | 1 | | | | - | | | | - | | | | - | | | | 1 | |
Stock buyback | | | (286,746 | ) | | | (3 | ) | | | (725,442 | ) | | | - | | | | - | | | | (725,445 | ) |
Other comprehensive loss | | | - | | | | - | | | | - | | | | - | | | | (244,106 | ) | | | (244,106 | ) |
Net income | | | - | | | | - | | | | - | | | | (3,745,042 | ) | | | - | | | | (3,745,042 | ) |
Balance at September 30, 2018 | | | 33,176,146 | | | | 332 | | | $ | 90,251,145 | | | $ | (56,516,895 | ) | | $ | (245,375 | ) | | $ | 33,489,207 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Share-based compensation expense | | | - | | | | - | | | $ | 735,003 | | | $ | - | | | $ | - | | | $ | 735,003 | |
Issuance of common stock upon exercise of stock options, net | | | 406,151 | | | | 4 | | | | 756,509 | | | | - | | | | - | | | | 756,513 | |
Issuance of common stock upon vesting of restricted stock units | | | 156,115 | | | | 2 | | | | (2 | ) | | | - | | | | - | | | | - | |
Stock buyback | | | (788,425 | ) | | | (8 | ) | | | (2,171,014 | ) | | | | | | | | | | | (2,171,022 | ) |
Other comprehensive loss | | | - | | | | - | | | | - | | | | - | | | | (213,344 | ) | | | (213,344 | ) |
Net income | | | - | | | | - | | | | - | | | | 2,784,992 | | | | - | | | | 2,784,992 | |
Balance at September 30, 2019 | | | 32,949,987 | | | | 330 | | | $ | 89,571,641 | | | $ | (53,731,903 | ) | | $ | (458,719 | ) | | $ | 35,381,349 | |
| | | Years ended September 30, | |
| | | 2022 | | | 2021 | |
| Revenues: | | | | | | | | |
Product sales | | $ | 48,637 | | | $ | 41,602 | |
Contract and other | | | 5,398 | | | | 5,401 | |
Total revenues | | | 54,035 | | | | 47,003 | |
Cost of revenues | | | 27,693 | | | | 23,577 | |
| | | | | | | | | |
Gross profit | | | 26,342 | | | | 23,426 | |
| | | | | | | | | |
| Operating expenses | | | | | | | | |
Selling, general and administrative | | | 21,688 | | | | 17,424 | |
| Research and development | | | 7,023 | | | | 4,918 | |
Goodwill impairment | | | 13,162 | | | | - | |
Total operating expenses | | | 41,873 | | | | 22,342 | |
| | | | | | | | | |
(Loss) income from operations | | | (15,531 | ) | | | 1,084 | |
| | | | | | | | | |
Other income, net | | | 60 | | | | 54 | |
| | | | | | | | | |
(Loss) income before income taxes | | | (15,471 | ) | | | 1,138 | |
Income tax expense | | | 741 | | | | 434 | |
Net (loss) income | | $ | (16,212 | ) | | $ | 704 | |
| | | | | | | | | |
Net (loss) income per common share: | | | | | | | | |
Basic | | $ | (0.44 | ) | | $ | 0.02 | |
Diluted | | $ | (0.44 | ) | | $ | 0.02 | |
| Weighted average common shares outstanding: | | | | | | | | |
Basic | | | 36,495,012 | | | | 34,409,478 | |
Diluted | | | 36,495,012 | | | | 35,589,148 | |
See accompanying notes
LRAD CorporationGenasys Inc.
Consolidated Statements of Cash FlowsComprehensive (Loss) Income
(in thousands)
| | | Years Ended September 30, | |
| | | 2019 | | | 2018 | |
Operating Activities: | | | | | | | | |
Net income (loss) | | $ | 2,784,992 | | | $ | (3,745,042 | ) |
| | | | | | | | | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | | | |
Depreciation and amortization | | | 824,889 | | | | 483,087 | |
Provision for doubtful accounts | | | (23,407 | ) | | | 150,000 | |
Warranty provision | | | 85,078 | | | | 6,093 | |
Inventory obsolescence | | | 142,288 | | | | 171,535 | |
Share-based compensation | | | 735,003 | | | | 584,873 | |
Deferred income taxes | | | 570,000 | | | | 2,374,000 | |
Gain on disposition of asset | | | - | | | | 252 | |
Loss on impairment of patents | | | - | | | | 11,133 | |
Changes in operating assets and liabilities: | | | | | | | | |
Accounts receivable | | | (854,676 | ) | | | 3,149,579 | |
Inventories | | | 756,732 | | | | (1,648,484 | ) |
Prepaid expenses and other | | | 1,358,690 | | | | (2,075,323 | ) |
Other assets | | | 116,973 | | | | (60,615 | ) |
Accounts payable | | | (2,211,695 | ) | | | 192,638 | |
Payroll and related | | | (67,692 | ) | | | 127,623 | |
Warranty settlements | | | (34,065 | ) | | | (11,395 | ) |
Accrued and other liabilities | | | 5,671,921 | | | | 1,541,865 | |
Net cash provided by operating activities | | | 9,855,031 | | | | 1,251,819 | |
| | | | | | | | | |
Investing Activities: | | | | | | | | |
Purchases of marketable securities | | | (4,495,228 | ) | | | (4,920,547 | ) |
Proceeds from maturities of marketable securities | | | 4,228,068 | | | | 5,190,821 | |
Capital expenditures | | | (343,126 | ) | | | (625,845 | ) |
Purchase of Genasys, net of cash and restricted cash acquired | | | - | | | | (2,431,795 | ) |
Net cash used in investing activities | | | (610,286 | ) | | | (2,787,366 | ) |
| | | | | | | | | |
Financing Activities: | | | | | | | | |
Proceeds from exercise of stock options | | | 703,313 | | | | 2,434,888 | |
Repurchase of common stock | | | (2,171,022 | ) | | | (725,445 | ) |
Proceeds from the issuance of unsecured promissory notes | | | - | | | | 62,656 | |
Payments on promissory notes | | | (17,044 | ) | | | (1,175,205 | ) |
Net cash (used in) provided by financing activities | | | (1,484,753 | ) | | | 596,894 | |
Effect of foreign exchange rate on cash | | | (49,148 | ) | | | (59,160 | ) |
Net increase (decrease) in cash, cash equivalents, and restricted cash | | | 7,710,844 | | | | (997,813 | ) |
Cash, cash equivalents and restricted cash, beginning of period | | | 11,806,074 | | | | 12,803,887 | |
Cash, cash equivalents and restricted cash, end of period | | $ | 19,516,918 | | | $ | 11,806,074 | |
| | | | | | | | | |
| | | | - | | | | - | |
Reconciliation of cash, cash equivalents and restricted cash to the consolidated balance sheets: | | | | | | | | |
Cash and cash equivalents | | $ | 18,819,078 | | | $ | 11,063,091 | |
Restricted cash, current portion | | | 263,136 | | | | 403,427 | |
Long-term restricted cash | | | 434,704 | | | | 339,556 | |
Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows | | $ | 19,516,918 | | | $ | 11,806,074 | |
| | | Years ended September 30, | |
| | | 2022 | | | 2021 | |
Net (loss) income | | $ | (16,212 | ) | | $ | 704 | |
| Other comprehensive (loss) income | | | | | | | | |
Unrealized loss on marketable securities | | | (90 | ) | | | (8 | ) |
Unrealized foreign currency translation (loss) gain | | | (704 | ) | | | 260 | |
Comprehensive (loss) income | | $ | (17,006 | ) | | $ | 956 | |
See accompanying notes
Genasys Inc.
Consolidated Statements of Stockholders’ Equity
(in thousands, except par value and share amounts)
LRAD Corporation
| | | | | | | | | | | | | | | | | | | Accumulated | | | | | |
| | | | | | | | | | | Additional | | | | | | | Other | | | Total | |
| | | Common Stock | | | Paid-in | | | Accumulated | | | Comprehensive | | | Stockholders' | |
| | | Shares | | | Par Value | | | Capital | | | Deficit | | | Income (Loss) | | | Equity | |
Balance as of September 30, 2020 | | | 33,561,544 | | | $ | 336 | | | $ | 91,248 | | | $ | (41,858 | ) | | $ | (250 | ) | | $ | 49,140 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Share-based compensation expense | | | - | | | | - | | | | 1,424 | | | | - | | | | - | | | | 1,424 | |
Issuance of common stock upon exercise of stock options, net | | | 104,796 | | | | 1 | | | | 210 | | | | - | | | | - | | | | 210 | |
Issuance of common stock upon vesting of restricted stock units | | | 228,633 | | | | 2 | | | | - | | | | - | | | | - | | | | - | |
Shares retained for payment of taxes in connection with net share settlement of restricted stock units | | | (22,073 | ) | | | - | | | | (141 | ) | | | - | | | | - | | | | (141 | ) |
Issuance of common stock in business combination | | | 2,165,824 | | | | 22 | | | | 10,938 | | | | - | | | | - | | | | 10,938 | |
Obligation to issue common stock | | | - | | | | | | | | 3,431 | | | | - | | | | - | | | | 3,431 | |
Release of obligation to issue commons stock | | | 365,109 | | | | 3 | | | | - | | | | - | | | | - | | | | - | |
Accumulated other comprehensive income | | | - | | | | - | | | | - | | | | - | | | | 252 | | | | 252 | |
Net income | | | - | | | | - | | | | - | | | | 704 | | | | - | | | | 704 | |
Balance as of September 30, 2021 | | | 36,403,833 | | | $ | 364 | | | $ | 107,110 | | | $ | (41,154 | ) | | $ | 2 | | | $ | 65,958 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Share-based compensation expense | | | - | | | | - | | | | 2,227 | | | | - | | | | - | | | | 2,227 | |
Issuance of common stock upon exercise of stock options, net | | | 145,235 | | | | 2 | | | | 282 | | | | - | | | | - | | | | 282 | |
Issuance of common stock upon vesting of restricted stock units | | | 270,262 | | | | 2 | | | | - | | | | - | | | | - | | | | - | |
Shares retained for payment of taxes in connection with net share settlement of restricted stock units | | | (18,344 | ) | | | - | | | | (70 | ) | | | - | | | | - | | | | (70 | ) |
Stock buyback | | | (259,310 | ) | | | (2 | ) | | | (998 | ) | | | - | | | | - | | | | (998 | ) |
Release of obligation to issue common stock | | | 69,564 | | | | - | | | | - | | | | - | | | | - | | | | - | |
Accumulated other comprehensive loss | | | - | | | | - | | | | - | | | | - | | | | (794 | ) | | | (794 | ) |
Net loss | | | - | | | | - | | | | - | | | | (16,212 | ) | | | - | | | | (16,212 | ) |
Balance as of September 30, 2022 | | | 36,611,240 | | | | 366 | | | $ | 108,551 | | | | (57,366 | ) | | $ | (792 | ) | | $ | 50,393 | |
See accompanying notes
Genasys Inc.
Consolidated Statements of Cash Flows
(in thousands)
| | | Years Ended September 30, | |
| | | 2019 | | | 2018 | |
Supplemental disclosures of cash flow information: | | | | | | |
Interest paid | | $ | 2,860 | | | $ | 18,015 | |
| | | | | | | | | |
Noncash investing and financing activities: | | | | | | | | |
Change in unrealized gain (loss) on marketable securities | | $ | 20,307 | | | $ | (7,676 | ) |
| | | | | | | | | |
Business combinations accounted for as a purchase: | | | | | | | | |
Fair value of assets acquired | | $ | - | | | $ | 5,520,504 | |
Cash paid or payable | | | - | | | | (3,011,439 | ) |
Liabilities assumed | | $ | - | | | $ | 2,509,065 | |
` | | Years ended September 30, | |
| | | 2022 | | | 2021 | |
| Operating Activities: | | | | | | | | |
Net loss | | $ | (16,212 | ) | | $ | 704 | |
| | | | | | | | | |
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | | | | | | | | |
Impairment of goodwill | | | 13,162 | | | | - | |
Depreciation and amortization | | | 2,556 | | | | 1,597 | |
Amortization of debt issuance costs | | | 19 | | | | 11 | |
Provision for doubtful accounts | | | 55 | | | | - | |
Warranty provision | | | 86 | | | | 54 | |
Inventory obsolescence | | | 333 | | | | 379 | |
Stock-based compensation | | | 2,227 | | | | 1,424 | |
Realized loss on foreign currency forward contract | | | - | | | | (76 | ) |
Deferred income taxes | | | 666 | | | | 433 | |
Amortization of operating lease right of use asset | | | 746 | | | | 694 | |
Accretion of acquisition holdback liability | | | 48 | | | | 46 | |
| | | | | | | | | |
| Changes in operating assets and liabilities: | | | | | | | | |
Accounts receivable, net | | | 836 | | | | (2,138 | ) |
Inventories, net | | | 75 | | | | (846 | ) |
Prepaid expenses and other | | | 242 | | | | (1,634 | ) |
Accounts payable | | | 199 | | | | 600 | |
Accrued and other liabilities | | | (4,570 | ) | | | 4,902 | |
Net cash provided by operating activities | | | 468 | | | | 6,150 | |
| | | | | | | | | |
| Investing Activities: | | | | | | | | |
Purchases of marketable securities | | | (6,830 | ) | | | (5,144 | ) |
Proceeds from maturities of marketable securities | | | 7,122 | | | | 5,646 | |
Cash paid for acquisitions net of cash acquired | | | - | | | | (15,848 | ) |
Capital expenditures | | | (381 | ) | | | (208 | ) |
Net cash used in investing activities | | | (89 | ) | | | (15,554 | ) |
| | | | | | | | | |
| Financing Activities: | | | | | | | | |
Proceeds from exercise of stock options | | | 282 | | | | 210 | |
Repurchase of common stock | | | (998 | ) | | | - | |
Shares retained for payment of taxes in connection with settlement of restricted stock units | | | (70 | ) | | | (141 | ) |
Payments on promissory notes | | | (277 | ) | | | (18 | ) |
Cash paid for debt issuance costs | | | - | | | | (38 | ) |
Net cash (used in) provided by financing activities | | | (1,063 | ) | | | 13 | |
Effect of foreign exchange rate on cash | | | (185 | ) | | | (77 | ) |
Net decrease in cash, cash equivalents, and restricted cash | | | (869 | ) | | | (9,468 | ) |
Cash, cash equivalents and restricted cash, beginning of period | | | 14,528 | | | | 23,996 | |
Cash, cash equivalents and restricted cash, end of period | | $ | 13,659 | | | $ | 14,528 | |
| | | | | | | | | |
| Reconciliation of cash, cash equivalents and restricted cash to the consolidated balance sheets: | | | | | | | | |
Cash and cash equivalents | | $ | 12,736 | | | $ | 13,167 | |
Restricted cash, current portion | | | 100 | | | | 279 | |
Long-term restricted cash | | | 823 | | | | 1,082 | |
Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows | | $ | 13,659 | | | $ | 14,528 | |
See accompanying notes
Genasys Inc.
Consolidated Statements of Cash Flows
(in thousands)
| | | Years ended September 30, | |
| | | 2022 | | | 2021 | |
Noncash investing and financing activities: | | | | | | | | |
Change in unrealized loss on marketable securities | | $ | (90 | ) | | $ | (7 | ) |
Common stock issued in connection with the purchase of Zonehaven | | $ | - | | | $ | (10,938 | ) |
Obligation to issue common stock in connection with the Amika Mobile asset purchase | | $ | (832 | ) | | $ | (1,248 | ) |
Initial measurement of operating lease right of use assets | | $ | 466 | | | $ | 259 | |
Initial measurement of operating lease liabilities | | $ | 466 | | | $ | 259 | |
| | | | | | | | | |
Business combinations accounted for as a purchase | | | | | | | | |
Fair value of net assets acquired | | $ | - | | | $ | 30,980 | |
LRAD CorporationGenasys Inc.
Notes to the Consolidated FinancialFinancial Statements
(in thousands, except per share and share amounts)
1. OPERATIONS
LRAD® Corporation, a Delaware corporation (the “Company”), is engaged in the design, development and commercialization of directed and multidirectional sound technologies, voice broadcast products, and location-based mass messaging solutions for emergency warning and workforce management. The principal markets for the Company’s proprietary sound reproduction technologies, voice broadcast products and mass messaging solutions are in North and South America, Europe, Middle East and Asia. On October 23, 2019, the Company announced that it was rebranding and began doing business as Genasys Inc. is a global provider of critical communications hardware and software solutions designed to alert, inform, and protect people. The Company's unified platform receives information from a wide variety of sensors and Internet-of-Things (IoT) inputs to collect real-time information on developing and active emergency situations. The Company uses this information to create and disseminate alerts, warnings, notifications, and instructions through multiple channels before, during, and after public safety and enterprise threats, critical events, and other crisis situations.
2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The Company has threeeight wholly owned subsidiaries, Genasys II Spain, S.A.US.A.U. (“Genasys Spain”), Genasys Communications Canada ULC (“Genasys Canada”), Genasys Singapore PTE Ltd, Genasys Puerto Rico, LLC, Zonehaven LLC, and Genasys Inc. (branch) in the United Arab Emirates and two currently inactive subsidiaries, Genasys America de CV and LRAD International Corporation. The consolidated financial statements include the accounts of these subsidiaries after elimination of intercompany transactions and accounts.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions (e.g., share-based compensation valuation, allowance for doubtful accounts, valuation of inventory, and intangible assets and goodwill, warranty reserve, valuation of operating lease right of use assets and operating lease liabilities, accrued bonus and valuation allowance related to deferred tax assets) that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and affect the reported amounts of revenues and expenses during the reporting periods. Actual results could materially differ from those estimates.
CONCENTRATION OF CREDIT RISK
The Company sells its products to a large number of geographically diverse customers. The Company routinely assesses the financial strength of its customers. It is customary for the Company to require a deposit as collateral. AtAs of September 30, 2019,2022, accounts receivable from two customers accounted for 33%43% and 11%19% of total accounts receivable with no other single customer accounting for more than 10% of the accounts receivable balance. AtAs of September 30, 2018,2021, accounts receivable from two customers accounted for 12%66% and 11%18% of total accounts receivable with no other single customer accounting for more than 10% of the accounts receivable balance.
The Company maintains cash and cash equivalent bank deposit accounts which, at times, may exceed federally insured limits guaranteed by the Federal Deposit Insurance Corporation (“FDIC”). The Company has not experienced any losses in such accounts. The Company limits its exposure to credit loss by depositing its cash with high credit quality financial institutions. The Company also invests cash in instruments that meet high credit quality standards, as specified in the Company’s policy guidelines such as money market funds, corporate bonds, municipal bonds and Certificates of Deposit. These guidelines also limit the amount of credit exposure to any one issue, issuer or type of instrument. It is generally the Company’s policy to invest in instruments that have a final maturity of no longer than three years, with a portfolio weighted average maturity of no longer than 18 months.
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
The Company considers all highly liquid investments with an original maturity of three months or less, when purchased, to be cash equivalents. AtAs of September 30, 20192022 and 2018,2021, the amount of cash and cash equivalents was $18,819,078$12,736 and $11,063,091,$13,167, respectively.
The Company considers any amounts pledged as collateral or otherwise restricted for use in current operations to be restricted cash. In addition, the Company excludes from cash and cash equivalents cash required to fund specific future contractual obligations related to business combinations. Restricted cash is classified as a current asset unless amounts are not expected to be released and available for use in operations within one year. AtAs of September 30, 20192022 and 2018,2021, the amount of restricted cash was $697,840$923 and $742,983,$1,361, respectively, which is included in Restricted Cash“Restricted cash” and Long-term Restricted Cash.“Long-term restricted cash” in the consolidated balance sheet.
MARKETABLE SECURITIES
The Company accounts for investments in debt instruments as available-for-sale. Management determines the appropriate classification of such securities at the time of purchase and re-evaluates such classification as of each balance sheet date. Marketable securities are reported at fair value with the related unrealized gains and losses included in accumulated other comprehensive loss.income. The realized gains and losses on marketable securities are determined using the specific identification method.
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company carries its accounts receivable at their historical cost, less an allowance for doubtful accounts. On a periodic basis, the Company evaluates its accounts receivable and establishes an allowance for doubtful accounts for estimated losses considering the following factors when determining if collection of a receivable is reasonably assured:probable: customer credit-worthiness, past transaction history with the customer, current economic industry trends and changes in customer payment terms. If the Company has no previous experience with the customer, the Company may obtain reports from various credit organizations to ensure that the customer has a history of paying its creditors. The Company may also request financial information to ensure that the customer has the means of making payment. If these factors do not indicate collection is reasonably assured,probable, revenue is deferred until collection becomes reasonably assured, which is generally upon receipt of cash. There was no deferred revenue atas of September 30, 20192022 or 20182021 as a result of collection issues. If the financial condition of the Company’s customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required. The Company determines allowances on a customer specific basis. AtAs of September 30, 20192022 and 2018,2021, the Company had an allowance for doubtful accounts of $126,593$181 and $150,000,$127, respectively.
CONTRACT MANUFACTURERS
The Company employs contract manufacturers for production of certain components and sub-assemblies. The Company may provide parts and components to such parties from time to time but recognizes no revenue or markup on such transactions. During fiscal years 20192022 and 2018,2021, the Company performed assembly of products in-house using components and sub-assemblies from a variety of contract manufacturers and suppliers.
INVENTORIES
Inventories are valued at the lower of cost or net realizable value. Cost is determined using a standard cost system whereby differences between the standard cost and purchase price are recorded as a purchase price variance in cost of revenues. Inventory is comprised of raw materials, assemblies and finished products intended for sale. The Company periodically makes judgments and estimates regarding the future utility and carrying value of inventory. The carrying value of inventory is periodically reviewed and impairments, if any, are recognized when the expected net realizable value is less than carrying value. The Company has inventory reserves for estimated obsolescence or unmarketable inventory, which is equal to the difference between the cost of inventory and the estimated market value, based upon assumptions about future demand and market conditions. The Company increased its inventory reserve by $133,532$105 during the year ended September 30, 20192022 for parts and demo equipment that may not be utilized. The Company decreasedincreased its inventory reserve $21,481by $183 during the year ended September 30, 2018 due to the disposal of obsolete inventory, net of additional excess2021 for parts and obsolescence reserves recorded.demo equipment that may not be utilized.
EQUIPMENT AND DEPRECIATION
Equipment is stated at cost. Depreciation on machinery and equipment and office furniture and equipment is computed over the estimated useful lives of two to seven years using the straight-line method. Leasehold improvements are amortized over the life of the lease. Upon retirement or disposition of equipment, the related cost and accumulated depreciation is removed, and a gain or loss is recorded.
BUSINESS COMBINATIONS
The acquisition method of accounting for business combinations requires the Company to use significant estimates and assumptions, including fair value estimates, as of the business combination date and to refine those estimates as necessary during the measurement period (defined as the period, not to exceed one year, in which the Company may adjust the provisional amounts recognized for a business combination).
Under the acquisition method of accounting the Company recognizes separately from goodwill the identifiable assets acquired, the liabilities assumed generally at the acquisition date fair value. The Company measures goodwill as of the acquisition date as the excess of consideration transferred, which the Company also measures at fair value, over the net of the acquisition date amounts of the identifiable assets acquired and liabilities assumed. Costs that the Company incurs to complete the business combination such as investment banking, legal and other professional fees are not considered part of consideration and the Company charges them to general and administrative expense as they are incurred.
Under the acquisition method of accounting for business combinations, if the Company identifies changes to acquired deferred tax asset valuation allowances or liabilities related to uncertain tax positions during the measurement period and they relate to new information obtained about facts and circumstances that existed as of the acquisition date, those changes are considered a measurement period adjustment and the Company records the offset to goodwill. The Company records all other changes to deferred tax asset valuation allowances and liabilities related to uncertain tax positions in current period income tax expense.
GOODWILL AND INTANGIBLE ASSETS INTANGIBLE ASSETS
Identifiable intangible assets, which consist of technology, customer relationships, non-compete agreements, patents, tradenames and trademarks, are carried at cost less accumulated amortization. Intangible assets are amortized over their estimated useful lives, based on a number of assumptions including estimated periodic economic benefit and utilization. The estimated useful lives of identifiable intangible assets hashave been estimated to be between three and fifteen years. The carrying value of intangibles is periodically reviewed and impairments, if any, are recognized when the future undiscounted cash flows realized from the assets is less than its carrying value exceeds fair value.
Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the acquired net tangible and intangible assets acquired. The Company evaluates goodwill for impairment on an annual basis in our fiscal fourth quarter or more frequently if indicators of impairment exist that would more likely than not reduce the fair value of a single reporting unit below itsthe carrying amount. The Company assesses qualitative factors in order to determine whether it is more likely than not that the fair value of a reporting unit is less than itsthe carrying amount. The qualitative factors evaluated by the Company include: macro-economic conditions of the local business environment, overall financial performance, and other entity specific factors as deemed appropriate. If, through this qualitative assessment, the conclusion is made that it is more likely than not that a reporting unit’s fair value is less than its carrying amount, a two-step impairment test is performed. Management does not considerFor reporting units where the valueCompany performs the quantitative goodwill impairment test, an impairment loss is recorded to the extent that the reporting unit’s carrying amount exceeds the reporting unit’s fair value. An impairment loss cannot exceed the total amount of goodwill allocated to be impaired asthe reporting unit. In the fourth quarter of September 30, 2019.fiscal 2022, in conjunction with the annual impairment assessment, the Company recorded a $13,162 goodwill impairment charge associated with the software reporting unit. Refer to Note 8, Goodwill and Intangible Assets for more information.
LEASES
Through September 30, 2019, leases entered into are classified as either capital or operating leases. At the time a capital lease is entered into, an asset is recorded, together with its related long-term obligation to reflect the purchase and financing. At September 30, 2019 and 2018, the Company had no capital lease obligations.
Adoption of new accounting standard
The Company will adoptadopted Accounting Standards Codification (“ASC”) Topic 842, Leases (“ASC 842”) in the fiscal year beginning October 1, 2019. In accordance with the guidance in ASC 842, the Company recognizes lease liabilities and corresponding right-of-use-assets for all leases with terms of greater than 12 months. Leases with a term of 12 months or less will be accounted for in a manner similar to the guidance for operating leases prior to the adoption of ASC 842. Refer to Note 3, Recent Accounting Pronouncements12, Leases for more information.
SHIPPING AND HANDLING COSTS
Shipping and handling costs are included in cost of revenues. Shipping and handling costs invoiced to customers are included in revenue. Actual shipping and handling costs were $277,721$640 and $291,994$232 for the fiscal years ended September 30, 20192022 and 2018,2021, respectively. Actual revenues from shipping and handling were $277,888$836 and $169,184$266 for the fiscal years ended September 30, 20192022 and 2018,2021, respectively.
ADVERTISING
Advertising costs are charged to expense as incurred. The Company expensed $21,417incurred and $28,092were $677 and $193 for the years ended September 30, 20192022 and 2018, respectively, for advertising costs.2021, respectively.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred.
WARRANTY RESERVES
The Company warrants its products to be free from defects in materials and workmanship for a period of one year from the date of purchase. The warranty is generally limited. The Company currently provides direct warranty service. Some agreements with OEM customers, from time to time, may require that certain quantities of product be made available for use as warranty replacements. International market warranties are generally similar to the U.S. market. The Company also sells extended warranty contracts and maintenance agreements.
The Company establishes a warranty reserve based on anticipated warranty claims at the time product revenues are recognized. Factors affecting warranty reserve levels include the number of units sold, anticipated cost of warranty repairs and anticipated rates of warranty claims. The Company evaluates the adequacy of the provision for warranty costs each reporting period. The warranty reserve was $150,229$159 and $99,216 at$146 as of September 30, 20192022 and 2018,2021, respectively.
INCOME TAXES
The Company determines its income tax provision using the asset and liability method. Temporary differences are differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years. A valuation allowance is recorded by the Company to the extent it is more likely than not that some portion or all of the deferred tax asset will not be realized. Significant management judgment is required in assessing the ability to realize the Company’s deferred tax assets. The ultimate realization of deferred tax assets is dependent upon generation of future taxable income and the tax rates in effect at that time. Additional information regarding income taxes appears in Note 12,13, Income Taxes.
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets and identifiablefinite-lived intangibles held for use are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sumcarrying value of undiscounted expected future cash flows is less thanan intangible asset exceeds the carrying amount of the asset,fair value, or if changes in facts and circumstances indicate this,impairment, an impairment loss is measured and recognized using the asset’s fair value. There was no impairment of long-lived assets for the yearyears ended September 30, 2019. During the year ended2022 and September 30, 2018, the Company determined that certain patents were impaired. The impaired patents related to products no longer sold by the Company and totaled $11,133.2021. Refer to Note 5, Fair Value Measurements and Note 8, Goodwill and Intangible Assets for information related to impairment of long-lived assets.additional information.
SEGMENT INFORMATION
The Company is engaged in the design, developmenta global provider of critical communications hardware and commercialization of directedsoftware solutions designed to alert, inform, and multidirectional sound technologies, voice broadcast products and location-based mass messaging solutions for emergency warning and workforce management.protect people. The Company operates in two business segments: LRADHardware and Genasys SpainSoftware and its principleprincipal markets are North and South America, Europe, the Middle East and Asia. As reviewed by the Company’s chief operating decision maker, the Company evaluates the performance of each segment based on sales and operating income. Cash and cash equivalents, marketable securities, accounts receivable, inventory, property and equipment, deferred tax assets, goodwill and intangible assets are primary assets identified by segment. The accounting policies for segment reporting are the same for the Company as a whole and transactions between the two operating segments are eliminated in consolidation. Refer to Note 17,18, Segment Information, for additional information.
NET (LOSS) INCOME (LOSS) PER SHARE
Basic net (loss) income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted net (loss) income per share reflects the potential dilution of securities that could occur if outstanding securities convertible into common stock were exercised or converted. Refer to Note 16,17, Net (Loss) Income (Loss) Per Share, for additional information.
DERIVATIVES
The Company does not hold derivative financial instruments of a speculative nature or for trading purposes. The Company records all derivatives on the Consolidated Balance Sheet at fair value using available market information and other observable data. See Note 5, Fair Value Measurements, for additional information.
FOREIGN CURRENCY TRANSLATION
The Company’s reporting currency is U.S. dollars. The functional currency of the Company is the U.S. dollar. The functional currency of Genasys Spain is the Euro.Euro and the function currency of Genasys Canada is the Canadian dollar. The Company translates the assets and liabilities of Genasys Spain and Genasys Canada at the exchange rates in effect on the balance sheet date. The Company translates the revenue, costs and expenses of Genasys Spain and Genasys Canada at the average rates of exchange in effect during the period. The Company includes translation gains and losses in the stockholders’ equity section of the Company’s consolidated balance sheets in accumulated other comprehensive income or loss. Transactions undertaken in other currencies which have not been material, are translated using the exchange rate in effect as of the transaction date and any exchange gains and losses resulting from these transactions, are included in the consolidated statements of operations. The translation loss for the period was $233,718$704 resulting from transactions between LRADGenasys U.S. and Genasys Spain and Genasys Canada, the timing of transactions in relation to changes in exchange rates and the decreasefluctuation in the exchange rate between the Euroforeign currencies and the U.S. dollar. Transaction gains and losses were not significant for any period presented.For the year ended September 30, 2021, there was a translation gain of $260.
SHARE-BASED COMPENSATION
The Company recognized share-based compensation expense related to qualified and non-qualified stock options issued to employees, directors and directorsconsultants over the expected vesting term of the stock-based instrument based on the grant date fair value. Forfeitures are estimated at the time of the grant and revised in subsequent periods if actual forfeitures differ from those estimates or if the Company updates its estimated forfeiture rate. Refer to Note 14,15, Share-based Compensation, for additional information.
RECLASSIFICATIONS
Where necessary, the prior year’s information has been reclassified to conform to the fiscal year 20192022 statement presentation. These reclassifications had no effect on previously reported results of operations or accumulated deficit.
SUBSEQUENT EVENTS
Management has evaluated events subsequent to September 30, 20192022, through the date the accompanying consolidated financial statements wereare filed with the Securities and Exchange Commission and noted that there have beenwere no events or transactions which would affect the Company’s consolidated financial statements for the year ended September 30, 2019.2022.
3.3. RECENT ACCOUNTING PRONOUNCEMENTS
New pronouncements pending adoption
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Measurement of Credit Losses on Financial Instruments(“Topic 326”), which supersedes current guidance by requiring recognition of credit losses when it is probable that a loss has been incurred. The new standard requires the establishment of an allowance for estimated credit losses on financial assets including trade and other receivables at each reporting date. The new standard will result in earlier recognition of allowances for losses on trade and other receivables and other contractual rights to receive cash. In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842), which extends the effective date of Topic 326 for certain companies until fiscal years beginning after December 15, 2022. The new standard will be effective for the Company in the first quarter of fiscal year beginning October 1, 2023, and early adoption is permitted. The Company is currently reviewinghas not completed its review of the impact of this standard to assess the impact on its consolidated financial statements and related disclosures.statements. However, based on the Company’s history of immaterial credit losses from trade receivables, management does not expect that the adoption of this standard will have a material effect on the Company’s consolidated financial statements.
In June 2018,March 2020, the FASB issued ASU No. 2018-7, Compensation – Stock Compensation2020-04, Reference Rate Reform (Topic 718)848), Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-7”), which amends and expands Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The standard requires entities to measure nonemployee share-based payment transactions by estimating the fair valueFacilitation of the equity instrument it is obligatedEffects of Reference Rate Reform on Financial Reporting. ASU No. 2020-04 provides optional guidance, expedients and exceptions for a limited period of time to issue, measureease the equity-classified nonemployee share-based payment awards at the grant date, and consider the probability of satisfying performance conditions whenpotential burden in accounting for nonemployee share based payment awards with such conditions. ASU 2018-7 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that fiscal year. Accordingly, this guidance was effective for(or recognizing the Company in the fiscal year beginning October 1, 2019. The Company does not anticipate that adoption will have a material impacteffects of) reference rate reform on its consolidated financial statements and related disclosures.
In February 2018, the FASB issued ASU No. 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220). The amendments in this ASU allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act and will improve the usefulness of information reported to financial statement users. However, because the amendments only relate to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected.reporting. The amendments in this update also requireapply to all entities, subject to meeting the criteria, which participate in contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. ASU No. 2020-04 was subsequently amended by ASU No. 2021-01, Reference Rate Reform (Topic 848), Scope, which refines the scope of Topic 848 and permits optional expedients and exceptions when accounting for derivative contracts and certain disclosures about stranded tax effects.hedging relationships. The guidance is effective for fiscal years beginning afteramendments of these updates are available to all entities as of March 12, 2020 through December 15, 2018 with early adoption permitted, including interim periods within that fiscal year. Accordingly, this is effective for the Company in the fiscal year beginning October 1, 2019.31, 2022. The Company expectswill adopt this standard when LIBOR is discontinued. The Company does not expect that the adoption of this ASUstandard will not have a material impacteffect on itsthe Company’s consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASC 842”), which issued new guidance related to leases that outlines a comprehensive lease accounting model and supersedes the current lease guidance. The new guidance requires lessees to recognize lease liabilities and corresponding right-of-use assets for all leases with lease terms of greater than 12 months. Leases with a term of 12 months or less will be accounted for in a manner similar to the guidance for operating leases prior to the adoption of ASC 842. ASC 842 requires entities to recognize and measure leases existing at, or entered into after, the beginning of the earliest comparative period presented using a modified retrospective approach, with certain practical expedients available. In July 2018, the FASB issued Accounting Standards Updated No. 2018-11 (“ASU 2018-11”), which offers a practical expedient that allows entities the option to apply the provisions of ASC 842 by recognizing a cumulative effect adjustment at the effective date of adoption without adjusting the prior comparative periods presented. In March 2019, the FASB issued Accounting Standards Update 2019-01 (“ASU 2019-01”), which explicitly provides disclosure relief for interim periods during the year the standard is adopted. Under the new guidance, companies are not required to disclose the effect of such adoption in interim periods on certain financial statement items for periods retrospectively adjusted.4. REVENUE RECOGNITION
The new guidance was effective for the Company beginning October 1, 2019. The Company adopted ASC 842 by applying modified retrospective transition approach. Under this method, financial information related to periods prior to adoption will be as originally reported under the then-current standard (ASC 840, Leases). The Company elected the following practical expedients:
| ●
| The transitional practical expedients, which must be elected as a package and applied consistently to all leases. In electing this practical expedient package the Company is not required to:
|
| o
| reassess whether an existing or expired contract is or contains a lease
|
| o
| reassess the lease classification for any expired or existing leases and
|
| o
| reassess initial direct lease costs for all leases that commenced before the adoption
|
| ●
| Short-term lease practical expedient in which the Company can elect not to apply the recognition requirements of ASC 842 to short-term leases.
|
The most significant impact on our financial statements will be the recognition of a Right of Use (“ROU”) asset and lease liability for our operating leases, primarily related to the Company’s facility lease described in Note 13, Commitments and Contingencies. In addition, a portion of our existing leases are denominated in currencies other than the U.S. dollar. As a result, the associated lease liabilities will be remeasured using the current exchange rate in the applicable future reporting periods, which may result in foreign exchange gains or losses. The Company does not believe ASC 842 will materially impact our consolidated results of operations or cash flows. As a result of adopting ASC 842 effective October 1, 2019, the Company recorded an initial measurement of approximately $7.8 million of operating lease liabilities, and approximately $5.8 million of corresponding operating ROU assets, net of tenant improvement allowances. There was no cumulative effect adjustment to retained earnings as a result of the transition to ASC 842.
New pronouncements adopted
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash, which amends Topic 230 to add or clarify guidance on the classification and presentation of restricted cash in the statement of cash flows. The standard requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The provisions of this guidance are to be applied using a retrospective transition method to each period presented. ASU No. 2016-18 was effective for annual reporting periods beginning after December 15, 2017, and interim periods within those years, with early adoption permitted. The Company adopted ASU No. 2016-18 effective January 1, 2018. For the years ended September 30, 2019 and 2018, restricted cash balances are due to a security deposit for the Company’s new facility lease, as described in Note 13, Commitments and Contingencies, and restricted cash held as collateral for notes payable, as described in Note 11, Debt. The adoption did not have a material impact on the Company's consolidated financial position, results of operations and cash flows, other than the impact discussed above.
In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This guidance changes how companies account for certain aspects of share-based payments to employees. Among other things, under the new guidance, companies will no longer record excess tax benefits and certain tax deficiencies in additional paid-in-capital (“APIC”), but will instead record such items as income tax expense or benefit in the income statement, and APIC pools will be eliminated. Companies will apply this guidance prospectively. Another component of the new guidance allows companies to make an accounting policy election for the impact of forfeitures on the recognition of expense for share-based payment awards, whereby forfeitures can be estimated, as required today, or recognized when they occur. If elected, the change to recognize forfeitures when they occur needs to be adopted using a modified retrospective approach. The guidance was effective for the Company in the first quarter of fiscal 2018. The adoption of this standard resulted in the recognition of $1.1 million of gross deferred tax assets related to the historical excess tax benefits from stock based compensation that was not previously included in deferred tax assets and a corresponding increase in the Company’s valuation allowance.
In May 2014, the FASB issued ASU No. 2014-09,606, Revenue from Contracts with Customers (“ASU 2014-09”ASC 606”), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. generally accepted accounting principles when it becomes effective. In July 2015, the FASB deferred the effective date of the standard by an additional year; however, it provided companies the option to adopt one year earlier, commensurate with the original effective date. Accordingly, the standard was effective for the Company in the fiscal year beginning October 1, 2018. Subsequently, the FASB issued additional guidance (ASUs 2015-14; 2016-08; 2016-10; 2016-12; 2016-13; 2016-20). The adoption of this guidance by the Company, effective October 1, 2018, did not have a material impact on the Company’s consolidated financial statements. Refer to Note 4, Revenue Recognition, for further detail.
4. REVENUE RECOGNITION
The Company adopted ASU 2014-09 and its amendments on October 1, 2018, using the full retrospective approach.
Topic 606 outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most revenue recognition guidance, including industry-specific guidance. This new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized:
| | 1. | Identify the contract(s) with customers |
| | 2. | Identify the performance obligations |
| | 3. | Determine the transaction price |
| | 4. | Allocate the transaction price to the performance obligations |
| | 5. | Recognize revenue when the performance obligations have been satisfied |
TopicASC 606 requires revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services.
The Company derives its revenue from the sale of products to customers, contracts, software license fees, other services and freight. The Company sells its products through its direct sales force and through authorized resellers and system integrators. The Company recognizes revenue for goods including software when all the significant risks and rewards have been transferred to the customer, no continuing managerial involvement usually associated with ownership of the goods is retained, no effective control over the goods sold is retained, the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the transactions will flow to the Company and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Software license revenue, maintenance and/or software development service fees may be bundled in one arrangement or may be sold separately.
Product Revenuerevenue
Product revenue is recognized as a distinct single performance obligation when products are tendered to a carrier for delivery, which represents the point in time that ourthe Company’s customer obtains control of the products. A smaller portion of product revenue is recognized when the customer receives delivery of the products. A portion of products are sold through resellers and system integrators based on firm commitments from an end user, and as a result, resellers and system integrators carry little or no inventory. OurThe Company’s customers do not have a right to return product unless the product is found defective and therefore ourthe Company’s estimate for returns has historically been insignificant
Perpetual licensed software
The sale and/or license of software products is deemed to have occurred when a customer either has taken possession of, or has the ability to take immediate possession of, the software and the software key. Perpetual software licenses can include one-year maintenance and support services. In addition, the Company sells maintenance services on a stand-alone basis and is therefore capable of determining their fair value. On this basis, the amount of the embedded maintenance is separated from the fee for the perpetual license and is recognized on a straight-line basis over the period to which the maintenance relates.
Time-based licensed software
The time-based license agreements include the use of a software license for a fixed term, generally one-year, and maintenance and support services during the same period. The Company does not sell time-based licenses without maintenance and support services and therefore revenues for the entire arrangements are recognized on a straight-line basis over the term.
Warranty, maintenance and services
The Company offers extended warranty, maintenance and other services. Extended warranty and maintenance contracts are offered with terms ranging from one to several years, which provide repair and maintenance services after expiration of the original one-year warranty term. Revenues from separately priced extended warranty and maintenance contracts are recognized based on time elapsed over the service period and classified as contract and other revenues. Revenue from other services such as training or installation is recognized when the service is completed.
Multiple element arrangements
The Company has entered into a number of multiple element arrangements, such as the sale of a product or perpetual licenses that may include maintenance and support (included in price of perpetual licenses) and time-based licenses (that include embedded maintenance and support, both of which may be sold with software development services, training, and other product sales). In some cases, the Company delivers software development services bundled with the sale of the software. In multiple element arrangements, the Company uses either the stand-alone selling price or an expected cost plus margin approach to determine the fair value of each element within the arrangement, including software and software-related services such as maintenance and support. In general, elements in such arrangements are also sold on a stand-alone basis and stand-alone selling prices are available.
Revenue is allocated to each deliverable based on the fair value of each individual element and is recognized when the revenue recognition criteria described above are met, except for time-based licenses which are not unbundled. When software development services are performed and are considered essential to the functionality of the software, the Company recognizes revenue from the software development services on a stage of completion basis, and the revenue from the software when the related development services have been completed.
The Company disaggregates revenue by reporting segment (LRAD(Hardware and Genasys Spain)Software) and geographically to depict the nature of revenue in a manner consistent with ourits business operations and to be consistent with other communications and public filings. Refer to Note 17,18, Segment Information and Note 18,19, Major Customers, Suppliers and Related Information for additional details of revenues by reporting segment and disaggregation of revenue.
Contract Assetsassets and Liabilitiesliabilities
The Company enters into contracts to sell products and provide services and recognizes contract assets and liabilities that arise from these transactions. The Company recognizes revenue and corresponding accounts receivable according to ASC 606 and, at times, recognizes revenue in advance of the time when contracts gives usgive the Company the right to invoice a customer. Sales commissions are considered incremental and recoverable costs of obtaining a contract with a customer. Subscription related commission costs are deferred and then amortized on a straight-line basis over the period of benefit. The Company may also receive consideration, per terms of a contract, from customers prior to transferring goods to the customer. The Company records customer deposits as a contract liability. Additionally, the Company may receive payments, most typically for service and warranty contracts, at the onset of the contract and before the services have been performed. In such instances, a deferred revenue liability is recorded. The Company recognizes these contract liabilities as revenue after all revenue recognition criteria are met. The table below showsreflects the balancebalances of contract assets and liabilities as of September 30, 20192022 and September 30, 2018,2021, including the change between the periods. There were no contract assets as of September 30, 2022 and September 30, 2021. The current portion of contract liabilities and the non-currentnoncurrent portion are included in “Accrued liabilities” and “Other liabilities, noncurrent”, respectively, on the accompanying Consolidated Balance Sheets.condensed consolidated balance sheets. Refer to Note 10, Accrued and Other Liabilities for additional details.
The Company’s contract assets are as follows:
| | | Prepaid maintenance | |
| | | agreement | |
Balance at September 30, 2018 | | $ | 93,750 | |
New prepaid maintenance agreements | | | - | |
Recognition of expense as a result of performing services | | | (93,750 | ) |
Balance at September 30, 2019 | | $ | - | |
The Company’s contract liabilities arewere as follows:
| | | Customer deposits | | | Deferred revenue | | | Total contract liabilities | | | Customer deposits | | Deferred revenue | | Total contract liabilities | |
Balance at September 30, 2018 | | $ | 199,596 | | | $ | 536,458 | | | $ | 736,054 | | |
Balance as of September 30, 2021 | | | $ | 8,701 | | | $ | 1,428 | | | $ | 10,129 | |
New performance obligations | | | 7,241,768 | | | | 1,627,331 | | | | 8,869,099 | | | 14,394 | | | 2,832 | | | 17,226 | |
Recognition of revenue as a result of satisfying performance obligations | | | (2,378,273 | ) | | | (1,083,261 | ) | | | (3,461,534 | ) | | (18,371 | ) | | (2,179 | ) | | (20,550 | ) |
Effect of exchange rate on deferred revenue | | | - | | | | (21,121 | ) | | | (21,121 | ) | | | - | | | (27 | ) | | (27 | ) |
Balance at September 30, 2019 | | $ | 5,063,091 | | | $ | 1,059,407 | | | $ | 6,122,498 | | |
Balance as of September 30, 2022 | | | $ | 4,724 | | | $ | 2,054 | | | $ | 6,778 | |
Less: non-current portion | | | - | | | | (550,885 | ) | | | (550,885 | ) | | | - | | | (227 | ) | | (227 | ) |
Current portion at September 30, 2019 | | $ | 5,063,091 | | | $ | 508,522 | | | $ | 5,571,613 | | |
Current portion as of September 30, 2022 | | | $ | 4,724 | | | $ | 1,827 | | | $ | 6,551 | |
Remaining Performance Obligations
Remaining performance obligations related to ASC 606 represent the aggregate transaction price allocated to performance obligations under an original contract with a term greater than one year which are fully or partially unsatisfied at the end of the period.
As of September 30, 2019,2022, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $6,122,498.$6,778. The Company expects to recognize revenue on approximately $5,571,613$6,551, or 91%97%, of the remaining performance obligations over the next 12 months, and the remainder is expected to be recognized thereafter.
Practical Expedients
In cases where the Company is responsible for shipping after the customer has obtained control of the goods, the Company has elected to treat these activities as fulfillment activities rather than as a separate performance obligation. Additionally, the Company has elected to capitalize the cost to obtain a contract only if the period of amortization would be longer than one year. The Company only gives consideration to whether a customer agreement has a financing component if the period of time between transfer of goods and services and customer payment is greater than one year. The Company also utilizes the “as invoiced” practical expedient in certain cases where performance obligations are satisfied over time and the invoiced amount corresponds directly with the value provided to the customer.
5. FAIR VALUE MEASUREMENTS
The Company’s financial instruments consist principally of cash equivalents, short and long-term marketable securities, accounts receivable, and accounts payable. The fair value of a financial instrument is the amount that would be received in an asset sale or paid to transfer a liability in an orderly transaction between unaffiliated market participants. Assets and liabilities measured at fair value are categorized based on whether or not the inputs are observable in the market and the degree that the inputs are observable. The categorization of financial instruments within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The hierarchy is prioritized into three levels (with Level 3 being the lowest) defined as follows:
| | Level1:Level 1:
| Inputs are based on quoted market prices for identical assets or liabilities in active markets at the measurement date. |
| Level 2: | Inputs include quoted prices for similar assets or liabilities in active markets at the measurement date. |
| Level 2:
| Inputs includeand/or quoted prices for identical or similar assets or liabilities in active markets and/or quoted prices for identical or similar assets or liabilities in markets that are not active near the measurement date.
|
| | Level 3: | Inputs include management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instrument’s valuation. |
The fair value of the majority of the Company’s cash equivalents and marketable securities was determined based on “Level 1” inputs. The fair value of certain marketable securities, long-term debt, hedge fund investments, and derivative contracts were determined based on “Level 2”Level 1 and Level 2 inputs. The valuation techniques used to measure the fair value of the “Level 2” instruments were valued based on quoted market prices or model-driven valuations using significant inputs derived from or corroborated by observable market data. The Company does believes that the recorded values of its other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations. The Company did not have any financial instruments measured at fair value on a recurring basismarketable securities in the “Level 3” category.
Level 3 category as of September 30, 2022 or September 30, 2021. There have been no changes in Level 1, Level 2, and Level 3 and no changes in valuation techniques for financial instruments measured at fair value on a recurring basis for the years ended September 30, 20192022 and 2018.2021.
Instruments Measured at Fair Value on a Recurring Basis
Cash equivalents and marketable securities: The following tables present the Company’s cash equivalents and marketable securities’ costs, gross unrealized gains and losses, and fair value by major security type recorded as cash equivalents or short-term or long-term marketable securities as of September 30, 20192022 and 2018.2021. Unrealized gains and losses from the remeasurement of marketable securities are recorded in accumulated other comprehensive (loss) income until recognized in earnings upon the sale or maturity of the security.
| | | September 30, 2019 | | | September 30, 2022 | |
| | | Cost Basis | | | Unrealized Gain | | | Fair Value | | | Cash Equivalents | | | Short-term Securities | | | Long-term Securities | | | Cost Basis | | | Unrealized Loss | | | Fair Value | | | Cash Equivalents | | | Short-term Securities | | | Long-term Securities | |
Level 1: | | | | | | | | | | | | | | | | | | | | | | | | | |
Money market funds | | $ | 275,538 | | | $ | - | | | $ | 275,538 | | | $ | 275,538 | | | $ | - | | | $ | - | | | $ | 1,316 | | | $ | - | | | $ | 1,316 | | | $ | 1,316 | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Level 2: | | | | | | | | | | | | | | | | | | | | | | | | | |
Certificates of deposit | | | 971,592 | | | | - | | | | 971,592 | | | | - | | | | 499,000 | | | | 472,592 | | | 800 | | | - | | | 800 | | | - | | | 498 | | | 302 | |
Municipal securities | | | 240,463 | | | | 205 | | | | 240,668 | | | | - | | | | 80,336 | | | | 160,332 | | | 4,066 | | | (65 | ) | | 4,001 | | | - | | | 3,772 | | | 229 | |
Corporate bonds | | | 3,856,766 | | | | 11,157 | | | | 3,867,923 | | | | - | | | | 3,116,028 | | | | 751,895 | | | | 2,402 | | | | (25 | ) | | | 2,377 | | | | - | | | | 2,127 | | | | 250 | |
Subtotal | | | 5,068,821 | | | | 11,362 | | | | 5,080,183 | | | | - | | | | 3,695,364 | | | | 1,384,819 | | | | 7,268 | | | | (90 | ) | | | 7,178 | | | | - | | | | 6,397 | | | | 781 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 5,344,359 | | | $ | 11,362 | | | $ | 5,355,721 | | | $ | 275,538 | | | $ | 3,695,364 | | | $ | 1,384,819 | | | $ | 8,584 | | | $ | (90 | ) | | $ | 8,494 | | | $ | 1,316 | | | $ | 6,397 | | | $ | 781 | |
| | | September 30, 2018 | | | September 30, 2021 | |
| | | Cost Basis | | | Unrealized Gain | | | Fair Value | | | Cash Equivalents | | | Short-term Securities | | | Long-term Securities | | | Cost Basis | | | Unrealized Gain (Loss) | | | Fair Value | | | Cash Equivalents | | | Short-term Securities | | | Long-term Securities | |
Level 1: | | | | | | | | | | | | | | | | | | | | | | | | | |
Money market funds | | $ | 410,393 | | | $ | - | | | $ | 410,393 | | | $ | 410,393 | | | $ | - | | | $ | - | | | $ | 932 | | | $ | - | | | $ | 932 | | | $ | 932 | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Level 2: | | | | | | | | | | | | | | | | | | | | | | | | | |
Certificates of deposit | | | 499,000 | | | | - | | | | 499,000 | | | | - | | | | - | | | | 499,000 | | | 1,494 | | | - | | | 1,494 | | | - | | | 694 | | | 800 | |
Municipal securities | | | 5,139 | | | (1 | ) | | 5,138 | | | - | | | 4,205 | | | 933 | |
Corporate bonds | | | 4,302,661 | | | | (8,945 | ) | | | 4,293,716 | | | | - | | | | 3,592,175 | | | | 701,541 | | | | 928 | | | | 1 | | | | 929 | | | | - | | | | 787 | | | | 142 | |
Subtotal | | | 4,801,661 | | | | (8,945 | ) | | | 4,792,716 | | | | - | | | | 3,592,175 | | | | 1,200,541 | | | | 7,561 | | | | - | | | | 7,561 | | | | - | | | | 5,686 | | | | 1,875 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 5,212,054 | | | $ | (8,945 | ) | | $ | 5,203,109 | | | $ | 410,393 | | | $ | 3,592,175 | | | $ | 1,200,541 | | | $ | 8,493 | | | $ | - | | | $ | 8,493 | | | $ | 932 | | | $ | 5,686 | | | $ | 1,875 | |
Instruments Measuredmeasured at Fair Value on a Non-Recurring Basis
AssetsNonfinancial assets: Nonfinancial assets such as goodwill, other intangible assets, long-lived assets held and liabilities thatused, and right-of-use assets (“ROU assets”) are measured at fair value onwhen there is an indicator of impairment and recorded at fair value only when impairment is recognized or for a non-recurring basis includebusiness combination.
Goodwill and intangible assets and goodwill, which are recognized at fair value during the period in which an acquisition is completed, from updated estimates and assumptions during the measurement period, or when they are considered to be impaired. These non-recurring fair value measurements, primarily for goodwill and intangible assets acquired, were based on Level 3 unobservable inputs. The Company estimates the fair value of long-lived assets on a non-recurring basis based on a market valuation approach, engaging independent valuation experts to assist in the determination of fair value. In the eventfourth quarter of anfiscal 2022, in conjunction with the annual impairment assessment, the Company determinesdetermined that the fair value of the goodwillsoftware reporting unit was less than the carrying value. In addition to increased costs and intangible assets usingcontinued losses in the software reporting unit, the Company considered macroeconomic conditions including a discounted cash flow approach, which contains significant unobservable inputsdeterioration in the equity markets evidenced by sustained declines in the Company’s stock price, peer companies, and therefore is considered a Level 3major market indices since September 30, 2021. The Company engaged independent valuation experts to assist in determining the fair value measurement. The unobservable inputs inof the software reporting unit. As a result of this analysis, generally include future cash flow projections andthe Company recorded a discount rate.$13,162 goodwill impairment charge associated with the software reporting unit.
The following table presents categories of long-livednonfinancial assets that were subject to non-recurring fair value measurementsmeasurement during the yeartwelve months ended September 30, 2019:
| | | Fair Value Measurements at September 30, 2019 | |
| | | Carrying Value | | | Active Markets for Identifiable Assets (Level 1) | | | Observable Inputs (Level 2) | | | Unobservable Inputs (Level 3) | | | Non-Cash Impairment Loss | |
Intangible assets from Genasys acquisition | | $ | 1,142,814 | | | $ | - | | | $ | - | | | $ | 1,142,814 | | | $ | - | |
Goodwill | | $ | 2,305,750 | | | $ | - | | | $ | - | | | $ | 2,305,750 | | | $ | - | |
Patents | | $ | 32,820 | | | $ | - | | | $ | - | | | $ | 32,820 | | | $ | - | |
The Company did not recognize non-recurring fair value adjustments related to2022. There were no business combinations during the impairment of intangible assets for the yeartwelve months ended September 30, 2019.2022. Certain intangible assets, operating lease ROU assets and goodwill are subject to foreign currency translation adjustments.
| | | Carrying Value | | | Level 1 | | | Level 2 | | | Level 3 | | | Gain/ (Loss) | |
Goodwill from software reporting unit | | $ | 10,118 | | | $ | - | | | $ | - | | | $ | 23,280 | | | $ | (13,162 | ) |
Operating lease ROU asset | | $ | 466 | | | $ | - | | | $ | - | | | $ | 466 | | | $ | - | |
Holdback Liability: In connection with the Amika Mobile asset purchase, the Company recorded a holdback liability related to potential future adjustments to assets and liabilities, misrepresentations and indemnifications against third-party claims. Adjustments of up to CAD$1,000 (USD$728) will be deducted from the asset purchase holdback liability for up to three years from the closing date. The $140,240holdback liability was recorded at the present value which was the fair value at the acquisition date. The Company engaged independent valuation experts to assist in determining the present value of the holdback liability. The expected future payment was discounted using a rate representative of the Company’s payment risk and credit rating. Accretion is recorded in each subsequent reporting period based on the discount factor used to arrive at the original fair value. This change in fair value is recorded in the accompanying consolidated statement of Goodwill from September 30, 2018 to September 30, 2019operations. The changes in the carrying amount of the holdback liability is due to the change in foreign currency rates.as follows:
The following table presents categories of long-lived assets that were subject to non-recurring fair value measurements during the year ended September 30, 2018:
| | | Fair Value Measurements at September 30, 2018 | |
| | | Carrying Value | | | Active Markets for Identifiable Assets (Level 1) | | | Observable Inputs (Level 2) | | | Unobservable Inputs (Level 3) | | | Non-Cash Impairment Loss | |
Intangible assets from Genasys acquisition(a) | | $ | 1,520,006 | | | $ | - | | | $ | - | | | $ | 1,520,006 | | | $ | - | |
Goodwill from Genasys acquisition(b) | | $ | 2,445,990 | | | $ | - | | | $ | - | | | $ | 2,445,990 | | | $ | - | |
Patents(c) | | $ | 37,340 | | | $ | - | | | $ | - | | | $ | 37,340 | | | $ | (11,133 | ) |
| (a)
| Represents acquired intangible assets from the acquisition of Genasys Spain. There was no impairment related to these assets. Refer to Note 8, Goodwill and Intangible Assets, for more information.
|
| (b)
| Represents acquired goodwill from the acquisition of Genasys Spain. There was no impairment related to these assets. Refer to Note 8, Goodwill and Intangible Assets, for more information.
|
| (c)
| During the year ended September 30, 2018, the Company determined that certain patents were impaired. The impaired patents related to products no longer sold by the Company.
|
Balance as of September 30, 2021 | | $ | 687 | |
Accretion | | | 48 | |
Currency translation | | | (55 | ) |
Balance as of September 30, 2022 | | $ | 680 | |
6.6. INVENTORIES
Inventories consisted of the following:
| | | September 30, | |
| | | 2019 | | | 2018 | |
Raw materials | | $ | 5,060,331 | | | $ | 4,487,273 | |
Finished goods | | | 998,607 | | | | 1,768,544 | |
Work in process | | | 306,809 | | | | 875,417 | |
Inventories, gross | | | 6,365,747 | | | | 7,131,234 | |
Reserve for obsolescence | | | (530,584 | ) | | | (397,051 | ) |
Inventories, net | | $ | 5,835,163 | | | $ | 6,734,183 | |
The Company relies on one supplier for compression drivers for its LRAD products and is making efforts to obtain alternative suppliers to reduce such reliance. The Company’s ability to manufacture its LRAD products could be adversely affected if it were to lose this sole source supplier and was unable to find an alternative supplier.
| | | September 30, | |
| | | 2022 | | | 2021 | |
Raw materials | | $ | 5,277 | | | $ | 5,449 | |
Finished goods | | | 844 | | | | 842 | |
Work in process | | | 744 | | | | 877 | |
Inventories, gross | | | 6,865 | | | | 7,168 | |
Reserve for obsolescence | | | (857 | ) | | | (752 | ) |
Inventories, net | | $ | 6,008 | | | $ | 6,416 | |
7.7. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
| | | September 30, | | | September 30, | |
| | | 2019 | | | 2018 | | | 2022 | | | 2021 | |
Office furniture and equipment | | $ | 1,332,443 | | | $ | 1,326,784 | | | $ | 1,432 | | | $ | 1,261 | |
Machinery and equipment | | | 1,223,726 | | | | 1,095,099 | | | 1,391 | | | 1,270 | |
Leasehold improvements | | | 2,019,794 | | | | - | | | 2,172 | | | 2,154 | |
Construction in progress | | | 7,565 | | | | 2,001,539 | | | | 104 | | | | - | |
Property and equipment, gross | | | 4,583,528 | | | | 4,423,422 | | | 5,099 | | | 4,685 | |
Accumulated depreciation | | | (2,314,022 | ) | | | (1,974,697 | ) | |
Accumulated depreciation and amortization | | | | (3,342 | ) | | | (2,930 | ) |
Property and equipment, net | | $ | 2,269,506 | | | $ | 2,448,725 | | | $ | 1,757 | | | $ | 1,755 | |
| | | Year Ended September 30, | |
| | | 2019 | | | 2018 | |
Depreciation expense | | $ | 521,492 | | | $ | 251,186 | |
At September 30, 2018, construction in progress primarily included leasehold improvement costs incurred to renovate and prepare the Company’s new facility for its operations. Refer to Note 13, Commitments and Contingencies, for more information on the facility lease.
| | | Years ended September 30, | |
| | | 2022 | | | 2021 | |
Depreciation and amortization expense | | $ | 403 | | | $ | 406 | |
8. GOODWILL AND INTANGIBLE ASSETS
Goodwill is attributable to the acquisitionacquisitions of Genasys Spain and Zonehaven, and the Amika Mobile asset purchase and is due to combining the integrated emergency critical communications, mass messaging solutions and software development capabilities with existing Companyhardware products for enhanced offerings and the skill level of the workforce.acquired workforces. The Company periodically reviews goodwill for impairment in accordance with relevant accounting standards. In the fourth quarter of fiscal 2022, in conjunction with the annual impairment assessment, the Company determined that the fair value of the software reporting unit was less than the carrying value. The Company engaged independent valuation experts to assist in determining the fair value of the software reporting unit and recorded a $13,162 goodwill impairment charge. As of September 30, 2022 and September 30, 2021, goodwill was $10,118 and $23,834 respectively. There were no additions or impairments to goodwill during the year ended September 30, 2019. At September 30, 2019 and September 30, 2018, goodwill was $2,305,750 and $2,445,990, respectively.
During the year ended September 30, 2018, the Company determined that certain patents were impaired. These patents supported products that are no longer sold by the Company. The Company recorded a non-cash loss on the impairment of these patents of $11,133 for the year ended September 30, 2018. There was no impairment loss for the year ended September 30, 2019.2021.
Intangible assets and goodwill related to Genasys Spain are translated from EurosEuro to U.S. dollars at the balance sheet date. The net impact of foreign currency exchange differences arising during year ended September 30, 2019,the period related to goodwill and intangible assets was a reductiondecrease of $219,325.$458. Intangible assets and goodwill related to Amika Mobile are translated from Canadian dollars to U.S. dollars at the balance sheet date. The net impact of foreign currency exchange differences arising during the year ended September 30, 2022, related to goodwill and intangible assets from the Amika Mobile asset purchase was a decrease of $241.
The changes in the carrying amount of goodwill by segment for the year ended September 30, 2022, are as follows:
| | | Hardware | | | Software | | | Total | |
Balance as of September 30, 2021 | | $ | - | | | $ | 23,834 | | | $ | 23,834 | |
Impairment | | | - | | | | (13,162 | ) | | | (13,162 | ) |
Currency translation | | | - | | | | (554 | ) | | | (554 | ) |
Balance as of September 30, 2022 | | $ | - | | | $ | 10,118 | | | $ | 10,118 | |
The Company’s intangible assets consisted of the following:
| | | September 30, | | | September 30, | |
| | | 2019 | | | 2018 | | | 2022 | | | 2021 | |
Technology | | $ | 611,043 | | | $ | 648,208 | | | $ | 11,886 | | | $ | 12,065 | |
Customer relationships | | | 584,477 | | | | 620,026 | | | 1,715 | | | 1,855 | |
Trade name portfolio | | | 212,537 | | | | 225,464 | | | 590 | | | 625 | |
Non-compete agreements | | | 230,248 | | | | 244,252 | | | 206 | | | 244 | |
Patents | | | 72,126 | | | | 72,126 | | | | 72 | | | | 72 | |
| | | | 1,710,431 | | | | 1,810,076 | | | 14,469 | | | 14,861 | |
Accumulated amortization | | | (534,797 | ) | | | (252,730 | ) | | | (3,964 | ) | | | (2,057 | ) |
| | | $ | 1,175,634 | | | $ | 1,557,346 | | | $ | 10,505 | | | $ | 12,804 | |
| | | Year Ended September 30, | |
| | | 2019 | | | 2018 | |
Amortization Expense | | $ | 303,397 | | | $ | 231,901 | |
The changes in the carrying amount of intangible assets by segment for the year ended September 30, 2022, are as follows:
| | | Hardware | | | Software | | | Total | |
Balance as of September 30, 2021 | | $ | 25 | | | $ | 12,779 | | | $ | 12,804 | |
Amortization | | | (4 | ) | | | (2,150 | ) | | | (2,154 | ) |
Currency translation | | | - | | | | (145 | ) | | | (145 | ) |
Balance as of September 30, 2022 | | $ | 21 | | | $ | 10,484 | | | $ | 10,505 | |
| | | Years ended | |
| | | September 30, | |
| | | 2022 | | | 2021 | |
Amortization expense | | $ | 2,154 | | | $ | 1,191 | |
Estimated amortization expense for the twelve monthsfiscal year ending September 30,
2023 | | $ | 2,094 | |
2024 | | | 2,083 | |
2025 | | | 1,974 | |
2026 | | | 1,843 | |
2027 | | | 1,669 | |
Thereafter | | | 842 | |
Total estimated amortization expense | | $ | 10,505 | |
2020 | | $ | 294,242 | |
2021 | | | 239,586 | |
2022 | | | 217,073 | |
2023 | | | 186,683 | |
2024 | | | 173,734 | |
Thereafter | | | 64,316 | |
Total estimated amortization expense | | $ | 1,175,634 | |
9.9. PREPAID EXPENSES AND OTHER
| | | September 30, | | | September 30, | |
| | | 2019 | | | 2018 | | | 2022 | | | 2021 | |
Deposits for inventory | | $ | 1,064,640 | | | $ | 1,366,069 | | | $ | 461 | | | $ | 997 | |
Leashold improvement receivable | | | - | | | | 1,132,017 | | |
Prepaid insurance | | | 194,285 | | | | 162,822 | | | 360 | | | 395 | |
Prepaid rent | | | 87,782 | | | | - | | |
Prepaid maintenance agreement | | | - | | | | 93,750 | | |
Dues and subscriptions | | | 88,031 | | | | 92,097 | | | 182 | | | 213 | |
Prepaid professional services | | | - | | | 158 | |
Prepaid commissions | | | 228 | | | 82 | |
Trade shows and travel | | | 471 | | | 95 | |
Canadian goods and services and harmonized sales tax receivable | | | 1,631 | | | - | |
Other | | | 347,099 | | | | 244,646 | | | | 244 | | | | 315 | |
| | | $ | 1,781,837 | | | $ | 3,091,401 | | | $ | 3,577 | | | $ | 2,255 | |
Deposits for inventory
Deposits for inventory consisted of cash payments to vendors for inventory to be delivered in the future.
Leasehold improvement receivable
Leasehold improvement receivable represents amounts owed to the Company by the landlord for costs incurred to renovate and prepare the Company’s new facility for use. The lease provided an allowance for tenant improvements of $1,588,214. Refer to Note 13, Commitments and Contingencies, for additional information about this lease. As of September 30, 2019, the Company has received the full tenant improvement allowance.
Prepaid Rent
Prepaid rent consists of payments made in advance for the Company’s facility lease.
Prepaid Insuranceinsurance
Prepaid insurance consisted of premiums paid for health, commercial and corporate insurance. These premiums are amortized on a straight-line basis over the term of the agreements.
Prepaid maintenance agreementDues and subscriptions
At March 31, 2011, prepaid expenses included $1,500,000 paid to a third party service providerDues and subscriptions consist of payments made in connection with the Company’s obligations under a sales contract to a foreign military service to provide repairadvance for software subscriptions and maintenance services over an eight year period for products sold thereunder. The total prepaid expense wastrade and professional organizations. These payments are amortized on a straight-line basis at an annual rate of $187,500 over the eight-yearterm of the agreements.
Prepaid professional services
Prepaid professional services consist of payments made in advance for services such as accounting and legal services.
Prepaid commissions
Prepaid commissions represent the current portion of sales commissions paid in connection with obtaining a contract with a customer. These costs are deferred and are amortized on a straight-line basis over the period of benefit, which is threeto correspond withfive years. Amortization of prepaid commissions is included in selling, general and administrative expenses in the revenuesaccompanying consolidated statement of operations.
Trade shows and travel
Trade shows and travel consists of payments made in advance for thesetrade show events.
Canadian goods and services and was recognized as a component of cost of sales. The amortization of the prepaid maintenance agreement was completed during the period ended March 31, 2019. As of September 30, 2018, $93,750 of the total prepayment was classified as a current asset.harmonized sales tax receivable
The goods and services tax and harmonized sales tax (“GST/HST”) is a Canadian value-added tax that applies to many goods and services. Registrants may claim refundable tax credits for GST/HST incurred through filing periodic tax returns. This GST/HST receivable is a receivable from the Canadian Revenue Agency.
10.10. ACCRUED AND OTHER LIABILITIES
Accrued liabilities consisted of the following:
| | | September 30, | |
| | | 2022 | | | 2021 | |
Payroll and related | | $ | 3,003 | | | $ | 3,726 | |
Deferred revenue | | | 1,827 | | | | 1,120 | |
Customer deposits | | | 4,724 | | | | 8,701 | |
Accrued contract costs | | | 809 | | | | 416 | |
Warranty reserve | | | 159 | | | | 146 | |
Canadian goods and services and harmonized sales tax payable | | | 1,556 | | | | - | |
Other | | | 5 | | | | 2 | |
Total | | $ | 12,083 | | | $ | 14,111 | |
| | | September 30, | |
| | | 2019 | | | 2018 | |
Payroll and related | | $ | 2,050,324 | | | $ | 2,041,735 | |
Deferred revenue | | | 508,522 | | | | 460,086 | |
Customer deposits | | | 5,063,091 | | | | 199,596 | |
Accrued contract costs | | | 252,833 | | | | 197,034 | |
Severance | | | - | | | | 152,730 | |
Warranty reserve | | | 150,229 | | | | 99,216 | |
Deferred rent | | | 109,342 | | | | 49,467 | |
Total | | $ | 8,134,341 | | | $ | 3,199,864 | |
Other liabilities - noncurrent consisted of the following:
| | | September 30, | | | September 30, | |
| | | 2019 | | | 2018 | | | 2022 | | | 2021 | |
Deferred rent | | $ | 1,881,387 | | | $ | 1,663,058 | | |
Deferred extended warranty revenue | | | 550,885 | | | | 76,372 | | | $ | 227 | | | $ | 308 | |
Asset purchase holdback liability | | | | 680 | | | | 687 | |
Total | | $ | 2,432,272 | | | $ | 1,739,430 | | | $ | 907 | | | $ | 995 | |
Payroll and related
Accrued payroll and related consisted primarily of accrued bonus, accrued vacation, accrued sales commissions and benefits at September 30, 2019 and 2018.benefits.
Deferred Revenuerevenue
Deferred revenue atas of September 30, 20192022 included prepayments from customers for services, including extended warranty, scheduled to be performed in the year endedending September 30, 2020.2023.
Customer Depositsdeposits
Customer deposits represent amounts paid by customers as a down payment on hardware orders to be delivered during the year endedending September 30, 2020.2023.
Accrued contract costs
Accrued contract costs consist of accrued expenses for contracting a third-party service provider to fulfill repair and maintenance obligations required under a contract with a foreign military for units sold in the year ended September 30, 2011. Payments to the service provider will be made annually upon completion of each year of service. A new contract was signed with the customer in May 2019 to continue repair and maintenance services through May 2024. These services are being recorded in cost of revenues to correspond with the revenues for these services.
Severance
Severance liability at September 30, 2018 consistedof accrued payments to former employees of Genasys Spain that was paid during the year ended September 30, 2019.
Deferred Rent
Deferred rent liability as of September 30, 2019 consists of the difference between the average rental amount charged to expense and amounts payable under the lease for the Company’s operating facility. Deferred rent also includes cash and leasehold incentives from the landlord in the aggregate amount of $1,990,729 as of September 30, 2019 to compensate for costs incurred by the Company to make the office space ready for operation (leasehold incentives). Prior to the adoption of ASC 842, leasehold incentives received from a landlord are deferred and recognized on a straight-line basis as a reduction to rent expense over the lease term. Refer to Note 3, Recent Accounting Pronouncements for further detail on the adoption of ASC 842.
Warranty Reservereserve
Details of the estimated warranty reserve were as follows:
| | | September 30, | | | September 30, | |
| | | 2019 | | | 2018 | | | 2022 | | | 2021 | |
Beginning balance | | $ | 99,216 | | | $ | 104,518 | | | $ | 146 | | | $ | 126 | |
Warranty provision | | | 85,078 | | | | 6,093 | | | 86 | | | 56 | |
Warranty settlements | | | (34,065 | ) | | | (11,395 | ) | | | (73 | ) | | | (36 | ) |
Ending balance | | $ | 150,229 | | | $ | 99,216 | | | $ | 159 | | | $ | 146 | |
The Company establishes a warranty reserve based on anticipated warranty claims at the time product revenue is recognized. Factors affecting warranty reserve levels include the number of units sold, anticipated cost of warranty repairs and anticipated rates of warranty claims. The Company evaluates the adequacy of the provision for warranty costs each reporting period and adjusts the accrued warranty liability to an amount equal to estimated warranty expense for products currently under warranty.
Canadian goods and services and harmonized sales tax payable
The GST/HST is a Canadian value-added tax that applies to many goods and services. This represents amounts owed to the Canadian Revenue Agency by the Company’s Canadian subsidiary.
Deferred extended warranty revenue
Deferred extended warranty revenue consists of warranties purchased in excess of the Company’s standard warranty. Extended warranties typically range from one to two years.
Asset purchase holdback liability
In connection with the Amika Mobile asset purchase, the Company recorded a holdback liability related to potential future adjustments to assets and liabilities, misrepresentations and indemnifications against third-party claims. Adjustments of up to CAD$1,000 (USD$728) will be deducted from the asset purchase holdback liability for up to three years from the closing date. The liability is recorded at fair value in the consolidated balance sheet.
11.
11. DEBT
In connection with the acquisition of Genasys Spain, the Company assumedacquired certain debts of Genasys Spain. The carrying value of the acquired debt approximated fair value. The balances of the acquired debt consistconsisted of loans with governmental agencies that were secured with cash collateral. In April 2022, the Ministry of Economy and Competiveness declared the terms of the loan satisfied and the outstanding balance was paid in full using the restricted cash that was pledged as collateral at loan inception as payment of the remaining balance.
The changes in the carrying amount of debt for the year ended September 30, 2019. Loans with governmental agencies represent interest free loans granted by ministries within Spain for the purpose of stimulating economic development and promoting research and development. Loans with governmental agencies as of September 30, 20192022, are as follows:
Agency | | Due Date | | | Principal | |
Ministry of Economy and Competitiveness | | February 2, 2022 | | | | 49,355 | |
Ministry of Economy and Competitiveness | | February 2, 2024 | | | | 263,136 | (a) |
| | | | | | $ | 312,491 | |
Balance as of September 30, 2021 | | $ | 296 | |
Payments | | | (277 | ) |
Currency translation | | | (19 | ) |
Balance as of September 30, 2022 | | $ | - | |
| (a)
Revolving line of credit On March 8, 2021, the Company entered into an agreement with MUFG Union Bank, N.A. for a $10 million revolving line of credit. Outstanding balances on the revolving line of credit bear interest at a per annum rate equal to the London Interbank Offered Rate (“LIBOR”) plus 2.25%. The agreement contains a provision for determining an alternative interest rate index in the event the LIBOR rate is no longer available. The agreement contains standard covenants, including affirmative financial covenants, such as the maintenance of a short-term liquidity ratio and a senior leverage ratio, in addition to negative covenants which limit the incurrence of additional indebtedness, loans and equity investments, disposition of assets, mergers and consolidations and other matters customarily restricted in such agreements. The maturity date of this revolving line of credit is March 31, 2023. As of September 30, 2022, there were no borrowings on the revolving line of credit. The Company incurred and capitalized $38 of issuance costs related to this revolving line of credit. These issuance costs have and will be amortized on a straight-line basis over the term of the loan. 12. LEASES The Company determines if an arrangement is a lease at inception. The guidance in ASC 842 defines a lease as a contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration. Operating lease ROU assets and lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. The Company’s leases do not provide an implicit rate. The Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. Additionally, the portfolio approach is used in determining the discount rate used to present value lease payments. The ROU asset includes any lease payments made and excludes lease incentives and initial direct costs incurred. The Company is party to operating leases for office and production facilities and equipment under agreements that expire at various dates through 2028. The Company elected the package of practical expedients permitted under the new lease standard. In electing the practical expedient package, the Company is not required to reassess whether an existing or expired contract is or contains a lease, reassess the lease classification for expired or existing leases nor reassess the initial direct costs for leases that commenced before the adoption of ASC 842. The Company also elected the short-term lease exemption such that the new lease standard was applied to leases greater than one year in duration. Leases with an initial term of twelve months or less are not recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term. For leases beginning on or after October 1, 2019, lease components are accounted for separately from non-lease components for all asset classes. Certain of the Company’s leases contain renewal provisions and escalating rental clauses and generally require the Company to pay utilities, insurance, taxes and other operating expenses. The renewal provisions of existing lease agreements were not included in the determination of the operating lease liabilities and the ROU assets. Variable payments such as excess usage fees on existing equipment leases were not included in the determination of the lease liabilities and the ROU assets as the achievement of the specified target that triggers the variable lease payment is not considered probable. In addition, the Company’s facility lease in Spain has an escalating lease clause based on a consumer price index which is considered a variable lease payment and is not included in the determination of the lease liability and ROU asset. A 10% increase in the index would increase the total lease liability approximately $42. The Company’s leases do not contain any residual value guarantees or material restrictive covenants. | This loan is secured by $263,136 of cash pledged as collateral by Genasys Spain, which is the current balance of the loan. This amount represents 66.6% of the original principal received. This amount is included in restricted cash at September 30, 2019. The Company expects the Ministry of Economy and Competitiveness to declare the terms of the loan satisfied within fiscal year 2020 and that the outstanding balance of the loan will be paid in full during fiscal year 2020. Accordingly, this has been included in the current portion of notes payable as of September 30, 2019.
|
During the year ended September 30, 2022, the Company added an additional operating ROU asset of $466 and operating lease liabilities of $466 for office space and equipment. During the year ended September 30, 2021, the Company added an additional operating ROU asset of $259 and operating lease liabilities of $259 for office space. The following is a schedule of future annual paymentstables below show the operating ROU assets and liabilities as of September 30, 2019:2021, and the balances as of September 30, 2022, including the changes during the periods.
2020 | | $ | 279,588 | |
2021 | | | 16,452 | |
2022 | | | 16,451 | |
2023 | | | - | |
Total | | $ | 312,491 | |
| | | Operating lease ROU assets | |
Operating lease ROU assets as of September 30, 2021 | | $ | 4,862 | |
Additional operating lease ROU assets | | | 466 | |
Less amortization of operating lease ROU assets | | | (746 | ) |
Effect of exchange rate on operating lease ROU assets | | | (41 | ) |
Operating lease ROU assets as of September 30, 2022 | | $ | 4,541 | |
| | | Operating lease liabilities | |
Operating lease liabilities as of September 30, 2021 | | $ | 6,608 | |
Additional operating lease liabilities | | | 466 | |
Less lease principal payments on operating lease liabilities | | | (894 | ) |
Effect of exchange rate on operating lease liabilities | | | (43 | ) |
Operating lease liabilities as of September 30, 2022 | | | 6,137 | |
Less non-current portion | | | (5,189 | ) |
Current portion as of September 30, 2022 | | $ | 948 | |
As of September 30, 2019,2022, the current portionCompany’s operating leases have a weighted-average remaining lease term of debt is $279,5885.7 years and a weighted-average discount rate of 4.1%. The maturities of the noncurrent portion of debt is $32,903.operating lease liabilities are as follows:
Fiscal year ending September 30, | | | | |
2023 | | $ | 1,179 | |
2024 | | | 1,177 | |
2025 | | | 1,154 | |
2026 | | | 1,169 | |
2027 | | | 1,191 | |
Thereafter | | | 1,038 | |
Total undiscounted operating lease payments | | | 6,908 | |
Less imputed interest | | | (771 | ) |
Present value of operating lease liabilities | | $ | 6,137 | |
For the years ended September 30, 2022 and 2021, total lease expense under operating leases was approximately $1,002 and $991, respectively. The Company did not have any short-term lease expense during the year ended September 30, 2022. For the year ended September 30, 2021, short-term lease expense was $3.
12.13. INCOME TAXES
Income taxes consisted of the following:
| | | Years ended September 30, | | | Years ended September 30, | |
| | | 2019 | | | 2018 | | | 2022 | | | 2021 | |
Current tax provision | | | | | | | | | |
Federal | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
State | | | 2,200 | | | | 1,600 | | | 3 | | | 1 | |
Foreign | | | | 70 | | | | - | |
Total current tax provision | | | 2,200 | | | | 1,600 | | | 73 | | | 1 | |
Deferred provision | | | | | | | | | |
Federal | | | 484,500 | | | | 2,017,900 | | | 568 | | | 368 | |
State | | | 85,500 | | | | 356,100 | | | | 100 | | | | 65 | |
Total deferred provision | | | 570,000 | | | | 2,374,000 | | | | 668 | | | | 433 | |
| | | | | | | | | | |
Provision for income taxes | | $ | 572,200 | | | $ | 2,375,600 | | | $ | 741 | | | $ | 434 | |
A reconciliation of income taxes at the federal statutory rate of 21% to the effective tax rate was as follows:
| | | Years ended September 30, | |
| | | 2019 | | | 2018 | |
Income taxes computed at the federal statutory rate | | $ | 715,000 | | | $ | (332,000 | ) |
Change in valuation allowance | | | (5,000 | ) | | | 2,711,000 | |
Change in tax rate | | | - | | | | 6,754,000 | |
Expired net operating loss carryforwards | | | - | | | | 441,000 | |
Nondeductible compensation, interest expense and other | | | 40,000 | | | | 39,000 | |
State income taxes, net of federal tax benefit | | | 155,000 | | | | (41,000 | ) |
Change in R&D credit carryover | | | (66,000 | ) | | | (133,000 | ) |
Stock options and other prior year true-ups | | | (142,000 | ) | | | (499,000 | ) |
Acquired deferred tax assets of Genasys Spain | | | (7,800 | ) | | | (6,564,400 | ) |
Refundable Federal AMT Credit | | | 28,000 | | | | - | |
State business credit utilization | | | (145,000 | ) | | | - | |
Provision for income taxes | | $ | 572,200 | | | $ | 2,375,600 | |
| | | Years ended September 30, | |
| | | 2022 | | | 2021 | |
| | | | | | | | | |
Income taxes computed at the federal statutory rate | | $ | (3,314 | ) | | $ | 239 | |
Change in valuation allowance | | | 1,065 | | | | 435 | |
Nondeductible compensation, interest expense and other | | | 4,101 | | | | 57 | |
State income taxes, net of federal tax benefit | | | (859 | ) | | | 210 | |
Change in R&D credit carryover | | | (186 | ) | | | 19 | |
Stock options and other prior year true-ups | | | 25 | | | | (175 | ) |
Foreign rate differential | | | (1 | ) | | | (117 | ) |
State business credit utilization | | | (90 | ) | | | (234 | ) |
Provision (benefit) for income taxes | | $ | 741 | | | $ | 434 | |
The types of temporary differences between the tax basis of assets and liabilities and their approximate tax effects that give rise to a significant portion of the net deferred tax asset atas of September 30, 20192022 and 20182021 were as follows:
| | | At September 30, | | | At September 30, | |
| | | 2019 | | | 2018 | | | 2022 | | | 2021 | |
Deferred tax assets | | | | | | | | | | | | |
Net operating loss carryforwards | | $ | 12,682,000 | | | $ | 13,644,000 | | | $ | 10,054 | | | $ | 11,769 | |
Research and development credit | | | 5,856,000 | | | | 5,805,000 | | | 4,712 | | | 5,479 | |
Share-based compensation | | | 506,000 | | | | 532,000 | | | 688 | | | 538 | |
Equipment | | | (78,000 | ) | | | (41,000 | ) | |
Patents | | | 24,000 | | | | 35,000 | | | 2,331 | | | 8 | |
Accruals and other | | | 1,222,000 | | | | 818,000 | | | 2,245 | | | 2,487 | |
State tax deduction | | | (6,000 | ) | | | (5,000 | ) | |
Federal AMT Credit | | | 24,000 | | | | 53,000 | | |
Allowances | | | 169,000 | | | | 133,000 | | | | 280 | | | | 237 | |
Gross deferred tax asset | | | 20,399,000 | | | | 20,974,000 | | |
Gross deferred tax assets | | | 20,310 | | | 20,518 | |
Deferred tax liabilities | | | | | |
Equipment | | | (313 | ) | | (352 | ) |
Operating ROU assets | | | (1,066 | ) | | (1,222 | ) |
Acquired intangible assets | | | | (2,180 | ) | | | (2,592 | ) |
Gross deferred tax liabilities | | | (3,559 | ) | | (4,166 | ) |
Less valuation allowance | | | (15,012,000 | ) | | | (15,017,000 | ) | | | (9,378 | ) | | | (8,313 | ) |
Total deferred tax assets, net of valuation allowance | | $ | 5,387,000 | | | $ | 5,957,000 | | |
Net deferred tax assets and liabilities | | | $ | 7,373 | | | $ | 8,039 | |
AtAs of September 30, 2019,2022, the Company had net deferred tax assets of approximately $5,387,000.$7,373. The deferred tax assets are primarily composed of federal and state NOL carryforwards and federal and state research and development (“R&D”) credit carryforwards. AtAs of September 30, 2019,2022, the Company had federal NOL carryforwards of approximately $44,398,000,$32,817, which expire from 20222024 through 2037.2037, except for $1,262 that have an indefinite carryforward period. The Company also has an estimated $2,257,000$2,500 and $794,000$119 of federal and state R&D tax credits, respectively, atas of September 30, 2019,2022, a portion of which will begin to expire in the 2020current tax year.
The Company reviews its ability to realize its deferred tax assets on a quarterly basis. In doing so, management considers historical and projected taxable income of the Company, along with any tax planning strategies and any other positive or negative evidence. Realization is dependent on generating sufficient taxable income prior to the expiration of the loss carryforwards and other deferred assets. The Company has sustained profitability over seven of the ten most recent fiscal years. In the past few years, the Company has developed products and expanded its marketing efforts into the mass notification market, which is a very large and growing market. While the Company is still in the early stages of market penetration, it has increased its confidence in forecasted taxable income based on growth opportunities in this market. It has also increased its forecasted revenues and taxable income for its directional product opportunities, where it is a leading player in the world market. As a result, during the quarter ended September 30, 2015, the Company determined it was more likely than not that a portion ofexpects to utilize the deferred tax assets will be realized and, accordingly, released a portion of the valuation allowance. While the Company has cumulative income from 2017 to 2019, future profits are uncertain and a portion of the Company’s tax attributes may expire prior to utilization. The Company adjusted its deferred tax asset value in the quarter ended September 30, 2019future, except for those related to federal R&D tax credit carryforwards and net operating loss carryforwards, R&D credits and foreign tax credits related to Genasys Spain continues to maintain a valuationpartial allowance of $15,012,000.$9,378. Since future financial results may differ from previous estimates, periodic adjustments to the Company’s valuation allowances may be necessary.
As of September 30, 2019,2022, the Company had no unrecognized tax benefits. The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense.
The Company is subject to taxation in the U.S. and various state jurisdictions. All of the Company’s historical tax years are subject to examination by the Internal Revenue Service and various state jurisdictions due to the generation of NOL and credit carryforwards.
The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. The Act reduces the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018. Subsequently, the SEC issued Staff Accounting Bulletin (“SAB”) 118, which allows for the recording of provisional amounts related to U.S. tax reform and subsequent adjustments related to U.S. tax reform during a measurement period not to exceed one year from the enactment date. Accordingly, the Company remeasured its net deferred tax assets on a provisional basis based on the rates at which they are expected to be realized in the future, which is generally 21% resulting in a decrease to our net deferred tax assets of $2,374,000 for the year ended September 30, 2018. As of September 30, 2019, the Company’s accounting for the applicable elements of the legislation is complete and there were no material changes to the provisional amounts previously recorded.
13.14. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases office equipment and operating facilities. During the year ended September 30, 2019, these leases were categorized as operating leases. On October 1, 2019, the Company adopted ASC 842 which requiresrequired lessees to recognize lease liabilities and corresponding right-of-use assets for all leases with lease terms of greater than 12 months. Refer to Note 3, Recent Accounting Pronouncements12, Leases for further detail on the adoption of ASC 842.lease commitments.
Facility Lease
On July 1, 2018, the Company entered into a lease for 54,766 square feet to replace the expired lease of the prior San Diego facility as the Company’s executive offices, research and development, assembly and operational facilities. The lease commenced July 1, 2018 and will expire August 30, 2028. The aggregate monthly payments, with abatements, averaged $36,146 per month for the first fourteen months, and are $74,460, $76,694, $78,994, $81,364, $83,805, $86,319, $88,909, $91,576 and $94,324 per month for the second through tenth years of the lease, plus certain other costs and charges as specified in the lease agreement, including the Company’s proportionate share of the building operating expenses and real estate taxes. The lease provided an allowance for tenant improvements of $1,588,214, which was classified as deferred rent on the Company’s consolidated balance sheet and is being amortized as an offset to rent expense with a corresponding charge to amortization expense on a straight-line basis over the term of the lease.
Total operating lease expense, including facilities and office equipment commitments, recorded by the Company for the years ended September 30, 2019 and 2018 was 1,050,784 and $956,535, respectively.
The obligations under all operating leases are as follows:
Years ending September 30, | | | | |
2020 | | $ | 1,005,217 | |
2021 | | | 1,032,090 | |
2022 | | | 1,059,088 | |
2023 | | | 1,011,894 | |
2024 | | | 1,008,177 | |
Thereafter | | | 4,247,218 | |
Total lease obligations | | $ | 9,363,684 | |
Employment Agreements
The Company entered into an employment agreement in August 2016 with itsour chief executive officer that provides for severance benefits including twelve months’ salary and health benefits, a pro-rata share of his annual cash bonus for the fiscal year in which the termination occurs to which he would have become entitled had he remained employed through the end of suchthe fiscal year and if his employment is terminated during fiscal year 2019 or later, vesting of a pro-rata share of the stock options held by him that are subject to performance-based vesting based on the extent to which the required performance criteria are achieved in the year of termination and on the portion of the year he was employed.vesting. The agreement also has a change ofin control clause whereby in the event of a specified termination event, the chief executive officer would be entitled to receive in a single lump sum (a) an amount equal to two times the sum of his base salary then in effectspecific severance and his then target annual cash bonus, (b) a pro-rata share of his annual cash bonus for such year and (c) the cost of his and his dependents’ coverage under COBRA for an 18-month period. In addition, in such event, (i) all of the time-vesting stock options held will vest, unless theequity vesting benefits if specified termination occurs within the first year of his employment, in which case only the number of options scheduled to vest on the first anniversary of his employment date will vest pro-rated for the period of time he was employed during such one-year period, (ii) 375,000 of the stock options held that are subject to performance-based vesting will vest and (iii) if employment is terminated during fiscal year 2019 or later, a pro-rata share of the stock options held that are subject to performance-based vesting will vest based on the extent to which the required performance criteria are achieved for the fiscal year in which the termination occurs and based on the period of time he was employed during such fiscal year prior to the termination.events occur.
There arewere no other employment agreements with executive officers or other employees providing future benefits or severance arrangements.
Bonus Plan
In fiscal 2019 and 2018, theThe Company hadhas a bonus plan for employees, in accordance with their terms of employment, whereby they can earn a percentage of their salary based on meeting targeted objectives for orders received, revenue, operating income, and operating cash flow. In fiscalFor the year 2019,ended September 30, 2022, the company exceededCompany recorded $1,733 of bonus expense. For the minimum targeted levelyear ended September 30, 2021, the Company recorded $2,625 of orders received, revenues and cash provided by operating activities and has accrued $1,295,338 ofbonus expense. In fiscal year 2018, the company exceeded the minimum targeted level of orders received and revenues and accrued $1,205,099 of expense.
Employee Benefit—Benefit—401K Plan
The Company has a defined contribution plan (401(k)) covering its employees. Matching contributions are made on behalf of all participants at the discretion of the board of directors. During the fiscal years ended September 30, 20192022 and 2018,2021, the Company made matching contributions of $220,234$324 and $130,511,$219, respectively.
Litigation
The Company may at times be involved in litigation in the ordinary course of business. The Company will, from time to time, when appropriate in management’s estimation, record adequate reserves in the Company’s financial statements for pending litigation.
Amika Mobile asset purchase
In connection with the Amika Mobile asset purchase, the Company recorded a holdback liability related to potential future adjustments to assets and liabilities, misrepresentations and indemnifications against third-party claims. Adjustments of up to CAD$1,000 (USD$728) will be deducted from the asset purchase holdback liability for up to three years from the closing date. The liability is recorded at fair value in the consolidated balance sheet.
The Company also agreed to issue 191,267 shares of the Company’s common stock to the seller of the Amika Mobile assets on each of the first, second and third anniversaries of the closing date. The total number of shares of common stock the Company is obligated to issue is 57,3801. The fair value of the Company’s common stock on the closing date was $5.98, resulting in the addition of $3,431 to additional paid-in-capital. During the year ended September 30, 2021, the Company accelerated the issuance of 365,109 of such shares of common stock to the Seller of the Amika Mobile assets. During the year ended September 30, 2022, the Company issued 69,564 shares of common stock to the Seller of the Amika Mobile assets. There are 139,128 remaining shares of the Company’s common stock subject to issuance under this obligation.
Guarantees and Indemnifications
The Company enters into indemnification provisions under (i) its agreements with other companies in its ordinary course of business, typically with business partners, contractors, customers and landlords and (ii) its agreements with investors. Under these arrangements, the Company may indemnify other parties such as business partners, customers, underwriters, and investors for certain losses suffered, claims of intellectual property infringement, negligence and intentional acts in the performance of services, and violations of laws including certain violations of securities laws. The Company’s obligation to provide such indemnification in such circumstances would arise if, for example, a third party sued a customer for intellectual property infringement and the Company agreed to indemnify the customer against such claims. The Company is unable to estimate with any reasonable accuracy the liability that may be incurred pursuant to such indemnification obligations. Some of the factors that would affect this assessment include, but are not limited to, the nature of the claim asserted, the relative merits of the claim, the financial ability of the parties, the nature and amount of damages claimed, insurance coverage that the Company may have to cover such claims, and the willingness of the parties to reach settlement, if any. Because of the uncertainty surrounding these circumstances, the Company’s indemnification obligations could range from immaterial to having a material adverse impact on its financial position and its ability to continue in the ordinary course of business. The Company has not incurred material costs to defend lawsuits or settle claims related to these indemnification agreements in the past, and the Company had no liabilities recorded for these agreements as of September 30, 20192022 and 2018.2021.
Under its bylaws, the Company has agreed to indemnify its officers and directors for certain events or occurrences arising as a result of the officer or director serving in such capacity. In addition, the Company executed indemnification agreements in June 2013 with the then current Directors and Officers of the Company, indemnifying them from any expenses arising out of any claims. All directors and officers have executed indemnification agreements. The term of the indemnification period is for the officer or director’s lifetime. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. However, the Company has a director and officers’ liability insurance policy that limits its exposure and enables it to recover a portion of any future amounts paid. As a result of its insurance policy coverage, the Company does not believe that a material loss exposure related to these agreements is either probable or can be reasonably estimated. Accordingly, the Company has no liability recorded for these agreements as of September 30, 20192022 and 2018.2021.
14.15. SHARE-BASED COMPENSATION
Stock Option Plans
AtAs of September 30, 2019,2022, the Company had two equity incentive plans. The 2005 Equity Incentive Plan (“2005 Equity Plan”) was terminated with respect to new grants in March 2015 but remains in effect for grants issued prior to that time. The Amended and Restated 2015 Equity Incentive Plan (“2015 Equity Plan”) was approvedadopted by the Company’s Board of Directors on December 6, 2016 and approved by the Company’s stockholders on March 14, 2017. The amendment2015 Equity Plan was amended by the Company’s Board of Directors on December 8, 2020, to increase the Equity Incentive Plan, approved in 2015, authorizesnumber of shares authorized for issuance asfrom 5,000,000 to 10,000,000. On March 16, 2021, the Company’s stockholders approved a plan amendment. The 2015 Equity Plan authorizes the issuance of stock options, restricted stock, stock appreciation rights, restricted stock units and performance awards, to an aggregate of 5,000,00010,000,000 new shares of common stock to employees, directors, advisors or consultants. AtAs of September 30, 2019,2022, there were options and restricted stock units outstanding covering 499,49410,000 and 1,994,6234,274,074 shares of common stock under the 2005 Equity Plan and the 2015 Equity Plan, respectively, and 1,874,1643,486,565 shares of common stock available for grant, for a total of 4,368,281 currently available7,760,639 shares of common stock authorized and unissued under the two equity plans.
Share-Based Compensation
The Company’s employee stock options have various restrictions that reduce option value, including vesting provisions and restrictions on transfer and hedging, among others, and are often exercised prior to their contractual maturity.
There were no1,367,000 options granted during the year ended September 30, 2019.2022 and 295,000 granted during the year ended September 30, 2021. The weighted average estimated fair value of employee stock options granted during the yearyears ended September 30, 20182022 and 2021, was calculated using the Black-Scholes option-pricing model with the following weighted average assumptions (annualized percentages):
| | | 2018 | |
Volatility | | | 45.4 | % |
Risk free interest rate | | | 2.18 | % |
Forfeiture rate | | | 10.0 | % |
Dividend yield | | | 0.0 | % |
Expected life in years | | | 4.6 | |
Weighted average FV | | $ | 0.89 | |
| | | Years ended | |
| | | September 30, | |
| | | 2022 | | | 2021 | |
Volatility | | | 50.8 | % | | | 48.5 | % |
Risk-free interest rate | | | 2.6 | % | | | 0.7 | % |
Dividend yield | | | 0.0 | % | | | 0.0 | % |
Expected term in years | | | 5.2 | | | | 6.5 | |
The Company did not pay a dividend in fiscal 2019 or in fiscal 2018. Expected volatility is based on the historical volatility of the Company’s common stock over the period commensurate with the expected lifeterm of the options. The risk-free interest rate is based on rates published by the Federal Reserve Board. The contractual term of the options was seven years. The expected lifeterm is based on observed and expected time to post-vesting exercise. The expected forfeiture rate is based on past experience and employee retention data. Forfeitures are estimated at the time of the grant and revised in subsequent periods if actual forfeitures differ from those estimates. Such revision adjustments to expense will be recorded as a cumulative adjustment in the period in which the estimate is changed. The Company did not pay a dividend in fiscal 2022 or fiscal 2021.
As of September 30, 2019,2022, there was approximately $415,449$1,620 of total unrecognized compensation costs related to outstanding stock options and restricted stock units.options. This amount is expected to be recognized over a weighted average period of 1.31.82 years. To the extent the forfeiture rate is different from what the Company anticipated, stock-based compensation related to these awards will be different from the Company’s expectations.
Performance-Based Stock Options
On August 1, 2016,October 4, 2019, the Company awarded a performance-based stock option (PVO) to purchase 750,000800,000 shares of the Company’s common stock to a key executive, with a contractual term of seven years. Vesting is based upon the achievement of certain performance criteria for each of fiscal 20192022 and 2020 (375,000 shares for each year)2023 including a minimum free cash flow margin and net revenue targets at four different target levels for each of the years.targets. Additionally, vesting is subject to the executive being employed by the Company at the time the Company achieves such financial targets. During the year ended September 30, 2022, the Company modified the performance criteria for these PVOs to exclude certain strategic growth initiatives that were not planned at the time of grant. The Company recorded $209 in stock-based compensation expense related to these options in the year ended September 30, 2022.
On August 10, 2022, the Company granted PVOs to purchase up to 750,000 shares of the Company’s common stock to a key member of management, with a contractual term of seven years. Vesting is based upon the achievement of certain performance criteria for each of fiscal years 2023, 2024, and 2025, including net bookings targets. Additionally, vesting is subject to the grantee being employed by the Company as of the applicable vest date during each fiscal year in which the Company achieves such financial targets. The Company determined that as of September 30, 2019, it is probable that some of the performance conditions will be achieved and recorded $128,025 in share-baseddid not record compensation expense related to these options for the year ended September 30, 2019. The Company will continue to review these targets each quarter and will adjust the expected outcome as needed, recognizing compensation expense cumulatively in such period for the difference in expense. 2022.
The Company did not grant any PVOs inPVO’s during the year ended September 30, 2019.2021.
Restricted Stock Units
On March 14, 2017,10, 2020, each non-employee member of the Board of Directors approvedreceived a grant of 25,000 restricted stock units (“RSUs”) to each of the Company’s non-employee directors that vested on the first anniversary of the grant date. These were also issued at a market value of $197,500, which was expensed on a straight line basis through the March 14, 2018 vest date.
On March 20, 2018, the Board of Directors approved an additional grant of 25,00030,000 RSUs to each of the Company’s non-employee directors that vested on the first anniversary of the grant date. These were issued at a market value of $278,750,$425, which were expensed on a straight linestraight-line basis through the March 20, 201910, 2021 vest date. Also, duringin fiscal 2018, 93,3302020, 81,270 RSUs were granted to employees that will vest equally over three years on each of the first three anniversary datesdate of the grant. These were issued at a market value of $210,176,$258, which have and will be expensed on a straight linestraight-line basis over the three year-year life of the grants.
On February 7, 2019,March 16, 2021, each non-employee member of the Board of Directors approvedreceived a grant of 27,883 RSUs that vested on the first anniversary of the grant date. These were issued at a market value of $1,100 and were expensed on a straight-line basis through the March 16, 2022 vest date. Also, during fiscal 2021, 145,950 RSUs were granted to employees that will vest over three years on the anniversary date of the grant. These were issued at a market value of $989, which have and will be expensed on a straight-line basis over the three-year life of the grants. On June 7, 2021, 5,000 RSUs with immediate vesting were granted to an employee at a market value of $25. These were expensed during the quarter ended June 30, 2021. On September 1, 2021, two new members of the Board of Directors received a grant of 17,500 RSUs which vested on March 16, 2022. These were issued at a market value of $184 and were expensed on a straight-line basis through the March 16, 2022 vest date.
On March 15, 2022, each non-employee director compensation to include an annualmember of the Board of Directors received a grant of 30,000 RSUs to each of the Company’s five non-employee directors that will vest on the first anniversary of the grant date. These were issued at a market value of $412,500,$407, which have been and will be expensed on a straight-line basis through the March 12, 202015, 2023 vest date. Also, during fiscal 2019, 99,300On November 1, 2021, 10,000 RSUs were granted to employeesa non-employee advisor that will vest equally over three years on eachthe first anniversary of the first three anniversary dates of the grant.grant date. These were issued at a market value of $248,250,$51, which have and will be expensed on a straight linestraight-line basis though the November 1, 2022 vest date. Also, during the year ended September 30, 2022, there were 100,800 RSUs granted to employees that will vest over three years on the anniversary of the grant date. These were issued at a market value of $348, which have and will be expensed on a straight-line basis over the three yearthree-year life of the grants.
Compensation expense for RSUs was $470,857$1,410 for the year ended September 30, 2019.2022. Compensation expense for RSUs was $276,438$1,130 for the year ended September 30, 2018.2021. As of September 30, 2022, there was approximately $918 of total unrecognized compensation costs related to outstanding RSUs. This amount is expected to be recognized over a weighted average period of 1.2 years.
Restricted Stock Unit Summary Information
A summary of restricted stock units of the activity of RSUsCompany as of September 30, 20192022 is presented below:
| | | Number of Shares | | | Weighted Average Grant Date Fair Value | | | Number of Shares | | | Weighted Average Grant Date Fair Value | |
Outstanding September 30, 2018 | | | 218,330 | | | $ | 2.24 | | |
Outstanding September 30, 2021 | | | 399,469 | | | $ | 6.27 | |
Granted | | | 249,300 | | | $ | 2.65 | | | 260,800 | | | $ | 3.09 | |
Released | | | (156,115 | ) | | $ | 2.23 | | | (270,262 | ) | | $ | 6.42 | |
Forfeited/cancelled | | | (36,666 | ) | | $ | 2.39 | | | | (46,832 | ) | | $ | 3.57 | |
Outstanding September 30, 2019 | | | 274,849 | | | $ | 2.59 | | |
Outstanding September 30, 2022 | | | | 343,175 | | | $ | 4.11 | |
Stock Option Summary Information
A summary of the activity in options to purchase the capital stock of the Company as of September 30, 20192022 is presented below:
| | | Number of Shares | | | Weighted Average Exercise Price | | | Number of Shares | | | Weighted Average Exercise Price | |
Outstanding September 30, 2018 | | | 3,394,858 | | | $ | 2.18 | | |
Outstanding September 30, 2021 | | | 2,745,384 | | | $ | 3.02 | |
Granted | | | - | | | $ | - | | | 1,367,000 | | | $ | 3.78 | |
Forfeited/expired | | | (769,439 | ) | | $ | 2.99 | | | (26,250 | ) | | $ | 5.49 | |
Exercised | | | (406,151 | ) | | $ | 1.86 | | | | (145,235 | ) | | $ | 1.94 | |
Outstanding September 30, 2019 | | | 2,219,268 | | | $ | 1.94 | | |
Exerciseable September 30, 2019 | | | 1,405,578 | | | $ | 1.93 | | |
Outstanding September 30, 2022 | | | | 3,940,899 | | | $ | 3.31 | |
Exerciseable September 30, 2022 | | | | 1,640,310 | | | $ | 2.67 | |
The aggregate intrinsic value for options outstanding and options exercisable atas of September 30, 20192022 was $3,107,958$996 and $1,985,062,$996, respectively. The aggregate intrinsic value represents the difference between the Company’s closing stock price on the last day of trading during the year, which was $3.35$2.77 per share, and the exercise price multiplied by the number of applicable options. The total intrinsic value of stock options exercised during the year ended September 30, 20192022 was $638,140$491 and proceeds from these exercises was $756,513.$282. The total intrinsic value of stock options exercised during the year ended September 30, 20182021 was $752,729$725 and cash receivedproceeds from these exercises was $2,434,888.$210. The Company recognized $638,140$208 and $752,729$514 as a tax benefit in the income tax provision for the years ended September 30, 20192022 and 2018,2021, respectively.
The following table summarizes information about stock options outstanding atas of September 30, 2019:2022:
Range of
Exercise Prices | | | Number Outstanding | | | | Weighted Average Remaining Contractural Life | | | | Weighted Average Exercise Price | | | | Number Exercisable | | | | Weighted Avrage Exercise Price | |
| $1.31 | - | $1.76 | | | 637,876 | | | | 3.25 | | | $ | 1.65 | | | | 576,155 | | | $ | 1.64 | |
| $1.86 | - | $1.86 | | | 160,142 | | | | 3.21 | | | $ | 1.86 | | | | 160,142 | | | $ | 1.86 | |
| $1.99 | - | $1.99 | | | 1,125,000 | | | | 3.84 | | | $ | 1.99 | | | | 375,000 | | | $ | 1.99 | |
| $2.02 | - | $1.99 | | | 296,250 | | | | 2.07 | | | $ | 2.49 | | | | 294,281 | | | $ | 2.50 | |
| | | | | | 2,219,268 | | | | 3.39 | | | $ | 1.95 | | | | 1,405,578 | | | $ | 1.94 | |
| | | | | | | Weighted Average | | | Weighted Average | | | | | | | Weighted Average | |
Range of | | Number | | | Remaining | | | Exercise | | | Number | | | Exercise | |
Exercise Prices | | Outstanding | | | Contractual Term | | | Price | | | Exercisable | | | Price | |
$1.31 | - | $1.86 | | | 243,922 | | | | 1.29 | | | $ | 1.69 | | | | 243,922 | | | $ | 1.69 | |
$1.99 | - | $1.99 | | | 937,500 | | | | 1.44 | | | $ | 1.99 | | | | 937,500 | | | $ | 1.99 | |
$3.21 | - | $3.21 | | | 20,000 | | | | 6.60 | | | $ | 3.21 | | | | - | | | $ | - | |
$3.39 | - | $3.39 | | | 800,000 | | | | 4.01 | | | $ | 3.39 | | | | - | | | $ | - | |
$3.40 | - | $8.03 | | | 1,939,477 | | | | 6.06 | | | $ | 4.12 | | | | 458,888 | | | $ | 4.59 | |
| | | | | | 3,940,899 | | | | 4.25 | | | $ | 3.31 | | | | 1,640,310 | | | $ | 2.67 | |
The Company recorded $264,146$817 and $308,435$294 of stock option compensation expense for employees, directors and consultants for the years ended September 30, 2019,2022, and 2018,2021, respectively.
The amounts of share-based compensation expense for restricted stock units and stock options are classified in the Consolidated Statements of Operations as follows:
| | | | Years ended | |
| | | Year ended September 30, | | | September 30, | |
| | | 2019 | | | 2018 | | | 2022 | | | 2021 | |
Cost of revenues | | $ | 15,792 | | | $ | 21,388 | | | $ | 77 | | | $ | 40 | |
Selling, general, and administrative | | | 665,295 | | | | 479,165 | | |
Selling, general and administrative | | | 2,080 | | | 1,344 | |
Research and development | | | 53,916 | | | | 84,320 | | | | 70 | | | | 40 | |
| | | $ | 735,003 | | | $ | 584,873 | | | $ | 2,227 | | | $ | 1,424 | |
116. STOCKHOLDERS’5. STOCKHOLDERS’ EQUITY
Common Stock Activity
On March 18, 2021, the Company filed an amendment to its Certificate of Incorporation, as amended, with the Secretary of State of Delaware to increase the authorized number of shares of common stock of the Company from 50,000,000 to 100,000,000 shares (the “Amended Certificate”). The Amended Certificate was approved by the Company’s stockholders at the Company’s Annual Meeting of Stockholders on March 16, 2021.
During the year ended September 30, 2019,2022, the Company issued 406,151145,235 shares of common stock and obtained gross proceeds of $756,513$282 in connection with the exercise of stock options. During the year ended September 30, 2018,2021, the Company issued 1,179,456104,796 shares of common stock and obtained gross proceeds of $2,434,887$210 in connection with the exercise of stock options. During the year ended September 30, 2019,2022, the Company issued 156,115 of270,262 shares of common stock upon full vesting of RSUs. During the year ended September 30, 2018,2021, the Company issued 125,000 of228,633 shares of common stock upon full vesting of RSUs.
In connection with the Amika Mobile asset purchase, the Company also agreed to issue 191,267 shares of the Company’s common stock to the seller of the Amika Mobile assets on each of the first, second and third anniversaries of the closing date. The total number of shares of common stock the Company is obligated to issue is 573,801. The fair value of the Company’s common stock on the closing date was $5.98, resulting in the addition of $3,431 to additional paid-in-capital. During the year ended September 30, 2021, the Company accelerated the issuance of 365,109 of such shares of common stock to the Seller of the Amika Mobile assets. During the year ended September 30, 2022, the Company issued 69,564 shares of common stock to the Seller of the Amika Mobile assets. There are 139,128 remaining shares of the Company’s common stock subject to issuance under this obligation.
Preferred Stock
The Company is authorized under its certificate of incorporation and bylaws to issue 5,000,000 shares of preferred stock, $0.00001 par value, without any further action by the stockholders. The board of directors has the authority to divide any and all shares of preferred stock into series and to fix and determine the relative rights and preferences of the preferred stock, such as the designation of series and the number of shares constituting such series, dividend rights, redemption and sinking fund provisions, liquidation and dissolution preferences, conversion or exchange rights and voting rights, if any. Issuance of preferred stock by the board of directors could result in such shares having dividend and or liquidation preferences senior to the rights of the holders of common stock and could dilute the voting rights of the holders of common stock.
No shares of preferred stock were outstanding during the fiscal years ended September 30, 20192022 or 2018.2021.
Share Buyback Program
The Board of Directors approved a share buyback program in 2015 under which the Company was authorized to repurchase up to $4 million of its outstanding common shares. In December 2017,2022, the Board of Directors extended the Company’s share buyback program through December 31, 2018.
In December 2018,2024. Under the Board of Directors approved a new share buyback program, beginning January 1, 2019, under which the Company was authorized to repurchase up to $5 million of its outstanding common shares. The previous program expired on December 31, 2018.
During the year ended September 30, 2019, 788,4252022, 259,310 shares were repurchased for $2,171,022. During$998. There were no shares repurchased during the year ended September 30, 2018, 286,746 shares were repurchased for $725,445. At2021. As of September 30, 2019,2022, all repurchased shares were retired.
16.17. NET (LOSS) INCOME (LOSS)PER SHARE
Basic earnings per share are computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period increased to include the number of dilutive potential common shares outstanding during the period. The dilutive effect of outstanding stock options is reflected in diluted earnings per share by application of the treasury stock method, which assumes that the proceeds from the exercise of the outstanding options are used to repurchase common stock at market value. Under the treasury stock method, an increase in the fair market value of the Company’s common stock can result in a greater dilutive effect from potentially dilutive securities. If the Company has losses for the period, the inclusion of potential common stock instruments outstanding would be anti-dilutive. In addition, under the treasury stock method, the inclusion of stock options with an exercise price greater than the per-share market value would be antidilutive. Potential common shares that would be antidilutive are excluded from the calculation of diluted income per share.
The following table sets forth the computation of basic and diluted earnings per share:
| | | Year ended September 30, | | | Years ended | |
| | | 2019 | | | 2018 | | | September 30, | |
Net income (loss) | | $ | 2,784,992 | | | $ | (3,745,042 | ) | |
| | | | | | | | | | | 2022 | | | 2021 | |
Basic income (loss) per share | | $ | 0.09 | | | $ | (0.12 | ) | |
Diluted income (loss) per share | | $ | 0.08 | | | $ | (0.12 | ) | |
Net (loss) income | | | $ | (16,212 | ) | | $ | 704 | |
| | | |
Basic (loss) income per share | | | $ | (0.44 | ) | | $ | 0.02 | |
Diluted (loss)income per share | | | $ | (0.44 | ) | | $ | 0.02 | |
| | | | | | | | | | |
Weighted average shares outstanding - basic | | | 32,689,028 | | | | 32,492,645 | | | 36,495,012 | | | 34,409,478 | |
Assumed exercise of dilutive options | | | 708,067 | | | | - | | | | - | | | | 1,179,670 | |
Weighted average shares outstanding - diluted | | | 33,397,095 | | | | 32,492,645 | | | | 36,495,012 | | | | 35,589,148 | |
| | | | | | | | | | |
Potentially diluted securities outstanding at period end excluded from diluted computation as the inclusion would have been antidilutive: | | | | | | | | | |
Options | | | 573,750 | | | | 3,394,858 | | | 3,940,899 | | | 1,035,000 | |
RSU | | | - | | | | 218,330 | | | 343,175 | | | 208,692 | |
Obligation to issue common stock | | | | 139,128 | | | | - | |
Total | | | 573,750 | | | | 3,613,188 | | | | 4,423,202 | | | | 1,243,692 | |
17.18. SEGMENT INFORMATION
The Company is engaged in the design, development and commercialization of directedcritical communications hardware and multidirectional sound technologies, voice broadcast productssoftware solutions designed to alert, inform, and location-based mass messaging solutions for emergency warning and workforce management.protect. The Company operates in two business segments: LRADHardware and Genasys SpainSoftware and its principleprincipal markets are North and South America, Europe, the Middle East and Asia. As reviewed by the Company’s chief operating decision maker, the Company evaluates the performance of each segment based on sales and operating income. Cash and cash equivalents, marketable securities, accounts receivable, inventory, property and equipment, deferred tax assets, goodwill and intangible assets are primary assets identified by segment. The accounting policies for segment reporting are the same for the Company as a whole and transactions between the two operating segments are not material.
The following table presents the Company’s segment disclosures:
| | | Years ended September 30, | |
| | | 2022 | | | 2021 | |
| Revenue from external customers | | | | | | | | |
Hardware | | $ | 50,938 | | | $ | 44,233 | |
Software | | | 3,097 | | | | 2,770 | |
| | | $ | 54,035 | | | $ | 47,003 | |
| | | | | | | | | |
| Intersegment revenues | | | | | | | | |
Hardware | | $ | - | | | $ | - | |
Software | | | 3,287 | | | | 1,823 | |
| | | $ | 3,287 | | | $ | 1,823 | |
| | | | | | | | | |
| Segment operating income (loss) | | | | | | | | |
Hardware | | $ | 9,260 | | | $ | 7,871 | |
Software | | | (24,791 | ) | | | (6,787 | ) |
| | | $ | (15,531 | ) | | $ | 1,084 | |
| | | | | | | | | |
| Other expenses: | | | | | | | | |
| Depreciation and amortization expense | | | | | | | | |
Hardware | | $ | 380 | | | $ | 375 | |
Software | | | 2,176 | | | | 1,222 | |
| | | $ | 2,556 | | | $ | 1,597 | |
| | | | | | | | | |
Goodwill Impairment | | | | | | | | |
Hardware | | $ | - | | | $ | - | |
Software | | | 13,162 | | | | - | |
| | | $ | 13,162 | | | $ | - | |
| | | | | | | | | |
Income tax expense (benefit) | | | | | | | | |
Hardware | | $ | 1,065 | | | $ | 906 | |
Software | | | (324 | ) | | | (472 | ) |
| | | $ | 741 | | | $ | 434 | |
For the year ended September 30, 2019:
| | | Revenue from External Customers | | | Intercompany Revenues | | | Operating Income | | | Depreciation and amortization expense | | | Interest Expense | | | Income Tax Expense | |
LRAD | | $ | 34,931,448 | | | $ | - | | | $ | 3,097,498 | | | $ | 517,081 | | | $ | - | | | $ | 572,200 | |
Genasys Spain | | | 2,047,607 | | | | 907,785 | | | | 38,867 | | | | 307,808 | | | | - | | | | - | |
| | | $ | 36,979,055 | | | $ | 907,785 | | | $ | 3,136,365 | | | $ | 824,889 | | | $ | - | | | $ | 572,200 | |
| | | | Long-lived assets | | | Total Assets | |
| LRAD | | | $ | 2,283,344 | | | $ | 42,470,356 | |
| Genasys Spain | | | $ | 3,467,546 | | | $ | 4,649,627 | |
| | | | $ | 5,750,890 | | | $ | 47,119,983 | |
For the year ended September 30, 2018:
| | | Revenue from External Customers | | | Intercompany Revenues | | | Operating Income (loss) | | | Depreciation and amortization expense | | | Interest Expense | | | Income Tax Expense | |
LRAD | | $ | 24,836,795 | | | $ | - | | | $ | (1,387,902 | ) | | $ | 254,618 | | | $ | - | | | $ | 2,375,000 | |
Genasys Spain | | | 1,469,995 | | | | 313,110 | | | | (88,563 | ) | | | 228,469 | | | | 20,949 | | | | - | |
| | | $ | 26,306,790 | | | $ | 313,110 | | | $ | (1,476,465 | ) | | $ | 483,087 | | | $ | 20,949 | | | $ | 2,375,000 | |
| | | Long-lived assets | | | Total Assets | |
LRAD | | $ | 2,478,144 | | | $ | 36,770,872 | |
Genasys Spain | | | 3,973,917 | | | | 5,089,925 | |
| | | $ | 6,452,061 | | | $ | 41,860,797 | |
| | | September 30, | |
| | | 2022 | | | 2021 | |
| Long-lived assets | | | | | | | | |
Hardware | | $ | 1,677 | | | $ | 1,748 | |
Software | | | 10,585 | | | | 12,811 | |
| | | $ | 12,262 | | | $ | 14,559 | |
| | | | | | | | | |
| Total assets | | | | | | | | |
Hardware | | $ | 47,237 | | | $ | 50,364 | |
Software | | | 24,617 | | | | 39,764 | |
| | | $ | 71,854 | | | $ | 90,128 | |
18. 19. MAJOR CUSTOMERS, SUPPLIERS AND RELATED INFORMATION
Major Customers
For the fiscal year ended September 30, 2019,2022, revenues from two customersone customer accounted for 37% and 10%68% of total revenues with no other single customer accounting for more than 10% of total revenues. For the fiscal year ended September 30, 2018,2021, revenues from one customer accounted for 20%58% of total revenues with no other single customer accounting for more than 10% of total revenues. As of September 30, 2022, accounts receivable from two customers accounted for 43% and 19% of total accounts receivable. As of September 30, 2021, accounts receivable from two customers accounted for 66% and 18% of total accounts receivable.
Revenue from customers in the United States was $45,703 for the year ended September 30, 2022. Revenue from customers in the United States was $37,888 for the year ended September 30, 2021. The following table summarizes revenues by geographic region. Revenues are attributed to countries based on customer’s delivery location.
| | | | Years ended | |
| | | Years ended September 30, | | | September 30, | |
| | | 2019 | | | 2018 | | | 2022 | | | 2021 | |
Americas | | $ | 27,981,225 | | | $ | 16,488,624 | | | $ | 47,129 | | | $ | 39,064 | |
Europe, Middle East, and Africa | | | 2,420,106 | | | | 3,238,533 | | |
Asia Pacific | | | 6,577,724 | | | | 6,579,633 | | | 3,394 | | | 4,470 | |
| | | $ | 36,979,055 | | | $ | 26,306,790 | | |
Europe, Middle East and Africa | | | | 3,512 | | | | 3,469 | |
Total Revenues | | | $ | 54,035 | | | $ | 47,003 | |
The following table summarized long lived assets by geographic region.
| | | September 30, | |
| | | 2022 | | | 2021 | |
United States | | $ | 11,800 | | | $ | 11,342 | |
Americas (excluding the United States) | | | 16 | | | | 2,543 | |
Asia Pacific | | | - | | | | - | |
Europe, Middle East and Africa | | | 446 | | | | 674 | |
| | | $ | 12,262 | | | $ | 14,559 | |
Suppliers
The Company has a large number of components and sub-assemblies produced by outside suppliers, some of which are sourced from a single supplier, which can magnify the risk of shortages and decrease the Company’s ability to negotiate with suppliers on the basis of price. In particular, the Company depends on one supplier of compression drivers for its LRAD products. If supplier shortages occur, or quality problems arise, then production schedules could be significantly delayed or costs significantly increased, which could in turn have a material adverse effect on the Company’s financial condition, results of operation and cash flows.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
LRAD CORPORATIONGENASYS INC.
|
December 9, 201916, 2022 |
|
| | |
By: | /s/ RICHARDRichard S. DANFORTH Danforth |
| Richard S. Danforth |
| Chief Executive Officer |
POWER OF ATTORNEY
Know all persons by these presents, that each person whose signature appears below constitutes and appoints Richard S. Danforth, and each of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place, and stead, in any and all capacities, to sign any and all amendments to this report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming that all said attorneys-in-fact and agents, or any of them or their or his substitute or substituted, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of registrant in the capacities and on the dates indicated.
| | | |
Date: December 9, 201916, 2022 | By | | /s/ RICHARDRichard S. DANFORTH Danforth |
| | | Richard S. Danforth Chief Executive Officer (Principal Executive Officer) |
| | | | |
Date: December 9, 201916, 2022 | By | | /s/ Dennis D. Klahn |
| | | /s/ Dennis D. Klahn,
|
| | | Dennis D. Klahn, Chief Financial Officer
(Principal Financial and Accounting Officer) |
| | | | |
Date: December 9, 201916, 2022 | By | | /s/ SCOTT L. ANCHIN Dennis D. Klahn |
| | | | | Scott L. AnchinDennis D. Klahn
Director |
| | | | |
Date: December 9, 201916, 2022 | By | | /s/ LAURA M. CLAGUE Richard H. Osgood III |
| | | | | Laura M. ClagueRichard H. Osgood III
Director |
| | | | |
Date: December 9, 201916, 2022 | By | | /s/ GENERAL JOHN G. COBURN Susan Lee Schmeiser |
| | | | | General John G. CoburnSusan Lee Schmeiser
Director |
| | | | |
Date: December 9, 201916, 2022 | By | | /s/ DANIEL H. MCCOLLUM |
| | | Daniel H. McCollum
Director
Caltha Seymour |
| | | | |
Date: December 9, 2019
| By
| | /s/ RICHARD H. OSGOOD III
|
| | | Richard H. Osgood IIICaltha Seymour
Director |
