Table of Contents
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM
FORM 10-Q
 
 
 
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022
OR
 
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD: From
______________ to
________________
Commission File Number:
001-11703
 
 
GENCOR INDUSTRIES, INC.
 
 
 
Delaware
 
59-0933147
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer
of incorporation or organization)
Identification No.)
5201 North Orange Blossom Trail, Orlando, Florida 32810
(Address of principal executive offices) (Zip Code)
(407)
290-6000
(Registrant’s telephone number, including area code)
 
 
Securities registered or to be registered pursuant to Section 12(b) of the Act
 
Title of
Each Class
  
Trading
Symbol(s)
  
Name of Exchange
on which registered
Common Stock ($.10 Par Value)
  
GENC
  
NASDAQ Global Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
90 days.    
Yes
  ☒            No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
 
Large accelerated filer ☐  Accelerated Filer ☐
Non-accelerated Filer ☒  Smaller Reporting Company ☒
Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).
Yes  ☐            
No  ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
Class
  
Outstanding at August 6, 2021May 10, 2022
Common stock, $.10 par value
  12,298,337
12,338,845 shares
Class B stock, $.10 par value
  
2,318,857 shares
 
 
 
Table of Contents
Table of Contents
Caution Concerning Forward-Looking Statements
This Quarterly Report on Form
10-Q
(this “Quarterly Report”) and the Company’s other communications and statements may contain certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including statements about the Company’s beliefs, plans, objectives, goals, expectations, estimates, projections and intentions. TheseAll forward-looking statements, by their nature, are subject to significant risks and uncertainties and are subject to change based on various factors, many of which are beyond the Company’s control. ActualThe Company’s actual future results may differ materially from those set forth in the Company’s forward-looking statements depending on a variety of important factors, including the financial condition of the Company’s customers, changes in the economic and competitive environments, demand for the Company’s products, the duration and scope of the novel coronavirus
(“COVID-19”)
pandemic and its variants, actions governments,government entities and businesses take in response to the
COVID-19
pandemic, including mandatory business closures; the impact of the pandemic and actions taken on regional economies,economies; and the pace of recovery when the
COVID-19
pandemic subsides. In addition, on February 24, 2022, Russian forces invaded Ukraine. The impact to Ukraine as well as actions taken by other countries, including new and stricter sanctions imposed by the U.S. and other countries and companies against officials, individuals, regions, and industries in Russia, and actions taken by Russia and certain other countries in response to such sanctions, could result in a disruption in our supply chain and higher costs of our products. The words “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “target,” “goal,” and similar expressions are intended to identify forward-looking statements.
For information concerning these factors and related matters, see the following sections of the Company’s Annual Report on Form
10-K
for the year ended September 30, 2020:2021: (a) Part I, Item 1A, “Risk Factors” and (b) Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. However, other factors besides those referenced could adversely affect the Company’s results, and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties. Any forward-looking statementsstatement made by the Company herein speakspeaks as of the date of this Quarterly Report. The Company does not undertake to update any forward-looking statements, except as required by law.
Unless the context otherwise indicates, all references in this Quarterly Report to the “Company,” “Gencor,” “we,” “us,” or “our,” or similar words are to Gencor Industries, Inc. and its subsidiaries.
 
3
Table of Contents
Part I. Financial Information
Item 1. Financial Statements
GENCOR INDUSTRIES, INC.
Condensed Consolidated Balance Sheets
 
   
June 30,
2021
   
September 30,
2020
 
ASSETS
  
(Unaudited)
   
 
 
Current Assets:
    
Cash and cash equivalents
  $27,544,000   $35,584,000 
Marketable securities at fair value (cost $93,077,000 at June 30, 2021 and $89,514,000 at September 30, 2020)
   95,345,000    89,498,000 
Accounts receivable, less allowance for doubtful accounts of $307,000 at June 30, 2021 and $442,000 at September 30, 2020
   3,120,000    1,992,000 
Costs and estimated earnings in excess of billings
   0    6,405,000 
Inventories, net
   40,832,000    27,090,000 
Prepaid expenses and other current assets
   1,233,000    1,189,000 
   
 
 
   
 
 
 
Total Current Assets
   168,074,000    161,758,000 
   
 
 
   
 
 
 
   
Property and equipment, net
   12,251,000    8,341,000 
Other long-term assets
   948,000    995,000 
   
 
 
   
 
 
 
Total Assets
  $181,273,000   $171,094,000 
   
 
 
   
 
 
 
   
LIABILITIES AND SHAREHOLDERS’ EQUITY
          
Current Liabilities:
          
Accounts payable
  $4,406,000   $1,728,000 
Customer deposits
   3,761,000    3,853,000 
Billings in excess of costs and estimated earnings
  
685,000
   
0
 
Accrued expenses and other current liabilities
   2,874,000    2,605,000 
Current operating lease liabilities
   403,000    328,000 
   
 
 
   
 
 
 
Total Current Liabilities
   12,129,000    8,514,000 
   
 
 
   
 
 
 
   
Deferred and other income taxes
   1,203,000    746,000 
Non-current
operating lease liabilities
   491,000    614,000 
   
 
 
   
 
 
 
Total Liabilities
   13,823,000    9,874,000 
   
 
 
   
 
 
 
   
Commitments and contingencies
   0    0 
   
Shareholders’ equity:
          
Preferred stock, par value $.10 per share; 300,000 shares authorized; NaN issued
   0    0   
Common stock, par value $
.10
per share; 15,000,000 shares authorized; 12,298,337 shares and 12,287,337
shares issued and outstanding at June 30, 2021 and September 30, 2020, respectively
   1,230,000    1,229,000 
Class B Stock, par value $
.10
per share; 6,000,000 shares authorized; 2,318,857 shares issued and outstanding at June 30, 2021 and September 30, 2020
   232,000    232,000 
Capital in excess of par value
   12,386,000    12,331,000 
Retained earnings
   153,602,000    147,428,000 
   
 
 
   
 
 
 
Total Shareholders’ Equity
   167,450,000    161,220,000 
   
 
 
   
 
 
 
Total Liabilities and Shareholders’ Equity
  $181,273,000   $171,094,000 
   
 
 
   
 
 
 
   
March 31,

2022

(Unaudited)
   
September 30,
2021
 
ASSETS
          
Current assets:
          
Cash and cash equivalents
  $22,571,000   $23,232,000 
Marketable securities at fair value (cost of $94,746,000 at March 31, 2022 and $93,690,000 at September 30, 2021)
   94,501,000    94,976,000 
Accounts receivable, less allowance for doubtful accounts of $349,000 at March 31, 2022 and $321,000 at September 30, 2021
   3,924,000    2,622,000 
Costs and estimated earnings in excess of billings
   1,629,000    1,903,000 
Inventories, net
   47,222,000    41,888,000 
Prepaid expenses and other current assets   3,756,000    2,202,000 
   
 
 
   
 
 
 
Total current assets
   173,603,000    166,823,000 
   
 
 
   
 
 
 
Property and equipment, net
   12,205,000    11,801,000 
Other long-term assets
   711,000    838,000 
   
 
 
   
 
 
 
Total Assets
  $186,519,000   $179,462,000 
   
 
 
   
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
          
Current liabilities:
          
Accounts payable
  $5,741,000   $3,105,000 
Customer deposits
   10,286,000    5,244,000 
Accrued expenses
   2,442,000    2,645,000 
Current operating lease liabilities
   407,000    393,000 
   
 
 
   
 
 
 
Total current liabilities
   18,876,000    11,387,000 
Deferred and other income taxes
   0      394,000 
Non-current
operating lease liabilities
   189,000    392,000 
   
 
 
   
 
 
 
Total liabilities
   19,065,000    12,173,000 
   
 
 
   
 
 
 
Commitments and contingencies
   0     0  
Shareholders’ equity:
          
Preferred stock, par value $.10 per share; 300,000 shares authorized; 0ne issued
   0—       0—   
Common stock, par value $.10 per share; 15,000,000 shares authorized; 12,338,845 shares issued and outstanding at March 31, 2022 and September 30, 2021
   1,234,000    1,234,000 
Class B Stock, par value $.10 per share; 6,000,000 shares authorized; 2,318,857 shares issued and outstanding at March 31, 2022 and September 30, 2021
   232,000    232,000 
Capital in excess of par value
   12,590,000    12,590,000 
Retained earnings
   153,398,000    153,233,000 
   
 
 
   
 
 
 
Total shareholders’ equity
   167,454,000    167,289,000 
   
 
 
   
 
 
 
Total Liabilities and Shareholders’ Equity
  $186,519,000   $179,462,000 
   
 
 
   
 
 
 
See accompanying Notes to Condensed Consolidated Financial Statements
 
4
Table of Contents
GENCOR INDUSTRIES, INC.
Condensed Consolidated Income Statements of Income
(Unaudited)
 
  
For the Quarters
 
Ended
June 30,
 
For the Nine Months Ended
June 30,
   
For the Quarters Ended

March 31,
   
For the Six Months Ended

March 31,
 
  
2021
   
2020
 
2021
   
2020
   
2022
 
2021
   
2022
 
2021
 
Net revenue
  $24,919,000   $22,940,000  $65,235,000   $66,963,000   $30,654,000  $21,352,000   $50,760,000  $40,316,000 
Cost of goods sold   19,314,000    17,555,000   50,504,000    49,920,000    24,462,000   15,206,000    40,863,000   31,189,000 
  
 
  
 
   
 
  
 
 
Gross profit
  
5,605,000
   
5,385,000
   
14,731,000
   
17,043,000
    6,192,000   6,146,000    9,897,000   9,127,000 
 
 
 
 
 
 
 
 
Operating expenses:
                  
Product engineering and development
   1,176,000    849,000   3,089,000    2,304,000    920,000   1,069,000    2,269,000   1,914,000 
Selling, general and administrative
   3,202,000    2,522,000   10,235,000    7,465,000    3,364,000   3,838,000    6,763,000   7,032,000 
  
 
   
 
  
 
   
 
   
 
  
 
   
 
  
 
 
   4,378,000    3,371,000   13,324,000    9,769,000 
  
 
   
 
  
 
   
 
 
Total operating expenses
   4,284,000   4,907,000    9,032,000   8,946,000 
   
 
  
 
   
 
  
 
 
Operating income
   1,227,000    2,014,000   1,407,000    7,274,000    1,908,000   1,239,000    865,000   181,000 
Other income (expense), net:
                     
Interest and dividend income, net of fees
   306,000    512,000   1,437,000    1,907,000    296,000   327,000    573,000   1,130,000 
Net realized and unrealized gains (losses) on marketable securities
   1,386,000    2,888,000   4,873,000    (1,465,000) 
Net realized and unrealized gains (losses) on marketable securities, net
   (1,488,000)   1,294,000    (1,065,000)   3,488,000 
Other
   0    (10,000)   —      (20,000)    (137,000)   —      (137,000)   —   
  
 
   
 
  
 
   
 
 
   1,692,000    3,390,000   6,310,000    422,000   
 
  
 
   
 
  
 
 
  
 
   
 
  
 
   
 
    (1,329,000)   1,621,000    (629,000)   4,618,000 
   
 
  
 
   
 
  
 
 
Income before income tax expense
   2,919,000    5,404,000   7,717,000    7,696,000    579,000   2,860,000    236,000   4,799,000 
Income tax expense
   584,000    1,082,000   1,543,000    1,540,000    140,000   572,000    71,000   960,000 
  
 
   
 
  
 
   
 
   
 
  
 
   
 
  
 
 
Net income
  $2,335,000   $4,322,000  $6,174,000   $6,156,000   $439,000  $2,288,000   $165,000  $3,839,000 
  
 
   
 
  
 
   
 
   
 
  
 
   
 
  
 
 
Basic income per common share
  $0.03  $0.16   $0.01  $0.26 
   
 
  
 
   
 
  
 
 
Basic Income per Common Share:
           
Net income per share
  $0.16   $0.30  $0.42   $0.42 
Diluted income per common share
  $0.03  $0.16   $0.01  $0.26 
  
 
   
 
  
 
   
 
   
 
  
 
   
 
  
 
 
 
Diluted Income per Common Share:
             
Net income per share
  $0.16   $0.29  $0.42   $0.42 
  
 
   
 
  
 
   
 
 
See accompanying Notes to Condensed Consolidated Financial Statements
 
5
Table of Contents
GENCOR INDUSTRIES, INC.
Condensed Consolidated Statements of Shareholders’ Equity
(Unaudited)
 
For the Nine Months Ended June 30, 2021
 
   Common Stock   Class B Stock   Capital in
Excess of		   Retained   Total
Shareholders’		 
   Shares   Amount   Shares   Amount   Par Value   Earnings   Equity 
September 30, 2020
   12,287,337   $1,229,000    2,318,857   $232,000   $12,331,000   $147,428,000   $161,220,000 
Net income
   —      —    —      —    —    1,551,000    1,551,000 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
December 31, 2020
   12,287,337   $1,229,000    2,318,857   $232,000   $12,331,000   $148,979,000   $162,771,000 
        
Net income
   —      —    —      —    —    2,288,000    2,288,000 
Stock options exercised
   11,000    1,000    —    —    55,000    —    56,000 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
March 31, 2021
   12,298,337   $1,230,000    2,318,857   $232,000   $12,386,000   $151,267,000   $165,115,000 
        
Net income
   —      —    —      —    —    2,335,000    2,335,000 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
June 30, 2021
   12,298,337   $1,230,000    2,318,857   $232,000   $12,386,000   $153,602,000   $167,450,000 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
For the Six Months Ended March 31, 2022
 
   Common Stock   Class B Stock   Capital in
Excess of		   Retained  Total
Shareholders’		 
   Shares   Amount   Shares   Amount   Par Value   Earnings  Equity 
September 30, 2021
   12,338,845   $1,234,000    2,318,857   $232,000   $12,590,000   $153,233,000  $167,289,000 
Net loss
   —      —      —      —      —      (274,000)   (274,000) 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
December 31, 2021
   12,338,845   $1,234,000    2,318,857   $232,000   $12,590,000   $152,959,000  $167,015,000 
Net income
   —      —      —      —      —      439,000   439,000 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
March 31, 2022
   12,338,845   $1,234,000    2,318,857   $232,000   $12,590,000   $153,398,000  $167,454,000 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
For the Six Months Ended March 31, 2021
 
   Common Stock   Class B Stock   Capital in
Excess of		   Retained   Total
Shareholders’		 
   Shares   Amount   Shares   Amount   Par Value   Earnings   Equity 
September 30, 2020
   12,287,337   $1,229,000    2,318,857   $232,000   $12,331,000   $147,428,000   $161,220,000 
Net income
   —      —      —      —      —      1,551,000    1,551,000 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
December 31, 2020
   12,287,337   $1,229,000    2,318,857   $232,000   $12,331,000   $148,979,000   $162,771,000 
Net income
   —      —      —      —      —      2,288,000    2,288,000 
Stock options exercised
   11,000    1,000    —      —      55,000    —      56,000 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
March 31, 2021
   12,298,337   $1,230,000    2,318,857   $232,000   $12,386,000   $151,267,000   $165,115,000 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
See accompanying Notes to Condensed Consolidated Financial Statements
 
For the Nine Months Ended June 30, 2020
 
   Common Stock   Class B Stock   Capital in
Excess of		   Retained  Total
Shareholders’		 
   Shares   Amount   Shares   Amount   Par Value   Earnings  Equity 
September 30, 2019
   12,277,337   $1,228,000    2,308,857   $231,000   $12,159,000   $141,897,000  $155,515,000 
Net income
   —      —      —      —      —      2,489,000   2,489,000 
Stock-based compensation
   —      —      —      —      18,000    —     18,000 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
December 31, 2019
   12,277,337    1,228,000    2,308,857    231,000    12,177,000    144,386,000   158,022,000 
        
Net loss
   —      —      —      —      —      (655,000)   (655,000) 
Stock-based compensation
   —      —      —      —      17,000    —     17,000 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
March 31, 2020
   12,277,337    1,228,000    2,308,857    231,000    12,194,000    143,731,000   157,384,000 
        
Net income
   —      —      —      —      —      4,322,000   4,322,000 
Stock-based compensation
   —      —      —      —      18,000    —     18,000 
Stock options exercised
   10,000    1,000    10,000    1,000    101,000    —     103,000 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
June 30, 2020
   12,287,337   $1,229,000    2,318,857   $232,000   $12,313,000   $148,053,000  $161,827,000 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
  
 
 
 
See accompanying Notes to Condensed Consolidated Financial Statements
6
Table of Contents
GENCOR INDUSTRIES, INC.
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended March 31, 2022 and 2021
(Unaudited)
 
   
For the Nine Months Ended

June 30,
 
   
2021
  
2020
 
Cash flows from operations:
         
Net income
  $6,174,000  $6,156,000 
Adjustments to reconcile net income to cash flows provided by operating activities:
         
Purchases of marketable securities
   (101,040,000)  (112,668,000) 
Proceeds from sale and maturity of marketable securities
   99,638,000   110,805,000 
Change in fair value of marketable securities
   (4,445,000)  1,510,000 
Deferred income taxes
   457,000   (2,066,000) 
Depreciation and amortization
   1,931,000   1,244,000 
Provision for doubtful accounts
   125,000   50,000 
Stock-based compensation
   —
 
 
   53,000 
Changes in assets and liabilities:
         
Accounts receivable
   (1,253,000)  (56,000) 
Costs and estimated earnings in excess of billings
   7,090,000   3,774,000 
Inventories (excluding the effect of the Blaw-Knox acquisition)
   (3,357,000)  804,000 
Prepaid expenses and other current assets
   (44,000)  (1,150,000) 
Accounts payable
   2,678,000   182,000 
Customer deposits
   (92,000)  733,000 
Accrued expenses and other current liabilities
   268,000   34,000 
   
 
 
  
 
 
 
Total adjustments
   1,956,000   3,249,000 
   
 
 
  
 
 
 
Cash flows provided by operating activities   8,130,000   9,405,000 
   
 
 
  
 
 
 
   
Cash flows used in investing activities:
         
Acquisition of Blaw-Knox assets
   (13,777,000)   —   
Capital expenditures
   (2,449,000)  (1,246,000) 
   
 
 
  
 
 
 
Cash flows used in investing activities   (16,226,000)  (1,246,000) 
   
 
 
  
 
 
 
   
Cash flows from financing activities:
         
Proceeds from stock option exercises
   56,000   103,000 
   
 
 
  
 
 
 
Cash flows provided by financing activities   56,000   103,000 
   
 
 
  
 
 
 
   
Net increase (decrease) in cash
   (8,040,000)  8,262,000 
Cash at:
         
Beginning of period
   35,584,000   10,302,000 
   
 
 
  
 
 
 
End of period
  $27,544,000  $18,564,000 
   
 
 
  
 
 
 
   
Non-cash
investing activities:
         
Operating lease
right-of-use
assets
  $254,000 $—   
Operating lease liabilities
  $254,000 $—   
   
2022
  
2021
 
Cash flows from operating activities:
         
Net income
  $165,000  $3,839,000 
Adjustments to reconcile net income to cash provided by operating activities:
         
Purchase of marketable securities
   (68,803,000)   (54,048,000) 
Proceeds from sale and maturity of marketable securities
   68,043,000   53,067,000 
Change in value of marketable securities
   1,235,000   (3,167,000) 
Deferred and other income taxes
   (456,000)   501,000 
Depreciation and amortization
   1,299,000   1,210,000 
Provision for doubtful accounts
   75,000   25,000 
Changes in assets and liabilities, excluding the initial effects of business acquisitions:   
Accounts receivable
   (1,377,000)   (1,576,000) 
Costs and estimated earnings in excess of billings
   274,000   6,405,000 
Inventories   (5,334,000)   (629,000) 
Prepaid expenses and other current assets   (1,554,000)   (15,000) 
Accounts payable
   2,636,000   969,000 
Customer deposits
   5,042,000   2,173,000 
Accrued expenses
   (200,000)   529,000 
   
 
 
  
 
 
 
Total adjustments
   880,000   5,444,000 
   
 
 
  
 
 
 
Cash flows provided by operating activities
   1,045,000   9,283,000 
   
 
 
  
 
 
 
Cash flows from investing activities:
         
Acquisition of Blaw-Knox assets
   —     (13,777,000) 
Capital expenditures
   (1,706,000)   (1,729,000) 
   
 
 
  
 
 
 
Cash flows used in investing activities
   (1,706,000)   (15,506,000) 
   
 
 
  
 
 
 
Cash flows from financing activities:
         
Proceeds from stock option exercises
   —     56,000 
   
 
 
  
 
 
 
Cash flows provided by financing activities
   —     56,000 
   
 
 
  
 
 
 
Net decrease in cash and cash equivalents
   (661,000)   (6,167,000) 
Cash and cash equivalents at:
         
Beginning of period   23,232,000   35,584,000 
   
 
 
  
 
 
 
End of period  $22,571,000  $29,417,000 
   
 
 
  
 
 
 
Non-cash
investing and financing activities:
         
Operating lease
right-of-use
assets
  $—    $254,000 
Operating lease liabilities
  $—    $254,000 
See accompanying Notes to Condensed Consolidated Financial Statements
 
7
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GENCOR INDUSTRIES, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 - Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form
10-Q
and Article 10 of Regulation
S-X.
Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all material adjustments (consisting of normal, recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the quarter and ninesix months ended June 30, 2021March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending September 30, 2021.2022.
The accompanying Condensed Consolidated Balance Sheet at September 30, 20202021 has been derived from the audited financial statements at that date but does not include all of the information and notes required by generally accepted accounting principles for complete financial statements.
On October 1, 2020, the Company acquired the Blaw-Knox paver line and associated assets, including inventory, fixed assets and related intellectual property, from Volvo Construction Equipment North America, LLC (“Volvo CE”).CE. The acquisition providesprovided the Company entry into the asphalt paver sector of the asphalt industry. The acquisition was accounted for as a business combination under ASC 805, “Business Combinations.” The initial purchase price of approximately $14.4 million, which was subject to post-closing adjustments, was funded by cash on hand. After post-closing adjustments transacted during
 the
quarter ended March 31, 2021, the final purchase price was $13.8 million, including $10.4 million in inventory and $3.4 
million in fixed assets. There were no liabilities assumed. The accompanying condensed consolidated financial statements as of JuneMarch 31, 2022 and September 30, 2021, and for the quarters and six months ended March 31, 2022 and 2021, include the assets, liabilities and operating results of the paver line as of and for the quarter and
nine
 monthsperiods then ended. There were no paver equipment revenues during the quarter ended December 31, 2020, as the facility was being readied for production which began in the quarter ended March 31, 2021.
For further information, refer to theThese condensed consolidated financial statements and accompanying notes theretoshould be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Gencor Industries, Inc.our Annual Report on Form
10-K
for the year ended September 30, 2020. 
2021 filed with the Securities and Exchange Commission on December 17, 2021.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU No.
2016-02,
 Leases
 (Topic 842) (“ASU
2016-02”).
With adoption of this standard, lessees are required to recognize most leases as a
right-of-use
asset and a lease liability on their balance sheet. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. ASU
2016-02
must be applied on a modified retrospective basis and was effective for fiscal years beginning after December 15, 2018, and interim periods within those years, with early adoption permitted. The Company adopted ASU
2016-02
in the first quarter of fiscal 2020. The initial adoption of ASU
2016-02
did not have a significant impact on its consolidated financial statements. During the fourth quarter of fiscal 2020, the Company entered into a three-year operating lease for property related to the manufacturing and warehousing of the paver line which resulted in reporting a
right-of-use
(“ROU”) asset and related lease liabilities of approximately $970,000. On October 9, 2020, the Company entered into a second operating lease for additional warehousing space for the paver inventory. The lease term is for one year beginning November 2020 with automatic
one-year
renewals. In accordance with ASU
2016-02,
the Company recorded a ROU asset totaling $254,000 and related lease liabilities at inception (see Note 9 – Leases).
In August 2018, the FASB issued ASU
2018-13,
Fair Value Measurement—Disclosure Framework (Topic 820) (ASU
2018-13).
The updated guidance improves the disclosure requirements on fair value measurements, including, among other things, addition of certain disclosures related to level 3 fair value measurements, and removal of disclosure requirements for (i) the amount and reasons for transfers between level 1 and level 2 of the fair value hierarchy, and (ii) policy and timing of transfers between fair value hierarchy levels. The updated guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted ASU
2018-13
during the quarter ended December 31, 2020. The application of this guidance did not have a material effect on our disclosures.
8
Table of Contents
No otherThere were no accounting pronouncements recently issued or newly effective havethat had, or are expected to have, a material impact on the Company’s consolidated financial statements.
COVID-19
Pandemic
The Company continues to monitor and evaluate the risks to public health and the slowdown in overall business activity related to the
COVID-19
pandemic, including impacts on its employees, customers, suppliers and financial results. As of the date of issuance of these Condensed Consolidated Financial Statements,this Quarterly Report, the Company’s operations have not been significantly impacted. However, the full impact of the
COVID-19
pandemic continues to evolve subsequent to the quarter ended June 30, 2021March 31, 2022 and as of the date these Condensed Consolidated Financial Statements arethis Quarterly Report is issued. As such, the full magnitude that the
COVID-19
pandemic will have on the Company’s financial condition and future results of operations is uncertain. Management is actively monitoringcontinues to monitor the situation on the Company’s financial condition, operations, suppliers,
8
Table of Contents
industry, customers, and workforce. As the spread of
COVID-19
pandemicand its variants continues, the Company’s ability to meet customer demands for products may be impacted or its customers may experience adverse business consequences due to
COVID-19.COVID-19
and its variants. Reduced demand for products or ability to meet customer demand (including as a result of disruptions fromat the Company’s suppliers) could have a material adverse effect on its business operations and financial performance.
Global, market and economic conditions may negatively impact our business, financial condition and share price.
Concerns over inflation, geopolitical issues, global financial markets and the COVID-19 pandemic have led to increased economic instability and expectations of slower global economic growth. Our business may be adversely affected by any such economic instability or unpredictability. Russia’s invasion of Ukraine and related sanctions has led to increased oil and natural gas prices. Such sanctions and disruptions to the global economy may lead to additional inflation and may disrupt the global supply chain and could have a material adverse effect on our ability to secure supplies. The increased cost of oil, along with increased or prolonged periods of inflation, would likely increase our costs in the form of higher wages, further inflation on supplies and equipment necessary to operate our business. There is a risk that one or more of our suppliers could be negatively affected by global economic instability, which could adversely affect our ability to operate efficiently and timely complete our operational goals.
Note 2 - Marketable Securities and Fair Value Measurements
Marketable debt and equity securities are categorized as trading securities and are thus marked to market and stated at fair value. Fair value is determined using the quoted closing or latest bid prices for Level 1 investments and market standard valuation methodologies for Level 2 investments. Realized gains and losses on investment transactions are determined by specific identification and are recognized as incurred in the condensed consolidated statements of income. Changesincome statements. Net changes in net unrealized gains and losses are reported in the condensed consolidated income statements of income in the current period and represent the change in the fair value of investment holdings during the period.
Fair Value Measurements
The fair value of financial instruments is presented based upon a hierarchy of levels that prioritizes the inputs of valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
The fair value of marketable equity securities (stocks), mutual funds, exchange-traded funds, government securities, and cash and money funds, are substantially based on quoted market prices (Level 1). Corporate and municipal bonds are valued using market standard valuation methodologies, including: discounted cash flow methodologies, and matrix pricing or other similar techniques. The inputs to these market standard valuation methodologies include, but are not limited to: interest rates, credit standing of the issuer or counterparty, industry sector of the issuer, coupon rate, call provisions, maturity, estimated duration and assumptions regarding liquidity and estimated future cash flows. In addition to bond characteristics, the valuation methodologies incorporate market data, such as actual trades completed, bids and actual dealer quotes, where such information is available. Accordingly, the estimated fair values are based on available market information and judgments about financial instruments (Level 2). Fair values of the Level 2 investments if any, are provided by the Company’s professional investment management firm.firms. From time to time the Company may transfer cash between its marketable securities portfolio and operating cash and cash equivalents.
 
9
Table of Contents
The following table sets forth, by level, within the fair value hierarchy, the Company’s marketable securities measured at fair value as of June 30, 2021:March 31, 2022:
 
   Fair Value Measurements 
   Level 1   Level 2   Level 3   Total 
Equities
  $14,679,000   $0   $0   $14,679,000 
Mutual Funds
   10,341,000    0    0    10,341,000 
Exchange-Traded Funds
   9,545,000    0    0    9,545,000 
Corporate Bonds
   0    25,229,000    0    25,229,000 
Government Securities
   30,998,000    0    0    30,998,000 
Cash and Money Funds
   4,553,000    0    0    4,553,000 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $70,116,000   $25,229,000   $0   $95,345,000 
   
 
 
   
 
 
   
 
 
   
 
 
 
   Fair Value Measurements 
   Level 1   Level 2   Level 3   Total 
Equities
  $19,998,000   $0     $0     $19,998,000 
Mutual Funds
   10,130,000    0      0      10,130,000 
Exchange-Traded Funds
   9,849,000    0      0      9,849,000 
Corporate Bonds
   0      24,022,000    0      24,022,000 
Government Securities
   27,960,000    0      0      27,960,000 
Cash and Money Funds
   2,542,000    0      0      2,542,000 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $70,479,000   $24,022,000   $0     $94,501,000 
   
 
 
   
 
 
   
 
 
   
 
 
 
Changes in netNet unrealized gains and (losses) included in the condensed consolidated statements of incomeCondensed Consolidated Income Statements for the quarter and ninesix months ended June 30, 2021,March 31, 2022, were $(219,000)$(1,598,000) and $2,284,000,$(1,531,000), respectively.
The following table sets forth by level, within the fair value hierarchy, the Company’s assets measured at fair value as of September 30, 2020:2021:
 
  Fair Value Measurements   Fair Value Measurements 
  Level 1   Level 2   Level 3   Total   Level 1   Level 2   Level 3   Total 
Equities
  $11,949,000   $—     $—     $11,949,000   $14,734,000   $0     $0     $14,734,000 
Mutual Funds
   9,595,000    —      —      9,595,000    10,357,000    0      0      10,357,000 
Exchange-Traded Funds
   10,344,000    —      —      10,344,000    9,458,000    0      0      9,458,000 
Corporate Bonds
   —      27,877,000    —      27,877,000    0      24,853,000    0      24,853,000 
Government Securities
   16,147,000    —      —      16,147,000    30,999,000    0      0      30,999,000 
Cash and Money Funds
   13,586,000    —      —      13,586,000    4,575,000    0      0      4,575,000 
  
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
 
Total
  $61,621,000   $27,877,000   $—     $89,498,000   $70,123,000   $24,853,000   $0     $94,976,000 
  
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
 
Changes in netNet unrealized gains and (losses) included in the condensed consolidated statements of incomeCondensed Consolidated Income Statements for the quarter and ninesix months ended June 30, 2020,March 31, 2021, were $3,979,000$596,000 and $(857,000),$2,503,000, respectively.
In the fourth quarter of fiscal 2020, the Company liquidated approximately $17.0 million of its investments. The cash was used to fund the acquisition of the Blaw-Knox paver line and associated assets, including inventory, fixed assets and related intellectual property, from Volvo CE, as well as pay for capital expenditures and other startup costs to get the paver line’s manufacturing facility ready for production.
The carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable, customer deposits and accrued expenses approximate fair value because of the short-term nature of these items.
Note 3 – Inventories
Inventories are valued at the lower of cost or net realizable value. Netvalue with cost being determined under the first in, first out method and net realizable value is defined as the estimated selling price of goods less reasonable costs of completion and delivery. Appropriate consideration is given to obsolescence, excessive levels, deterioration, possible alternative uses and other factors in determining net realizable value. The cost of work in process and finished goods includes materials, direct labor, variable costs and overhead. The Company evaluates the need to record inventory adjustments on all inventories, including raw material, work in process, finished goods, spare parts and used equipment. Used equipment acquired by the Company on
trade-in
from customers is carried at estimated net realizable value. Unless specific circumstances warrant different treatment regarding inventory obsolescence, an allowance is established to reduce the cost basis of inventories
 three to four years old by 50%, the cost basis of inventories four to five years old by 75%, and the cost basis of inventories greater than five years old to 0. Inventory is typically reviewed for obsolescence on an annual basis computed as of September 30, the Company’s fiscal year end. If significant known changes in trends, technology or other specific circumstances that warrant consideration occur during the year, then the impact on obsolescence is considered at that time.
 
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Table of Contents
Net inventories at June 30, 2021March 31, 2022 and September 30, 20202021 consist of the following:
 
  June 30, 2021   September 30, 2020   March 31,
2022		   September 30,
2021		 
Raw materials
  $27,057,000   $ 14,607,000   $29,847,000   $25,858,000 
Work in process
   7,179,000    3,633,000    7,858,000    6,280,000 
Finished goods
   6,556,000    8,810,000    9,517,000    9,730,000 
Used equipment
   40,000    40,000    0      20,000 
  
 
   
 
   
 
   
 
 
  $40,832,000   $27,090,000   $47,222,000   $41,888,000 
  
 
   
 
   
 
   
 
 
As discussed in Note 1 to the condensed consolidated financial statements, the Company acquired
$
10.4
million of inventory in the Blaw-Know acquisition. Such inventories, adjusted for any purchases and sales since the acquisition date, is included in the net inventories as of June 30, 2021. Slow-moving and obsolete i
n
ventoryinventory allowances were
$
5,208,000
$6,828,000 and $
4,617,000
$5,397,000 at June 30, 2021March 31, 2022 and September 30, 2020,2021, respectively.
Note 4 – Costs and Estimated Earnings in Excess of
Billings and Billings in Excess of Costs and Estimated Earnings
Billings in excess of costs and estimated earnings on uncompleted contracts as of June 30, 2021, and costsCosts and estimated earnings in excess of billings on uncompleted contracts as of March 31, 2022 and September 30, 2020,2021 consist of the following:
 
  June 30,
 
2021		   September 30, 2020   March 31,
2022		   September 30,
2021		 
Costs incurred on uncompleted contracts
  $7,975,000   $ 10,390,000   $19,501,000   $11,483,000 
Estimated earnings
   3,368,000    4,680,000    5,875,000    4,395,000 
  
 
   
 
   
 
   
 
 
   11,343,000    15,070,000    25,376,000    15,878,000 
Billings to date
   12,028,000    8,665,000    23,747,000    13,975,000 
  
 
   
 
   
 
   
 
 
Costs and estimated earnings in excess of billings
  $0   $6,405,000   $1,629,000   $1,903,000 
Bill
ings in excess
of costs and estimated
earnings
 
$
685,000
 
  
$
0 
 
  
 
   
 
   
 
   
 
 
Note 5 – Earnings per Share Data
The Condensed Consolidated Financial Statements include basic and diluted earnings per share information. The following table sets forth the computation of basic and diluted earnings per share for the quarters and ninesix months ended June 30, 2021March 31, 2022 and 2020:2021:
 
   Quarter Ended June 30,   Nine Months Ended June 30, 
   2021   2020   2021   2020 
Net Income
  $2,335,000   $4,322,000   $6,174,000   $6,156,000 
   
 
 
   
 
 
   
 
 
   
 
 
 
Common Shares:
                    
Weighted average common shares outstanding
   14,617,000    14,601,000    14,613,000    14,592,000 
Effect of dilutive stock options
   132,000    118,000    129,000    125,000 
   
 
 
   
 
 
   
 
 
   
 
 
 
Diluted shares outstanding
   14,749,000    14,719,000    14,742,000    14,717,000 
   
 
 
   
 
 
   
 
 
   
 
 
 
     
Basic:
                    
Net earnings per share
  $0.16   $0.30   $0.42   $0.42 
   
 
 
   
 
 
   
 
 
   
 
 
 
Diluted:
                    
Net earnings per share
  $0.16   $0.29   $0.42   $0.42 
   
 
 
   
 
 
   
 
 
   
 
 
 
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   Quarter Ended March 31,   Six Months Ended March 31, 
   2022   2021   2022   2021 
Net Income
  $439,000   $2,288,000   $165,000   $3,839,000 
   
 
 
   
 
 
   
 
 
   
 
 
 
Common Shares:
                    
Weighted average common shares outstanding
   14,658,000    14,614,000    14,658,000    14,611,000 
Effect of dilutive stock options
   0      133,000    0      129,000 
   
 
 
   
 
 
   
 
 
   
 
 
 
Diluted shares outstanding
   14,658,000    14,747,000    14,658,000    14,740,000 
   
 
 
   
 
 
   
 
 
   
 
 
 
Basic:
                    
Net income per share
  $0.03   $0.16   $0.01   $0.26 
   
 
 
   
 
 
   
 
 
   
 
 
 
Diluted:
                    
Net income per share
  $0.03   $0.16   $0.01   $0.26 
   
 
 
   
 
 
   
 
 
   
 
 
 
Basic earnings per share are based on the weighted-average number of shares outstanding. Diluted earnings per share are based on the sum of the weighted averageweighted-average number of shares outstanding plus common stock equivalents. As of September 30, 2021, 0 options were available for granting of awards under the 2009 Incentive Compensation Plan (the “2009 Plan”) and as of November 1, 2021, there were 0 outstanding stock options under the 2009 Plan.
11
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The weighted-average
 shares issuable upon
For the exercise ofquarter and six months ended
M
arch 31, 2022, there were 0 common stock optionsequivalents included in the diluted earnings per share calculation for the quarter and
nine
months ended June 
30
,
2021
were
252,000
and
252,000
, respectively, which equates to
132,000
and
129,000
dilutive common stock equivalents, respectively.calculation. The weighted-average shares issuable upon the exercise of stock options included in the diluted earnings per share calculation for the quarter and
nine
months ended June 
30
,
2020
March 31, 2021 were
250,000
and
257,000
, respectively, 252,000, which equates to
118,000
and
125,000
133,000 dilutive common stock equivalents, respectively. There were
7,000
equivalents. The weighted-average shares issuable upon the exercise of stock options which were not included in the diluted earnings per share calculation for the quartersix months ended June 
30
,
2020
because theyMarch 31, 2021 were anti-dilutive.252,000, which equates to 129,000 dilutive common stock equivalents. There were
0
anti-dilutive shares for the quarter and
nine
six months ended June 
30
,
2021
.March 31, 2022 and March 31, 2021.
Note 6 – Customers with 10% (or greater) of Net Revenues
During the quarter ended June 30, 2021,March 31, 2022, one customer accounted for 17.5%13.6% of net revenues. During the ninequarter ended March 31, 2021, one other customer accounted for 12.0% of net revenues. During the six months ended June 30,March 31, 2022 and March 31, 2021, no customer accounted for 10% or more of net revenues.
During the quarter ended June 30, 2020, three customers accounted for 16.5%, 13.3% and 12.6% of net revenues. During the nine months ended June 30, 2020, no customer accounted for 10% or moregreater of net revenues.
Note 7 –
Income Taxes
Income taxes are provided for the tax effects of transactions reported in the condensed consolidated financial statements and primarily consist of taxes currently due, plus deferred taxes.
The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns using current tax rates. The Company and its domestic subsidiaries file a consolidated federal income tax return.
Deferred tax assets and liabilities are measured using the rates expected to apply to taxable income in the years in which the temporary differences are expected to reverse and the credits are expected to be used. The effect on deferred tax assets and liabilities of the change in tax rates is recognized in income in the period that includes the enactment date. All available evidence, both positive and negative, is considered to determine whether, based on the weight of that evidence, the Company is more likely than not to realize the benefit of a deferred tax asset and whether a valuation allowance is needed for some portion or all of a deferred tax asset. NaNsuchNaN such valuation allowances were recorded as of June 30, 2021March 31, 2022 and September 30, 2020.2021.
The Company’s income tax provision is based on management’s estimate of the effective tax rate for the full year. The tax provision in any period will be affected by, among other things, permanent, as well as temporary differences in the deductibility of certain items, in addition to changes in tax legislation. As a result, the Company may experience significant fluctuations in the effective book tax rate (that is, its tax expense divided by
pre-tax
book income) from period to period. The Company’s effective tax rates for the quarters and ninesix months ended June 30,March 31, 2022 and March 31, 2021 and June 30, 2020 reflect the impact of the reduced rates under the U.S. Tax Cuts and Jobs Act (the “Tax Reform Act”)Act) which was signed into law on December 22, 2017.
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Note 8 – Revenue Recognition and Related Costs
The Company recognizes revenue under ASU
No. 2014-09,
Revenue from Contracts with Customers
(Topic 606). The following table disaggregates the Company’s net revenue by major source for the quarters and
nine
six months ended June 30, 2021March 31, 2022 and 2020:2021:
 
  Quarter Ended June 30,   Nine Months Ended June 30,   Quarter Ended March 31,   Six Months Ended March 31, 
  2021   2020   2021   2020   2022   2021   2022   2021 
Equipment sales recognized over time
  $6,507,000   $10,350,000   $14,509,000   $32,269,000   $10,998,000   $3,870,000   $20,772,000   $8,002,000 
Equipment sales recognized at a point in time
   12,258,000    8,995,000    31,959,000    20,946,000    10,475,000    9,565,000    14,673,000    19,701,000 
Parts and component sales
   5,240,000    2,671,000    16,001,000    10,492,000    7,381,000    6,830,000    12,824,000    10,761,000 
Freight revenue
   996,000    822,000    2,888,000    2,926,000    1,495,000    1,147,000    2,079,000    1,892,000 
Other
   (82,000)   102,000    (122,000)   330,000    305,000    (60,000)    412,000    (40,000) 
  
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
 
Net revenue
  $24,919,000   $22,940,000   $65,235,000   $66,963,000   $30,654,000   $21,352,000   $50,760,000   $40,316,000 
  
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
 
Revenues from contracts with customers for the design, manufacture and sale of custom equipment are recognized over time when the performance obligation is satisfied by transferring control of the equipment. Control of the equipment transfers over time, as the equipment is unique to the specific contract and thus does not create an asset
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with an alternative use to the Company. Revenues and costs are recognized in proportion to actual labor costs incurred, as compared with total estimated labor costs expected to be incurred, during the entire contract. All incremental costs related to obtaining a contract are expensed as incurred, as the amortization period is less than one year. Changes to total estimated contract costs or losses, if any, are recognized in the period in which they are determined.
Contract assets (excluding accounts receivable) under contracts with customers represent revenue recognized in excess of amounts billed on equipment sales recognized over time. These contract assets were
0
$1,629,000 at JuneMarch 31, 2022 and $1,903,000 at September 30, 2021, and $6,405,000
at September 30, 2020. Contract assets at September 30, 2020 are included in current assets as costs and estimated earnings in excess of billings on the Company’s condensed consolidated balance sheetsheets. The Company anticipates that all of the contract assets at September 30, 2020.March 31, 2022, will be billed and collected within one year.
Revenues from all other contracts for the design and manufacture of equipment, for service and for parts sales, net of any discounts and return allowances, are recorded at a point in time when control of the goods or services has been transferred. Control of the goods or service typically transfers at time of shipment or upon completion of the service.
Payment for equipment under contract with customers is typically due prior to shipment. Payment for services under contract with customers is due as certain milestonesservices are completed. Accounts receivable related to contracts with customers for equipment sales was $268,000were $130,000 and $210,000 at JuneMarch 31, 2022 and September 30, 2021, and $223,000 at September 30, 2020.respectively.
Product warranty costs are estimated using historical experience and known issues and are charged to production costs as revenue is recognized. Provisions for estimated returns and allowances and other adjustments are provided for in the same period the related sales are recorded. Returns and allowances, which reduce product revenue, are estimated using historical experience.
Under certain contracts with customers, recognition of a portion of the consideration received may be deferred and recorded as a contract liability if the Company has to satisfy a future obligation, such as to provide installation assistance. There were no contract liabilities other than customer deposits and billings in excess of costs and estimated earnings at June 30, 2021March 31, 2022 and customer deposits at September 30, 2020.2021. Customer deposits related to contracts with customers were $
3,761,000
$10,286,000 and $5,244,000 at June 
30
,
2021
March 31, 2022 and $
3,853,000
at September 
30,
,
2020
, 2021, respectively, and are included in current liabilities on the Company’s condensed consolidated balance sheets at June 
30
,
2021
and September 
30
,
2020
, respectively.
Billings in excess of costs and estimated earnings were $
685,000sheets.
at June 30, 2021 and 0 at September 30, 2020. These contract liabilities represent billings in excess of revenue recognized on equipment sales recognized over time, and are included current liabilities on the Company’s condensed consolidated balance sheet at June 30, 2021.
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The Company records revenues earned for shipping and handling as freight revenue at the time of shipment, regardless of whether or not it is identified as a separate performance obligation. The cost of shipping and handling is classified as production costscost of goods sold concurrently with the revenue recognition.
All product engineering and development costs, and selling, general and administrative expenses are charged to operations as incurred. Provision is made for any anticipated contract losses in the period that the loss becomes evident.
The allowance for doubtful accounts is determined by performing a specific review of all account balances greater than 90 days past due and other higher risk amounts to determine collectability, and also adjusting for any known customer payment issues with account balances in the
less-than-90-day
past due aging category. Account balances are charged off against the allowance for doubtful accounts when they are determined to be uncollectible. Any recoveries of account balances previously considered in the allowance for doubtful accounts reduce future additions to the allowance for doubtful accounts. The allowance for doubtful accounts also includes an estimate for returns and allowances. Provisions for estimated returns and allowances and other adjustments, are provided for in the same period the related sales are recorded. Returns and allowances, which reduce product revenue, are estimated using known issues and historical experience.
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Note 9 – Leases
The Company leases certain equipment under
non-cancelable
operating leases. Future minimum rental payments under these leases at June 30, 2021March 31, 2022 were immaterial.
On August 28, 2020, the Company entered into a three-yearthree-year operating lease for property related to the manufacturing and warehousing of the Blaw-Knox paver product line which was acquired on October 1, 2020. The lease term is for the period beginning on September 1, 2020 through August 31, 2023. In accordance with ASU
2016-02,
the Company recorded a ROU asset totaling $970,000 and related lease liabilities at inception. On October 9, 2020, the Company entered into an operating lease for additional warehousing space for paverBlaw-Knox inventory. The original lease term iswas for one year beginning November 2020 with automatic
one-year
renewals. In accordance with ASU
2016-02,
the Company recorded a ROU asset totaling $254,000 and related lease liabilities at inception. An additional $39,000 was recorded as a ROU asset and related lease liability in October 2021 to reflect the impact of the lease renewal. In March 2022, the ROU asset and related liability was reduced by $39,000 to reflect the impact of a reduction in the square footage being leased.
For the quarter and ninesix months ended June 30, 2021,March 31, 2022, operating lease costs were $106,000$101,000 and $301,000,$202,000, respectively, and cash payments related to these operating leases were $107,000 and $216,000, respectively. For the quarter and six months ended March 31, 2021, operating lease costs were $105,000 and $349,000,$194,000, respectively, and cash payments related to these operating leases were $116,000 and $232,000, respectively.
Other information concerning the Company’s operating lease accounted for under ASC 842 guidelines as of June 30, 2021March 31, 2022 and September 30, 2020,2021, is as follows:
 
  June 30, 2021 September 30, 2020   March 31, 2022 September 30, 2021 
Operating lease ROU asset included in other long-term assets
  $894,000  $942,000   $596,000  $785,000 
Current operating lease liability
   403,000   328,000    407,000   393,000 
Non-current
operating lease liability
   491,000   614,000    189,000   392,000 
Weighted average remaining lease term (in years)
   2.25   2.92    1.50   2.00 
Weighted average discount rate used in calculating ROU asset
   4.0%   4.0%    4.0%   4.0% 
Future annual minimum lease payments as of June 30, 2021March 31, 2022 are as follows:
 
Fiscal Year
  Annual Lease Payments   Annual Lease Payments 
2021 (remaining 3 months)
  $116,000 
2022
   419,000 
2022 (remaining 6 months)
  $210,000 
2023
   400,000    398,000 
2024
   6,000 
  
 
   
 
 
Total
   935,000    614,000 
Less interest
   (41,000)   (18,000) 
  
 
   
 
 
Present value of lease liabilities
  $894,000   $596,000 
  
 
   
 
 
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Note 10 – Segment Information
The Company has 1
reporting segment, equipment for the highway construction industry. Based on evaluation of the criteria of ASC 280 – Segment Reporting, including the nature of products and services, the nature of the production processes, the type of customers and the methods used to distribute products and services, the Company determined that its operating segments meet the requirements for aggregation. The Company designs, manufactures and sells asphalt plants and pavers, combustion systems and fluid heat transfer systems for the highway construction industry and environmental and petrochemical markets. The Company’s products are manufactured at three facilities in the United States. The Company also services and sells spare parts for its equipment.
 
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Information
This Quarterly Report contains certain “forward-looking statements” within the meaning of the Exchange Act, which represent the Company’s expectations and beliefs, including, but not limited to, statements concerning gross margins, sales of the Company’s products and future financing plans, income from investees and litigation. These statements by their nature involve substantial risks and uncertainties, certain of which are beyond the Company’s control. Actual results may differ materially depending on a variety of important factors, including the financial condition of the Company’s customers, changes in the economic and competitive environments, the performance of the investment portfolio and the demand for the Company’s products.
For information concerning these factors and related matters, see the following sections of the Company’s Annual Report on Form
10-K
for the year ended September 30, 2020:2021: (a) Part I, Item 1A, “Risk Factors” and (b) Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. However, other factors besides those referenced could adversely affect the Company’s results, and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties. Any forward-looking statements made by the Company herein speak as of the date of this Quarterly Report. The Company does not undertake to update any forward-looking statements,statement, except as required by law.
Overview
Gencor is a leading manufacturer of heavy machinery used in the production and application of highway construction materials and environmental control equipment. The Company’s core products include asphalt plants, combustion systems, fluid heat transfer systems and asphalt pavers. The Company’s products are manufactured at three facilities in the United States.
Because the Company’s products are sold primarily to the highway construction industry, the business is seasonal in nature. Traditionally, the Company’s customers reduce their purchases of new equipment for shipment during the summer and fall months to avoid disrupting their peak season for highway construction and related repair work. The majority of orders for the Company’s products are thus received between October and February, with a significant volume of shipments occurring in the late winter and spring. The principal factors driving demand for the Company’s products are the overall economic conditions, the level of government funding for domestic highway construction and repair, Canadian infrastructure spending, the need for spare parts, fluctuations in the price of liquid asphalt, and a trend towards larger more efficient asphalt plants.
On December 4, 2015,November 15, 2021, President ObamaBiden signed into law a five-year, $305 billion transportation$1.2 trillion infrastructure bill, Fixing America’s Surface Transportationthe Infrastructure Investment and Jobs Act (the “FAST“IIJ Act”)., including $550 billion in new spending and reauthorization of $650 billion in previously allocated funds. The FASTIIJ Act reauthorizedprovides $110 billion for the collection of the 18.4 cents per gallon gas tax that is typically used to pay for transportation projects. It also included $70 billion from other areas of the federal budget to close a $16 billion annual funding deficit. The bill included spending of more than $205 billion on roadsnation’s highways, bridges and highways over five years. The 2016 funding levels were approximately 5% above 2015 projected funding, with annual increases between 2.0% and 2.5% from 2016 through September 2020. On the eve of its expiration, a
one-year
extension to the FAST Act was passed and signed into law. The
one-year
extension maintains current funding levels under the FAST Act through September 2021.roads.
California’s Senate Bill 1 (“SB1”), the Road Repair and Accountability Act of 2017, was signed into law on April 28, 2017. The legislative package invests $54 billion over the next decade to fix roads, freeways and bridges in communities across California and puts more dollars towards transit and safety. These funds will be allocated to state and local projects. Additionally, numerous other states have taken steps to increase their gas tax revenues in recent years.
Fluctuations in the price of carbon steel, which is a significant cost and material used in the manufacturing of the Company’s equipment, may affect the Company’s financial performance. The Company is subject to fluctuations in market prices for raw materials, such as steel. If the Company is unable to purchase materials it requires or is unable to pass on price increases to its customers or otherwise reduce its cost of goods sold, its business results of operations and financial condition may be adversely affected.
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Also, a significant increase in the price of liquid asphalt could decrease demand for hot mix asphalt paving materials and certain of the Company’s products. Increases in oil prices also drive up the cost of gasoline and diesel, which results in increased freight costs. Where possible, the Company will pass increased freight costs on to its customers. However, the Company may not be able to recapture all of the higher costs and thus could have a negative impact on the Company’s financial performance.
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The Company believes its strategy of continuing to invest in product engineering and development and its focus on delivering the highest quality products and superior service will strengthen the Company’s market position. The Company continues to review its internal processes to identify inefficiencies and cost-reduction opportunities. The Company will continue to scrutinize its relationships with suppliers to ensure it is achieving the highest quality materials and services at the most competitive cost.
Impact of
COVID-19
Pandemic
The Company continues to monitor and evaluate the risks to public health and the slowdown in overall business activity related to the coronavirus
COVID-19(“COVID-19”)
pandemic, including impacts on its employees, customers, suppliers and financial results. As of the date of issuance of the Condensed Consolidated Financial Statements for the quarter and nine months ended June 30, 2021,this Quarterly Report, the Company’s operations have not been significantly impacted. However, the full impact of the
COVID-19
pandemic continues to evolve subsequent to the quarter and nine months ended June 30, 2021March 31, 2022 and as of the date the Condensed Consolidated Financial Statements arethis Quarterly Report is issued. As such, the full magnitude that the
COVID-19
pandemic will have on the Company’s financial condition and future results of operations is uncertain. Management is actively monitoringcontinues to monitor the Company’s financial condition, operations, suppliers, industry, customers, and workforce. As the spread of
COVID-19
pandemicand its variants continues, the Company’s ability to meet customer demands for products may be impacted or its customers may experience adverse business consequences due to
COVID-19.COVID-19
and its variants. Reduced demand for products or ability to meet customer demand (including as a result of disruptions fromat the Company’s suppliers) could have a material adverse effect on its business operations and financial performance.
Global, market and economic conditions may negatively impact our business, financial condition and share price.
Concerns over inflation, geopolitical issues, global financial markets and the COVID-19 pandemic have led to increased economic instability and expectations of slower global economic growth. Our business may be adversely affected by any such economic instability or unpredictability. Russia’s invasion of Ukraine and related sanctions has led to increased oil and natural gas prices. Such sanctions and disruptions to the global economy may lead to additional inflation and may disrupt the global supply chain and could have a material adverse effect on our ability to secure supplies. The increased cost of oil, along with increased or prolonged periods of inflation, would likely increase our costs in the form of higher wages, further inflation on supplies and equipment necessary to operate our business. There is a risk that one or more of our suppliers could be negatively affected by global economic instability, which could adversely affect our ability to operate efficiently and timely complete our operational goals.
Results of Operations
Quarter Ended June 30,March 31, 2022 versus March 31, 2021 versus June 30, 2020
Net revenuerevenues for the quarterquarters ended June 30,March 31, 2022 and March 31, 2021 was $24,919,000, as compared to $22,940,000 for the quarter ended June 30, 2020,were $30,654,000 and $21,352,000, respectively, an increase of $1,979,000, or 8.6%.$9,302,000. The increaseincreased revenues reflect the impact of the new five year, $1.2 trillion infrastructure bill, the IIJ Act, signed into law in net revenue was due to paver equipment and parts sales of approximately $2.3 million in the quarter ended June 30, 2021, compared with no paver revenues in the quarter ended June 30, 2020.November 2021.
As a percent of net revenue,sales, gross profit margins were 22.5%20.2% in the quarter ended June 30, 2021March 31, 2022, compared to 23.5%28.8% in the quarter ended June 30, 2020.March 31, 2021. During the quarter ended June 30, 2021,March 31, 2022, the Company continued to experience higher manufacturing costs associated with wages, steel and OEM parts pricing, as well as unabsorbed manufacturing labor and overhead expenses related to the paver line. The negative effect of these higher manufacturing costs on the quarter ended June 30, 2021, was partially offset by improved margins on certain equipment sales recognized over time and increased parts sales, in dollars and as a percentage of total net revenues, at higher margins.pricing.
Product engineering and development expenses increased by $327,000decreased $149,000 to $1,176,000$920,000 for the quarter ended June 30, 2021,March 31, 2022, as compared to $849,000$1,069,000 for the quarter ended June 30, 2020,March 31, 2021 due primarily to engineering wages related to the paver line.reduced headcount. Selling, general and administrative (“SG&A”) expenses increaseddecreased by $680,000$474,000 to $3,202,000$3,364,000 for the quarter ended June 30, 2021, asMarch 31, 2022, compared to $2,522,000$3,838,000 for the quarter ended June 30, 2020.March 31, 2021. The increase inhigher fiscal 2021 SG&A expenses waswere primarily due to expenses relatedprofessional fees to the paver line.support business development efforts.
Operating income decreased from $2,014,000 for the quarter ended June 30, 2020 to $1,227,000 for the quarter ended June 30, 2021, due primarily to the operational costs related to the Blaw-Knox acquisition.
 
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Operating income increased from $1,239,000 for the quarter ended March 31, 2021 to $1,908,000 for the quarter ended March 31, 2022, due primarily to increased sales and reduced professional fees.
For the quarter ended June 30, 2021,March 31, 2022, interest and dividend income, net of fees, from the investment portfolio was $306,000,$296,000 as compared to $512,000 in the quarter ended June 30, 2020. The higher income in fiscal 2020 reflects the impact from a larger investment in corporate bonds and a higher average yield to maturity. The fiscal 2021 corporate investment bonds were reduced as the related investments were partially liquidated to fund the Blaw-Knox acquisition. Net realized and unrealized gains on marketable securities were $1,386,000 for the quarter ended June 30, 2021 versus net unrealized and realized gains of $2,888,000 for the quarter ended June 30, 2020. The investment gains for the quarter ended June 30, 2020 reflect a recovery in the domestic equity markets after the initial declines from the impact of the
COVID-19
pandemic$327,000 in the quarter ended March 31, 2020.2021. The net realized and unrealized losses on marketable securities were $(1,488,000) for the quarter ended March 31, 2022 versus net realized and unrealized gains of $1,294,000 for the quarter ended March 31, 2021. The fiscal 2022 investment losses reflect the decline in equity markets due to higher interest rates, inflation, and the Federal Reserve’s recent monetary tightening policy.
The effective income tax raterates for the quarters ended June 30,March 31, 2022 and March 31, 2021, were 24.2% and 2020 was 20.0%., respectively, based on the expected annual effective income tax rate.
Net income for the quarter ended June 30, 2021March 31, 2022 was $2,335,000,$439,000, or $0.03 basic and diluted earnings per share, versus $2,288,000, or $0.16 perbasic and diluted share, versus $4,322,000, or $0.29earnings per diluted share, for the quarter ended June 30, 2020.March 31, 2021.
Six Months Ended March 31, 2022 versus March 31, 2021
Nine Months Ended June 30, 2021 versus June 30, 2020
Net revenue for the nine months ended June 30, 2021 and 2020 were $65,235,000 and $66,963,000, respectively, a decrease of $1,728,000. The reduced revenues reflect a decrease in equipment sales recognized over time compared to the same period in the prior year partially offset by improved parts and component sales, including $3.9 million in paver equipment and parts sales for the ninesix months ended June 30,March 31, 2022 and 2021 compared withwere $50,760,000 and $40,316,000, respectively, an increase of $10,444,000. The increased revenues reflect the impact of the new five year, $1.2 trillion infrastructure bill, the IIJ Act, signed into law in November 2021. There were no paver revenues forgenerated by Blaw-Knox during the nine months ended June 30, 2020.first quarter of fiscal 2021, as the facility was being readied to begin production.
Gross profit margins decreased to 22.6% in19.5% for the ninesix months ended June 30, 2021March 31, 2022 from 25.5% in22.6% for the ninesix months ended June 30, 2020. The gross profit margins for the nine months ended June 30, 2021 were negatively impacted by approximately $3.4 million of unabsorbed manufacturing labor and overhead expenses related to the paver line. In addition, increasesMarch 31, 2021. Increases in wages, steel and OEM parts prices contributed to the lower overall gross margins during the ninesix months ended June 30, 2021.March 31, 2022.
Product engineering and development expenses increased by $785,000$355,000 in the ninesix months ended June 30, 2021,March 31, 2022, compared to the ninesix months ended June 30, 2020March 31, 2021 due primarily to salary increases as well as a full six months of engineering wages and benefits related to the paver line.Blaw-Knox. SG&A expenses increased $2,770,000decreased $269,000 in the ninesix months ended June 30, 2021,March 31, 2022, compared to the ninesix months ended June 30, 2020.March 31, 2021. The increase in SG&A expenses was primarily due to expensesfrom a full six months of SG&A wages and benefits related to the paver line and professional fees to support business development efforts.
The Company had operating income of $1,407,000 for the nine months ended June 30, 2021 versus $7,274,000 for the nine months ended June 30, 2020. The decrease in operating incomeBlaw-Knox employees was due primarily to the operational and
start-up
costs related to the Blaw-Knox acquisition andoffset by reduced professional fees to support business development efforts.
The Company had operating income of $865,000 for the six months ended March 31, 2022 versus $181,000 for the six months ended March 31, 2021. The improved operating income was due primarily to the improved revenues.
For the ninesix months ended June 30, 2021,March 31, 2022, interest and dividend income, net of fees, from the investment portfolio was $1,437,000,$573,000, as compared to $1,907,000$1,130,000 for the ninesix months ended June 30, 2020.March 31, 2021. Interest income for the ninesix months ended June 30,March 31, 2021, also included $456,000 of interest collected from a customer. The higher interest income from the investment portfolio in fiscal 2020 reflects the impact from a larger investment in corporate bonds and a higher average yield to maturity. The fiscal 2021 corporate bonds were reduced as the related investments were partially liquidated to fund the Blaw-Knox acquisition. Net realized and unrealized incomelosses on marketable securities was $4,873,000$(1,065,000) for the ninesix months ended June 30, 2021March 31, 2022 versus net realized and unrealized lossesgains of $(1,465,000)$3,488,000 for the ninesix months ended June 30, 2020.March 31, 2021. The fiscal 20202022 investment losses reflect the decline in the domestic equity markets fromdue to higher interest rates, inflation, and the impact of the
COVID-19
pandemic.Federal Reserve’s recent monetary tightening policy.
The effective income tax raterates for the ninesix months ended June 30,March 31, 2022 and March 31, 2021, were 30.0% and June 30, 2020 was 20.0%., respectively, based on the expected annual effective income tax rate. Net income for the ninesix months ended June 30, 2021March 31, 2022 was $6,174,000,$165,000, or $0.42$0.01 basic and diluted earnings per diluted share, versus $6,156,000,$3,839,000, or $0.42$0.26 basic and diluted earnings per diluted share for the ninesix months ended June 30, 2020.March 31, 2021.
Liquidity and Capital Resources
The Company generates capital resources through operations and returns on its investments.
 
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The Company had no long-term or short-term debt outstanding at June 30, 2021March 31, 2022 or September 30, 2020.2021. As of June 30, 2021,March 31, 2022, the Company has funded $85,000 in cash deposits at insurance companies to cover related collateral needs. In April 2020, a financial institution issued an irrevocable standby letter of credit (“letter of credit”) on behalf of the Company for the benefit of one of the Company’s insurance carriers. The maximum amount that can be drawn by the beneficiary under the letter of credit is $150,000. The letter of credit expires in April 2022,2023, unless terminated earlier, and can be extended, as provided by the agreement. The Company intends to renew the letter of credit for as long as the Company does business with the beneficiary insurance carrier. The letter is collateralized by restricted cash of the same amount on any outstanding drawings. To date, no amounts have been drawn under the letter of credit.
As of June 30, 2021,March 31, 2022, the Company had $27,544,000$22,571,000 in cash and cash equivalents, and $95,345,000$94,501,000 in marketable securities, including $25,229,000$24,022,000 in corporate bonds, $14,679,000$19,998,000 in equities, $10,341,000$10,130,000 in mutual funds, $9,545,000$9,849,000 in exchange-traded funds, $30,998,000$27,960,000 in government securities, and $4,553,000$2,542,000 in cash and money funds. The marketable securities are invested through a professional investment management firm. These securities may be liquidated at any time into cash and cash equivalents.
The Company’s backlog was $28.5$44.9 million at June 30, 2021,March 31, 2022 compared to $11.7$42.6 million at June 30, 2020.March 31, 2021. The Company’s working capital (defined as current assets less current liabilities) was $155.9$154.7 million at June 30, 2021March 31, 2022 and $153.2$155.4 million at September 30, 2020.2021. Cash provided by operations during the ninesix months ended June 30, 2021March 31, 2022 was $8,130,000.$1,045,000. The significant purchases, sales and maturities of marketable securities shown on the condensed consolidated statements of cash flows reflect the recurring purchases and sales of United States treasury bills. Accounts receivableInventories increased by $1,253,000 due to the additional receivables related to the Blaw-Knox business. Costs and estimated earnings in excess of billings decreased by $7,090,000 reflecting the completion and shipment of several large contract jobs during the nine months ended June 30, 2021. Excluding the impact of the Blaw-Knox acquisition, inventories increased by $3,357,000 primarily$5.3 million due to progress on twoseveral large contract orders where revenue is recognized at a point in time and some stock build to compensate for the longincreasing lead times from suppliers. Accounts payablePrepaid expenses increased $1.6 million due to estimated income tax deposits in excess of accrued income taxes, annual insurance contract renewals as well as deposits made on new equipment. Customer deposits increased by $2,678,000 due$5.0 million reflecting down payments on contract jobs, including several recent orders where revenues are recognized over time but work is yet to the additional payables related to the Blaw-Knox business along with the increase in inventory.begin.
Cash flows used in investing activities for the ninesix months ended June 30, 2021March 31, 2022 of $16,226,000$1,706,000 were related to the acquisition of Blaw-Know paver line and subsequent capital expenditures, primarily for systems softwaremanufacturing processing and leasehold improvements for the paver line’s manufacturing facility. Cash provided by financing activities of $56,000 for the nine months ended June 30, 2021, related to proceeds from the exercise of stock options.finishing equipment.
Seasonality
The Company’s primary business is the manufacture of asphalt pavers, asphalt plants and related components and asphalt pavers. These products typically experiencesexperience a seasonal slowdown during the third and fourth quarters of the calendar year. This slowdown often results in lower reported sales and operating results during the first and fourth quarters of the fiscal year ended September 30.
Critical Accounting Policies, Estimates and Assumptions
The Company believes the following discussion addresses its most critical accounting policies, which are those that are most important to the portrayal of the financial condition and results of operations and require management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Accounting policies, in addition to the critical accounting policies referenced below, are presented in Note 1 to the Company’s consolidated financial statements included in the Company’s Annual Report on Form
10-K
for the year ended September 30, 2020, “Accounting2021, “Nature of Operations and Summary of Significant Accounting Policies.”
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Estimates and Assumptions
In preparing the condensed consolidated financial statements, the Company uses certain estimates and assumptions that may affect reported amounts and disclosures. Estimates and assumptions are used, among other places, when accounting for certain revenue (e.g., contract accounting), expense, and asset and liability valuations. The Company believes that the estimates and assumptions made in preparing the condensed consolidated financial statements are reasonable, but are inherently uncertain. Assumptions may be incomplete or inaccurate and unanticipated events may occur. The Company is subject to risks and uncertainties that may cause actual results to differ from estimated results.
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Revenues & Expenses
The Company recognizes revenue under ASU
No. 2014-09,
Revenue from Contracts with Customers
(Topic 606).
Revenues from contracts with customers for the design, manufacture and sale of custom equipment are recognized over time when the performance obligation is satisfied by transferring control of the equipment. Control of the equipment transfers over time, as the equipment is unique to the specific contract and thus does not create an asset with an alternative use to the Company. Revenues and costs are recognized in proportion to actual labor costs incurred, as compared with total estimated labor costs expected to be incurred, during the entire contract. All incremental costs related to obtaining a contract are expensed as incurred, as the amortization period is less than one year. Changes to total estimated contract costs or losses, if any, are recognized in the period in which they are determined.
Contract assets (excluding accounts receivable) under contracts with customers represent revenue recognized in excess of amounts billed on equipment sales recognized over time. These contract assets were zero$1,629,000 and $1,903,000 at JuneMarch 31, 2022 and September 30, 2021, respectively, and $6,405,000 at September 30, 2020. Contract assets at September 30, 2020 are included in current assets as costs and estimated earnings in excess of billings on the Company’s condensed consolidated balance sheetsheets. The Company anticipates that all of the contract assets at September 30, 2020.March 31, 2022, will be billed and collected within one year.
Revenues from all other contracts for the design and manufacture of equipment, for service and for parts sales, net of any discounts and return allowances, are recorded at a point in time when control of the goods or services has been transferred. Control of the goods or service typically transfers at time of shipment or upon completion of the service.
Payment for equipment under contract with customers is typically due prior to shipment. Payment for services under contract with customers is due as certain milestonesservices are completed. Accounts receivable related to contracts with customers for equipment sales was $268,000were $130,000 and $210,000 at JuneMarch 31, 2022 and September 30, 2021, and $223,000 at September 30, 2020.respectively.
Product warranty costs are estimated using historical experience and known issues and are charged to production costs as revenue is recognized.
Under certain contracts with customers, recognition of a portion of the consideration received may be deferred and recorded as a contract liability if the Company has to satisfy a future obligation, such as to provide installation assistance. There were no contract liabilities other than customer deposits and billings in excess of costs and estimated earnings at June 30, 2021March 31, 2022 and customer deposits at September 30, 2020.2021. Customer deposits related to contracts with customers were $3,761,000$10,286,000 and $5,244,000 at JuneMarch 31, 2022 and September 30, 2021, and $3,853,000 at September 30, 2020,respectively, and are included in current liabilities on the Company’s condensed consolidated balance sheets at June 30, 2021 and September 30, 2020, respectively. Billings in excess of costs and estimated earnings were $685,000 at June 30, 2021 and represent billings in excess of revenue recognized on equipment sales recognized over time, and are included current liabilities on the Company’s condensed consolidated balance sheet at June 30, 2021.sheets.
The Company records revenues earned for shipping and handling as freight revenue at the time of shipment, regardless of whether or not it is identified as a separate performance obligation. The cost of shipping and handling is classified as cost of goods sold concurrently.concurrently with the revenue recognition.
All product engineering and development costs, and selling, general and administrative expenses are charged to operations as incurred. Provision is made for any anticipated contract losses in the period that the loss becomes evident.
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The allowance for doubtful accounts is determined by performing a specific review of all account balances greater than 90 days past due and other higher risk amounts to determine collectability, and also adjusting for any known customer payment issues with account balances in the
less-than-90-day
past due aging buckets.category. Account balances are charged off against the allowance for doubtful accounts when they are determined to be uncollectable.uncollectible. Any recoveries of account balances previously considered in the allowance for doubtful accounts reduce future additions to the allowance for doubtful accounts. The allowance for doubtful accounts also includes an estimate for returns and allowances. Provisions for estimated returns and allowances and other adjustments, are provided for in the same period the related sales are recorded. Returns and allowances, which reduce product revenue, are estimated using known issues and historical experience.
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Inventories
Inventories are valued at the lower of cost or net realizable value. Netvalue, with cost being determined under the first in, first out method and net realizable value is defined as the estimated selling price of goods less reasonable costs of completion and delivery. Appropriate consideration is given to obsolescence, excessive levels, deterioration, possible alternative uses and other factors in determining net realizable value. The cost of work in process and finished goods includes materials, direct labor, variable costs and overhead. The Company evaluates the need to record inventory adjustments on all inventories, including raw material, work in process, finished goods, spare parts and used equipment. Used equipment acquired by the Company on
trade-in
from customers is carried at estimated net realizable value. Unless specific circumstances warrant different treatment regarding inventory obsolescence, an allowance is established to reduce the cost basis of inventories three to four years old by 50%, the cost basis of inventories four to five years old by 75%, and the cost basis of inventories greater than five years old to zero. Inventory is typically reviewed for obsolescence on an annual basis computed as of September 30, the Company’s fiscal year end. If significant known changes in trends, technology or other specific circumstances that warrant consideration occur during the year, then the impact on obsolescence is considered at that time.
InvestmentsMarketable Securities and Fair Value Measurements
Marketable debt and equity securities are categorized as trading securities and are thus marked to market and stated at fair value. Fair value is determined using the quoted closing or latest bid prices for Level 1 investments and market standard valuation methodologies for Level 2 investments. Realized gains and (losses) on investment transactions are determined by specific identification and are recognized as incurred in the condensed consolidated statements of income. Net unrealized gains and (losses) are reported in the condensed consolidated statements of income in the current period and represent the change in the fair value of investment holdings during the period.
Long-Lived Asset Impairment
Property and equipment and intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable. An impairment loss would be recognized when the carrying amount of an asset exceeds the estimated undiscounted cash flows expected to result from the use of the asset and its eventual disposition. The amount of the impairment loss to be recorded is calculated by the excess over its fair value of the asset’s carrying value. Fair value is generally determined using a discounted cash flow analysis.
Off-Balance
Sheet Arrangements
None
 
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s President (who is currently serving as the Company’s Principal Executive Officer) and Chief ExecutiveFinancial Officer and Principal(Principal Financial and Accounting OfficerOfficer) evaluated the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rule
13a-15(e)
under the Exchange Act) as of the end of the period covered by this Quarterly Report. Based upon that evaluation, the Chief Executive OfficerPresident and the PrincipalChief Financial and Accounting Officer concluded that, as of the end of the period covered by this Quarterly Report, the Company’s disclosure controls and procedures are effective.
Because of inherent limitations, the Company’s disclosure controls and procedures, no matter how well-designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of such disclosure controls and procedures are met, and no evaluation can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
Changes in Internal Control over Financial Reporting
The Company’s management, including the President and Chief Executive Officer and Principal Financial and Accounting Officer, has reviewed the Company’s internal control over financial reporting. There were no changes in the Company’s internal control over financial reporting during the quarter and ninesix months ended June 30, 2021March 31, 2022 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
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Part II. Other Information
Item 1. Legal Proceedings
From time to time the Company is engaged in legal proceedings in the ordinary course of business. We do not believe any current legal proceedings are material to our business.
Item 1A. Risk Factors
Our business, operations, and financial condition are subject to various risks and uncertainties. The risk factors described in Part I, Item 1A, “Risk Factors” contained in our Annual Report on Form 10K for the year ended September 30, 2020,2021, as filed with the SEC on December 18, 2020,17, 2021, should be carefully considered, together with the other information contained or incorporated by reference in this Quarterly Report on Form
10-Q
and in our other filings filed with the SEC in connection with evaluating us, our business, and the forward-looking statements contained in this Quarterly Report on Form
10-Q.
During the ninesix months ended June 30, 2021,March 31, 2022, there have been no material changes from the risk factors previously disclosed under Part I, Item 1A, “Risk Factors” in our Annual Report on Form
10-K,
for the year ended September 30, 2020.2021, other than the addition of the following risk factor:
Global, market and economic conditions may negatively impact our business, financial condition and share price.
Concerns over inflation, geopolitical issues, global financial markets and the COVID-19 pandemic have led to increased economic instability and expectations of slower global economic growth. Our business may be adversely affected by any such economic instability or unpredictability. Russia’s invasion of Ukraine and related sanctions has led to increased oil and natural gas prices. Such sanctions and disruptions to the global economy may lead to additional inflation and may disrupt the global supply chain and could have a material adverse effect on our ability to secure supplies. The increased cost of oil, along with increased or prolonged periods of inflation, would likely increase our costs in the form of higher wages, further inflation on supplies and equipment necessary to operate our business. There is a risk that one or more of our suppliers could be negatively affected by global economic instability, which could adversely affect our ability to operate efficiently and timely complete our operational goals.
Item 6. Exhibits
 
Exhibit 31.1  Certification of ChiefPrincipal Executive Officer Pursuant to Rule 13a – 14(a) of the Securities Exchange Act of 1934, as amended
Exhibit 31.2  Certification of Chief Financial Officer Pursuant to Rule 13a – 14(a) of the Securities Exchange Act of 1934, as amended
Exhibit 32  Certifications of ChiefPrincipal Executive Officer and Chief Financial Officer Pursuant to 18 U. S. C. Section 1350
Exhibit 101.1  Interactive Data File
Exhibit 101.INS  XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
Exhibit 101.SCH  XBRL Schema Document
Exhibit 101.CAL  XBRL Calculation Linkbase Document
Exhibit 101.DEF  XBRL Definition Linkbase Document
Exhibit 101.LAB  XBRL Label Linkbase Document
Exhibit 101.PRE  XBRL Presentation Linkbase Document
Exhibit 104  The cover page from the Company’s Quarterly Report on Form
10-Q
for the quarter ended June 30, 2021,March 31, 2022, formatted in Inline XBRL (included in Exhibit 101)
 
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SIGNATURES
Pursuant to the requirements 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.
 
GENCOR INDUSTRIES, INC.
/s/ John E.Marc G. Elliott
John E.Marc G. Elliott
ChiefPresident
(Principal Executive OfficerOfficer)
August 11, 2021May 13, 2022
/s/ Eric E. Mellen
Eric E. Mellen
Chief Financial Officer
(Principal Financial and Accounting Officer)
August 11, 2021May 13, 2022
 
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