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. ☒☐ Yes ☐☒ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting ~~company or emerging growth~~ company. See the definitions of “large accelerated filer,” “accelerated ~~filer,”~~filer” and “smaller reporting ~~company” and “emerging growth~~ company” in Rule 12b-2 of the Exchange Act.

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

The number of shares of Common Stock, $0.00001 par value, outstanding on ~~April 26, 2017~~May 11, 2018 was ~~31,800,103.~~

	Six months ended						Six months ended
	March 31,						March 31,
	2017			2016			2018			2017
Operating Activities:
Net loss	$	(514,329	)	$	(1,044,736	)
Net (loss)							$	(1,222,344	)	$	(514,329	)

Adjustments to reconcile net loss to net cashprovided by (used in) operating activities:
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		62,834			97,546			193,809			62,834
Warranty provision		111,369			26,303			12,361			111,369
Inventory obsolescence		(181,486	)		11,067			85,435			(181,486	)
Share-based compensation		642,151			308,257			284,250			642,151
Deferred income taxes		(317,243	)		(857,706	)		2,867,339			(317,243	)
Changes in operating assets and liabilities:
Accounts receivable		168,183			(361,037	)
Inventories		(174,720	)		(287,325	)
Accounts receivable, net								389,434			168,183
Inventories, net								(271,543	)		(174,720	)
Prepaid expenses and other		(101,304	)		(82,637	)		174,589			(101,304	)
Other assets		133,188			93,742			(60,614	)		133,188
Accounts payable		707,549			738,256			502,933			707,549
Warranty settlements		(19,212	)		(24,099	)
Accrued and other liabilities		540,587			1,172,443			(56,313	)		521,375
Net cash provided by (used in) operating activities		1,057,567			(209,926	)
Net cash provided by operating activities								2,899,336			1,057,567

Investing Activities:
Sales (purchases) of marketable securities		101,293			(612,219	)
Purchases of marketable securities								(2,402,346	)		(1,773,530	)
Proceeds from maturities of marketable securities								2,401,856			1,874,823
Capital expenditures		(57,473	)		(126,594	)		(90,135	)		(57,473	)
Patent costs paid		(4,286	)		(5,658	)		-			(4,286	)
Net cash provided by (used in) investing activities		39,534			(744,471	)
Purchase of Genasys, net of cash and restricted cash acquired								(2,246,545	)		-
Net cash (used in) provided by investing activities								(2,337,170	)		39,534

Financing Activities:
Repurchase of common stock		-			(1,748,456	)
Common stock cash dividends paid		-			(636,661	)
Proceeds from exercise of stock options								185,718			-
Proceeds from issuance of unsecured promissory notes								63,144			-
Payments on unsecured promissory notes								(414,477	)		-
Net cash used in financing activities		-			(2,385,117	)		(165,615	)		-
Net increase (decrease) in cash		1,097,101			(3,339,514	)
Cash and cash equivalents, beginning of period		13,466,711			18,316,103
Cash and cash equivalents, end of period	$	14,563,812		$	14,976,589
Effect of foreign exchange rate on cash								335			-
Net increase in cash, cash equivalents and restricted cash								396,886			1,097,101
Cash, cash equivalents and restricted cash, beginning of period								12,803,887			13,466,711
Cash, cash equivalents and restricted cash, end of period							$	13,200,773		$	14,563,812



Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheets:

Cash and cash equivalents							$	12,732,882		$	14,524,346
Restricted cash, current portion								363,745			39,466
Long-term restricted cash								104,146			-
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows							$	13,200,773		$	14,563,812

Notes to Condensed Consolidated Financial Statements ~~(Unaudited)~~(Unaudited)

2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

General

The Company’s unaudited interim condensed consolidated financial statements included herein have been prepared in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X and the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In management’s opinion, the accompanying statements reflect adjustments necessary to present fairly the financial position, results of operations, and cash flows for those periods indicated, and contain adequate disclosure to make the information presented not misleading. Adjustments included herein are of a normal, recurring nature unless otherwise disclosed in the footnotes. The condensed consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended September 30, ~~2016~~2017 included in the Company’s Annual Report on Form 10-K, as filed with the SEC on December ~~7, 2016.~~13, 2017. The accompanying condensed consolidated balance sheet at September 30, ~~2016~~2017 has been derived from the audited consolidated balance sheet at September 30, ~~2016,~~2017 contained in the above referenced Form 10-K. Results of operations for interim periods are not necessarily indicative of the results of operations for a full year.

Principles of Consolidation

The Company has afour wholly owned subsidiaries, Genasys Holding, S.L. and Genasys II Spain, S.A.U. and two currently inactive ~~wholly owned subsidiary,~~subsidiaries, Genasys America de CV and LRAD International ~~Corporation, which the Company formed to conduct international marketing, sales and distribution activities.~~Corporation. The condensed consolidated financial statements include the accounts of ~~this subsidiary~~these subsidiaries after elimination of intercompany transactions and accounts.

Reclassifications

Where necessary, the prior year’s information has been reclassified to conform to the current year presentation.

3. RECENT ACCOUNTING PRONOUNCEMENTS

In ~~March~~November 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ~~(“ASU”~~No. 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash ("ASU 2016-18"), which amends Topic 230 to add or clarify guidance on the classification and presentation of restricted cash in the statement of cash flows. The standard requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The provisions of this guidance are to be applied using a retrospective transition method to each period presented. ASU 2016-18 is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those years, with early adoption permitted. The Company adopted ASU 2016-18 effective January 1, 2018. For the six months ended March 31, 2018, the increase in restricted cash resulted primarily from restricted cash balances included in the assets acquired in the acquisition of Genasys, as described in Note 4. The adoption did not have a material impact on the Company's consolidated financial position, results of operations and cash flows, other than the impact discussed above.

In March 2016, the FASB issued ASU No. 2016-09,Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This guidance changes how companies account for certain aspects of share-based payments to employees. Among other things, under the new guidance, companies will no longer record excess tax benefits and certain tax deficiencies in additional paid-in-capital (“APIC”), but will instead record such items as income tax expense or benefit in the income statement, and APIC pools will be eliminated. Companies will apply this guidance prospectively. Another component of the new guidance allows companies to make an accounting policy election for the impact of forfeitures on the recognition of expense for share-based payment awards, whereby forfeitures can be estimated, as required today, or recognized when they occur. If elected, the change to recognize forfeitures when they occur needs to be adopted using a modified retrospective approach. ~~All of the~~The guidance ~~will be~~was effective for the Company in the first quarter of fiscal ~~year beginning October 1, 2017. Early~~2018. The adoption ~~is permitted. The Company is currently evaluating the impact~~ of this ~~guidance, if any, on its financial statements~~standard resulted in the recognition of $1.1 million of gross deferred tax assets related to the historical excess tax benefits from stock-based compensation that was not previously included in deferred tax assets and ~~related disclosures.~~a corresponding increase in the Company’s valuation allowance.

In February 2016, the FASB issued ASU 2016-02,Leases (Topic 842), which issued new guidance related to leases that outlines a comprehensive lease accounting model and supersedes the current lease guidance. The new guidance requires lessees to recognize lease liabilities and corresponding right-of-use assets for all leases with lease terms of greater than 12 months. It also changes the definition of a lease and expands the disclosure requirements of lease arrangements. The new guidance must be adopted using the modified retrospective approach and will be effective for the Company in the fiscal year beginning October 1, 2019. Early adoption is permitted. The Company is currently evaluating the impact of this guidance, if any, on its ~~financial statements and related disclosures.~~

~~In July 2015, the FASB issued ASU No. 2015-11,~~~~Inventory (Topic 330): Simplifying the Measurement of Inventory~~. The guidance requires an entity to measure inventory at the lower of cost or net realizable value, which is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation, rather than the lower of cost or market in the previous guidance. This amendment applies to inventory that is measured using first-in, first-out (FIFO). This amendment is effective for the Company in the fiscal year beginning October 1, 2017. A reporting entity should apply the amendments prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is currently evaluating the impact of this guidance, if any, on its consolidated financial statements and related disclosures.

In May 2014, the FASB issued ASU No. 2014-09,Revenue from Contracts with Customers (“ASU 2014-09”), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. generally accepted accounting principles when it becomes effective. ~~Recently,~~ In July 2015, the FASB has issued guidance clarifying certain topics such as (i) gross versus net revenue reporting, (ii) identifying performance obligations and licensing and (iii) accounting for shipping and handling fees and costs and accounting for consideration givendeferred the effective date of the standard by ~~a vendor~~an additional year; however, it provided companies the option to ~~a customer.The~~adopt one year earlier, commensurate with the original effective date. Accordingly, the standard will be effective for the Company in the fiscal year beginning October 1, ~~2018, with an option to adopt the standard for the fiscal year beginning October 1, 2017.~~2018. The Company is currently evaluating the impact of this ~~standard and has not yet selected a transition method or the effective date on which it plans to adopt the standard, nor has it determined the effect of the standard~~guidance, if any, on its consolidated financial statements and related disclosures.

4. ACQUISITIONS

On January 18, 2018, the Company completed its acquisition of Genasys pursuant to a Stock Purchase Agreement. Genasys, headquartered in Madrid, Spain, is a leading software provider of advanced, location-based mass messaging solutions for emergency warning systems and workforce management. Genasys has 16 employees based primarily in Spain.

The Company believes the combination of Genasys’ mass messaging solutions and software development capabilities will enable the Company to enhance existing product offerings through integrated mass messaging solutions as well as provide growth opportunities in new markets. Genasys’ operating results were included in the Company’s consolidated financial statements beginning January 18, 2018 and include $415,000 in net sales and net operating income of $25,000, through March 31, 2018.

The preliminary acquisition consideration consisted of the following:

Cash paid	$	2,826,189
Acquisition escrow liability		185,250
Total consideration	$	3,011,439

As of March 31, 2018, the acquisition consideration is subject to change upon finalization of net working capital and other adjustments. Net working capital adjustments will be settled during the three months ended June 30, 2018. The cash portion of the purchase price was funded from cash on hand. The Company incurred $237,345 in acquisition expenses related to this transaction, through March 31, 2018. These expenses were recorded in selling, general, and administrative expenses in the consolidated statement of operations as follows: $151,313 in the second quarter of fiscal 2018, $45,016 in the first quarter of fiscal 2018 and $41,016 in the fourth quarter of fiscal 2017.

Purchase Price Allocation and Other Items

The determination of the purchase price allocation to specific assets acquired and liabilities assumed is preliminary as of March 31, 2018. The purchase price allocation is subject to change based upon the final determination of fair value estimates of certain assets acquired and liabilities assumed. Based on the fair value estimates, the purchase price for Genasys has been allocated to individual assets acquired and liabilities assumed as follows:

Assets Acquired
Cash and restricted cash acquired	$	579,644
Accounts receivable		426,940
Fixed assets		5,712
Intangible assets		1,850,000
Goodwill		2,603,688
Other assets		54,520
Total assets acquired		5,520,504

Liabilities assumed
Accounts payable		275,653
Accrued expenses and other liabilities		315,817
Severance obligation		397,558
Debt		1,520,037
Total liabilities assumed		2,509,065
Net assets acquired	$	3,011,439

The estimated fair value of identifiable intangible assets acquired, and their estimated useful lives are as follows:

	Fair Value		Useful Lives (in years)
Technology	$	690,000	7
Customer relationships		660,000	7
Trade name portfolio		240,000	5
Non-compete agreements		260,000	3
	$	1,850,000

Identifiable intangible assets are amortized over their useful lives based upon a number of assumptions including the estimated period of economic benefit and utilization. The weighted average amortization period for identifiable intangible assets acquired is 6 years.

The goodwill for Genasys is attributable to combining the mass messaging solutions and software development capabilities with existing LRAD products for enhanced offerings and the skill level of the acquired workforce. The Company will continue to analyze the transaction and refine its calculations, as appropriate during the measurement period, which could affect the value of goodwill. Goodwill from the Genasys acquisition will not be deductible for tax purposes.

Pro Forma Information

The following table provides the unaudited pro forma results of operations for the three and six months ended March 31, 2018 and 2017, respectively, as if Genasys had been acquired as of the beginning of fiscal year 2017. Pro forma results do not include any anticipated synergies from the combination of the companies, and accordingly, are not necessarily indicative of the results that would have occurred if the acquisition had occurred on the dates indicated or that may result in the future.

	Three months ended				Six months ended
	March 31,				March 31,
	2018		2017		2018			2017
Net revenues	$	8,042,879	$	6,034,248	$	16,222,894		$	9,474,427
Net income		529,094		276,048		(1,081,478	)		(788,438	)
Basic and diluted earnings per share	$	0.02	$	0.01	$	(0.03	)	$	(0.02	)

The following is a reconciliation of actual net revenue and net income to pro forma net revenue and net income:

	Three months ended March 31,
	2018				2017
	Net revenues		Net income		Net revenues		Net income
LRAD actual results	$	7,453,794	$	384,516	$	5,742,391	$	298,350
Genasys actual results		589,085		89,727		291,857		79,067
Pro Forma adjustments		-		54,851		-		(101,369	)
Pro forma results	$	8,042,879	$	529,094	$	6,034,248	$	276,048

	Six months ended March 31,
	2018					2017
	Net revenues		Net income			Net revenues		Net income
LRAD actual results	$	15,082,361	$	(1,298,736	)	$	8,683,726	$	(514,329	)
Genasys actual results		1,140,533		126,844			790,701		(172,740	)
Pro Forma adjustments		-		90,414			-		(101,369	)
Pro forma results	$	16,222,894	$	(1,081,478	)	$	9,474,427	$	(788,438	)

The following table identifies the pro forma adjustments:

	Three months ended						Six months ended
	March 31,						March 31,
	2018			2017			2018			2017
Acquisition costs	$	151,313		$	-		$	196,329		$	-
Depreciation and amortization costs		(81,881	)		(163,762	)		(81,881	)		(163,762	)
Tax effect of adjustments		(14,581	)		62,393			(24,034	)		62,393
Pro forma adjustmenst	$	54,851		$	(101,369	)	$	90,414		$	(101,369	)

5. GOODWILL AND INTANGIBLE ASSETS

During the three months ended March 31, 2018, the Company recorded intangible assets of $1,850,000 and goodwill of $2,603,687 in connection with the acquisition of Genasys, as described in Note 4.

Identifiable intangible assets are amortized over their useful lives based upon a number of assumptions including the estimated period of economic benefit and utilization. The Company will assess the impairment of identifiable amortized intangible assets when events and circumstances indicate the carrying value of the assets might not be recoverable.

The goodwill attributable to the acquisition of Genasys is due to combining the mass messaging solutions and software development capabilities with existing LRAD products for enhanced offerings and the skill level of the acquired workforce. The Company will continue to analyze the transaction and refine its calculations, as appropriate during the measurement period, which could affect the value of goodwill. Subsequent to the measurement period, the Company will periodically review goodwill for impairment in accordance with ASC Topic 350 “Intangibles – Goodwill and Other – Testing Indefinite-Lived Assets for Impairment”.

The Company’s intangible assets consist of the following:

	March 31, 2018							September 31, 2017
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Technology	$	690,000	$	(20,536	)	$	669,464	$	-	$	-		$	-
Customer relationships		660,000		(19,642	)		640,358		-		-			-
Trade name portfolio		240,000		(10,000	)		230,000		-		-			-
Non-compete agreements		260,000		(18,056	)		241,944		-		-			-
Patents		108,247		(56,166	)		52,081		108,247		(52,558	)		55,689
	$	1,958,247	$	(124,400	)	$	1,833,847	$	108,247	$	(52,558	)	$	55,689

The amortization expense for the three months ended March 31, 2018 and 2017 was $70,038 and $1,859, respectively. The amortization expense for the six months ended March 31, 2018 and 2017 was $71,842 and $3,681, respectively.

Estimated Future Amortization Expense Years Ended September 30,
2018 (April 1, 2018 through September 30, 2018)	$	166,689
2019		333,771
2020		333,448
2021		271,771
2022		246,363
Thereafter		481,805
Total estimated amortization expense	$	1,833,847

6. FAIR VALUE MEASUREMENTS

The Company’s financial instruments consist principally of cash equivalents, short and long-term marketable securities, accounts receivable and accounts payable. The fair value of a financial instrument is the amount that would be received in an asset sale or paid to transfer a liability in an orderly transaction between unaffiliated market participants. Assets and liabilities measured at fair value are categorized based on whether or not the inputs are observable in the market and the degree that the inputs are observable. The categorization of financial instruments within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The hierarchy is prioritized into three levels (with Level 3 being the lowest) defined as follows:

Level 1: Inputs are based on quoted market prices for identical assets or liabilities in active markets at the measurement date.

Level 2: Inputs include quoted prices for similar assets or liabilities in active markets and/or quoted prices for identical or similar assets or liabilities in markets that are not active near the measurement date.

Level 3: Inputs include management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instrument’s valuation.

The fair value of the Company’s cash equivalents and marketable securities was determined based on Level 1 and Level 2 inputs. The Company did not have any marketable securities in the Level 3 category as of March 31, ~~2017~~2018 or September 30, ~~2016.~~2017. The Company believes that the recorded values of its other financial instruments approximate their current fair values because of their nature and respective relatively short maturity dates or durations.

Instruments Measured at Fair Value

The following tables present the Company’s cash equivalents and marketable securities’ costs, gross unrealized gains and losses, and fair value by major security type recorded as cash equivalents or short-term or long-term marketable securities as of March 31, ~~2017~~2018 and September 30, ~~2016.~~ 2017.

	March 31, 2017													March 31, 2018
			Unrealized			Fair		Cash		Short-term		Long-term				Unrealized			Fair		Cash		Short-term		Long-term
	Cost Basis		Losses			Value		Equivalents		Securities		Securities		Cost Basis		Losses			Value		Equivalents		Securities		Securities

Level 1:
Money Market Funds	$	66,879	$	-		$	66,879	$	66,879	$	-	$	-	$	98,539	$	-		$	98,539	$	98,539	$	-	$	-

Level 2:
Corporate bonds	$	2,746,576	$	(3,527	)	$	2,743,049	$	-	$	1,623,710	$	1,119,339
Certificates of deposit		2,237,340		-			2,237,340		-		1,800,000		437,340	$	936,952	$	-		$	936,952	$	-	$	437,952	$	499,000
Municipal securities		40,000		-			40,000		-		40,000		-		85,626		(168	)		85,459		-		85,459		-
Corporate bonds															4,049,846		(17,970	)		4,031,876		-		3,539,698		492,178
Subtotal		5,023,916		(3,527	)		5,020,389		-		3,463,710		1,556,679		5,072,424		(18,138	)		5,054,287		-		4,063,109		991,178

Total	$	5,090,795	$	(3,527	)	$	5,087,268	$	66,879	$	3,463,710	$	1,556,679	$	5,170,963	$	(18,138	)	$	5,152,826	$	98,539	$	4,063,109	$	991,178

	September 30, 2017
			Unrealized			Fair		Cash		Short-term		Long-term
	Cost Basis		Losses			Value		Equivalents		Securities		Securities

Level 1:
Money Market Funds	$	55,257	$	-		$	55,257	$	55,257	$	-	$	-

Level 2:
Certificates of deposit		2,436,647		-			2,436,647		-		1,937,647		499,000
Municipal securities		25,315		(12	)		25,303		-		25,303		-
Corporate bonds		2,609,973		(1,257	)		2,608,716		-		2,396,592		212,124
Subtotal		5,071,935		(1,269	)		5,070,666		-		4,359,542		711,124

Total	$	5,127,192	$	(1,269	)	$	5,125,923	$	55,257	$	4,359,542	$	711,124

8. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

March 31,

September 30,

2017

2016

Machinery and equipment
$ 967,526 $ 957,829
Office furniture and equipment
1,018,244 976,856
Leasehold improvements
76,138 71,738
Property and equipment, gross
2,061,908 2,006,423
Accumulated depreciation
(1,590,244 ) (1,533,079 )
Property and equipment, net
$ 471,664 $ 473,344

Six months ended

March 31,

2017

2016

Depreciation expense
$ 59,153 $ 94,251

	March 31,			September 30,
	2018			2017
Office furniture and equipment	$	1,296,249		$	1,093,502
Machinery and equipment		1,067,802			994,157
Leasehold improvements		76,138			76,138
Property and equipment, gross		2,440,189			2,163,797
Accumulated depreciation		(1,956,722	)		(1,654,194	)
Property and equipment, net	$	483,467		$	509,603

	Six months ended
	March 31,
	2018		2017
Depreciation expense	$	121,967	$	59,153

Payroll and related consists primarily of accrued vacation, bonus, sales commissions, and benefits.

Deferred revenue consists primarily of prepayments from customers in advance of product shipment.

~~We have~~The Company has contracted with a ~~third party~~third-party service provider to administer the required services under the terms of a repair and maintenance agreement with a foreign military. This payment is made in arrears for each contract year ended March 26.

8.10. INCOME TAXES

AtThe Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. The Act reduces the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018. Subsequently, the SEC issued Staff Accounting Bulletin (“SAB”) 118, which allows for the recording of provisional amounts related to U.S. tax reform and subsequent adjustments related to U.S. tax reform during a measurement period not to exceed one year from the enactment date. Accordingly, the Company remeasured its deferred tax assets on a provisional basis based on the rates at which they are expected to be realized in the future, which is generally 21%, resulting in a decrease to the Company’s net deferred tax assets of $2,474,000 during the quarter ended December 31, 2017. The Company will continue to analyze certain aspects of the Act and refine its calculations as appropriate during the measurement period, which could affect the measurement of these balances.

For the six months ended March 31, 2018, the Company recorded income tax expense of $393,339 reflecting an effective tax rate of 25.1% and an additional discrete tax expense of $2,474,000 due to the remeasurement of its deferred tax assets as a result of tax reform. For the six months ended March 31, 2017, the Company ~~had federal net operating losses (“NOLs”) and related state NOLs.~~recorded an income tax benefit of $317,243 reflecting an effective tax rate of 38.1%. For the six months ended March 31, 2018, when compared to the same period in 2017, the decrease in the effective tax rate was primarily attributable to the decrease in Federal statutory tax rate due to tax reform. The Company ~~released $188,000 and $8,339,000 of its~~continues to maintain a partial valuation allowance against its deferred tax assets during the years ended September 30, 2016 and 2015, respectively, as it determined that it was more likely than not that those assets would be realized. The Company continues to maintain a valuation allowance of $12,109,000 at March 31, 2017 and September 30, 2016 as the Company believes that the negative evidence that it will be able to recover these net deferred tax assets outweighs the positive evidence.

The Company recorded an income tax benefit of $317,243 and $856,106, reflecting effective tax rates of 38.1% and 45.0% for the six months ended March 31, 2017 and 2016, respectively. The tax benefit recorded in these two periods is related to the Company’s losses for those periods and the determination that a valuation allowance is not required on the benefit related to those losses.

Accounting ~~Standard~~Standards Codification (“ASC”) 740,Accounting for Uncertainty in Income Taxes, requires the Company to recognize in its consolidated financial statements uncertainties in tax positions taken that may not be sustained upon examination by the taxing authorities. If interest or penalties are assessed, the Company would recognize these charges as income tax expense. The Company has not recorded any income tax expense or benefit for uncertain tax positions.

11. DEBT

9.In connection with the acquisition of Genasys, as described in Note 4, the Company acquired certain debts of Genasys. The carrying value of the acquired debt approximates fair value. The components of the acquired debt consisted of the following as of March 31, 2018:

Loans with Governmental Agencies (1)	$	847,215
Revolving Credit Facilities (2)		198,850
Term Loans (3)		119,483
Total debt		1,165,548
Less current portion		(896,317	)
Total long-term debt	$	269,231

(1)

Loans with governmental agencies represents debt granted by ministries within Spain and the European Union for the purpose of stimulating economic development and promoting research and development. Loans with governmental agencies as of March 31, 2018 are as follows:

Agency	Due Date	Interest Rate	Principal
Ministry of Industry, Tourism, and Commerce	December 31, 2018	0.53%	$	73,865	a
Ministry of Industry, Tourism, and Commerce	December 31, 2019	0.51%		107,933	b
Ministry of Industry, Tourism, and Commerce	January 31, 2020	3.95%		94,634	c
Ministry of Science and Innovation	February 2, 2022	0.00%		74,136
Ministry of Science and Innovation	February 2, 2024	0.00%		296,440	d
Center for Development of Industrial Technology	March 31, 2021	0.00%		94,306
European Union Agency for Network and Information Security	October 28, 2018	2.95%		105,902
			$	847,215

This loan is secured by $26,113 of cash pledged as collateral by Genasys. This amount is included in restricted cash at March 31, 2018. The cash will be released upon repayment of the loan.

This loan is secured by $40,373 of cash pledged as collateral by Genasys, which represents 25% of the original principal received. This amount is included in restricted cash at March 31, 2018. The cash will be released upon repayment of the loan.

This loan is secured by $63,774 of cash pledged as collateral by Genasys, which represents 35% of the original principal received. This amount is included in restricted cash at March 31, 2018. The cash will be released upon repayment of the loan.

This loan is secured by $296,440 of cash pledged as collateral by Genasys, which is the current balance of the loan. This amount represents 66.6% of the original principal received. This amount is included in restricted cash at March 31, 2018. The Company expects the Ministry of Science and Innovation to declare the terms of the loan satisfied within fiscal year 2018, and that the outstanding balance of the loan will be paid in full during fiscal year 2018. Accordingly, this has been included in the current portion of notes payable as of March 31, 2018.

(2)

Revolving credit facilities were used by Genasys to meet short-term operating needs. Revolving credit facilities as of March 31, 2018 are as follows:

Description	Interest Rate	Principal
Revolving Credit Facility A	3.50%	$	58,092
Revolving Credit Facility B	3.95%		60,811
Revolving Credit Facility C	3.00%		60,199
Other Revolving Credit Facilities	4.20%		19,748
		$	198,850

Borrowing under Revolving Credit Facilities A, B, and C are up to a maximum of €50,000 (approximately $61,600). These revolving credit facilities mature during the three months ended June 30, 2018. The Other Revolving Credit Facilities were used by Genasys to fund local tax payments and mature during the three months ended June 30, 2018.

(3)

Term Loans as of March 31, 2018 are as follows:

Description	Due Date	Interest Rate	Principal
Term Loan A	October 20, 2018	4.80%	$	12,681
Term Loan B	May 27, 2019	Variable		18,549
Term Loan C	June 20, 2019	4.29%		39,951
Term Loan D	July 12, 2020	Variable		48,302
			$	119,483

Term Loan A is an unsecured 4.80% fixed rate loan due in October 2018 issued to fund the working capital needs of Genasys. There is a prepayment penalty of 3% of the outstanding balance. Principal and interest payments are payable on the 20^th of each month.

Term Loan B is an unsecured variable rate loan due in May 2019 issued to fund the working capital needs of Genasys. The interest rate is Euribor +3.5%. There are no prepayment penalties. Principal and interest payments are payable on the 27^th of each month.

Term Loan C is an unsecured fixed rate loan due in June 2019 issued to fund the working capital needs of Genasys. There is no prepayment penalty. Principal and interest payments are due on the 20^th of each month.

Term Loan D is an unsecured variable rate loan due in July 2020 issued to fund the working capital needs of Genasys. There is a prepayment penalty of 0.5% of the outstanding balance. The interest rate is fixed at 2.44% until July 2018 at which point the interest rate becomes Euribor +2.44%. Principal and interest payments are due on the 12^th of each month.

The following is a schedule of future annual payments as of March 31, 2018:

April 2018-March 2019	$	896,317
April 2019-March 2020		173,035
April 2020-March 2021		48,796
April 2021-March 2022		47,400
April 2022-March 2023		-
Thereafter		-
Total	$	1,165,548

The Company has pledged $428,425 of cash as collateral against debt. This restricted cash amount is included in restricted cash and long-term restricted cash as of March 31, 2018.

The Company recorded $9,815 in interest expense for the three months and six months ended March 31, 2018 in the condensed consolidated statements of income in connection with the above referenced debt.

13. SHARE-BASED COMPENSATION

~~Stock Option~~ Equity Incentive Plans

At March 31, ~~2017,~~2018, the Company had two equity incentive plans. The 2005 Equity Incentive Plan (“2005 Equity Plan”) was terminated with respect to new grants in March 2015, but remains in effect for grants issued prior to that time. The Amended and Restated 2015 Equity Incentive Plan (“2015 Equity Plan”) was approved by the Company’s Board of Directors on December 6, 2016 and by the Company’s stockholders on March 14, 2017. The 2015 Equity Plan authorizes for issuance as stock options, restricted stock, stock appreciation rights, restricted stock units and performance awards, an aggregate of 5,000,000 new shares of common stock to employees, directors, advisors or consultants. At March 31, ~~2017,~~2018, there were options ~~and awards~~ outstanding covering ~~2,477,502~~2,193,502 and ~~2,629,500~~2,279,315 shares of common stock under the 2005 Equity Plan and 2015 Equity Plan, respectively.

Stock Option Activity

The following table summarizes information about stock option activity during the six months ended March 31, ~~2017:~~ 2018:

Number

Weighted Average

of Shares

Exercise Price

Outstanding October 1, 2016
4,404,002 $ 2.18
Granted
464,000 $ 1.70
Forfeited/expired
(11,000 ) $ 1.70
Outstanding March 31, 2017
4,857,002 $ 2.13
Exercisable March 31, 2017
3,287,429 $ 2.24

	Number			Weighted Average
	of Shares			Exercise Price
Outstanding October 1, 2017		4,663,502		$	2.16
Granted		3,500		$	2.21
Forfeited/expired		(83,333	)	$	2.84
Exercised		(110,852	)	$	1.68
Outstanding March 31, 2018		4,472,817		$	2.15
Exercisable March 31, 2018		3,298,533		$	2.23

Options outstanding are exercisable at prices ranging from $0.93 to $3.17 and expire over the period from 2018 to 2024 with an average life of ~~4.4~~3.0 years. The aggregate intrinsic value of options outstanding and exercisable at March 31, ~~2017~~2018 was ~~$62,460~~$1,242,236 and ~~$59,379,~~$990,806, respectively.

During the six months ended March 31, 2017, the Company incurred non-cash share-based compensation expense of $307,324 resulting from the modification of stock options in accordance with a Separation Agreement and General Release related to the June 30, 2016 departure of the Company’s prior chief executive officer (“CEO”). As per the agreement, all unvested options became fully vested on December 31, 2016 and shall remain exercisable for a period of 24 months following the December 31, 2016 separation date as defined in the agreement. The expense is measured as the excess of the fair value of the modified awards over the fair value of the original awards immediately before its terms are modified as per ASC 718-20-35.

Performance-Based Stock Options

On August 1, 2016, the Company awarded a performance-based stock option (PVO) to purchase 750,000 shares of the Company’s common stock to a key executive, with a contractual term of seven years. Vesting is based upon the achievement of certain performance criteria for each of fiscal 2019 and 2020 (375,000 shares for each year) including minimum free cash flow margin and net revenue targets at four different target levels for each of the years. Additionally, vesting is subject to the executive being employed by the Company at the time the Company achieves such financial targets.

The Company has made the assumption that the lowest performance target level for each of the years will be met, and therefore ~~assumed that~~ 187,500 shares of the PVO ~~would~~are assumed to vest. The weighted average grant date fair value for the PVO was $0.81 per share, which was estimated on the date of grant using the Black-Scholes option pricing model. Non-cash share-based compensation expense related to this award is recognized on a ~~straight line~~straight-line basis ~~and was $4,774 for~~over the ~~year ended September 30, 2016.~~requisite service periods. The Company will continue to review these targets each quarter and will adjust the expected outcome as needed, recognizing compensation expense cumulatively in such period for the difference in expense.

Restricted Stock ~~Grants~~Units

During the quarter ended December 31, 2016, the Board of Directors approved the grant of 25,000 restricted stock units (“RSUs”) to each of ~~our~~the Company’s non-employee directors, subject to stockholder approval of ~~theAmended~~the Amended and Restated 2015 Equity Incentive Plan at the 2017 Annual Meeting of Stockholders. These RSUs were granted as replacements for 20,000 stock options that would have been granted on the date of the 2016 Annual Meeting of Stockholders and ~~will vest~~vested on the first anniversary of the 2016 Annual Meeting of Stockholders, which iswas May 17, 2017.As a result of the stockholders approval of the Amended and Restated 2015 Equity Incentive Plan at the 2017 Annual Meeting of Stockholders on March 14, 2017, the RSUs previously granted were made effective at a market value of ~~$197,500. These RSUs will be~~$197,500 and were expensed on a straight line basis through the May 17, 2017 vest date.

On March 14, 2017, the Board of Directors approved an additional grant of 25,000 RSUs to each of ~~our~~the Company’s non-employee directors that will vest on the first anniversary of the grant date. These were also issued at a market value of $197,500, which will be expensed on a straight line basis through the March 14, 2018 vest date.

On March 20, 2018, the Board of Directors approved an additional grant of 25,000 RSUs to each of the Company’s non-employee directors that will vest on the first anniversary of the grant date. These were issued at a market value of $278,750, which will be expensed on a straight line basis through the March 20, 2019 vest date. Also during the quarter, 93,330 RSUs were granted to employees that will vest over three years on the anniversary date of the grant. These were issued at a market value of $210,176, which will be expensed on a straight line basis over the three year life of the grants.

Share-Based Compensation

The Company recorded share-based compensation expense and classified it in the condensed consolidated statements of operations as follows:

	Three months ended				Six months ended				Three months ended				Six months ended
	March 31,				March 31,				March 31,				March 31,
	2017		2016		2017		2016		2018		2017		2018		2017
Cost of revenues	$	5,874	$	6,101	$	11,751	$	11,738	$	5,047	$	5,874	$	11,256	$	11,751
Selling, general and administrative		148,600		128,405		584,097		246,360		120,133		148,600		229,455		584,097
Research and development		22,928		25,811		46,303		50,159		20,609		22,928		43,539		46,303
Total	$	177,402	$	160,317	$	642,151	$	308,257	$	145,789	$	177,402	$	284,250	$	642,151

The employee stock options granted in the six months ended March 31, ~~2017~~2018 and ~~2016~~2017 had a weighted-average estimated fair value of ~~$0.71~~$0.89 per share and ~~$0.62~~$0.71 per share, respectively, using the Black-Scholes option pricing model with the following weighted-average assumptions (annualized percentages):

	Six months ended						Six months ended
	March 31,						March 31,
	2017			2016			2018	2017
Volatility	47.5%	-	53.7%	49.0%	-	52.0%	45.4%	47.5%	-	53.7%
Risk-free interest rate	1.7%	-	2.0%	1.1%	-	1.7%	2.2%	1.7%	-	2.0%
Forfeiture rate		10.0%			10.0%		10.0%		10.0%
Dividend yield		0.0%		2.2%	-	2.7%	0.0%		0.0%
Expected life in years	3.8	-	4.6	3.2	-	4.6	4.6	3.8	-	4.6

The Company ~~declared~~did not declare a dividend for the ~~quarter~~six-month periods ended ~~December~~March 31, ~~2015, which reflects a dividend yield assumption based on the expected annual yield, but the dividend was discontinued prior to the quarter ended December 31, 2016.~~2018 and 2017. Expected volatility is based on the historical volatility of the Company’s common stock over the period commensurate with the expected life of the options. The risk-free interest rate is based on rates published by the Federal Reserve Board. The expected life is based on observed and expected time to post-vesting exercise. The expected forfeiture rate is based on past experience and employee retention data. Forfeitures are estimated at the time of the grant and revised in subsequent periods if actual forfeitures differ from those estimates or if the Company updates its estimated forfeiture rate. Such amounts will be recorded as a cumulative adjustment in the period in which the estimate is changed.

Since the Company has a NOL carryforward as of March 31, 2017, no excess tax benefit for the tax deductions related to share-based awards was recognized for the six months ended March 31, 2017 and 2016. As of March 31, ~~2017,~~2018, there was approximately ~~$1,100,000~~$900,000 of total unrecognized compensation cost related to non-vested share-based employee compensation ~~arrangements, including stock options and RSUs.~~arrangements. The cost is expected to be recognized over a weighted-average period of ~~1.7~~1.9 years.

14. STOCKHOLDERS’ EQUITY

~~11. STOCKHOLDERS’ EQUITY~~

Summary

The following table summarizes changes in the components of stockholders’ equity during the six months ended March 31, ~~2017:~~ 2018:

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Accumulated

Comprehensive

Stockholders'

Shares

Amount

Capital

Deficit

Loss

Equity

Balances, September 30, 2016
31,800,103 $ 318 $ 86,467,215 $ (51,895,099 ) $ (1,549 ) $ 34,570,885
Share-based compensation expense
- - 642,151 - - 642,151
Other comprehensive loss
- - - - (1,978 ) (1,978 )
Net loss
- - - (514,329 ) - (514,329 )
Balances, March 31, 2017
31,800,103 $ 318 $ 87,109,366 $ (52,409,428 ) $ (3,527 ) $ 34,696,729

										Accumulated
					Additional					Other			Total
	Common Stock				Paid-in		Accumulated			Comprehensive			Stockholders'
	Shares		Amount		Capital		Deficit			Loss			Equity
Balances, September 30, 2017		32,158,436	$	322	$	87,956,839	$	(52,771,853	)	$	(1,269	)	$	35,184,039
Share-based compensation expense		-		-		284,250		-			-			284,250
Issuance of common stock upon exercise of stock options, net		110,852		-		185,718								185,718
Issuance of common stock upon vesting of restricted stock units		125,000		-		-		-			-			-
Other comprehensive loss		-		-		-		-			(12,513	)		(12,513	)
Net loss		-		-		-		(1,222,344	)					(1,222,344	)
Balances, March 31, 2018		32,394,288	$	322	$	88,426,807	$	(53,994,197	)	$	(13,782	)	$	34,419,150

Share Buyback Program

The Board of Directors approved a share buyback program in 2015 under which the Company was authorized to repurchase up to $4 million of its outstanding common shares. ~~This program expired on December 31, 2016 and in December 2016, the Board extended the program through December 31, 2017.~~ There were no shares repurchased during the ~~six months~~six-month periods ended March 31, ~~2017. During the six months ended~~2018 and 2017 respectively. At March 31, ~~2016, 1,099,608~~2018, all repurchased shares were ~~repurchased~~retired. In December 2017, the Board of Directors extended the program through December 31, 2018. At March 31, 2018, $3.9 million is available for ~~$1,748,456~~share repurchase under ~~these two programs.~~this program.

Dividends

On December 3, 2015, the Company announced a cash dividend of $0.01 per share on the Company’s common stock, payable on January 29, 2016 to stockholders of record on January 15, 2016, and on February 4, 2016, the Company announced a cash dividend of $0.01 per share on the Company’s common stock, payable on March 30, 2016 to stockholders of record on March 15, 2016. Dividends charged to retained earnings in the three and six months ended March 31, 2016 were $317,988 and $636,661, respectively. There were no dividends declared in the six months ended March 31, 2018 and 2017.

The following table sets forth the computation of basic and diluted ~~income (loss)~~loss per share:

16. SEGMENT INFORMATION

~~13.~~The Company is engaged in the design, development and commercialization of directed and multidirectional sound technologies, voice broadcast products and location-based mass messaging solutions for emergency warning and workforce management. The Company operates in two business segments: Hardware and Software and its principle markets are North and South America, Europe, Middle East and Asia. As reviewed by the Company’s chief operating decision maker, the Company evaluates the performance of each segment based on sales and operating income. Cash and cash equivalents, marketable securities, accounts receivable, inventory, property and equipment, deferred tax assets, goodwill and intangible assets are primary assets identified by segment. The accounting policies for segment reporting are the same for the Company as a whole and transactions between the two operating segments are not material.

The following table presents the Company’s segment disclosures:

	Three Months Ended			Six Months Ended
	March 31, 2018			March 31, 2018
Revenues from external customers
LRAD	$	7,453,794		$	15,082,361
Genasys		414,654			414,654
	$	7,868,448		$	15,497,015

Intercompany revenues
LRAD	$	-		$	-
Genasys		89,818			89,818
	$	89,818		$	89,818

Segment Operating Income
LRAD	$	579,498		$	1,570,604
Genasys		24,656			24,656
	$	604,154		$	1,595,260

Other expenses:
Depreciation and amortization expense
LRAD	$	(64,660	)	$	(124,765	)
Genasys		(69,044	)		(69,044	)
	$	(133,704	)	$	(193,809	)

Interest expense
LRAD	$	-		$	-
Genasys		(9,815	)		(9,815	)
	$	(9,815	)	$	(9,815	)

Income tax expense
LRAD	$	(158,451	)	$	(2,867,339	)
Genasys		-			-
	$	(158,451	)	$	(2,867,339	)

	March 31, 2018		September 30, 2017
Long-lived assets:
LRAD	$	527,872	$	565,292
Genasys		4,393,129		-
Total	$	4,921,001	$	565,292

Total Assets
LRAD	$	35,471,343	$	38,857,800
Genasys		5,418,144		-
Total	$	40,889,487	$	38,857,800

17. MAJOR CUSTOMERS

For the three months ended March 31, 2018, revenues from three customers accounted for 40%, 15% and 14% of total revenues, and for the six months ended March 31, 2018 revenues from two customers accounted for 33% and 16% of total revenues, with no other single customer accounting for more than 10% of revenues. At March 31, 2018, accounts receivable from one customer accounted for 56% of total accounts receivable, with no other single customer accounting for more than 10% of the accounts receivable balance.

For the three months ended March 31, 2017, revenues from two customers accounted for 23% and 11% of total revenues, and for the six months ended March 31, 2017 revenues from two customers accounted for 15% and 10% of total revenues, with no other single customer accounting for more than 10% of revenues. At March 31, 2017, accounts receivable from three customers accounted for 41%, 24% and 14% of total accounts receivable, ~~respectively, with no other single customer accounting for more than 10% of the accounts receivable balance.~~

For the three months ended March 31, 2016, revenues from one customer accounted for 20% of total revenues, and for the six months ended March 31, 2016, revenues from one customer accounted for 11% of total revenues, with no other single customer accounting for more than 10% of revenues. At March 31, 2016, accounts receivable from three customers accounted for 32%, 11% and 10% of total accounts receivable, respectively, with no other single customer accounting for more than 10% of the accounts receivable balance.

The following table summarizes revenues by geographic region. Revenues are attributed to countries based on ~~customer's~~customer’s delivery location.

	Three months ended				Six months ended
	March 31,				March 31,				Three months ended March 31,				Six months ended March 31,
	2017		2016		2017		2016		2018		2017		2018		2017
Americas	$	2,099,151	$	2,417,362	$	3,721,509	$	3,615,657	$	5,051,072	$	2,099,151	$	11,104,110	$	3,721,509
Asia Pacific										2,255,856		2,923,825		3,277,762		3,908,425
Europe, Middle East and Africa		719,415		158,648		1,053,792		497,322		561,520		719,415		1,115,143		1,053,792
Asia Pacific		2,923,825		1,025,964		3,908,425		2,310,527
Total Revenues	$	5,742,391	$	3,601,974	$	8,683,726	$	6,423,506	$	7,868,448	$	5,742,391	$	15,497,015	$	8,683,726

The discussion and analysis set forth below should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the related notes included under Item 1 of this Quarterly Report on Form 10-Q, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended September 30, ~~2016.~~2017.

This report contains certain statements of a forward-looking nature relating to future events or future performance. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not the only means of identifying forward-looking statements. Prospective investors are cautioned that such statements are only predictions and actual events or results may differ materially. In evaluating such statements, prospective investors should specifically consider various factors identified in this report and any matters set forth under Part I, Item 1A (Risk Factors) of our Annual Report on Form 10-K, which could cause actual results to differ materially from those indicated by such forward-looking statements.

Our Company ~~develops~~is a leading innovator and ~~delivers highly intelligible, directed Long Range Acoustic Devices~~^® ~~(“LRAD~~^®”)manufacturer of acoustic communication systems that ~~beam, focus and~~ control sound from 30° - 360° over short and long distances. By ~~placing sound~~broadcasting audible voice messages and tones with exceptional clarity and only where needed, ~~we not only enhance many typical speaker applications, but~~ we offer novel sound applications that conventional ~~speakers~~bullhorns, loudspeakers, and public address and emergency warning systems cannot achieve. We have developed two LRAD^® product lines using our proprietary technologies:

LRAD systems are a technological breakthrough in broadcasting audible, highly intelligible voice messages and ~~warnings~~tones over long ~~distances. The LRAD-X product line features clear voice intelligibility~~distances and ~~meets the military’s~~high ambient noise using minimal power. Our AHDs meet stringent ~~environmental~~military requirements and are packaged in ~~a number of packages and~~several form factors, from ~~our~~portable, hand held ~~LRAD 100X~~units to ~~our LRAD 2000X unit, which communicates up to 5,500 meters.Through~~permanently installed, remotely operated systems. Through the use of powerful voice commands, prerecorded messages in multiple languages, and warning tones, our ~~LRAD-X products~~AHDs are designed to create large safety zones while determining the intent and influencing the behavior of security threats. We continue to ~~expand~~enhance our ~~LRAD-X~~acoustic communication technologies and product ~~line~~lines to provide a complete range of systems and accessories, including ~~a new, patent pending~~our recently patented XL ~~speaker~~driver technology, ~~introduced in 2014,~~ which generates higher audio output in a smaller and lighter form factor, is being incorporated into our AHD and ~~has been incorporated~~ONE VOICE products.

Building on the success of our AHDs, we launched our multidirectional product line. Unlike most siren-based mass notification systems on the market, our ONE VOICE systems broadcast both emergency warning sirens and highly intelligible voice messages with uniform 60° - 360° coverage over local and wide areas. We believe our ability to shape the broadcast coverage area, our industry-leading speech intelligibility, and our multiple system activation and control options, make us more competitive in ~~several new products in recent years.~~ the large and growing mass notification market.

Our products are designed to meet a broad range of diverse applications including emergency warning and mass notification, fixed and mobile military deployments, maritime, ~~security,~~ critical infrastructure, ~~and~~ perimeter, ~~security,~~ commercial, ~~security,~~ border, and homeland security, law enforcement, ~~and~~ emergency responder and fire rescue communications, asset protection, and wildlife preservation and ~~control.Our LRAD-X products have been competitively selected over other commercially available systems by the United States military and by several international militaries.~~

Building on the success of our LRAD-X directional technology, in 2012 we launched our first omnidirectional product, the LRAD 360X. Unlike standard siren systems in the market, the LRAD 360X is designed with the same highly intelligible voice clarity, and the ability to communicate and alert over long distances, as in our directional products. Since the LRAD 360X product launch, we have expanded our ONE VOICE^® omnidirectional product line to include various size offerings, a 60-degree unit, a mobile trailer-mounted system, and various configurations of amplifiers, power sources, software and other products to provide a more fully integrated mass notification solution for municipalities, military bases, airports, college/business campuses, etc. We expect that the ONE VOICE product line will allow us to expand our business opportunities into the large and growing worldwide emergency warning and mass notification market. Through increased focus and investment in domestic and international sales and marketing activities, we have pioneered a new global market,control. By selling our ~~directional LRAD-X long-range acoustic hailing devices (“AHDs”)~~industry-leading AHDs and advanced ONE VOICE ~~omnidirectional mass notification~~MN systems into over 70 ~~countries.~~countries, we have created a new worldwide market and a recognized global brand. We continue to develop new acoustic innovations and believe we have established a significant competitive advantage in our principal markets.

On January 18, 2018, the Company completed its acquisition of Genasys Holdings, S.L. and its subsidiaries (“Genasys”) for approximately $3.0 million (€2.4 million) paid or payable in cash and the assumption of approximately $1.5 million (€1.2 million) of debt. Genasys, headquartered in Madrid, Spain, is a leading software provider of advanced, location-based mass messaging solutions for emergency warning systems and workforce management. Genasys had sales of approximately $2.1 million (€1.9 million) for its year ended December 31, 2017 and has approximately 16 employees based primarily in Spain.

The Company believes the combination of Genasys’ mass messaging solutions and software development capabilities will enable the Company to enhance existing product offerings through integrated mass messaging solutions as well as provide growth opportunities in new markets. The results of Genasys’ operations were included in the Company’s consolidated financial statements beginning January 18, 2018.

Revenues in the second fiscal quarter ended March 31, ~~2017,~~2018, were ~~$5.7~~$7.9 million, ~~a 59%~~an increase ~~over $3.6~~from $5.7 million in the second fiscal quarter of ~~2016.~~2017. The increase in revenues was driven by a ~~$1.5 million~~significant increase in AHD revenue and the addition of Genasys in 2018, offset by a decrease in mass notification revenues. AHD revenues ~~primarily due~~increased $3,515,640, or 97%, and Genasys contributed $414,654 in revenue, however, mass notification revenue decreased $1,804,237, or 85%, compared to the ~~shipment~~second fiscal quarter of a $1.3 million mobile mass notification systems order for a large oil and gas company in Eurasia for public address, emergency communication and early warning, $412,000 of follow-on orders for tsunami warning installations in Japan, and several other international and U.S. mass notification shipments. International shipments represented 84% of revenues and included large orders for a bird deterrent application in Canada, public safety in Asia and a Latin American Navy.2017. Based on the timing of budget cycles, as well as financial issues and military ~~conflicts~~conflict in certain areas of the world, delays in awarding contracts often occur, resulting in uneven quarterly revenues. As a result of the U.S. presidential election, U.S. defense spending may increase, although it is too early to determine the new administration’s budget priorities. Demand for our products remains strong and we continue to build awareness and interest in our LRAD-X and ONE VOICE mass notification products throughout the world. On a quarter over quarter basis, our revenues are expected to remain uneven. Gross profit increased compared to the same quarter in the prior year ~~due to the increase in shipments~~as a result of higher sales and ~~the resulting~~ higher fixed overhead absorption. Operating expenses ~~decreased by 13%~~increased 37.4% from ~~$2.9~~$2.5 million to $3.4 million in the quarter ended March 31, ~~2016 to $2.5 million in the quarter ended March 31, 2017,~~2018, primarily due to ~~one-time~~the addition of Genasys operating expenses, ~~of $835,772 in the prior year~~acquisition related ~~to our response to~~expenses, increased payroll related expenses for additional engineering and settlement of a proxy contest initiated by one of our stockholders, and separation costs related to the departure of the Company’s prior chief executive officer. This decrease was partially offset by an increase of $240,731 for sales ~~commissions, $173,956 for bonus~~personnel, higher incentive expense accrual based on the Company’s expectation for meeting current year financial goals, travel and ~~other increases.~~related expenses, and computer related expenses. The second quarter of fiscal 2018 results, reflect a $158,000 income tax expense which is a non-cash charge that reduces the balance of the deferred tax asset. We reported ~~an increase of $715,796 for income tax provision and~~ net income of ~~$298,350~~$460,908 for the quarter, or $0.01 per ~~diluted~~ share, compared to a net ~~loss~~income of ~~$664,663,~~$298,350, or ~~$0.02~~$0.01 per share for the same quarter in the prior year.

Our product line-up continues to gain worldwide awareness and recognition through media exposure, trade show participations, product demonstrations and word of mouth as a result of positive responses and increased acceptance of our products. We believe we have a solid global brand, technology and product foundation with our ~~LRAD-X directed~~AHD and MN systems product ~~line,~~lines, which we have expanded over the years to service new markets and customers for greater business growth. We have launched a line of omnidirectional products targeted to meet the needs of the large and growing mass notification market, which we continue to expand to incorporate a more fully integrated solution. We believe that we have strong market opportunities for our directional and ~~omnidirectional~~multidirectional product offerings within the ~~global government and military sector, as well as increasing commercial applications as a result of continued threats to governments, commerce and~~mass notification, defense, law enforcement, fire rescue, public safety, maritime, homeland security, critical infrastructure security, asset protection, and in wildlife ~~preservation~~control and ~~control applications.~~protection business sectors. We intend to continue expanding our international mass notification business, particularly in the Middle East, Europe and Asia where we believe there are greater market opportunities for our ~~omnidirectional~~multidirectional products. Our selling network has expanded through the addition of sales consultants as well as continuing to improve and increase our relationships with key integrators and sales representatives within the ~~U.S.~~United States and in a number of worldwide locations. However, we may continue to face challenges in fiscal ~~2017~~2018 due to continuing economic and geopolitical conditions in some international regions. We anticipate that the new U.S. government administration will support U.S. ~~Military~~military spending, which we believe could benefit us, although there is uncertainty as to priorities and timing. We continue to pursue large business opportunities, but it is difficult to anticipate how long it will take to close these opportunities, or if they will ever ultimately come to fruition. It is also difficult to determine whether our ~~omnidirectional~~multidirectional product will be accepted as a viable solution in the mass notification market, which includes a number of large, well-known competitors.

We have identified a number of accounting policies as critical to our business operations and the understanding of our results of operations. These are described in our consolidated financial statements located in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended September 30, ~~2016.~~2017. The impact and any associated risks related to these policies on our business operations is discussed below and throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations when such policies affect our reported and expected financial results.

The methods, estimates and judgments we use in applying our accounting policies, in conformity with generally accepted accounting principles in the U.S., have a significant impact on the results we report in our financial statements. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. The estimates affect the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.

Comparison of Results of Operations for the Three Months Ended March 31 ~~2017 and 2016~~, 2018 and 2017

The following table sets forth for the periods indicated certain items of our condensed consolidated statements of operations expressed in dollars and as a percentage of net revenues. The financial information and the discussion below should be read in conjunction with the condensed consolidated financial statements and notes contained in this report.

Revenues increased in the current quarter compared to the ~~same period in the~~ prior year due to ~~a 270% increase~~the larger backlog at December 31, 2017 compared to December 31, 2016 and the addition of $414,654 of Genasys sales in ~~U.S. and international mass notification revenues. Mass notification shipments included a $1.3 million mobile mass notification order~~the 2018 fiscal quarter. Sales improved in the current quarter for ~~an oil and gas application in Eurasia, a~~the AHD product line (up $3,515,640 or 97%) but were lower for the MN systems ~~delivery~~product line (down $1,804,237, or 85%) compared to a large U.S. maritime port, and several shipments for tsunami warning systems in Japan. International shipments represented 84% of revenues and included large orders for a bird deterrent application in Canada, public safety in Asia and a Latin American Navy.the prior year quarter. The receipt of orders will often be uneven due to the timing of approvals or budgets. At March 31, ~~2017,~~2018, we had aggregate deferred revenue of ~~$412,049~~$1,028,497 for prepayments from customers in advance of product ~~shipment.~~shipment and software support agreements.

The increase in gross profit in the current quarter compared to the prior year was primarily due to the higher level of sales, partially offset by an increase in manufacturing overhead expenses to support the increased ~~volume, as well as favorable margins due to product mix.~~sales.

Our products have varying gross margins, so product mix may affect gross profits. In addition, our margins vary based on the sales channels through which our products are sold in a given period. We continue to implement product updates and changes, including raw material and component changes that may impact product costs. With such product updates and changes we have limited warranty cost experience and estimated future warranty costs can impact our gross margins. We do not believe that historical gross profit margins should be relied upon as an indicator of future gross profit margins.

Selling, general and administrative expenses ~~decreased due to one-time expenses of $835,772 in~~increased $624,846 over the prior year quarter. This reflects increases of $285,200 from Genasys operations, $169,199 for salaries/benefits/consultants, $130,137 higher professional services (largely acquisition related), $124,835 for information technology related ~~to our response to~~expenses and ~~settlement of a proxy contest initiated by one of our stockholders,~~$102,362 in travel and ~~separation costs~~ related ~~to the departure of the Company’s prior chief executive officer.~~expenses. This ~~reduction~~ was ~~partially~~ offset by ~~an increase of $240,731 for sales commissions, $127,150 for bonus accrual, $25,979 for salaries, benefits and consultants, and $58,263 of other~~a $221,829 decrease in commission expense.

We incurred non-cash share-based compensation expenses allocated to selling, general and administrative expenses in the ~~three months~~three-months ended March 31, 2018 and 2017 of $120,133 and ~~2016 of~~ $148,600, ~~and $128,405,~~ respectively.

We may expend additional resources on the marketing and selling of our products in future periods as we identify ways to optimize ~~revenue~~potential opportunities. Commission expenses will fluctuate based on the nature of our sales.

Research and development expenses increased $308,696 compared to the prior year primarily due to ~~$46,806~~$159,479 for ~~bonus accrual, $17,792~~salaries and benefits due to increased engineering staff compared to the prior year quarter and $142,898 for increased product development and ~~testing expense, and $11,382 of other expenses, partially offset by a $68,376 reduction for salary and benefits.~~product testing.

Included in research and development expenses for the three months ended March 31, 2018 and 2017 was $20,609 and ~~2016 was~~ $22,928 ~~and $25,811~~ of non-cash share-based compensation costs, respectively.

Research and development costs vary period to period due to the timing of projects, and the timing and extent of the use of outside consulting, design and development ~~firms use.~~firms. We continually improve our product offerings and we expect to continue to expand our product line in ~~2017~~2018 with new products, customizations and enhancements. Based on current plans, we may expend additional resources on research and development in the current year compared to the prior year.

The ~~improvement to~~$162,558 increase in net income in the fiscal year 2018 second quarter was primarily due to the ~~increase~~higher gross profits realized from increased sales in ~~revenue~~the 2018 quarter and ~~gross margin, and decrease~~a lower effective tax rate in ~~operating expenses, partially offset by an increase in income tax expense. We recognized~~2018. Non-cash income tax expense of $158,451 and $169,285 ~~for~~was recognized in the three months ended March 31, 2018 and 2017, ~~compared to an income tax benefit of $546,511 for the three months ended March 31, 2016.~~respectively.

Comparison of Results of Operations for the Six Months Ended March 31, ~~2017~~2018 and ~~2016~~2017

~~The 35% increase in~~Revenues increased 79% for the year-to-date period ended March 31, 2018 compared to the prior year, ~~to date revenues is primarily~~ due to ~~a 233% increase~~the larger backlog at September 30, 2017 compared to September 30, 2016 and the addition of $414,654 of Genasys sales in ~~mass notification revenues, which included a $1.3 million mobile mass notification order for an oil and gas application~~the first six months of fiscal 2018. Sales increased in ~~Eurasia. We delivered orders~~the current year six months for both ~~outside~~AHD (up $6,103,098 or 104%) and indoor tsunami warning applications, power plant security, U.S. Navy communication on carriers and amphibious ships, a U.S. maritime port, and several smaller mass notification installations. International shipments represented 72% of yearMN systems (up $295,659, or 10%) product lines compared to date revenues and included several large orders including a bird deterrent application in Canada, public safety in Asia and a Latin American Navy. U.S. revenues were also strong with an LRAD 1000RX order for perimeter safety and security for utility infrastructure, a U.S. Navy spares order and a U.S. Marine Corps order.the prior year. The receipt of orders will often be uneven due to the timing of approvals or budgets. At March 31, ~~2017,~~2018, we had aggregate deferred revenue of ~~$412,049~~$1,028,497 for prepayments from customers in advance of product ~~shipment.~~shipment and software support agreements.

The increase in gross profit in the six months ended March 31, ~~2017~~2018 was primarily due to increased sales volume and ~~lower expenses related to an annual maintenance contract,~~better product mix, partially offset by ~~an increase in warranty reserve as a result of the higher revenue, and~~ an increase in manufacturing overhead expenses, primarily due to increased freight, salaries and benefits, computer related expenses and ~~bonus accrual.~~depreciation expense.

Selling, general and administrative expenses increased $846,809 in the six months ended March 31, 2018 compared to the prior year period. As a percentage of sales, however, selling, general and administrative expense decreased to 30.4% for the six months ended March 31, 2018 compared to 44.5% in the prior year period. The increase in selling, general and administrative expenses is primarily due to ~~$337,737~~$334,073 for information technology related expenses, $250,170 in higher incentive compensation, acquisition related costs of $196,330, $162,246 in higher travel and related expenses and $285,200 of Genasys expenses for selling and administrative purposes. This was partially offset by $215,144 in lower commissions and a $354,642 decrease in non-cash share-based compensation ~~expenses,~~expense, primarily due to non-recurring expense for separation costs related to the departure of the Company’s prior chief executive officer, $253,743 for bonus accrual, $226,963 for sales commission, $37,377 for salaries, benefits and consulting expense for business development, $29,730 for marketing and trade shows, and $72,916 of other expense, partially offset by one-time expenses of $835,772 in the prior year related to our response to and settlement of a proxy contest initiated by one of our stockholders, and separation costs related to the departure of the Company’s prior chief executive officer.

We incurred non-cash share-based compensation expenses allocated to selling, general and administrative expenses in the six months ended March 31, 2018 and 2017 of $229,455 and ~~2016 of~~ $584,097, ~~and $246,360,~~ respectively.

We may expend additional resources on the marketing and selling of our products in future periods as we identify ways to optimize potential opportunities. Commission expenses will fluctuate based on the nature of our sales.

Research and development expenses increased $499,322 compared to the prior year, primarily due to ~~$89,801 for bonus accrual and $16,227 of other increases, offset by a decrease of $72,215~~$278,494 for salaries and ~~benefits.~~benefits for additional engineers hired since March 31, 2017 and $218,467 for product development and product testing activities.

Included in research and development expenses for the six months ended March 31, 2018 and 2017 was $43,539 and ~~2016 was~~ $46,303 ~~and $50,159~~ of non-cash share-based compensation costs, respectively.

The ~~decrease~~increase in net loss compared to the prior year was ~~primarily~~ due to ~~the increase in revenue and gross margin, partially offset by a 3% increase in operating expenses and a decrease in~~ income tax ~~benefit. We recognized an income tax benefit of $317,243 and $856,106~~expense for the six months ended March 31, ~~2017~~2018, related to a reduction to the deferred tax asset resulting from the change to the U.S. Corporate income tax rates effective for the calendar year ended December 31, 2018. This was partially offset by the larger revenue and ~~2016, respectively.~~gross margin for the six months ended March 31, 2018 compared to prior year period.

Cash and cash equivalents at March 31, ~~2017~~2018 was ~~$14,563,812,~~$12,732,882, compared to ~~$13,466,711~~$12,764,421 at September 30, ~~2016,~~2017 primarily as a result of cash generated from ~~operations.~~operations offset by cash used to complete the acquisition of Genasys. Other than cash and expected future cash flows from operating activities in subsequent periods, we have no unused sources of liquidity at this time.

Principal factors that could affect our ability to obtain cash from external sources include:

Based on our current cash position, and assuming currently planned expenditures and level of operations, we believe we have sufficient capital to fund operations for the ~~next twelve months.~~twelve-month period subsequent to the issuance of the interim financial information. However, we operate in a rapidly evolving and unpredictable business environment that may change the timing or amount of expected future cash receipts and expenditures. Accordingly, there can be no assurance that we may not be required to raise additional funds through the sale of equity or debt securities or from credit facilities. Additional capital, if needed, may not be available on satisfactory terms, or at all.

Our cash flows from operating, investing and financing activities, as reflected in the condensed consolidated statements of cash flows, are summarized in the table below:

Net loss of $1,222,344 for the six months ended March 31, 2018 was decreased by $3,443,194 of non-cash items that included a reduction to deferred income taxes primarily resulting from enactment of the “Act”, share-based compensation, depreciation and amortization, warranty provision, and inventory obsolescence. Cash provided by operating activities in the current year reflected an increase in accounts payable of $502,933 due to the timing of payments, decreases in prepaid expenses and other of $174,589, and a decrease in accounts receivable of $389,434. Cash used in operating activities included an increase in inventory of $271,543, an increase in other assets of $60,614, and a decrease in accrued and other liabilities of $56,313.

Net loss of $514,329 for the six months ended March 31, 2017 was decreased by $317,625 of non-cash items that included deferred income taxes, share-based compensation, depreciation and amortization, warranty provision, and inventory obsolescence. Cash provided by operating activities in the current year reflected an increase in accounts payable of $707,549 due to the timing of payments, an increase in accrued and other liabilities of ~~$540,587~~$521,375 primarily for accrued bonuses and commissions, a decrease in accounts receivable of $168,183, and a decrease in other assets of $133,188. Cash used in operating activities included an increase in inventory of $174,720 and an increase in prepaid expenses and other of $101,304, and warranty settlements of $19,212. Net loss of $1,044,736 for the six months ended March 31, 2016 was increased by $414,533 of non-cash items that included deferred income taxes, share-based compensation expense, depreciation and amortization, warranty provision and inventory obsolescence. Cash generated from operating activities reflected an increase in accrued and other liabilities of $1,172,443, primarily for payroll costs related to the separation agreement with the Company’s prior chief executive officer, increased deferred revenue for customer prepayments andrevenue that was not recognized due to shipping terms, increase in accounts payable of $738,256, which included costs related to the proxy contest and decreased prepaid expenses and other – noncurrent of $93,742. Cash used in operating activities included an increase in accounts receivable of $361,037, an increase in inventories of $287,325, an increase in prepaid expenses and other of $82,637, and warranty settlements of $24,099.$101,304.

We had accounts receivable of ~~$3,240,729~~$5,718,396 at March 31, ~~2017,~~2018, compared to ~~$3,408,912~~$5,681,882 at September 30, ~~2016.~~2017. The level of trade accounts receivable at March 31, ~~2017~~2018 represented approximately 5165 days of revenues compared to 6470 days of revenues at September 30, ~~2016,~~2017 due to the ~~higher quarterly revenue.~~timing of shipments and related collections in this quarter compared to the fourth fiscal quarter of 2017. Terms with individual customers vary greatly. We typically require thirty-day terms from our customers if credit is approved. Our receivables can vary dramatically due to overall sales volume, quarterly variations in sales, timing of shipments to and receipts from large customers, payment terms, and the timing of contract payments.

At March 31, ~~2017~~2018 and September 30, ~~2016,~~2017, our working capital was ~~$23,614,607~~$22,966,199 and ~~$23,093,684,~~$25,412,106 respectively. The ~~increase~~decrease in working capital was primarily due to ~~an increase~~the purchase price paid and debt assumed in ~~cash and cash equivalents and a movement~~the acquisition of ~~long-term marketable securities to short-term.~~

Our net cash used in investing activities was $2,337,170 for the six months ended March 31, 2018, compared to cash provided by investing activities of $39,534 for the six months ended March 31, 2017. The 2018 amount includes $2,246,545 for the acquisition of Genasys. See the Overview section in this Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional information regarding the Genasys acquisition. We also use cash for the purchase of tooling and computer equipment and software. Cash used in investing activities for tooling, computer equipment and software was $90,135 and $57,473 for the six months ended March 31,2018 and 2017, respectively. In the six months ended March 31, 2018, we increased our holdings of short and long-term marketable securities by $490, compared to sales of $101,293 in the six months ended March 31, 2017. We anticipate some additional expenditures for tooling and equipment during the balance of fiscal year 2018.

In the six months ended March 31, ~~2017,~~2018, we ~~decreased our holding of short and long-term marketable securities by $101,293,~~used $165,615 for financing activities, compared to ~~$612,219 purchased in the six months ended March 31, 2016.~~

~~We also use~~no cash ~~for the purchase of tooling, computer equipment and software, and investment in new or existing patents. Cash~~ used, ~~in investing~~nor proceeds from, financing activities ~~for equipment and patents was $61,759 and $132,252~~ for the six months ended March 31, ~~2017~~2017. The first six months of 2018 included net payments of $414,477 to pay down debt assumed in the Genasys acquisition. Proceeds from the exercise of stock options were $185,718 and ~~2016, respectively. We anticipate some additional expenditure~~zero for ~~equipment and patents during the balance of fiscal year 2017.~~

In the six months ended March 31, 2018 and 2017, ~~we did not use any cash for financing activities. In~~respectively. Total debt at March 31, 2018 was $1,165,548.

The Board of Directors approved a share buyback program in 2013 under which the ~~six months~~Company was authorized to repurchase up to $4 million of its outstanding common shares. There were no shares repurchased during the quarters ended March 31, ~~2016, we used $1,748,456~~2018 and 2017, respectively. At March 31, 2018, all repurchased shares were retired. In December 2017, the Board of Directors extended the program through December 31, 2018. At March 31, 2018, $3.9 million is available for ~~the~~share repurchase ~~of common stock and $636,661 for the payment of cash dividends.~~under this program.

New pronouncements issued for future implementation are discussed in Note 3, Recent Accounting Pronouncements, to our condensed consolidated financial statements.

We consider our direct exposure to foreign exchange rate fluctuations to be minimal. ~~Currently, all~~The transactions of our Spanish subsidiary are denominated primarily in Euros, which is a natural hedge against foreign currency fluctuations. All other sales to customers and all arrangements with third-party manufacturers, with one exception, provide for pricing and payment in U.S. dollars, and, therefore, are not subject to exchange rate fluctuations. Increases in the value of the U.S. dollar relative to other currencies could make our products more expensive, which could negatively impact our ability to compete. Conversely, decreases in the value of the U.S. dollar relative to other currencies could result in our suppliers raising their prices to continue doing business with us. Fluctuations in currency exchange rates could affect our business in the future.

We are required to maintain disclosure controls and procedures designed to ensure that material information related to us, including our consolidated subsidiaries, is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms.

The Company has not filed an amendment of the Current Report on Form 8-K that was filed on January 22, 2018 reporting the acquisition of Genasys. The Company has been unable to file the financial statements required thereby because Genasys’ historical financial statements have not been prepared using International Financial Reporting Standards, nor U.S. generally accepted accounting principles, nor were they audited in accordance with U.S auditing standards as required by SEC regulations. Accordingly, the Company is not deemed a timely filer. An audit in accordance with United States generally accepted auditing practices will be conducted and the Company intends to file the required amended Current Report on Form 8-K to include the required pre-acquisition financial statement of Genasys as well as the required pro forma financial information.

Under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, we conducted an evaluation of our disclosure controls and procedures as such term is defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of March 31, ~~2017.~~2018.

There have been no changes in our internal control over financial reporting during our fiscal quarter ended March 31, ~~2017,~~2018, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Our process for evaluating controls and procedures is continuous and encompasses constant improvement of the design and effectiveness of established controls and procedures and the remediation of any deficiencies, which may be identified during this process.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

We may at times be involved in litigation in the ordinary course of business. We will also, from time to time, when appropriate in management’s estimation, record adequate reserves in our consolidated financial statements for pending litigation. Currently, there are no pending material legal proceedings to which the Company is a party or to which any of its property is subject.

As a Smaller Reporting Company as defined by Rule 12b-2 of the Exchange Act and in item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this item.

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.

Delaware	87-0361799
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

16990 Goldentop Rd. Ste. A, San Diego, California	92127
(Address of principal executive offices)	(Zip Code)

Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☐ (Do not check if a smaller reporting company)	Smaller reporting company	☒
Emerging growth company		☐

	Three months ended					Six months ended
	March 31,					March 31,
	2017		2016			2017			2016
Revenues:
Product sales	$	5,471,613	$	3,339,707		$	8,173,572		$	5,903,514
Contract and other		270,778		262,267			510,154			519,992
Total revenues		5,742,391		3,601,974			8,683,726			6,423,506
Cost of revenues		2,808,546		1,970,512			4,525,370			3,493,682

Gross profit		2,933,845		1,631,462			4,158,356			2,929,824

Operating expenses:
Selling, general and administrative		1,893,045		2,276,694			3,859,480			3,736,786
Research and development		605,239		597,635			1,192,650			1,158,837
Total operating expenses		2,498,284		2,874,329			5,052,130			4,895,623

Income (loss) from operations		435,561		(1,242,867	)		(893,774	)		(1,965,799	)

Other income		32,074		31,693			62,202			64,957

Income (loss) from operations before income taxes		467,635		(1,211,174	)		(831,572	)		(1,900,842	)
Income tax expense (benefit)		169,285		(546,511	)		(317,243	)		(856,106	)
Net income (loss)	$	298,350	$	(664,663	)	$	(514,329	)	$	(1,044,736	)


Net income (loss) per common share - basic and diluted	$	0.01	$	(0.02	)	$	(0.02	)	$	(0.03	)

Weighted average common shares outstanding:
Basic		31,800,103		31,828,167			31,800,103			32,146,928
Diluted		31,863,902		31,828,167			31,800,103			32,146,928
Cash dividends declared per common share	$	-	$	0.01		$	-		$	0.02

	Three months ended					Six months ended
	March 31,					March 31,
	2017		2016			2017			2016

Net income (loss)	$	298,350	$	(664,663	)	$	(514,329	)	$	(1,044,736	)
Other comprehensive loss, net of tax:
Unrealized gain/(loss) on marketable securities, net of tax		4,332		3,679			(1,978	)		(529	)
Other comprehensive income (loss)		4,332		3,679			(1,978	)		(529	)
Comprehensive income/(loss)	$	302,682	$	(660,984	)	$	(516,307	)	$	(1,045,265	)

	Three months ended				Six months ended
	March 31,				March 31,
	2018		2017		2018			2017
Revenues:
Product sales	$	7,125,258	$	5,471,613	$	14,461,283		$	8,173,572
Contract and other		743,190		270,778		1,035,732			510,154
Total revenues		7,868,448		5,742,391		15,497,015			8,683,726
Cost of revenues		3,832,468		2,808,546		7,503,494			4,525,370

Gross profit		4,035,980		2,933,845		7,993,521			4,158,356

Operating expenses:
Selling, general and administrative		2,517,891		1,893,045		4,706,289			3,859,480
Research and development		913,935		605,239		1,691,972			1,192,650
Total operating expenses		3,431,826		2,498,284		6,398,261			5,052,130

Income (loss) from operations		604,154		435,561		1,595,260			(893,774	)

Other income		15,205		32,074		49,735			62,202

Income (loss) before income taxes		619,359		467,635		1,644,995			(831,572	)
Income tax expense (benefit)		158,451		169,285		2,867,339			(317,243	)
Net income (loss)	$	460,908	$	298,350	$	(1,222,344	)	$	(514,329	)

Net income (loss) per common share - basic and diluted	$	0.01	$	0.01	$	(0.04	)	$	(0.02	)
Weighted average common shares outstanding: - basic and diluted
Basic		32,275,647		31,800,103		32,212,286			31,800,103
Diluted		33,299,206		31,863,902		32,212,286			31,800,103

LRAD Corporation
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)

	September 30, 2016
			Unrealized			Fair		Cash		Short-term		Long-term
	Cost Basis		Losses			Value		Equivalents		Securities		Securities

Level 1:
Money Market Funds	$	95,538	$	-		$	95,538	$	95,538	$	-	$	-

Level 2:
Certificates of deposit	$	3,236,168	$	-		$	3,236,168	$	-	$	1,299,133	$	1,937,035
Municipal securities		140,637		-			140,637		-		140,637		-
Corporate bonds		1,748,404		(1,549	)		1,746,855		-		1,496,354		250,501
Subtotal		5,125,209		(1,549	)		5,123,660		-		2,936,124		2,187,536

Total	$	5,220,747	$	(1,549	)	$	5,219,198	$	95,538	$	2,936,124	$	2,187,536

	March 31,			September 30,			March 31,			September 30,
	2017			2016			2018			2017
Raw materials	$	4,559,297		$	4,393,928		$	5,135,966		$	3,784,935
Finished goods		774,179			775,628			417,587			1,742,960
Work in process		185,285			174,485			393,756			147,871
Inventories, gross		5,518,761			5,344,041			5,947,309			5,675,766
Reserve for obsolescence		(398,646	)		(580,132	)		(503,967	)		(418,532	)
Inventories, net	$	5,120,115		$	4,763,909		$	5,443,342		$	5,257,234

	Three month ended						Six months ended
	March 31,						March 31,
	2017			2016			2017			2016
Beginning balance	$	353,938		$	292,379		$	356,984		$	315,618
Warranty provision		101,673			48,570			111,369			26,303
Warranty settlements		(6,470	)		(23,127	)		(19,212	)		(24,099	)
Ending balance	$	449,141		$	317,822		$	449,141		$	317,822

	Number			Weighted Average
	of Shares			Exercise Price
Outstanding October 1, 2016		4,404,002		$	2.18
Granted		464,000		$	1.70
Forfeited/expired		(11,000	)	$	1.70
Outstanding March 31, 2017		4,857,002		$	2.13
Exercisable March 31, 2017		3,287,429		$	2.24

										Accumulated
					Additional					Other			Total
	Common Stock				Paid-in		Accumulated			Comprehensive			Stockholders'
	Shares		Amount		Capital		Deficit			Loss			Equity
Balances, September 30, 2016		31,800,103	$	318	$	86,467,215	$	(51,895,099	)	$	(1,549	)	$	34,570,885
Share-based compensation expense		-		-		642,151		-			-			642,151
Other comprehensive loss		-		-		-		-			(1,978	)		(1,978	)
Net loss		-		-		-		(514,329	)		-			(514,329	)
Balances, March 31, 2017		31,800,103	$	318	$	87,109,366	$	(52,409,428	)	$	(3,527	)	$	34,696,729

	Six months ended
	March 31, 2017						March 31, 2016
				% of Total						% of Total			Fav (Unfav)
	Amount			Revenue			Amount			Revenue			Amount			%
Revenues:
Product sales	$	8,173,572			94.1	%	$	5,903,514			91.9	%	$	2,270,058			38.5	%
Contract and other		510,154			5.9	%		519,992			8.1	%		(9,838	)		(1.9	%)
Total revenues		8,683,726			100.0	%		6,423,506			100.0	%		2,260,220			35.2	%

Cost of revenues		4,525,370			52.1	%		3,493,682			54.4	%		(1,031,688	)		(29.5	%)
Gross profit		4,158,356			47.9	%		2,929,824			45.6	%		1,228,532			41.9	%

Operating expenses:
Selling, general and administrative		3,859,480			44.5	%		3,736,786			58.2	%		(122,694	)		(3.3	%)
Research and development		1,192,650			13.7	%		1,158,837			18.0	%		(33,813	)		(2.9	%)
Total operating expenses		5,052,130			58.2	%		4,895,623			76.2	%		(156,507	)		(3.2	%)

Loss from operations		(893,774	)		(10.3%	)		(1,965,799	)		(30.6	%)		1,072,025			54.5	%

Other income		62,202			0.7	%		64,957			1.0	%		(2,755	)		(4.2	%)

Loss from operations before income taxes		(831,572	)		(9.6%	)		(1,900,842	)		(29.6	%)		1,069,270			56.3	%
Income tax benefit		(317,243	)		(3.7%	)		(856,106	)		(13.3	%)		(538,863	)		(62.9	%)
Net loss	$	(514,329	)		(5.9%	)	$	(1,044,736	)		(16.3	%)	$	530,407			50.8	%

	Six months ended
	March 31, 2018						March 31, 2017
				% of Total						% of Total			Fav(Unfav)
	Amount			Revenues			Amount			Revenues			Amount			%
Revenues:
Product sales	$	14,461,283			93.3	%	$	8,173,572			94.1	%	$	6,287,711			76.9	%
Contract and other		1,035,732			6.7	%		510,154			5.9	%		525,578			103.0	%
Total revenues		15,497,015			100.0	%		8,683,726			100.0	%		6,813,289			78.5	%

Cost of revenues		7,503,494			48.4	%		4,525,370			52.1	%		(2,978,124	)		(65.8	%)
Gross profit		7,993,521			51.6	%		4,158,356			47.9	%		3,835,165			92.2	%

Operating expenses:
Selling, general and administrative		4,706,289			30.4	%		3,859,480			44.5	%		(846,809	)		(21.9	%)
Research and development		1,691,972			10.9	%		1,192,650			13.6	%		(499,322	)		(41.9	%)
Total operating expenses		6,398,261			41.3	%		5,052,130			58.1	%		(1,346,131	)		(26.6	%)

Income (loss) from operations		1,595,260			10.4	%		(893,774	)		(10.3	%)		2,489,034			278.5	%

Other income		49,735			0.3	%		62,202			0.7	%		(12,467	)		(20.0	%)

Income (loss) before income taxes		1,644,995			10.6	%		(831,572	)		(9.6	%)		2,476,567			297.8	%
Income tax expense (benefit)		2,867,339			18.5	%		(317,243	)		(3.7	%)		(3,184,582	)		(1003.8	%)
Net loss	$	(1,222,344	)		(7.9	%)	$	(514,329	)		(5.9	%)	$	(708,015	)		(137.7	%)

	•	~~product acceptance in new markets; and~~

	•	~~value of shares repurchased.~~


10.1	Stock Purchase Agreement, dated January 18, 2018, by and among LRAD Corporation, Genasys Holding S.L., the stockholders of Genasys Holdings S.L. and the representative of the stockholders. Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on January 22, 2018.

31.1	Certification of Richard S. Danforth, Principal Executive Officer, pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

31.2	Certification of ~~Katherine H. McDermott,~~Dennis D. Klahn, Principal Financial Officer, pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by Richard S. Danforth, Principal Executive Officer and ~~Katherine H. McDermott,~~Dennis D. Klahn, Principal Financial Officer.*

101.INS	XBRL Instance Document*

101.SCH	XBRL Taxonomy Extension Schema Document*

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document*

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document*

101.LAB	XBRL Taxonomy Extension Label Linkbase Document*

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document*


	LRAD CORPORATION

Date: May ~~3, 2017~~18, 2018	By:	/s/ ~~KATHERINE H. MCDERMOTT~~DENNIS D. KLAHN
		~~Katherine H. McDermott,~~Dennis D. Klahn, Chief Financial Officer
		(Principal Financial Officer)