In ~~March~~June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-~~09,~~13, ~~Compensation~~ Measurement of Credit Losses on Financial Instruments, which supersedes current guidance by requiring recognition of credit losses when it is probable that a loss has been incurred. The new standard requires the establishment of an allowance for estimated credit losses on financial assets, including trade and other receivables at each reporting date. The new standard will result in earlier recognition of allowances for losses on trade and other receivables and other contractual rights to receive cash. In November 2019, the FASB issued ASU No.2019-10,Financial Instruments – ~~Stock Compensation~~ Credit Losses (Topic ~~718~~326)~~: Improvements to Employee Share-Based Payment Accounting~~, Derivatives and Hedging (Topic 815) and Leases (Topic 842)~~. This guidance changes how companies account~~, which extends the effective date of Topic 326 for certain ~~aspects of share-based payments to employees. Among other things, under the~~companies until fiscal years beginning after December 15, 2022. The new ~~guidance, companies~~standard will no longer record excess tax benefits and certain tax deficiencies in additional paid-in-capital (“APIC”), but will instead record such items as income tax expense or benefit in the income statement, and APIC pools will be eliminated. Companies will apply this guidance prospectively. Another component of the new guidance allows companies to make an accounting policy election for the impact of forfeitures on the recognition of expense for share-based payment awards, whereby forfeitures can be estimated, as required today, or recognized when they occur. If elected, the change to recognize forfeitures when they occur needs to be adopted using a modified retrospective approach. The guidance is effective for the Company in the first quarter of ~~fiscal~~ ~~2018.~~ ~~The adoption of this standard resulted in the recognition of~~ ~~$1.1~~ ~~million of gross deferred tax assets related to the historical excess tax benefits from stock-based compensation that was~~ ~~not~~ ~~previously included in deferred tax assets and a corresponding increase in the Company’s valuation allowance.~~

In ~~February 2016,~~ ~~the~~ ~~Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 theits fiscal year beginning October 1, ~~2019.~~2023, ~~Early~~and early adoption is permitted. The Company ~~is currently evaluating~~has not completed its review of the impact of this ~~guidance, if any,~~standard on its consolidated financial ~~statements and related disclosures.~~statements. However, based on the Company’s history of immaterial credit losses from trade receivables, the Company does not expect that the adoption of this standard will have a material effect on the Company’s consolidated financial statements.

In ~~May 2014,~~March 2020, the FASB issued ASU No. ~~2014~~2020-~~09,~~04, ~~Revenue from Contracts with Customers~~ ~~(“ASU~~Reference Rate Reform (Topic ~~2014~~-~~09”~~848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU No.2020-04 provides optional guidance, expedients and exceptions for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments in this update apply to all entities, subject to meeting the criteria, which ~~requires~~participate in contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. ASU No.2020-04 was subsequently amended by ASU No.2021-01,Reference Rate Reform (Topic848), Scope, which refines the scope of Topic 848 and permits optional expedients and exceptions when accounting for derivative contracts and certain hedging relationships. The amendments of these updates are available to all entities as of March 12, 2020 through December 31, 2022. The Company has not yet adopted these amendments. The Company does not expect that the adoption of this standard will have a material effect on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU No.2018-13,Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which improves fair value disclosure requirements by removing disclosures that are not cost beneficial, clarifying disclosures’ specific requirements and adding relevant disclosure requirements. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The new guidance is effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company adopted ASU No.2018-13 on October 1, 2020, with no impact to the condensed consolidated financial statements.

On June 7, 2021, the Company completed the acquisition of Zonehaven Inc. (“Zonehaven”) pursuant to the terms of an ~~entity~~Agreement and Plan of Merger and Reorganization (the “Merger Agreement”). Pursuant to ~~recognize~~the terms of the Merger Agreement, ZH Acquisition I Inc., a Delaware corporation and a wholly-owned subsidiary of the Company, merged with and into Zonehaven, with Zonehaven surviving the merger. Immediately following such merger, ZH Acquisition II LLC, a Delaware limited liability company and a wholly-owned subsidiary of the Company, merged with and into Zonehaven, with ZH Acquisition II LLC, changing its name to Zonehaven LLC and continuing as a wholly-owned subsidiary of the Company and with all the properties, rights, privileges, powers and franchises of Zonehaven vesting in such subsidiary, and all debts, liabilities and duties of Zonehaven, becoming the debts, liabilities and duties of such subsidiary. As a result of the transaction, the Zonehaven business is operated through Zonehaven LLC, a wholly-owned subsidiary of the Company.

Zonehaven provides planning, training, and resources to first responders, public safety agencies, and communities to manage evacuations and repopulations successfully. The Company believes the acquisition of Zonehaven will expand the Company’s enterprise software solutions and enhance the Company’s unified multi-channel critical communications platform.

The Zonehaven acquisition was accounted for as a business combination using the acquisition method pursuant to Accounting Standards Codification (“ASC”) Topic 805. As the acquirer for accounting purposes, the Company has estimated the purchase consideration, assets acquired and liabilities assumed as of the acquisition date, with the excess of the purchase consideration over the fair value of net assets acquired recognized as goodwill. The estimated fair value of assets purchased, and liabilities assumed, in certain cases may be subject to revision based on the final determination of fair value.

Revenue is allocated to each deliverable based on the relative stand-alone selling price of each individual element and is recognized when the revenue recognition ~~guidance in U.S. generally accepted accounting principles when it becomes effective.~~ Incriteria described above are met, except for time-based licenses which are ~~July 2015,~~ not unbundled. When software development services are performed and are considered essential to the ~~FASB deferred the effective date~~functionality of the ~~standard~~software, the Company recognizes revenue from the software development services on a stage of completion basis, and the revenue from the software when the related development services have been completed.

The Company disaggregates revenue by reporting segment (Hardware and Software) and geographically to depict the nature of revenue in a manner consistent with the Company’s business operations and to be consistent with other communications and public filings. Refer to Note 19, Segment Information and Note 20, Major Customers, Suppliers and Related Information for additional details of revenues by reporting segment and disaggregation of revenue.

The Company enters into contracts to sell products and provide services and recognizes contract assets and liabilities that arise from these transactions. The Company recognizes revenue and corresponding accounts receivable according to Topic 606 and, at times, recognizes revenue in advance of the time when contracts give the Company the right to invoice a customer. The Company may also receive consideration, per terms of a contract, from customers prior to transferring goods to the customer. The Company records customer deposits as a contract liability. Additionally, the Company may receive payments, most typically for service and warranty contracts, at the onset of the contract and before the services have been performed. In such instances, a deferred revenue liability is recorded. The Company recognizes these contract liabilities as revenue after all revenue recognition criteria are met. The table below shows the balance of contract assets and liabilities as of June 30, 2021, and September 30, 2020, including the change between the periods. The current portion of contract liabilities and the non-current portion are included in “Accrued liabilities” and “Other liabilities, noncurrent”, respectively, on the accompanying Condensed Consolidated Balance Sheets. Refer to Note 11, Accrued Liabilities for additional details.

As of June 30, 2021, the ~~Company in~~aggregate amount of the ~~fiscal year beginning~~ ~~October 1, 2018.~~ transaction price allocated to remaining performance obligations was approximately $12,185. The Company expects to recognize revenue on approximately $10,187 or 84% of the remaining performance obligations over the next 12 months, and the remainder is ~~currently evaluating the impact of this guidance, if any, on its financial statements and related disclosures.~~expected to be recognized thereafter.

In cases where the Company is responsible for shipping after the customer has obtained control of the goods, the Company has elected to treat these activities as fulfillment activities rather than as a separate performance obligation. Additionally, the Company has elected to capitalize the cost to obtain a contract only if the period of amortization would be longer than one year. The Company only gives consideration to whether a customer agreement has a financing component if the period of time between transfer of goods and services and customer payment is greater than one year. The Company also utilizes the “as invoiced” practical expedient in certain cases where performance obligations are satisfied over time and the invoiced amount corresponds directly with the value the Company is providing to the customer.

4.6.

FAIR VALUE MEASUREMENTS

The ~~Company~~’sCompany’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.~~

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.~~

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.

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 ~~December 31, 2017~~June 30, 2021 or September 30, ~~2017.~~2020. 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~~measured at ~~Fair Value~~fair value on a recurring basis

Cash equivalents and marketable securities: The following ~~table~~stables 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 ~~December 31, 2017~~June 30, 2021, and September 30, ~~2017.~~2020. Unrealized gains and losses from the remeasurement of marketable securities are recorded in accumulated other comprehensive income until recognized in earnings upon the sale or maturity of the security.

	June 30, 2021
	Cost Basis		Unrealized Gain		Fair Value		Cash Equivalents		Short-term Securities		Long-term Securities
Level 1:
Money Market Funds	$	208	$	0	$	208	$	208	$	0	$	0

Level 2:
Certificates of deposit		1,193		0		1,193		0		469		724
Municipal securities		5,879		2		5,881		0		4,451		1,430
Corporate bonds		1,199		0		1,199		0		1,056		143
Subtotal		8,271		2		8,273		0		5,976		2,297

Total	$	8,479	$	2	$	8,481	$	208	$	5,976	$	2,297

Genasys Inc.

Notes to the Condensed Consolidated Financial Statements

(in thousands, except per share and share amounts)

(Unaudited)

	September 30, 2020
	Cost Basis		Unrealized Gain		Fair Value		Cash Equivalents		Short-term Securities		Long-term Securities
Level 1:
Money Market Funds	$	365	$	0	$	365	$	365	$	0	$	0

Level 2:
Certificates of deposit		1,195		0		1,195		0		0		1,195
Municipal securities		3,777		4		3,781		0		2,431		1,350
Corporate bonds		3,091		3		3,094		0		1,834		1,260
Subtotal		8,063		7		8,070		0		4,265		3,805

Total	$	8,428	$	7	$	8,435	$	365	$	4,265	$	3,805

Instruments measured at fair value on a non-recurring basis

Nonfinancial assets: Nonfinancial assets such as goodwill, other intangible assets, long-lived assets held and used, and right-of-use assets (“ROU assets”) are measured at fair value when there is an indicator of impairment and recorded at fair value only when impairment is recognized or for a business combination.

Goodwill and intangible assets are recognized at fair value during the period in which an acquisition is completed, from updated estimates during the measurement period, or when they are considered to be impaired. These non-recurring fair value measurements, primarily for intangible assets acquired, were based on Level 3 inputs. The Company estimates the fair value of these long-lived assets on a non-recurring basis based on a market valuation approach, engaging independent valuation experts to assist in the determination of fair value.

The following table presents nonfinancial assets that were subject to fair value measurement during the nine months ended June 30, 2021. There were no business combinations or indicators of impairment for the nine months ended June 30, 2020.

	Carrying Value		Level 1		Level 2		Level 3		Gain/ (Loss)
Goodwill from Zonehaven acquisition	$	15,403	$	0	$	0	$	15,403	$	0
Intangible assets from Zonehaven acquisition	$	9,974	$	0	$	0	$	9,974	$	0
Goodwill from Amika Mobile asset purchase	$	6,001	$	0	$	0	$	6,001	$	0
Intangibles from Amika Mobile asset purchase	$	2,703	$	0	$	0	$	2,703	$	0
Operating lease ROU asset from Amika Mobile asset purchase	$	259	$	0	$	0	$	259	$	0

Foreign currency forward contract: In August 2020, the Company entered into a foreign currency forward contract as an economic hedge against exposure to changes in the Canadian dollar in connection with the Amika Mobile asset purchase. At September 30, 2020, the notional value of the foreign currency forward contract was CAD$6,955 with a maturity date in October 2020. The foreign currency forward contract was classified under Level 2 of the fair value hierarchy. The valuation techniques used to measure the fair value were based on quoted market prices. On October 1, 2020, the foreign currency forward contract was settled for CAD$6,955 (USD$5,281), resulting in a realized loss of $48 on the contract that was recorded in earnings as other income (expense). The foreign currency forward contract liability was recorded in accrued liabilities in the consolidated balance sheet as of September 30, 2020.

December 31, 2017

Unrealized

Fair

Cash

Short-term

Long-term

Cost Basis

Losses

Value

Equivalents

Securities

Securities

Level 1:

Money Market Funds
$ 531,566 $ - $ 531,566 $ 531,566 $ - $ -

Level 2:

Certificates of deposit
$ 936,801 $ - $ 936,801 $ - $ 437,801 $ 499,000
Municipal securities
86,186 (198 ) 85,988 - 85,988 -
Corporate bonds
3,594,227 (9,102 ) 3,585,125 - 3,078,465 506,660
Subtotal
4,617,214 (9,300 ) 4,607,914 - 3,602,254 1,005,660

Total
$ 5,148,780 $ (9,300 ) $ 5,139,480 $ 531,566 $ 3,602,254 $ 1,005,660

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

9. GOODWILL AND INTANGIBLE ASSETS

Goodwill is attributable to the acquisition of Genasys Spain and of Zonehaven, and the Amika Mobile asset purchase and is due to combining the integrated emergency critical communications, mass messaging solutions and software development capabilities with existing hardware products for enhanced offerings and the skill level of the acquired workforces. The Company periodically reviews goodwill for impairment in accordance with relevant accounting standards. During the nine months ended June 30, 2021, the Company added $20,992 in goodwill related to the Zonehaven acquisition and the Amika Mobile asset purchase. There were 0 impairments to goodwill during the nine months ended June 30, 2021.

Intangible assets and goodwill related to Genasys Spain are translated from Euros to U.S. dollars at the balance sheet date. The net impact of foreign currency exchange differences arising during the period related to goodwill and intangible assets was an increase of $46. Intangible assets and goodwill related to Amika Mobile are translated from Canadian dollars to U.S. dollars at the balance sheet date. During the nine months ended June 30, 2021, the Company added $13,128 in intangible assets related to the Zonehaven acquisition and the Amika Mobile asset purchase. The net impact of foreign currency exchange differences arising during the nine months ended June 30, 2021, related to goodwill and intangible assets from the Amika Mobile asset purchase was an increase of $613.

The changes in the carrying amount of goodwill by segment for the nine months ended June 30, 2021, are as follows:

	Hardware		Software		Total
Balance as of September 30, 2020	$	0	$	2,472	$	2,472
Acquisition		0		20,992		20,992
Currency translation		0		444		444
Balance as of June 30, 2021	$	0	$	23,908	$	23,908

Genasys Inc.

Notes to the Condensed Consolidated Financial Statements

(in thousands, except per share and share amounts)

(Unaudited)

The Company’s intangible assets consisted of the following:

	June 30,			September 30,
	2021			2020
Technology	$	12,148		$	655
Customer relationships		1,878			627
Trade name portfolio		631			228
Non-compete agreements		250			247
Patents		72			72
		14,979			1,829
Accumulated amortization		(1,548	)		(886	)
	$	13,431		$	943

Amortization expense was $295 and $74 for the three months ended June 30, 2021, and 2020, respectively. Amortization expense was $647 and $223 for the nine months ended June 30, 2021, and 2020, respectively.

As of June 30, 2021, future amortization expense is as follows:

Fiscal year ending September 30,
2021 (remaining three months)	$	546
2022		2,185
2023		2,152
2024		2,138
2025		2,007
Thereafter		4,403
Total estimated amortization expense	$	13,431

710. PREPAID EXPENSES AND OTHER

Prepaid expenses and other current assets consisted of the following:

	June 30,		September 30,
	2021		2020
Deposits for inventory	$	528	$	54
Prepaid insurance		355		264
Dues and subscriptions		255		151
Trade shows and travel		95		103
Other		231		288
	$	1,464	$	860

Deposits for inventory

Deposits for inventory consisted of cash payments to vendors for inventory to be delivered in the future.

Prepaid insurance

Prepaid insurance consisted of premiums paid for health, commercial and corporate insurance. These premiums are amortized on a straight-line basis over the term of the agreements.

Dues and subscriptions

Dues and subscriptions consist of payments made in advance for software subscriptions and trade and professional organizations. These payments are amortized on a straight-line basis over the term of the agreements.

Trade shows and travel

Trade shows and travel consists of payments made in advance for trade show events.

Genasys Inc.

Notes to the Condensed Consolidated Financial Statements

(in thousands, except per share and share amounts)

(Unaudited)

.11. ACCRUED LIABILITIES

Accrued liabilities consisted of the following:

	December 31,		September 30,
	2017		2017		June 30,		September 30,
					2021		2020
Payroll and related	$	847,042	$	1,870,579	$	2,705	$	2,545
Deferred revenue		446,913		268,580		748		731
Customer deposits						9,439		3,683
Accrued contract costs		345,551		197,034		89		719
Warranty reserve		188,308		179,101		143		126
Deferred rent		30,734		46,101
Other						181		76
Total	$	1,858,548	$	2,561,395	$	13,305	$	7,880

Other liabilities-noncurrent consisted of the following:

	June 30,		September 30,
	2021		2020
Deferred extended warranty revenue	$	344	$	293
Customer deposits		1,654		0
Deferred tax liabilities		2,729		0
Asset purchase holdback liability		693		0
Total	$	5,420	$	293

Payroll and related

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

Deferred ~~Revenue~~revenue

Deferred revenue ~~consists primarily~~as ofJune 30, 2021, included prepayments from customers for services, including extended warranty, scheduled to be performed in ~~advance of product shipment~~.the twelve months ending June 30, 2022.

~~Warranty Reserve~~Customer deposits

~~Changes~~Customer deposits represent amounts paid by customers as a down payment on hardware orders to be delivered in future periods. The customer deposits classified as noncurrent relate to orders that are expected to be delivered during the ~~warranty reserve~~ ~~and extended warranty were as follows:~~

Three months ended December 31

2017

2016

Beginning balance
$ 179,101 $ 356,984
Warranty provision
12,361 9,696
Warranty settlements
(3,154 ) (12,742 )
Ending balance
$ 188,308 $ 353,938

fourth quarter of our fiscal year ended September 20, 2022.

Accrued contract costs

~~The Company has~~ ~~contracted with~~Accrued contract costs consist of accrued expenses for contracting a third-party service provider to ~~administer the required services under the terms of a~~fulfill repair and maintenance ~~agreement~~obligations required under a contract with a foreign ~~military. This payment is made~~military for units sold in ~~arrears for each contract~~the year ended ~~March 26.~~September 30, 2011. Payments to the service provider will be made annually upon completion of each year of service. A new contract was signed with the customer in May 2019 to continue repair and maintenance services through May 2024. These services are being recorded in cost of revenues to correspond with the revenues for these services.

Warranty reserve

Changes in the warranty reserve and extended warranty were as follows:

	June 30,			September 30,
	2021			2020
Beginning balance	$	126		$	150
Warranty provision		44			16
Warranty settlements		(27	)		(40	)
Ending balance	$	143		$	126

The Company establishes a warranty reserve based on anticipated warranty claims at the time product revenue is recognized. Factors affecting warranty reserve levels include the number of units sold, anticipated cost of warranty repairs and anticipated rates of warranty claims. The Company evaluates the adequacy of the provision for warranty costs each reporting period and adjusts the accrued warranty liability to an amount equal to estimated warranty expense for products currently under warranty.

Genasys Inc.

Notes to the Condensed Consolidated Financial Statements

(in thousands, except per share and share amounts)

(Unaudited)

Deferred extended warranty revenue

Deferred extended warranty revenue consists of warranties purchased in excess of the Company’s standard warranty. Extended warranties typically range from one to two years.

Deferred tax liability

In connection with the Zonehaven acquisition, the Company recorded a deferred tax liability related to tax basis differences on acquired intangible assets.

Asset purchase holdback liability

In connection with the Amika Mobile asset purchase, the Company recorded a holdback liability related to future adjustments to assets and liabilities. Adjustments of up to CAD$1,000 (USD$807) will be deducted from the asset purchase holdback liability for up to three years from the closing date. The liability is recorded at fair value in the condensed consolidated balance sheet.

12. DEBT

In connection with the acquisition of Genasys Spain the Company assumed certain debts of Genasys Spain. The carrying value of the acquired debt approximates fair value. The balances of the acquired debt consist of loans with governmental agencies as of June 30, 2021. Loans with governmental agencies represent interest free debt granted by ministries within Spain for the purpose of stimulating economic development and promoting research and development. Loans with governmental agencies as of June 30, 2021, are as follows:

Agency	Due Date	Principal
Ministry of Economy and Competitiveness	February 2, 2022	$	18
Ministry of Economy and Competitiveness	February 2, 2024		286	*(a)*
		$	304

(a)

This loan is secured by $286 of cash pledged as collateral by Genasys Spain, which is the current balance of the loan. This amount is included in restricted cash as of June 30, 2021. The Company expects the Ministry of Economy and Competitiveness to declare the terms of the loan satisfied within the next twelve months and that the outstanding balance of the loan will be paid in full during the next twelve months. Accordingly, this has been included in the current portion of notes payable as of June 30, 2021.

The following is a schedule of future annual payments as of June 30, 2021:

2022		$	304
Total		$	304

Revolving line of credit

On March 8, 2021, the Company entered into an agreement with MUFG Union Bank, N.A. for a $10 million revolving line of credit. Outstanding balances on the revolving line of credit bear interest at a per annum rate equal to the London Interbank Offered Rate (“LIBOR”) plus 2.25%. ~~INCOME TAXES~~The agreement contains a provision for determining an alternative interest rate index in the event the LIBOR rate is no longer available. The agreement contains standard covenants, including affirmative financial covenants, such as the maintenance of a short-term liquidity ratio and a senior leverage ratio, in addition to negative covenants which limit the incurrence of additional indebtedness, loans and equity investments, disposition of assets, mergers and consolidations and other matters customarily restricted in such agreements. The maturity date of this revolving line of credit is March 31, 2023. As of June 30, 2021, there were 0 borrowings on the revolving line of credit. The Company incurred and capitalized $38 of issuance costs related to this revolving line of credit. These issuance costs have and will be amortized on a straight-line basis over the term of the loan.

Genasys Inc.

Notes to the Condensed Consolidated Financial Statements

(in thousands, except per share and share amounts)

(Unaudited)

13. LEASES

The ~~Tax Cuts~~Company determines if an arrangement is a lease at inception. The guidance in ASC Topic 842 defines a lease as a contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration. Operating Right of Use (“ROU”) assets and ~~Jobs Act (the “Act”) was enacted~~lease liabilities are recognized based on ~~December 22, 2017.~~the present value of future minimum lease payments over the lease term at commencement date. 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~~ Company’s leases do not provide an implicit rate. The Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. Additionally, the portfolio approach is used in determining the discount rate used to ~~exceed~~present value lease payments. The operating ROU asset includes any lease payments made and excludes lease incentives and initial direct costs incurred.

The Company entered into operating leases for office and production facilities and equipment under agreements that expire at various dates through 2028. The Company elected the package of practical expedients permitted under the new lease standard. In electing the practical expedient package, the Company is not required to reassess whether an existing or expired contract is or contains a lease, reassess the lease classification for expired or existing leases nor reassess the initial direct costs for leases that commenced before the adoption of Topic 842. The Company also elected the short-term lease exemption such that the new lease standard was applied to leases greater than one year in duration. Leases with an initial term of twelve months or less are not recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term.

For leases beginning on or after October 1, 2019, lease components are accounted for separately from non-lease components for all asset classes. Certain of the ~~enactment date. Accordingly,~~Company’s leases contain renewal provisions and escalating rental clauses and generally require the Company ~~remeasured its net deferred tax~~to pay utilities, insurance, taxes and other operating expenses. The renewal provisions of existing lease agreements were not included in the determination of the operating lease liabilities and the operating ROU assets. Variable payments such as excess usage fees on existing equipment leases were not included in the determination of the lease liabilities and the operating ROU assets as the achievement of the specified target that triggers the variable lease payment is not considered probable. In addition, the Company’s facility lease in Spain has an escalating lease clause based on a ~~provisional basis based~~consumer price index which is considered a variable lease payment and is not included in the determination of the lease liability and operating ROU asset. A 10% increase in the index would increase the total lease liability approximately $19. The Company’s leases do not contain any residual value guarantees or material restrictive covenants.

Upon adoption of Topic 842 as of October 1, 2019, the Company recognized on its consolidated balance sheet an initial measurement of approximately $7,815 of operating lease liabilities, and approximately $5,824 of corresponding operating ROU assets, net of tenant improvement allowances. There was no cumulative effect adjustment to retained earnings as a result of the transition to Topic 842. The adoption of Topic 842 did not have a material impact on the ~~rates at which they are expected~~Company’s consolidated statement of operations.

During the nine months ended June 30, 2021, the Company added an additional operating ROU asset of $259 and operating lease liabilities of $259 for office space. The tables below show the operating ROU assets and liabilities as of September 30, 2020, and the balances as of June 30, 2021, including the changes during the periods.

	Operating ROU assets
Operating lease right of use asset at September 30, 2020	$	5,285
Additional operating lease right of use assets		259
Less amortization of operating lease right-of-use assets		(518	)
Effect of exchange rate on operating lease right of use assets		22
Operating lease right of use asset at June 30, 2021	$	5,048

	Operating lease liabilities
Operating lease liabilities at September 30, 2020	$	7,166
Additional operating lease liabilities		259
Less lease principal payments on operating lease liabilities		(618	)
Effect of exchange rate on operating lease liabilities		22
Operating lease liabilities at June 30, 2021		6,829
Less non-current portion		(5,952	)
Current portion at June 30, 2021	$	877

Genasys Inc.

Notes to ~~be realized~~ the Condensed Consolidated Financial Statements

(in ~~the future, which is generally~~ ~~21%~~ ~~resulting in a decrease to our net deferred tax assets~~thousands, except per share and share amounts)

(Unaudited)

As of ~~$2,474,000~~June 30, 2021, ~~for~~ the ~~quarter ended~~ ~~December 31, 2017.~~ Company’s operating leases have a weighted-average remaining lease term of 6.86 years and a weighted-average discount rate of 4.12%. The ~~Company will continue to analyze certain aspects~~maturities of the ~~Act, and refine its calculations~~operating lease liabilities are as ~~appropriate during the measurement period, which could affect the measurement of these balances~~.follows:

Fiscal year ending September 30,
2021 (remaining three months)	$	292
2022		1,144
2023		1,091
2024		1,086
2025		1,162
Thereafter		3,104
Total undiscounted operating lease payments		7,879
Less imputed interest		(1,050	)
Present value of operating lease liabilities	$	6,829

For the three months ended ~~December 31, 2017,~~June 30, 2021, and 2020, total lease expense under operating leases was approximately $246 and $228, respectively. For the nine months ended June 30, 2021, and 2020, total lease expense under operating leases was approximately $735 and $674, respectively. For the three and nine months ended June 30, 2021, total short-term lease expense was $1 and $3, respectively. There was 0 short-term lease expense during the three and nine months ended June 30, 2020.

14. INCOME TAXES

For the nine months ended June 30, 2021, the Company recorded income tax expense of ~~$234,888~~$506 reflecting an effective tax rate of 22.48%. For the ~~22.9%~~nine ~~and an additional discrete~~months ended June 30, 2020, the Company recorded income tax expense of ~~$2,474,000~~ ~~due to the remeasurement of its deferred tax assets as a result of tax reform. For the~~ ~~three~~ ~~months ended~~ ~~December 31, 2016,~~ ~~the Company recorded an income tax benefit of~~ ~~$486,528~~$742 reflecting an effective tax rate of ~~37.4%~~22.8%. ~~For the~~ ~~three~~ ~~months ended~~ ~~December 31, 2017,~~ ~~when compared to the same period in~~ ~~2016,~~ ~~the decrease in the effective tax rate was primarily attributable to the decrease in Federal statutory tax rate due to tax reform.~~ The Company continues to maintain a partial valuation allowance against its deferred tax assets as the Company believes that the negative evidence that it will be able to recover these net deferred tax assets outweighs the positive evidence.

Accounting Standards Codification ~~(“ASC”)~~Topic 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.

915.. COMMITMENTS AND CONTINGENCIES

Litigation

The Company may at times be involved in litigation in the ordinary course of business. The Company will, from time to time, when appropriate in ~~management~~’smanagement’s estimation, record adequate reserves in the Company’s 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.

Bonus ~~Plan~~plan

The Company has ~~an incentive~~a bonus plan for ~~fiscal year~~ ~~201~~8 ~~designed to motivate its key~~ employees, ~~to achieve the Company’s financial objectives. All~~in accordance with their terms of ~~the Company’s key employees are entitled to participate in the incentive plan. Target Bonus Amounts (“Target”) vary based on~~employment, whereby they can earn a percentage of ~~the employee’s base~~their salary ~~which range from~~ ~~25%~~ to ~~75%~~ ~~of base salary and a bonus payment~~ ~~may~~ ~~be made at~~ ~~three~~ ~~levels, including at~~ ~~50%~~ ~~of Target, at~~ ~~100%~~ ~~of Target and at~~ ~~200%~~ ~~of Target, depending upon the achievement by the Company of specified performance goals. Performance targets include certain fiscal~~ ~~2018~~ ~~metrics, including product bookings, net revenues,~~based on meeting targeted objectives for orders received, revenue, operating income, and operating cash flow. ~~Included~~ In the nine months ended June 30, 2021, the Company recorded $1,505 of bonus expense. In the nine months ended June 30, 2020, the Company recorded $1,143 of bonus expense.

Amika Mobile asset purchase

The Company also agreed to issue 191,267 shares of the ~~incentive plan.~~Company’s common stock to the seller of the Amika Mobile assets on each of the first, second and third anniversaries of the closing date. The total number of shares of common stock the Company is obligated to issue is 573,801. The fair value of the Company’s common stock on the closing date was $5.98, resulting in the addition of $3,431 to additional paid-in-capital. During the three months ended ~~December 31, 2017~~June 30, 2021, ~~and~~ ~~2016,~~the Company ~~accrued~~ ~~$405,267~~ ~~and~~ ~~$185,086,~~ ~~respectively, for bonuses and related payroll tax expenses in connection with~~accelerated the ~~bonus plans.~~issuance of 121,703 of such shares of common stock to a former owner of the Amika Mobile assets. 452,098 shares of the Company’s common stock remain subject to issuance under this obligation.

Genasys Inc.

Notes to the Condensed Consolidated Financial Statements

(in thousands, except per share and share amounts)

(Unaudited)

1016.. SHARE-BASED COMPENSATION

Stock Option Plans

At As of ~~December 31, 2017,~~June 30, 2021, 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~~adopted by the Company’s Board of Directors on December 6, 2016 and approved by the Company’s stockholders on March 14, 2017. The 2015 Equity Plan ~~authorizes~~was amended by the Company’s Board of Directors on December 8, 2020 to increase the number of shares authorized for issuance asfrom 5,000,000 to 10,000,000. On March 16, 2021, the Company’s stockholders approved a plan amendment. The 2015 Equity Plan authorizes the issuance of stock options, restricted stock, stock appreciation rights, restricted stock units and performance awards, to an aggregate of ~~5,000,000~~10,000,000 new shares of common stock to employees, directors, advisors or consultants. AtAs of ~~December 31, 2017,~~June 30, 2021, there were options and restricted stock units outstanding covering ~~2,216,002~~92,500 and ~~2,279,315~~3,015,637 shares of common stock under the 2005 Equity Plan and 2015 Equity Plan, ~~respectively.~~

~~Stock Option Activity~~

~~The following table summarizes information about~~respectively and 5,143,165 shares of common stock ~~option activity during the~~ ~~three~~ ~~months ended~~ ~~December 31, 2017:~~

Number

Weighted Average

of Shares

Exercise Price

Outstanding October 1, 2017
4,663,502 $ 2.16
Granted
3,500 $ 2.21
Forfeited/expired
(80,833 ) $ 2.84
Exercised
(90,852 ) $ 1.76
Outstanding December 31, 2017
4,495,317 $ 2.15
Exercisable December 31, 2017
3,251,811 $ 2.24

~~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~~ ~~4.6~~ ~~years. The aggregate intrinsic value of options outstanding and exercisable at~~ ~~December 31, 2017~~ ~~was~~ ~~$1,780,084~~ ~~and~~ ~~$1,368,424,~~ ~~respectively.~~

~~During the quarter ended~~ ~~December 31, 2016,~~ ~~the Company incurred non-cash share-based compensation expense of~~ $3~~07,324~~ ~~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~~available for grant for a ~~period~~total 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~~8,251,302 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~~currently authorized 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~~ ~~187,500~~ ~~shares of the PVO~~ ~~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 basis over the 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 Units~~

~~During the quarter ended~~ ~~December 31, 2016,~~ ~~the Board of Directors approved the~~ ~~grant of~~ ~~25,000~~ ~~RSUs to each of our non-employee directors, subject to stockholder approval of the~~ ~~Amended and Restated~~ ~~2015~~ ~~Equity Incentive Plan at~~unissued under the ~~2017~~two ~~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 vested on the~~ ~~first~~ ~~anniversary of the~~ ~~2016~~ ~~Annual Meeting of Stockholders, which was~~ ~~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~~ ~~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 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.~~equity plans.

Share-Based Compensation

The ~~Company recorded share-based compensation expense~~Company’s employee stock options have various restrictions that reduce option value, including vesting provisions and ~~classified it in the condensed consolidated statements of~~ ~~operations as follows:~~restrictions on transfer and hedging, among others, and are often exercised prior to their contractual maturity.

Three months ended

December 31,

2017

2016

Cost of revenues
$ 6,209 $ 5,877
Selling, general and administrative
109,322 435,497
Research and development
22,930 23,375
Total
$ 138,461 $ 464,749

~~The employee~~There were 275,000 stock ~~option~~soptions granted induring the ~~three~~nine months ended ~~December 31, 2017~~June 30, 2021. ~~and~~There were 1,133,727 stock options granted during the ~~2016~~nine ~~had a weighted-average~~months ended June 30, 2020. The weighted average estimated fair value of employee stock options granted during the ~~$0.89~~nine ~~per share and~~months ended ~~$0.71~~June 30, 2021 ~~per share, respectively,~~was calculated using the Black-Scholes ~~option pricing~~option-pricing model with the following ~~weighted-average~~weighted average assumptions (annualized percentages):

	Three months ended					Nine months ended
	December 31,					June 30,
	2017		2016			2021			2020
Volatility		45.4%	52.4%	-	53.7%		48.5	%		44.5	%
Risk-free interest rate		2.2%	1.7%	-	2.0%		0.6	%		1.4	%
Forfeiture rate		10.0%		10.0%
Dividend yield		0.0%		0.0%			0.0	%		0.0	%
Expected life in years		4.6	3.8	-	4.6
Expected term							6.6			5.4

~~The Company~~ ~~did~~ ~~not~~ ~~declare a dividend for the quarters ended~~ ~~December 31, 2017~~ ~~and~~ ~~2016.~~Expected volatility is based on the historical volatility of the Company’s common stock over the period commensurate with the expected ~~life~~term of the options. The risk-free interest rate is based on rates published by the Federal Reserve Board. The contractual term of the options was seven years. The expected ~~life~~term 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.~~estimates. Such ~~amounts~~revision adjustments to expense will be recorded as a cumulative adjustment in the period in which the estimate is changed. The Company has not paid a dividend in fiscal 2021 and did not pay a dividend in fiscal 2020.

~~Since~~ As of June 30, 2021, there was approximately $787 of total unrecognized compensation costs related to outstanding employee stock options. This amount is expected to be recognized over a weighted average period of 2.1 years. To the extent the forfeiture rate is different from what the Company anticipated, stock-based compensation related to these awards will be different from the Company’s expectations.

Performance-Based Stock Options

On August 1, 2016, 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. At the grant date, there were 375,000 performance-based stock options assigned to performance criteria within each of fiscal 2019 and 2020. Vesting is based upon the achievement of certain performance criteria for each of fiscal 2019 and 2020 including a minimum free cash flow margin and net revenue targets. Additionally, vesting is subject to the executive being employed by the Company at the time the Company achieves such financial targets.

The Company determined that certain performance conditions related to the 2019 and 2020 performance criteria were achieved. 187,500 options related to the 2019 performance criteria vested and 375,000 options related to the 2020 performance criteria vested. The Company recorded a total of $459 in stock-based compensation expense for these options through September 30, 2020, in selling, general and administrative expenses in the consolidated statement of operations.

On October 4, 2019, the Company awarded a performance-based stock option (PVO) to purchase 800,000 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 2022 and 2023 including a minimum free cash flow margin and net revenue targets. Additionally, vesting is subject to the executive being employed by the Company at the time the Company achieves such financial targets. Through June 30, 2021, the Company has not recorded stock-based compensation expense related to these options.

Genasys Inc.

Notes to the Condensed Consolidated Financial Statements

(in thousands, except per share and share amounts)

(Unaudited)

The Company did not grant any PVO’s during the nine months ended June 30, 2021.

Restricted Stock Units

During fiscal 2018, the Board of Directors granted 93,330 restricted stock units (“RSUs”) to employees that will vest equally over three years on each of the firstthree anniversary dates of the grant. These were issued at a ~~net operating loss carryforward~~market value of $210, which will be expensed on a straight-line basis over the three-year life of the grants.

During fiscal 2019, the Board of Directors granted 99,300 RSUs to employees that will vest equally over three years on each of the firstthree anniversary dates of the grant. These were issued at a market value of $248, which have and will be expensed on a straight-line basis over the three-year life of the grants.

On March 10, 2020, each member of the Board of Directors received a grant of 30,000 RSUs that vested on the first anniversary of the grant date. These were issued at a market value of $425, which were expensed on a straight-line basis through the March 10, 2021 vest date. Also, in fiscal 2020, 81,270 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 $258, which have and will be expensed on a straight-line basis over the three-year life of the grants.

On March 16, 2021, each member of the Board of Directors received a grant of 27,883 RSUs that vested on the first anniversary of the grant date. These were issued at a market value of $1,100, which have and will be expensed on a straight-line basis through the March 16, 2022 vest date. Also, during the fiscal 2021, 145,950 RSUs were granted to employees that will vest over three years on the anniversary date of the grant. These were issued at a market value of $989, which have and will be expensed on a straight-line basis over the three-year life of the grants. During the quarter, 5,000 RSUs with immediate vesting were granted to an employee at a market value of $25. These were expensed during the quarter ended June 30, 2021.

During the nine months ended June 30, 2021, the Company retained 22,073 shares of common stock to satisfy tax withholding obligations upon the vesting of RSUs issued to employees. During the nine months ended June 30, 2020, the Company retained 13,063 shares of common stock to satisfy tax withholding obligations upon the vesting of RSUs issued to employees. These shares were not acquired pursuant to any repurchase plan or program.

Compensation expense for RSUs was $363 and $750 for the three months and nine months ended June 30, 2021, respectively. Compensation expense for RSUs was $136 and $431 for the three and nine months ended June 30, 2020, respectively. As of June 30, 2021, there was approximately $1,534 of total unrecognized compensation costs related to outstanding RSUs. This amount is expected to be recognized over a weighted average period of 1.61 years.

A summary of the restricted stock units of the Company as of ~~December 31, 2017,~~June 30, 2021, is presented below:

	Number of Shares			Weighted Average Grant Date Fair Value
Outstanding September 30, 2020		303,014		$	2.82
Granted		290,315		$	7.28
Released		(228,633	)	$	2.83
Forfeited/cancelled		(277	)	$	2.26
Outstanding June 30, 2021		364,419		$	6.37

no21

Genasys Inc.

Notes to the Condensed Consolidated Financial Statements

(in thousands, except per share and share amounts)

(Unaudited)

Stock Option Summary Information

A summary of the activity in options to purchase the capital stock of the Company as of June 30, 2021, is presented below:

	Number of Shares			Weighted Average Exercise Price
Outstanding September 30, 2020		2,659,305		$	2.56
Granted		275,000		$	6.80
Forfeited/expired		(104,125	)	$	2.57
Exercised		(86,462	)	$	1.97
Outstanding June 30, 2021		2,743,718		$	3.00
Exerciseable June 30, 2021		1,520,058		$	2.19

Options outstanding are exercisable at prices ranging from $1.31 to $8.03 per share and expire over the period from 2021 ~~excess tax benefit~~to 2028 with an average life of 4.07 years. The aggregate intrinsic value of options outstanding and exercisable as of June 30, 2021, was $7,150 and $5,049, respectively. The aggregate intrinsic value represents the difference between the Company’s closing stock price on the last day of trading for the ~~tax deductions related to share-based awards~~quarter, which was ~~recognized~~$5.48 per share, and the exercise price multiplied by the number of applicable options. The total intrinsic value of stock options exercised during the nine months ended June 30, 2021, was $455 and proceeds from these exercises were $170. The total intrinsic value of stock options exercised during the nine months ended June 30, 2020, was $1,236 and proceeds from these exercises were $996.

The following table summarized information about stock options outstanding as of June 30, 2021:

					Weighted Average		Weighted Average				Weighted Average
*Range of*			*Number*		*Remaining*		*Exercise*		*Number*		*Exercise*
*Exercise Prices*			*Outstanding*		*Contractual Life*		*Price*		*Exercisable*		*Price*
$1.31	-	$1.86		334,991		2.20	$	1.64		328,116	$	1.64
$1.99	-	$1.99		937,500		2.69	$	1.99		937,500	$	1.99
$2.16	-	$3.17		72,500		0.60	$	2.52		72,500	$	2.52
$3.39	-	$3.40		1,133,727		5.34	$	3.39		146,005	$	3.40
$5.05	-	$8.03		265,000		6.85	$	6.75		35,937	$	6.87
				2,743,718		4.07	$	3.00		1,520,058	$	2.19

The Company recorded $84 and $186 of stock option compensation expense for employees, directors and consultants for the three months ended ~~December 31, 2017~~June 30, 2021, and ~~2016.~~2020, Asrespectively. The Company recorded $206 and $345 of stock option compensation expense for employees, directors and consultants for the ~~December 31, 2017,~~ ~~there was approximately~~ ~~$600,000~~nine months ended June 30, 2021, and 2020, respectively.

Share-Based Compensation

The Company recorded share-based compensation expense and classified it in the condensed consolidated statements of ~~total unrecognized compensation cost related to non-vested share-based employee compensation arrangements. The cost is expected to be recognized over a weighted-average period of~~ ~~2.1~~ ~~years.~~operations as follows:

	Three months ended				Nine months ended
	June 30,				June 30,
	2021		2020		2021		2020
Cost of revenues	$	10	$	5	$	24	$	16
Selling, general and administrative		424		311		904		738
Research and development		12		6		28		22
	$	446	$	322	$	956	$	776

Genasys Inc.

Notes to the Condensed Consolidated Financial Statements

(in thousands, except per share and share amounts)

(Unaudited)

117. STOCKHOLDERS’1~~. STOCKHOLDERS’~~ EQUITY

Summary

The following table summarizes changes in the components of ~~stockholders~~’stockholders’ equity during the nine months ended June 30, 2021, and the nine months ended June 30, 2020 (amounts in thousands, except par value and share amounts):

												Accumulated
						*Additional*						*Other*			*Total*
	*Common Stock*					*Paid-in*			*Accumulated*			*Comprehensive*			*Stockholders'*
	*Shares*			*Amount*		*Capital*			*Deficit*			*Loss*			*Equity*
Balance at September 30, 2020		33,561,544		$	336	$	91,248		$	(41,858	)	$	(250	)	$	49,140
Share-based compensation expense		-			0		182			0			0			182
Issuance of common stock upon exercise of stock options, net		25,899			0		54			0			0			54
Obligation to issue common stock		-			0		3,431			0			0			3,431
Accumulated other comprehensive income		-			0		0			0			469			469
Net loss		-			0		0			(619	)		0			(619	)
Balance at December 31, 2020		33,587,443		$	336	$	94,915		$	(42,477	)	$	219		$	52,657

Share-based compensation expense		-		$	0	$	328		$	0		$	0		$	328
Issuance of common stock upon exercise of stock options, net		60,563			1		116			0			0			116
Issuance of common stock upon vesting of restricted stock units		223,633			2		0			0			0			0
Shares retained for payment of taxes in connection with net share settlement of restricted stock units		(22,073	)		0		(141	)		0			0			(141	)
Accumulated other comprehensive loss		-			0		0			0			(78	)		(78	)
Net income		-			0		0			262			0			262
Balance at March 31, 2021		33,849,566		$	339	$	95,218		$	(42,215	)	$	141		$	53,144

Share-based compensation expense		-		$	0	$	446		$	0		$	0		$	446
Issuance of common stock upon vesting of restricted stock units		5,000			0		0			0			0			0
Issuance of common stock in business combination		2,165,824			22		10,938			0			0			10,938
Release of obligation to issue commons stock		121,703			1		0			0			0			0
Accumulated other comprehensive income		-			0		0			0			183			183
Net income		-			0		0			290			0			290
Balance at June 30, 2021		36,142,093		$	362	$	106,602		$	(41,925	)	$	324		$	65,001

Genasys Inc.

Notes to the Condensed Consolidated Financial Statements

(in thousands, except per share and share amounts)

(Unaudited)

												Accumulated
						*Additional*						*Other*			*Total*
	*Common Stock*					*Paid-in*			*Accumulated*			*Comprehensive*			*Stockholders'*
	*Shares*			*Amount*		*Capital*			*Deficit*			*Loss*			*Equity*
Balance at September 30, 2019		32,949,987		$	330	$	89,572		$	(53,732	)	$	(459	)	$	35,381
Share-based compensation expense		-			0		158			0			0			158
Issuance of common stock upon exercise of stock options, net		83,343			1		144			0			0			144
Accumulated other comprehensive income		-			0		0			0			85			85
Net income		-			0		0			620			0			620
Balance at December 31, 2019		33,033,330		$	331	$	89,874		$	(53,112	)	$	(374	)	$	36,388

Share-based compensation expense		-			0		296			0			0			296
Issuance of common stock upon exercise of stock options, net		56,861			0		114			0			0			114
Issuance of common stock upon vesting of restricted stock units		198,106			0		0			0			0			0
Shares retained for payment of taxes in connection with net share settlement of restricted stock units		(13,063	)		0		(41	)		0			0			(41	)
Stock buyback		(156,505	)		0		(398	)		0			0			(398	)
Accumulated other comprehensive loss		-			0		0			0			(69	)		(69	)
Net loss		-			0		0			302			0			302
Balance at March 31, 2020		33,118,729		$	331	$	89,845		$	(52,810	)	$	(443	)	$	36,592

Share-based compensation expense		-			0		322			0			0			322
Issuance of common stock upon exercise of stock options, net		371,815			4		738			0			0			738
Accumulated other comprehensive income		-			0		0						51			51
Net income		-			0		0			1,504			0			1,504
Balance at June 30, 2020		33,490,544		$	335	$	90,905		$	(51,306	)	$	(392	)	$	39,207

Common stock activity

On March 18, 2021, the Company filed an amendment to its Certificate of Incorporation, as amended, with the Secretary of State of Delaware to increase the authorized number of shares of common stock of the Company from 50,000,000 to 100,000,000 shares (the “Amended Certificate”). The Amended Certificate was approved by the Company’s stockholders at the Company’s Annual Meeting of Stockholders on March 16, 2021.

During the nine months ended June 30, 2021, the Company issued 86,462 shares of common stock and received gross proceeds of $170 in connection with the exercise of stock options. During the nine months ended June 30, 2020, the Company issued 512,019 shares of common stock and received gross proceeds of $996 in connection with the exercise of stock options. During the nine months ended June 30, 2021, the Company issued 206,560 shares of common stock in connection with the vesting of RSUs. During the nine months ended June 30, 2020, the Company issued 185,043 shares of common stock in connection with the vesting of RSUs.

In connection with the Amika Mobile asset purchase, the Company agreed to issue 191,267 shares of the Company’s common stock to the former owner of the Amika Mobile assets on each of the first, second and third anniversaries of the closing date. The total number of shares of common stock the Company is obligated to issue is 573,801. The fair value of the Company’s common stock on the closing date was $5.98, resulting in the addition of $3,431 to additional paid-in-capital. During the three months ended ~~December 31, 2017:~~June 30, 2021, the Company accelerated the issuance of 121,703 of such shares of common stock to a former owner of Amika Mobile. 452,098 shares of the Company’s common stock remain subject to issuance under this obligation.

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
- - 138,461 - - 138,461
Issuance of common stock upon exercise of stock options, net
90,852 - 159,518 159,518
Other comprehensive loss
- - - - (8,031 ) (8,031 )
Net loss
- - - (1,683,253 ) (1,683,253 )
Balances, December 31, 2017
32,249,288 $ 322 $ 88,254,818 $ (54,455,106 ) $ (9,300 ) $ 33,790,734

In connection with the Zonehaven acquisition, the Company issued 2,165,824 shares of the Company’s common stock to the former owners of Zonehaven. The fair value of the Company’s stock on the closing date was $5.05, resulting in the addition of $10,938 to additional-paid-in-capital.

Share ~~Buyback Program~~buyback program

~~The~~In December 2018, the Board of Directors approved a new share buyback program inbeginning ~~2013~~January 1, 2019 and expiring on December 31, 2020, under which the Company was authorized to repurchase up to $4$5 million of its outstanding common shares. ~~There were~~ no ~~shares repurchased during the quarters ended~~ ~~December 31, 2017~~ ~~and~~ ~~2016~~ ~~respectively. At~~ ~~December 31, 2017,~~ ~~all repurchased shares were retired.~~ In December ~~2017,~~2020, the Board of Directors extended the buyback program ~~through~~until December 31, 2022. The previous program expired on December 31, 2018.

During the nine months ended June 30, 2021, 0 shares were repurchased by the Company. During the nine months ended June 30, 2020, the Company repurchased 156,505 shares for $398.

Genasys Inc.

Notes to the Condensed Consolidated Financial Statements

(in thousands, except per share and share amounts)

(Unaudited)

Dividends

There were no0 dividends declared in the ~~three~~nine months ended ~~December 31, 2017~~June 30, 2021 and ~~2016.~~2020.

118.2.NET ~~LOSS~~ INCOME (LOSS) PER SHARE

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

	Three months ended				Nine months ended
	June 30,				June 30,
	2021		2020		2021			2020
Net income (loss)	$	290	$	1,504	$	(67	)	$	2,426

Basic income (loss) per share	$	0.01	$	0.05	$	(0.00	)	$	0.07
Diluted income (loss) per share	$	0.01	$	0.04	$	(0.00	)	$	0.07

Weighted average shares outstanding - basic		34,109,167		33,289,426		33,797,774			33,122,042
Assumed exercise of dilutive options		1,161,778		991,489		0			756,201
Weighted average shares outstanding - diluted		35,270,945		34,280,915		33,797,774			33,878,243

Potentially diluted securities outstanding at period end excluded from diluted computation as the inclusion would have been antidilutive:
Options		1,035,000		893,750		2,743,718			893,750
RSU		0		0		364,469			0
Obligation to issue common stock		452,098		0		452,098			0
Total		1,487,098		893,750		3,560,285			893,750

19. SEGMENT INFORMATION

The Company is engaged in the design, development and commercialization of directed and multidirectional sound technologies, voice broadcast products, location-based mass messaging solutions for emergency warning and enterprise safety, and evacuation planning and public safety resources. The Company operates in 2 business segments: Hardware and Software and its principal markets are North and South America, Europe, the Middle East and Asia. As reviewed by the Company’s chief operating decision maker, the Company evaluates the performance of each segment based on sales and operating income. Cash and cash equivalents, marketable securities, accounts receivable, inventory, property and equipment, deferred tax assets, goodwill and intangible assets are primary assets identified by segment. The accounting policies for segment reporting are the same for the Company as a whole.

Three months ended

December 31,

2017

2016

Numerator:

Loss available to common stockholders
$ (1,683,253 ) $ (812,680 )

Denominator:

Weighted average common shares outstanding
32,236,039 31,800,103

Basic loss per common share
$ (0.05 ) $ (0.03 )
Diluted loss per common share
$ (0.05 ) $ (0.03 )

Potentially dilutive securities outstanding at period end excluded from the diluted computation as the inclusion would have been antidilutive:
Options
3,289,067 4,849,002

Genasys Inc.

Notes to the Condensed Consolidated Financial Statements

(in thousands, except per share and share amounts)

(Unaudited)

The following table presents the Company’s segment disclosures:

	Three months ended June 30,						Nine months ended June 30,
	2021			2020			2021			2020

Revenue from external customers
Hardware	$	11,875		$	11,599		$	29,887		$	27,820
Software		752			372			2,069			1,209
	$	12,627		$	11,971		$	31,956		$	29,029

Intersegment revenues
Hardware	$	0		$	0		$	0		$	0
Software		581			552			1,187			1,381
	$	581		$	552		$	1,187		$	1,381

Segment operating income (loss)
Hardware	$	1,671		$	2,144		$	3,420		$	3,525
Software		(1,151	)		(203	)		(3,040	)		(559	)
	$	520		$	1,941		$	380		$	2,966

Other expenses:
Depreciation and amortization expense
Hardware	$	98		$	127		$	282		$	387
Software		303			78			671			233
	$	401		$	205		$	953		$	620

Income tax expense
Hardware	$	228		$	473		$	506		$	742
Software		0			0			0			0
	$	228		$	473		$	506		$	742

	June 30, 2021		September 30, 2020
Long-lived assets
Hardware	$	1,826	$	1,924
Software		37,349		3,421
	$	39,175	$	5,345

Total assets
Hardware	$	53,232	$	61,152
Software		40,335		5,015
	$	93,567	$	66,167

120.3. MAJOR CUSTOMERS, SUPPLIERS AND RELATED INFORMATION

For the three months ended ~~December 31, 2017,~~June 30, 2021, revenues from ~~two~~ ~~customers~~1 customer accounted for ~~31%~~ ~~and~~ ~~26%~~62% of total revenues ~~respectively,~~ with no other single customer accounting for more than 10% of revenues. AtFor the ~~December 31, 2017,~~nine months ended June 30, 2021, revenues from 1 customer accounted for 54% of total revenues with no other single customer accounting for more than 10% of revenues. As of June 30, 2021, accounts receivable from ~~one~~ ~~customer~~2 customers accounted for ~~42%~~51% and 17% of total accounts receivable, with no other single customer accounting for more than 10% of the accounts receivable balance.

For the three months ended ~~December 31, 2016,~~June 30, 2020, revenues from ~~one~~1 customer accounted for ~~11%~~64% of total revenues with no other single customer accounting for more than 10% of revenues. AtFor the ~~December 31, 2016,~~nine months ended June 30, 2020, revenues from 1 customer accounted for 63% of total revenues with no other single customer accounting for more than 10% of revenues. As of June 30, 2020, accounts receivable from ~~two~~2 customers accounted for ~~40%~~60% and ~~19%~~17% of total accounts receivable, ~~respectively,~~ with no other single customer accounting for more than 10% of the accounts receivable balance.

Genasys Inc.

Notes to the Condensed Consolidated Financial Statements

(in thousands, except per share and share amounts)

(Unaudited)

Revenue from customers in the United States was $10,564 and $9,600 for the three months ended June 30, 2021, and 2020, respectively. Revenue from customers in the United States was $24,401 and $22,523 for the nine months ended June 30, 2021, and 2020, respectively. The following table summarizes revenues by geographic region. Revenues are attributed to countries based on ~~customer~~’scustomer’s delivery location.

Three months ended December 31,

2017

2016

Americas
$ 6,053,038 $ 1,622,357
Asia Pacific
1,021,906 984,600
Europe, Middle East and Africa 553,623 334,377
Total Revenues
$ 7,628,567 $ 2,941,334

	Three months ended June 30,				Nine months ended June 30,
	2021		2020		2021		2020
Americas	$	11,090	$	9,961	$	25,496	$	23,871
Asia Pacific		887		948		4,110		3,129
Europe, Middle East and Africa		650		1,062		2,350		2,029
Total Revenues	$	12,627	$	11,971	$	31,956	$	29,029

1Item42. . Management’~~SUBSEQUENT EVENTS~~

On ~~January 18, 2018,~~ ~~the Company~~ ~~acquired all~~s Discussion and Analysis of ~~the issued~~Financial Condition and ~~outstanding shares~~Results of ~~capital stock of Genasys Holdings, S.L. and its subsidiaries (“Genasys”), pursuant to a Stock Purchase Agreement, dated~~ ~~January 18, 2018.~~ ~~Genasys is a leading software provider of advanced location-based mass messaging solutions for emergency warning systems and workforce management. The aggregate consideration paid by the Company was~~ ~~3.1~~ ~~million Euros (approximately~~ ~~$3.8~~ ~~million), including the assumption of~~ ~~1.2~~ ~~million Euros (approximately~~ ~~$1.5~~ million) of debt subject to certain working capital adjustments as outlined in the Stock Purchase Agreement. The acquisition was funded from available cash on hand. The Company is in the initial stages of determining the accounting treatment for the transaction, specifically related to the fair value of acquired tangible and intangible assets, liabilities assumed and the related tax impact.

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, ~~2017.~~2020.

This report contains certain statements of a forward-looking nature relating to future events or future performance. Words such as ~~“expects,~~“expects,” ~~“anticipates,~~“anticipates,” ~~“intends,~~“intends,” ~~“plans,~~“plans,” ~~“believes,~~“believes,” ~~“seeks,~~“seeks,” ~~“estimates”~~“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, Item1A (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.

Genasys Inc. is a global provider of critical communications hardware and software solutions designed to help keep people safe. Our unified platform encompasses a multi-channel approach to deliver alerts, notifications, instructions, and information before, during, and after public safety and enterprise threats, critical events, and other crisis situations.

• LRAD® (Long Range Acoustic Device®), the world’s leading ~~innovator~~ Acoustic Hailing Device (“AHD”), projects alert tones and ~~manufacturer of acoustic communication systems that control sound from 30° - 360° over short and long distances. By broadcasting~~ audible voice messages ~~and tones~~ with exceptional vocal clarity ~~and only where needed, we offer novel sound applications that conventional bullhorns, loudspeakers, and public address and emergency warning systems cannot achieve. We have developed two LRAD~~^® ~~product lines using our proprietary technologies:~~

• ~~Acoustic Hailing Devices (“AHD’s”), which project audible broadcasts with exceptional intelligibility~~ in a 30° beam from close range ~~out~~ to 5,500 ~~meters, and;~~meters.

• ~~ONE VOICE~~^®GEM™ (Genasys Emergency Management) is our unified software platform for cloud, on-premise or hybrid operations that supports 2-way communications and seamlessly integrates with physical systems to initiate life-safety actions in defined geographic areas. GEM receives and manages simultaneous inputs from panic buttons, government agency or weather alert feeds, sensor events from digital thermometers, access control, fire panels, camera systems, and more. Using the information derived from the inputs, GEM delivers alerts and notifications on multiple channels, including SMS, CBC, MMS, desktop, laptop, tablet and smartphone pop-ups, social media, VoIP, callouts, public address, overhead displays, digital signs, tickers, RSS feeds, and email on any platform.

• IMNS (Integrated Mass Notification ~~Systems(“MNS”),~~Systems) span multiple hardware and software notification channels to reach at risk individuals and populations. These systems include Genasys voice speaker arrays, which project sirens and audible voice messages 60° - 360° ~~audible broadcasts~~ with industry-leading vocal ~~intelligibility~~clarity from close range to ~~over~~more than 14 square kilometers, ~~from~~and GEM software designed to deliver SMS, CBC, text, email, and social media alerts to people at risk in defined geographic areas. Our IMNS solutions are compatible with the Federal Emergency Management Agency (“FEMA”) Integrated Public Alert & Warning System (“IPAWS”) and other major emergency warning protocols.

• NEWS (National Emergency Warning Systems) are deployed directly on mobile carrier networks to send critical alerts and life-saving information across SMS and CBC channels to anyone, anywhere with no opt-in required. NEWS empowers national emergency management personnel to send hyper-specific instructions to at risk populations and monitor evacuation progress.

• Zonehaven™is a ~~single installation.~~cloud-based, software platform that uses critical data and modeling capabilities to deliver simple, usable insights to help emergency responders, communities, counties, and states plan for and successfully respond to All Hazards emergency situations

The Company’s critical communication systems are being used in more than 100 countries throughout the world in a range of diverse applications, including public safety, emergency warning, mass notification, defense, law enforcement, critical event management, and many more. We continue to develop new communication innovations and believe we have significant competitive advantages in our principal markets.

LRAD systems ~~are~~represent a technological breakthrough in broadcasting audible, highly intelligible voice messages and tones over long distances and high ambient noise using minimal power. By broadcasting audible voice messages with exceptional vocal clarity and only where needed, we offer novel sound applications that conventional bullhorns, loudspeakers, public address, and emergency warning systems cannot achieve. Our ~~AHD's meet stringent military requirements~~LRAD systems are designed to enable users to safely hail and ~~are packaged in several form factors,~~warn, inform and direct, prevent misunderstandings, determine intent, establish large safety zones, resolve uncertain situations, and save lives. The LRAD product line offers a full range of AHD and communication solutions - from portable ~~hand held units~~devices to permanently installed, remotely operated systems. Through the use of powerful voice commands, prerecorded messages in multiple languages, and warning tones, our AHD's are designed to create large safety zones while determining the intent and influencing the behavior of security threats. We continue to expand ~~our AHD product line~~into new markets and add new models and features to provide a complete range of systems and accessories, including our recently patented XL driver technology, which generates higher audio output in a smaller and lighter form factor. We have incorporated, and plan to continue incorporating, this proprietary technology into our AHD and ONE VOICE products.meet customer requirements.

Building on the success of our ~~AHD's,~~LRAD systems, we ~~launched~~designed and developed our ~~omnidirectional~~multidirectional Genasys mass notification product line. Unlike ~~most siren-based~~siren-only installations, our public safety mass notification ~~systems on the market, our ONE VOICE~~hardware 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~~enable us ~~more competitive~~to successfully compete in the large and growing mass notification market.

GEM is our cloud, on-premise or hybrid based software notification platform that enables emergency personnel, first responders, municipalities, companies, educational institutions, and government agencies to send public safety warnings and notifications to the mobile devices and desktop computers of individuals or populations in specific geographic areas with reliability, speed and ease. Alerts and notifications can be sent from a desktop or our mobile application.

NEWS’ location-based SMS software technology sends geo-specific alerts to mobile phones in crisis-affected areas. With no opt in or app download required, NEWS provides the industry’s fastest location-based SMS alert service available, finding and sending SMS public safety alerts and notifications to thousands of mobile phones in near real time.

Zonehaven reduces evacuation and response times for communities, counties, and regions during disasters and other crisis situations. The zone-based evacuation plans include population locations, structures, and traffic flow, and local knowledge of past emergencies and known local hazards. Zonehaven provides a single access point for public safety agencies to gather data and disseminate critical information, evacuation routes, and incident status

Genasys offers the only unified critical communications platform that provides multi-modal, geo-targeted mobile device alerts, and speaker arrays that broadcast audible messages with industry-leading vocal clarity and area coverage. Our ~~products are designed to meet a broad range of diverse applications including emergency warning and mass notification, fixed~~user-friendly software interface and mobile ~~military deployments, maritime, critical infrastructure, perimeter, commercial, border,~~application manages and ~~homeland security, law enforcement, emergency responder~~delivers notifications and ~~fire rescue communications, asset protection,~~information to people at risk, before, during, and ~~wildlife preservation and control.~~ By selling our industry-leading AHD's and advanced ONE VOICE mass notification systems into over 70 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. after crisis situations.

Business developmentsin the fiscal quarter ended ~~December 31, 2017:~~June 30, 2021:

• Announced $1.0 million in international infrastructure protection and wildlife preservation orders

Revenues inin the ~~first~~third fiscal quarter ended ~~December 31, 2017,~~June 30, 2021, were ~~$7.6~~$12.6 million, an increase from ~~$2.9~~$11.9 million in the ~~first~~third fiscal quarter of ~~2017.~~2020. The increase in revenues was driven by increases ~~in both~~of AHD, IMNS and ~~mass notification~~software revenues. AHD ~~revenues increased $2,559,000,~~revenue was $11,420, an increase of $961 or ~~128%~~9%, IMNS revenue was $455, a decrease of $685 or 60%, and ~~mass notification revenues increased $2,074,748,~~software revenue of $752, an increase of $380 or ~~297%~~102%, compared towith the ~~first~~third fiscal quarter of ~~2017.~~2020. Based on the timing of government budget cycles, ~~as well as~~ financial issues, the impact of the COVID-19 pandemic and ~~military conflict~~leadership change in certain areas of the world, delays in awarding contracts often occur, resulting in uneven quarterly revenues. Gross profit increased compared towith the same quarter in the prior year primarily as a result of higher ~~sales and higher fixed overhead absorption.~~sales. Operating expenses increased ~~by 16.2%~~36% from ~~$2.6~~the prior year quarter, from $4.5 million to ~~$3.0~~$6.2 million in the quarter ended December 31, 2017, primarily due to higher incentive expense accrual based on the Company’s expectation for meeting current year financial goals, computer related expenses and increased salaries and consulting for additional engineering and sales personnel. The firstJune 30, 2021. Third fiscal quarter of ~~fiscal 2018~~2021 results reflect ~~a $2.7 million~~$228 of income tax expense, ~~including $2.5 million for a decrease to~~compared with $473 in the ~~deferred tax asset due to enactment~~prior year quarter. We reported net income of the “Tax Cuts and Jobs Act” (the “Act”) on December 22, 2017, which reduces the U.S. federal corporate tax rate to 21% effective January 1, 2018. Primarily as a result of this fiscal 2018 income tax expense, we reported a net loss of $1,683,253$290 for the quarter, or ~~$0.05~~$0.01 per share, compared ~~to a~~with net ~~loss~~income of ~~$812,680,~~$1,504, or ~~$0.03~~$0.05 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 product line,~~LRAD systems and IMNS solutions, which we have expanded over the years to ~~service~~serve 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.~~ We believe that we have strong market opportunities for our ~~directional and omnidirectional~~ product offerings ~~within~~throughout the ~~global government~~world in the homeland security and ~~military sector, as well as increasing commercial applications~~defense sectors as a result of ~~continued~~increasing threats to ~~governments,~~government, commerce, ~~and~~ law enforcement, borders, and incritical infrastructure. Our directional and multidirectional product offerings also have many applications within the fire rescue, public safety, maritime, asset protection, and wildlife preservation business segments.

The proliferation of natural disasters, crisis situations, and ~~control applications.~~civil unrest require technologically advanced, multi-channel solutions to deliver clear and timely critical communications to help keep the public safe during emergencies. Businesses are also incorporating communication systems that locate and help safeguard employees when critical events occur.

By providing the only unified platform that combines audible, highly intelligible voice broadcast systems and mass messaging software, Genasys seeks to deliver reliable, fast, and intuitive solutions for sending location-based audible voice communications and geolocation-targeted messages and texts to mobile devices to help keep the public and workers safe.

Genasys has developed a global market for LRAD systems and advanced emergency warning notification solutions. We ~~intend to continue expanding our international~~have a reputation for producing quality products that feature industry-leading vocal intelligibility and geo-targeted mass notification business, particularly in the Middle East, Europe and Asia where we believe there are greater market opportunities for our omnidirectional 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 United States and in a number of worldwide locations. However, we may continue to face challenges in fiscal 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 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 product will be accepted as a viable solution inmessaging. While the mass notification market is more mature with many established manufacturers and suppliers, we believe that our advanced technology and unified multi-channel platform provides opportunities to succeed in the large and growing public safety, emergency warning, and mass notification markets. We also plan to expand and strengthen domestic and international sales by adding strategic mass notification partners, distributors, and dealers.

We plan to continue building on our AHD leadership position by offering enhanced voice broadcast and multidirectional voice broadcast systems and accessories for an expanding range of applications. In executing our strategy, we use direct sales to governments, militaries, large end-users, and system integrators. We have built a worldwide distribution channel consisting of partners and resellers that have significant expertise and experience selling integrated communication solutions into our various target markets. As our primary AHD sales opportunities are with domestic and international government, military, and law enforcement agencies, we are subject to each customer’s unique budget cycle, which leads to long selling cycles and uneven revenue flow, complicating our product planning.

In fiscal 2021, we intend to continue to pursue domestic and international business opportunities with the support of business development consultants, key representatives, and resellers. We plan to grow our revenues through increased direct sales to militaries and large commercial and defense-related companies that desire to integrate our communication technologies into their product offerings. This includes building on fiscal 2020 domestic defense sales by pursuing further U.S. military opportunities. We also plan to pursue mass notification, government, law enforcement, fire rescue, homeland and international security, private and commercial security, border security, maritime security, and wildlife preservation business opportunities. In addition to the matters above, we are authorized for the performance of services and provision of goods pursuant to Delaware General Corporation Law.

In March 2020, the World Health Organization ("WHO") classified the COVID-19 outbreak as a pandemic. While the impact of the COVID-19 pandemic did not have a material adverse effect on our financial position or results of operations for the nine months ended June 30, 2021, we monitor the developments and assess areas where there is potential for our business to be impacted. A significant portion of our sales force is working remotely, which could, among other things, negatively impact our ability to engage in sales-related initiatives, or efficiently conduct day-to-day operations. Other businesses and governments with which we engage are likely operating under similar restrictions and experiencing disruptions, which may create obstacles in the coordination of business activities, including the negotiation and fulfillment of orders. Disruptions in the supply chain could negatively impact our ability to source materials or manufacture and distribute products. While we do not currently anticipate a material reduction in demand for our commercialized products, we could experience a decrease in new orders, which could negatively impact our revenues and reduce our liquidity and cash flows. Growth in revenue could also be impeded by these factors. The financial markets have been subject to significant volatility that could impact our ability to enter into, modify, and negotiate favorable terms and conditions relative to equity and debt financing activities. We have $14.5 million in cash and cash equivalents as of June 30, 2021, which we believe provides sufficient capital to fund our operations for at least the next twelve months and withstand the potential near-term consequences of the pandemic, although liquidity constraints and access to capital markets could adversely impact our liquidity and warrant changes to our investment strategy. While we have not yet experienced a material impact, the full magnitude of the pandemic cannot be measured at this time, and therefore, any of the aforementioned circumstances, as well as other factors, may cause our results of operations to vary substantially from year to year and quarter to quarter.

Based on various standards published to date, we believe the work our associates perform is critical, essential and life sustaining. We are taking a variety of measures to promote the safety and security of our employees while ensuring the availability and functionality of our critical infrastructure. We are following Center for Disease Control guidelines to reduce the transmission of COVID-19, such as the imposition of travel restrictions, cancellation of events, the promotion of social distancing, the adoption of work-from-home arrangements, and limiting access to our facilities. Some or all of these policies and initiatives could impact our operations. In addition, the following events related to the COVID-19 pandemic could result in lost or delayed revenue to the Company: limitations on the ability of our suppliers to meet delivery requirements and commitments; limitations on the ability of our employees to perform their work due to illness caused by the pandemic, or local, state or federal orders requiring employees to remain at home; limitations on the ability of carriers to deliver our products to customers; unforeseen deviations from customers or foreign governments restricting the ability to do business; and, limitations on the ability of our customers to pay us on a timely basis, if at all.

A large number of ~~large, well-known competitors.~~components and sub-assemblies manufactured by outside suppliers within our supply chain are produced within 50 miles of our facility. We source a small amount of component parts from suppliers in China. It is also likely that some of our suppliers source parts in China. The COVID-19 pandemic has adversely impacted worldwide supply chains and the ability to obtain sufficient amounts of component parts, including semiconductor chips and integrated circuits, resins, coating and other equipment and components. Negative impacts on our supply chain could have a material adverse effect on our business. We are in contact with our suppliers and evaluating what impact, if any, may result from COVID-19.

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~~’sManagement’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, ~~2017.~~2020. 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 U.S. 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 ~~December 31~~, ~~2017~~June 30, 2021 and ~~2016~~2020 (in thousands)

The ~~following table sets~~tables above set 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 quarter in the prior year primarily due to the ~~larger~~timing of deliveries in backlog ~~at September 30, 2017~~as of March 31, 2021, as compared ~~to September 30, 2016. Sales improved in~~with March 31, 2020. Current year quarter AHD revenue was $11,420, software revenue was $752 and IMNS revenue was $455. This represented increases of $961, or 9%, for AHD and $380, or 102% for software offset by a decrease of $685, or 60% for IMNS revenue compared with the ~~current quarter both AHD (up $2,559,319 or 128%) and MNS (up $2,074,748, or 297%) product lines compared to the~~same prior ~~year.~~year period. The receipt of orders ~~will~~is often be uneven due to the timing of ~~approvals~~government budgets or ~~budgets. At December 31, 2017,~~approvals. The increase in software revenue in this year’s period is primarily from professional services revenue on new software contracts and the sale of a software license to one customer. As of June 30, 2021, we had aggregate deferred revenue of ~~$437,945~~$1,092 for ~~prepayments from customers in advance of product shipment.~~extended warranty obligations and software support agreements.

The increase in gross profit in the ~~current~~ quarter compared towith the same period in the prior year was primarily due to the higher level of ~~sales, partially offset by an~~revenue. Gross profit as a percentage of revenue was lower in the fiscal 2021 third quarter due to a 61% increase in ~~manufacturing overhead~~engineering personnel, primarily software related. Higher software expenses were due to the recent additions of Amika Mobile (through our Canadian subsidiary Genasys Communication Canada) and Zonehaven, and additional employees to support the ~~increased sales.~~Australia, EU and enterprise software initiatives.

~~Our~~As 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 increased ~~$221,962~~$1,446, or 43%, over the prior year quarter. This reflects $209,322 higher information technology related expenses, $154,197 higher incentive compensation expense, $81,957 higher salaries, benefits and consulting expense, primarily for business development and $59,885 in increased travel. The increases were offset by a $326,175 decrease in non-cash compensation,quarter primarily due to a 79% increase in sales and marketing personnel over the prior year ~~non-recurring expense related~~ to ~~a Separation Agreement~~support future revenue growth opportunities, including opening sales offices in Singapore, the United Arab Emirates, and ~~General Release related to the departure of the Company’s prior CEO. A new enterprise resource planning software system was implemented in the first quarter of~~Puerto Rico. Additional sales and administrative personnel were added through two acquisitions this fiscal ~~year 2018 and this rate of expense is not expected to recur in future periods.~~year.

We incurred non-cash share-based compensation expenses allocated to selling, general and administrative expenses in the three-months ended June 30, 2021, and 2020 of $424 and $311, 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, including the June 2022 European Public Warning Systems mandate and enterprise software services. Commission expenses will fluctuate based on the nature of our sales.

Research and development expenses increased $190 compared with the same quarter in the prior year. The higher cost was due to increases in engineering personnel and expending more engineering labor in support of development activities compared to the prior year period.

Included in research and development expenses for the three months ended ~~December 31, 2017~~June 30, 2021 and ~~2016~~2020, was $12 and $6, respectively, of ~~$109,322~~non-cash share-based compensation costs.

Research and ~~$435,497, respectively.~~development costs vary period to period due to the timing of projects, the amount of support provided on customer projects, and the timing and use of outside consulting, design and development firms. We continually improve our product offerings and we expect to continue to expand our product line 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.

Net income in the third quarter of fiscal year 2021 was $290, a decrease of $1,214 compared with the third quarter of fiscal year 2020. The decrease iswas primarily due to ~~non-recurring expense related to~~increased selling, general and administrative expenses, offsetting the higher revenue and gross profit in the third quarter of fiscal year 2021.

Comparison of Results of Operations for the Nine Months Ended June 30, 2021 and 2020 (in thousands)

The increase in gross profit in the nine months ended June 30, 2021, was primarily due to higher sales volume. Gross profit as a percentage of revenue was lower compared to the prior year ~~quarter.~~period primarily due to a 64% increase in engineering personnel, primarily software related. Higher software expenses were due to the recent additions of Amika Mobile (through our Canadian subsidiary Genasys Communications Canada) and Zonehaven, and additional employees to support the Australia, EU and enterprise software initiatives.

As our products have varying gross margins, 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 increased $3,047 in the nine months ended June 30, 2021, compared with the prior year period. The increase in selling, general and administrative expenses was primarily due to a 60% increase in sales and marketing personnel over the prior year to support future business and revenue growth opportunities.

We incurred non-cash share-based compensation expenses allocated to selling, general and administrative expenses in the nine months ended June 30, 2021, and 2020, of $904 and $738, 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 $183. The higher costs were due to increases in engineering personnel and expending more engineering labor in support of development activities compared to the prior year ~~primarily due to $75,162 for increased product development, $58,609 for salaries and benefits due to increased engineering staff compared to the prior year quarter and $60,405 for bonus accrual.~~period.

Included in research and development expenses for the ~~three~~nine months ended ~~December 31, 2017~~June 30, 2021, and ~~2016 was $22,930~~2020, were $28 and ~~$23,375~~$22 of non-cash share-based compensation costs, respectively.

Research and development costs vary period to period due to the timing of projects, the amount of support provided on customer projects, and the timing and ~~extent of the~~ use of outside consulting, design and development firms. We continually improve our product offerings and we expect to continue to expand our product line ~~in 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~~ ~~increase~~Net loss of $67 for the first nine months of fiscal year 2021, was a decrease of $2,493 compared with net income in ~~net loss compared to~~ the prior year period. This decrease was ~~due to income tax expense for the three months ended December 31, 2017~~ primarily due to ~~a reduction in~~ 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. The additional non-cash expense was~~higher operating expenses, partially offset by ~~an increase~~the higher revenue, in ~~gross profit. We recognized an income tax benefit of $486,528 for~~ the ~~three months ended December 31, 2016.~~current year period.

The Company’s financial condition and liquidity remain strong. Cash and cash equivalents ~~at December 31, 2017~~as of June 30, 2021, was ~~$15,117,544,~~$14,540, down $8,779, compared ~~to $12,803,887 at~~with $23,319 as of September 30, ~~2017 primarily~~2020. We had short-term marketable securities of $5,976 as of June 30, 2021, compared with $4,265 as of September 30, 2020. We had long-term marketable securities of $2,297 as of June 30, 2021, compared with $3,805 as of September 30, 2020. In addition, we have a ~~result~~$10 million line of ~~cash generated from operations.~~credit with MUFG bank. As of June 30, 2021, the Company had no outstanding balances against the line of credit. The credit agreement requires the Company to comply with various financial and operating covenants and as of June 30, 2021, the Company was in compliance with these covenants. Other than cash and cash equivalents, short and long-term marketable securities, other working capital, expected future cash flows from operating activities in subsequent periods and the line of credit, we have no unused sources of liquidity at this time.

Although there is uncertainty related to the anticipated impact of the recent COVID-19 outbreak on the Company’s future results, we believe our efficient business model and strong balance sheet keep us positioned to manage our business through this crisis as it continues to unfold. We continue to manage all aspects of our business including, but not limited to, monitoring the financial health of our customers, suppliers and other third-party relationships and developing new opportunities for growth.

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,~~activities, as reflected in the condensed consolidated statements of cash flows, are summarized in the table below:

Net loss of ~~$1,683,253~~$67 for the ~~three~~nine months ended ~~December 31, 2017~~June 30, 2021 was ~~decreased~~offset by ~~$2,960,116~~$3,257 of non-cash items that included depreciation and amortization, share-based compensation, operating ROU asset amortization, warranty provision, inventory obsolescence, both realized and unrealized loss on a foreign currency forward contract, and a reduction to deferred income taxes. Cash provided by operating activities for the current year reflected an increase of $1,134 in accounts payable, primarily for inventory related purchases, and a $5,988 increase in accrued and other liabilities, primarily from a $7,410 increase in customer deposits resulting from increased hardware orders, received this fiscal year offset by a $630 reduction to accrued contract costs. Cash used in operating activities for the nine months ended June 30, 2021, reflected a $788 increase in inventory, a $636 increase in prepaid expense, and a $574 increase in accounts receivable.

Net income of $2,426 for the nine months ended June 30, 2020, was increased by $2,755 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, amortization of operating right of use assets, and inventory obsolescence. Cash used in operating activities as of June 30, 2020, reflected an increase in accounts receivable of $2,722 due to higher sales with net credit terms in the quarter compared with the fourth quarter of fiscal 2019 and an increase in inventory of $1,667 to support the current backlog. Cash provided by operating activities ~~in the current year reflected~~included an increase in accounts payable of ~~$790,635 due to the timing of payments, decreases~~$2,040, primarily for inventory related purchases, a decrease in prepaid expenses and other of ~~$393,761,~~$732, and an increase in accrued ~~and other~~ liabilities of $311,483, a decrease in other assets of $46,874 and a decrease in accounts receivable of $3,662. Cash used in operating activities included a decrease in payroll and related of $1,023,538 primarily for payment of incentive compensation earned in fiscal 2017, an increase in inventory of $43,001 and warranty settlements of $3,154.

~~Net~~ loss of $812,680 for the three months ended December 31, 2016 was decreased by $20,447 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 a decrease in accounts receivable of $1,929,765 due to the collection of a high year-end balance, an increase in accounts payable of $500,042 due to the timing of payments, payroll and related of $180,766 primarily for accrued bonuses, and decreases in prepaid expenses and other of $80,378 and other assets of $46,871. Cash used in operating activities included an increase in inventory of $327,680, a decrease in accrued and other liabilities of $176,881 for decreased deferred revenue for customer prepayments and warranty settlements of $12,742.$148.

We had accounts receivable of $~~5,678,220 at December 31, 2017,~~$6,270 as of June 30, 2021, compared ~~to $5,681,882~~with $5,442 at September 30, 2017. The level of trade accounts receivable at December 31, 2017 represented approximately 68 days of revenues compared to 70 days of revenues at September 30, 2017 due to the timing of shipments and related collections in this quarter compared to the fourth fiscal quarter of 2017.2020. Terms with individual customers vary greatly. We ~~typically require~~regularly provide thirty-day terms ~~from~~to 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 ~~December 31~~As of June 30, 2021, and September 30, ~~2017,~~2020, our working capital was ~~$26,485,964~~$17,764 and ~~$25,412,106~~$29,796, respectively. The ~~increase~~decrease in working capital was primarily due to the use of cash ~~generated from operations.~~to complete the Amika Mobile asset purchase and Zonehaven acquisition in the first and third quarters respectively of fiscal year 2021.

Our net cash used in investing activities was $16,237 for the nine months ended June 30, 2021, compared with cash used in investing activities of $2,425 for the nine months ended June 30, 2020. In the ~~three~~first nine months ~~ended December 31, 2017,~~of fiscal 2021, $15,848 was used for acquisitions. In the first nine months of fiscal 2021, we ~~decreased~~increased our ~~holding~~holdings of short and long-term marketable securities by ~~$454,721,~~$208, compared ~~to sales~~with an increase of ~~$84,610~~$2,314 in the ~~three~~nine months ended ~~December 31, 2016.~~

~~We also~~ ~~use cash in investing activities primarily for the purchase of tooling, computer equipment and software, and investment in new or existing patents.~~June 30, 2020. Cash used in investing activities for ~~tooling~~the purchase of property and ~~patents~~equipment was ~~$54,167~~$181 and ~~$15,584~~$111 for the ~~three~~nine months ended ~~December 31, 2017~~June 30, 2021, and ~~2016,~~2020, respectively. We anticipate ~~some~~ additional expenditures for tooling and equipment during the balance of fiscal year ~~2018.~~2021.

In the ~~three~~nine months ended ~~December 31, 2017, cash~~ June 30, 2021, we used $27 for financing activities, compared with $540 provided by financing activities for the nine months ended June 30, 2020. In the first nine months of fiscal 2021, we received $170 from the exercise of stock options, which was ~~$159,518. In~~offset by $141 of cash used to settle statutory tax withholding requirements on behalf of our employees upon vesting of restricted stock awards. During the ~~three~~first nine months ~~ended December 31, 2016,~~of fiscal 2020, proceeds from the exercise of stock options were $996 and we ~~had no cash from financing activities.~~used $398 to repurchase company common stock.

In December 2018, the Board of Directors approved a new share buyback program ~~in 2013~~beginning January 1, 2019, under which the Company was authorized to repurchase up to $4$5 million of its outstanding common shares. ~~There were~~During the quarter ended June 30, 2021, no shares ~~repurchased during~~were repurchased. During the ~~quarters~~quarter ended ~~December 31, 2017 and 2016, respectively. At December 31, 2017,~~June 30, 2020, no shares were repurchased. As of June 30, 2021, all repurchased shares were retired. As of June 30, 2021, $4.1 million was available for share repurchase under this program. In December ~~2017,~~2020, the ~~Board of Directors~~board extended ~~the program through~~this program’s expiration date to December 31, ~~2018.~~2022.

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 and the transactions of our Canadian subsidiary are denominated primarily in Canadian dollars, which is a natural hedge against foreign currency fluctuations. Currency translation gains and losses are primarily related to our Spanish and Canadian subsidiaries, whereby assets and liabilities are translated from the respective functional currency into U.S. dollars using period-end exchange rates, which impacts other comprehensive income.

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.

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 ~~December 31, 2017.~~June 30, 2021.

There have been no changes in our internal control over financial reporting during our fiscal quarter ended ~~December 31, 2017,~~June 30, 2021, 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~~’smanagement’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.

There have been no material changes to the risk factors described under Item 1A of our Annual Report on Form 10-K for the fiscal year ended September 30, 2020, filed with the SEC on December 10, 2020, except for those noted below:

Supply chain disruptions. The COVID-19 pandemic has adversely impacted worldwide supply chains and the ability to obtain sufficient amounts of component parts, including semiconductor chips and integrated circuits, resins, coating and other equipment and components. Negative impacts on our supply change could have a ~~Smaller Reporting Company as defined by Rule 12b-2~~material adverse effect on our business.

Reference rate reform. Borrowings under our credit facility with MUFG Union Bank, N.A. will bear an interest rate based on certain tenors of the ~~Exchange Act~~London interbank offered rate (“LIBOR”) plus a credit spread. In July 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that, after 2021, it will stop compelling banks to submit rates for the calculation of LIBOR. The discontinuation, reform, or replacement of LIBOR could result in interest rate increases, which could adversely affect our cash flows 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.~~operating results.

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,~~16262 West Bernardo Drive, San Diego, California	92127
(Address of principal executive offices)	(Zip Code)

Title of each class	Trading Symbol(s)	Name of each exchange on which securities are registered
Common stock, $0.00001 par value per share	GNSS	NASDAQ Capital Market

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
	December 31,
	2017			2016
Revenues:
Product sales	$	7,336,025		$	2,701,959
Contract and other		292,542			239,375
Total revenues		7,628,567			2,941,334
Cost of revenues		3,671,027			1,716,824

Gross profit		3,957,540			1,224,510

Operating expenses:
Selling, general and administrative		2,188,398			1,966,436
Research and development		778,037			587,410
Total operating expenses		2,966,435			2,553,846

Income (loss) from operations		991,105			(1,329,336	)

Other income		34,530			30,128

Income (loss) from operations before income taxes		1,025,635			(1,299,208	)
Income tax expense (benefit)		2,708,888			(486,528	)
Net loss	$	(1,683,253	)	$	(812,680	)

Net loss per common share - basic and diluted	$	(0.05	)	$	(0.03	)
Weighted average common shares outstanding: - basic and diluted		32,236,039			31,800,103

	Three months ended
	December 31,
	2017			2016
Operating Activities:
Net loss	$	(1,683,253	)	$	(812,680	)

Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		60,105			32,506
Warranty provision		12,361			9,696
Inventory obsolescence		40,301			24
Share-based compensation		138,461			464,749
Deferred income taxes		2,708,888			(486,528	)
Changes in operating assets and liabilities:
Accounts receivable		3,662			1,929,765
Inventories		(43,001	)		(327,680	)
Prepaid expenses and other		393,761			80,378
Other assets		46,874			46,871
Accounts payable		790,635			500,042
Accrued and other liabilities		(715,209	)		(8,857	)
Net cash provided by operating activities		1,753,585			1,428,286

Investing Activities:
Purchases of marketable securities		(1,673,295	)		(1,470,704	)
Proceeds from maturities of marketable securities		2,128,016			1,555,314
Capital expenditures		(54,167	)		(13,863	)
Patent costs paid		-			(1,721	)
Net cash provided by investing activities		400,554			69,026

Financing Activities:
Proceeds from exercise of stock options		159,518			-
Net cash provided by financing activities		159,518			-
Net increase in cash		2,313,657			1,497,312
Cash and cash equivalents, beginning of period		12,803,887			13,466,711
Cash and cash equivalents, end of period	$	15,117,544		$	14,964,023

Noncash investing activities:
Change in unrealized loss on marketable securities	$	(8,031	)	$	(6,310	)

~~LRAD Corporation~~
~~Consolidated Statements of Comprehensive Loss~~

Cash paid (net of cash acquired of $644)	$	11,481
Common stock issued		10,938
Shareholder representative reserve payable		150
	$	22,569

Assets acquired
Accounts receivable	$	255
Deferred tax asset		106
Intangible assets		10,100
Goodwill		15,403
Total assets acquired	$	25,864

Liabilities assumed
Accounts payable	$	194
Accrued liabilities		372
Deferred tax liability		2,729
Total liabilities assumed		3,295
Net assets acquired	$	22,569

	Fair Value		Estimated Useful Lives (in years)
Developed Technology	$	8,800		7
Trade Names		400		5
Customer Relationships		900		5
	$	10,100

Cash paid	$	4,367
Asset purchase holdback liability		613
Common stock to be issued		3,431
	$	8,411

Assets acquired
Prepaid expenses	$	2
Fixed assets		22
Operating lease right of use asset		248
Intangible assets		2,820
Goodwill		5,590
Total assets acquired	$	8,682

Liabilities assumed
Accrued liabilities	$	23
Operating lease liability		248
Total liabilities assumed		271
Net assets acquired	$	8,411

	Customer deposits			Deferred revenue			Total contract liabilities
Balance at September 30, 2020	$	3,683		$	1,024		$	4,707
New performance obligations		13,821			1,176			14,997
Recognition of revenue as a result of satisfying performance obligations		(6,411	)		(1,124	)		(7,535	)
Effect of exchange rate on deferred revenue		0			16			16
Balance at June 30, 2021	$	11,093		$	1,092		$	12,185
Less: non-current portion		(1,654	)		(344	)		(1,998	)
Current portion at June 30, 2021	$	9,439		$	748		$	10,187

	Three months ended December 31
	2017			2016
Beginning balance	$	179,101		$	356,984
Warranty provision		12,361			9,696
Warranty settlements		(3,154	)		(12,742	)
Ending balance	$	188,308		$	353,938

	Number			Weighted Average
	of Shares			Exercise Price
Outstanding October 1, 2017		4,663,502		$	2.16
Granted		3,500		$	2.21
Forfeited/expired		(80,833	)	$	2.84
Exercised		(90,852	)	$	1.76
Outstanding December 31, 2017		4,495,317		$	2.15
Exercisable December 31, 2017		3,251,811		$	2.24

	Three months ended December 31,
	2017		2016
Americas	$	6,053,038	$	1,622,357
Asia Pacific		1,021,906		984,600
Europe, Middle East and Africa		553,623		334,377
Total Revenues	$	7,628,567	$	2,941,334

	December 31,			September 30,
	2017			2017
Raw materials	$	4,619,587		$	3,784,935
Finished goods		900,645			1,742,960
Work in process		198,535			147,871
Inventories, gross		5,718,767			5,675,766
Reserve for obsolescence		(458,833	)		(418,532	)
Inventories, net	$	5,259,934		$	5,257,234

	June 30,			September 30,
	2021			2020
Raw materials	$	5,557		$	5,220
Finished goods		797			841
Work in process		791			456
Inventories, gross		7,145			6,517
Reserve for obsolescence		(723	)		(568	)
Inventories, net	$	6,422		$	5,949

	Three Months Ended
	June 30, 2021						June 30, 2020
				% of					% of
				Total					Total			Fav(Unfav)
	Amount			Revenue			Amount		Revenue			Amount			%
Revenues:
Product sales	$	10,719			84.9	%	$	10,933		91.3	%	$	(214	)		(2.0	%)
Contract and other		1,908			15.1	%		1,038		8.7	%		870			83.8	%
Total revenues		12,627			100.0	%		11,971		100.0	%		656			5.5	%

Cost of revenues		5,941			47.0	%		5,500		45.9	%		(441	)		(8.0	%)
Gross Profit		6,686			53.0	%		6,471		54.1	%		215			3.3	%

Operating expenses
Selling, general and administrative		4,776			37.8	%		3,330		27.8	%		(1,446	)		(43.4	%)
Research and development		1,390			11.0	%		1,200		10.0	%		(190	)		(15.8	%)
Total operating expenses		6,166			48.8	%		4,530		37.8	%		(1,636	)		(36.1	%)

Income from operations		520			4.1	%		1,941		16.2	%		(1,421	)		(73.2	%)

Other income (expense)		(2	)		(0.0	%)		36		0.3	%		(38	)		(105.6	%)

Income before income taxes		518			4.1	%		1,977		16.5	%		(1,459	)		(73.8	%)
Income tax expense		228			1.8	%		473		4.0	%		245			51.8	%
Net income	$	290			2.3	%	$	1,504		12.6	%	$	(1,214	)		(80.7	%)

Net revenue
Hardware	$	11,875			94.0	%	$	11,599		96.9	%	$	276			2.4	%
Software		752			6.0	%		372		3.1	%		380			102.2	%
Total net revenue	$	12,627			100.0	%	$	11,971		100.0	%	$	656			5.5	%

	Three months ended
	December 31, 2017						December 31, 2016
				% of Total						% of Total			Fav(Unfav)
	Amount			Revenues			Amount			Revenues			Amount			%
Revenues:
Product sales	$	7,336,025			96.2	%	$	2,701,959			91.9	%	$	4,634,066			171.5	%
Contract and other		292,542			3.8	%		239,375			8.1	%		53,167			22.2	%
Total revenues		7,628,567			100.0	%		2,941,334			100.0	%		4,687,233			159.4	%

Cost of revenues		3,671,027			48.1	%		1,716,824			58.4	%		(1,954,203	)		(113.8	%)
Gross profit		3,957,540			51.9	%		1,224,510			41.6	%		2,733,030			223.2	%

Operating expenses:
Selling, general and administrative		2,188,398			28.7	%		1,966,436			66.9	%		(221,962	)		(11.3	%)
Research and development		778,037			10.2	%		587,410			19.9	%		(190,627	)		(32.5	%)
Total operating expenses		2,966,435			38.9	%		2,553,846			86.8	%		(412,589	)		(16.2	%)

Income (loss) from operations		991,105			13.1	%		(1,329,336	)		(45.2	%)		2,320,441			(174.6	%)

Other income		34,530			0.5	%		30,128			1.0	%		4,402			14.6	%

Income (loss) from continuing operations before income taxes		1,025,635			13.4	%		(1,299,208	)		(44.2	%)		2,324,843			(178.9	%)
Income tax expense (benefit)		2,708,888			35.5	%		(486,528	)		(16.5	%)		(3,195,416	)		na
Net loss	$	(1,683,253	)		(22.1	%)	$	(812,680	)		(27.6	%)	$	(870,573	)		107.1	%


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

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

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

101.INS	Inline XBRL Instance Document* (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)

101.SCH	X~~BRL~~Inline XBRL Taxonomy Extension Schema Document*

101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase ~~Document~~Document

101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase ~~Document~~Document

101.LAB	Inline XBRL Taxonomy Extension Label Linkbase ~~Document~~Document

101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase ~~Document~~Document

104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

	~~LRAD CORPORATION~~GENASYS INC.

Date: ~~February 8, 2018~~ July 28, 2021	By:	/s/ ~~DENNIS~~ Dennis D. ~~KLAHN~~Klahn
		Dennis D. Klahn,, ChiefFinancialOfficer
		(Principal Financial Officer)