Genasys Inc. is a global provider of Protective Communications™ solutions including its Genasys Protect™ software platform and Genasys Long Range Acoustic Devices® (“LRAD®”). The Company's unified platform receives information from a wide variety of sensors and Internet-of-Things (“IoT”) inputs to collect real-time information on developing and active emergency situations. The Company uses this information to create and disseminate alerts, warnings, notifications, and instructions through multiple channels before, during, and after public safety and enterprise threats, critical events, and other crisis situations.

The Company disaggregates revenue by reporting segment (Hardware and Software) and geographically to depict the nature of revenue in a manner consistent with its business operations and to be consistent with other communications and public filings. Refer to Note 18, Segment Information and Note 19, 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 ASC 606 and, at times, recognizes revenue in advance of the time when contracts give the Company the right to invoice a customer. Sales commissions are considered incremental and recoverable costs of obtaining a contract with a customer. Subscription related commission costs are deferred and then amortized on a straight-line basis over the period of benefit. The Company may also receive consideration, per terms of a contract, from customers prior to transferring goods to the customer. The Company records customer deposits as a contract liability. Additionally, the Company may receive payments, most typically for service and warranty contracts, at the onset of the contract and before the services have been performed. In such instances, a deferred revenue liability is recorded. The Company recognizes these contract liabilities as revenue after all revenue recognition criteria are met. The table below reflects the balances of contract liabilities as of December 31, 2023 and September 30, 2023, including the change between the periods. There were no contract assets as of December 31, 2023 and September 30, 2023. The current portion of contract liabilities and the noncurrent portion are included in “Accrued liabilities” and “Other liabilities, noncurrent”, respectively, on the accompanying condensed consolidated balance sheets. Refer to Note 11, Accrued and Other Liabilities for additional details.

Remaining performance obligations related to ASC 606 represent the aggregate transaction price allocated to performance obligations under an original contract with a term greater than one year, which are fully or partially unsatisfied at the end of the period.

As of December 31, 2023, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $4,722. The Company expects to recognize revenue on approximately $4,213 or 89% of the remaining performance obligations over the next 12 months, and the remainder is 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 is 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.

6.8. PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of the following:

	December 31,			September 30,			December 31,			September 30,
	2017			2017			2023			2023
Office furniture and equipment	$	1,097,619		$	1,093,502		$	1,526		$	1,582
Machinery and equipment		1,044,206			994,157			1,480			1,441
Leasehold improvements		76,138			76,138			2,313			2,302
Construction in progress								53			-
Property and equipment, gross		2,217,963			2,163,797			5,372			5,325
Accumulated depreciation		(1,712,494	)		(1,654,194	)		(3,785	)		(3,774	)
Property and equipment, net	$	505,469		$	509,603		$	1,587		$	1,551

Three months ended

December 31,

2017

2016

Depreciation expense
$ 58,301 $ 30,684

Depreciation and amortization expense for property and equipment was $110 and $111 for the three months ended December 31, 2023 and 2022, respectively.

Genasys Inc.

Notes to the Condensed Consolidated Financial Statements

(in thousands, except per share and share amounts)

(Unaudited)

9. GOODWILL AND INTANGIBLE ASSETS

Goodwill is attributable to the acquisitions of Genasys Spain, Zonehaven, Evertel, 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. As of December 31, 2023 and September 30, 2023, goodwill was $13,151 and $10,282 respectively. During the three months ended December 31, 2023, $2,772 was added to goodwill as a result of the Evertel acquisition. There were no additions or impairments to goodwill during the twelve months ended September 30, 2023.

The changes in the carrying amount of goodwill by segment for the three months ended December 31, 2023, were as follows:

Hardware

Software

Total

Balance as of September 30, 2023
$ - $ 10,282 $ 10,282
Acquisitions
- 2,772 2,772
Currency translation
- 97 97
Balance as of December 31, 2023
$ - $ 13,151 $ 13,151
The changes in the carrying amount of intangible assets by segment for the three months ended December 31, 2023, were as follows:

Hardware

Software

Total

Balance as of September 30, 2023
$ 17 $ 8,410 $ 8,427
Acquisitions
- 2,550 2,550
Amortization
(1 ) (618 ) (619 )
Currency translation
- 8 8
Balance as of December 31, 2023
$ 16 $ 10,350 $ 10,366
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 $105.
The Company’s consolidated intangible assets consisted of the following:

December 31,

September 30,

2023

2023

Technology
$ 14,246 $ 11,930
Customer relationships
2,075 1,790
Trade name portfolio
614 605
Non-compete agreements
232 223
Patents
72 72
17,239 14,620
Accumulated amortization
(6,873 ) (6,193 )
$ 10,366 $ 8,427
As of December 31, 2023, future amortization expense is as follows:
Fiscal year ending September 30,

2024 (remaining nine months)
1,861
2025
2,358
2026
2,222
2027
2,048
2028
1,220
Thereafter
657
Total estimated amortization expense
$ 10,366
Amortization expense was $619 and $532 for the three months ended December 31, 2023 and 2022, respectively.
14
Genasys Inc.
Notes to the Condensed Consolidated Financial Statements
(in thousands, except per share and share amounts)
(Unaudited)
10. PREPAID EXPENSES AND OTHER
Prepaid expenses and other current assets consisted of the following:

December 31,

September 30,

2023

2023

Deposits for inventory
$ 48 $ 301
Prepaid insurance
261 264
Dues and subscriptions
363 261
Prepaid professional services
438 136
Prepaid commissions
441 417
Trade shows and travel
93 150
Canadian goods and services and harmonized sales tax receivable
114 123
Other
342 199
$ 2,100 $ 1,851
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 consisted 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.
Prepaid professional services
Prepaid professional services consist of payments made in advance for services such as accounting, consulting and legal services.
Prepaid commissions
Prepaid commissions represented the current portion of sales commissions paid in connection with obtaining a contract with a customer. These costs are deferred and are amortized on a straight-line basis over the period of benefit, which is typically between three and five years. Amortization of prepaid commissions is included in selling, general and administrative expenses in the accompanying condensed consolidated statement of operations.
Trade shows and travel
Trade shows and travel consisted of payments made in advance for trade show events.
Canadian goods and services and harmonized sales tax receivable
The goods and services tax and harmonized sales tax (“GST/HST”) is a Canadian value-added tax that applies to many goods and services. Registrants may claim refundable tax credits for GST/HST incurred through filing periodic tax returns. This GST/HST receivable is a receivable from the Canadian Revenue Agency.
15
Genasys Inc.
Notes to the Condensed Consolidated Financial Statements
(in thousands, except per share and share amounts)
(Unaudited)

11. ACCRUED AND OTHER LIABILITIES

Accrued liabilities consisted of the following:

	December 31,		September 30,
	2017		2017		December 31,		September 30,
					2023		2023
Payroll and related	$	847,042	$	1,870,579	$	2,104	$	2,237
Deferred revenue		446,913		268,580		2,991		2,703
Customer deposits						1,222		766
Accrued contract costs		345,551		197,034		897		825
Warranty reserve		188,308		179,101		110		132
Deferred rent		30,734		46,101
Asset purchase holdback liability						-		736
Acquisition holdback liability						235		-
Acquisition contingent consideration liability						936		-
Other						123		67
Total	$	1,858,548	$	2,561,395	$	8,618	$	7,466

Other liabilities-noncurrent consisted of the following:

December 31,

September 30,

2023

Deferred revenue

509

551

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 of December 31, 2023, included prepayments from customers for services, including extended warranty, scheduled to be performed in ~~advance of product shipment~~.the twelve months ending December 31, 2024.

~~Warranty Reserve~~Customer deposits

~~Changes~~Customer deposits represent amounts paid by customers as a down payment on hardware orders to be delivered in 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

twelve months ending December 31, 2024.

Accrued contract costs

~~The Company has~~ ~~contracted with~~Accrued contract costs consisted of accrued expenses for contracting a ~~third~~~~-party~~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:

	December 31,			September 30,
	2023			2023
Beginning balance	$	132		$	159
Warranty provision		(22	)		40
Warranty settlements		-			(67	)
Ending balance	$	110		$	132

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)

Asset purchase holdback liability

In connection with the Amika Mobile asset purchase, the Company recorded a holdback liability related to potential future adjustments to assets and liabilities, misrepresentations and indemnifications against third-party claims. The holdback liability was paid to the seller of the Amika Mobile assets on October 6, 2023. The liability was recorded at fair value as of September 30, 2023.

Acquisition holdback liability

In connection with the Evertel acquisition, the Company recorded a holdback liability related to potential misrepresentations and indemnifications against third-party claims. The holdback liability will be released twelve months from the closing date, subject to amounts withheld for actual, pending or potential claims. The holdback liability was recorded at the present value which was the fair value at the acquisition date. Accretion is recorded in each subsequent reporting period based on the discount factor used to arrive at the original fait value. This change in fair value is recorded in the accompanying condensed consolidated statement of operations.

Contingent consideration liability

In connection with the Evertel acquisition, the Company recorded a liability related to future performance criteria, The contingent consideration liability was recorded at the fair value at the acquisition date. The liability has and will be adjusted at each reporting period as progress towards the contingent consideration criteria is achieved.

Deferred extended warranty revenue

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

8~~. INCOME TAXES~~12. LEASES

The ~~Tax Cuts~~Company determines if an arrangement is a lease at inception. The guidance in ASC 842 defines a lease as a contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration. Operating lease ROU assets and ~~Jobs Act (the “Act”) was enacted on~~ ~~December 22, 2017.~~ ~~The Act reduces the U.S. federal corporate tax rate from~~ ~~35%~~ to ~~21%~~ ~~effective~~ ~~January 1, 2018.~~ ~~Subsequently, the SEC issued Staff Accounting Bulletin (“SAB”)~~ ~~118,~~ ~~which allows for the recording of provisional amounts related to U.S. tax reform and subsequent adjustments related to U.S. tax reform during a measurement period~~ ~~not~~ ~~to exceed~~ ~~one~~ ~~year from the enactment date. Accordingly, the Company remeasured its net deferred tax assets on a provisional basis~~lease liabilities are recognized based on the ~~rates~~present value of future minimum lease payments over the lease term at ~~which they~~commencement date. The Company’s leases do not provide an implicit rate. The Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. Additionally, the portfolio approach is used in determining the discount rate used to present value lease payments. The ROU asset includes any lease payments made and excludes lease incentives and initial direct costs incurred.

The Company is party to operating leases for office and production facilities and equipment under agreements that expire at various dates through 2028. The Company elected the package of practical expedients permitted under the lease standard. In electing the practical expedient package, the Company is not required to reassess whether an existing or expired contract is or contains a lease, reassess the lease classification for expired or existing leases nor reassess the initial direct costs for leases that commenced before the adoption of ASC 842. The Company also elected the short-term lease exemption such that the lease standard was applied to leases greater than one year in duration. Leases with an initial term of twelve months or less are ~~expected to be realized in~~not recorded on the ~~future, which is generally~~ ~~21%~~ ~~resulting in~~balance sheet. The Company recognizes lease expense for these leases on a ~~decrease to our net deferred tax~~straight-line basis over the lease term.

The tables below show the operating lease ROU assets and liabilities as of ~~$2,474,000~~ ~~for~~September 30, 2023, and the ~~quarter ended~~ balances as of December 31, ~~2017.~~ 2023, including the changes during the periods.

	Operating lease ROU assets
Operating lease ROU assets as of September 30, 2023	$	3,886
Additional operating lease ROU assets		-
Less amortization of operating lease ROU assets		(192	)
Effect of exchange rate on operating lease ROU assets		18
Operating lease ROU assets as of December 31, 2023	$	3,712

Genasys Inc.

Notes to the Condensed Consolidated Financial Statements

(in thousands, except per share and share amounts)

(Unaudited)

	Operating lease liabilities
Operating lease liabilities as of September 30, 2022	$	5,291
Additional operating lease liabilities		-
Less lease principal payments on operating lease liabilities		(248	)
Effect of exchange rate on operating lease liabilities		18
Operating lease liabilities as of December 31, 2023		5,061
Less non-current portion		(4,030	)
Current portion as of December 31, 2023	$	1,031

As of December 31, 2023, the Company’s operating leases have a weighted-average remaining lease term of 4.5 years and a weighted-average discount rate of 4.15%. 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,
2024 (remaining nine months)	$	909
2025		1,186
2026		1,200
2027		1,221
2028		1,047
Thereafter		-
Total undiscounted operating lease payments		5,563
Less imputed interest		(502	)
Present value of operating lease liabilities	$	5,061

For the three months ended December 31, ~~2017,~~ ~~the~~2023 and 2022, total lease expense under operating leases was approximately $245 and $264, respectively. The Company recorded ~~income tax~~$5 in short-term lease expense of ~~$234,888~~ ~~reflecting an~~during the three months ended December 31, 2023 and did not have any short-term lease expense during the three months ended December 31, 2022.

13. INCOME TAXES

The Company’s effective tax rate for the three months ended December 31, 2023 and 2022 was negative 6.0% and 0%, respectively.

The income tax benefit of ~~22.9%~~ ~~and an additional discrete tax expense of~~ ~~$2,474,000~~ ~~due~~$429 for the three months ended December 31, 2023 is primarily attributable to the ~~remeasurement~~partial release of $517 of U.S. valuation allowance in conjunction with the acquisition of Evertel as the acquired net deferred tax liabilities will provide a source of income for the Company to realize a portion of its deferred tax assets, asfor which a ~~result of tax reform.~~valuation allowance is no longer needed, refer to Note 4, Business Combinations, for additional information. For the three months ended December 31, ~~2016,~~ 2022, the Company ~~recorded~~did not record an income tax benefit of ~~$486,528~~ ~~reflecting an effective~~for the current period tax ~~rate of~~ ~~37.4%.~~ ~~For~~loss as the ~~three~~ ~~months ended~~ ~~December 31, 2017,~~ ~~when compared~~benefits were not expected to be realized during 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.~~ current or future periods.

The Company continues to maintain a ~~partial~~full valuation allowance against its U.S. and foreign 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.~~assets.

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

9.14. 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~~’sthe Company’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.

Genasys Inc.

Notes to the Condensed Consolidated Financial Statements

(in thousands, except per share and share amounts)

(Unaudited)

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 three months ended December 31, 2023, the recorded $40 in ~~such calculation is~~bonus expense. In the ~~cost~~three months ended December 31, 2022, the Company recorded $548 of bonus expense.

Amika Mobile asset purchase

In connection with the Amika Mobile asset purchase, the Company recorded a holdback liability related to potential future adjustments to assets and liabilities, misrepresentations and indemnifications against third-party claims. The holdback liability was paid to the seller of the ~~incentive plan.~~Amika Mobile assets on October 6, 2023. The liability was recorded at fair value as of September 30, 2023.

The Company also agreed to issue 191,267 shares of the Company’s common stock to the seller of the Amika Mobile assets on each of the first, second and third anniversaries of the closing date. The total number of shares of common stock the Company is obligated to issue is 573,801. The fair value of the Company’s common stock on the closing date was $5.98, resulting in the addition of $3,431 to additional paid-in-capital. During the ~~three~~ ~~months~~year ended September 30, 2021, the Company accelerated the issuance of 365,109 of such shares of common stock to the seller of the Amika Mobile assets. During the year ended September 30, 2023, the Company issued 69,564 shares of common stock to the seller of the Amika Mobile assets. There were 69,564 remaining shares of the Company’s common stock subject to issuance under this obligation as of September 30, 2023. These shares were issued on October 2, 2023.

Evertel Acquisition

In connection with the Evertel acquisition, the Company recorded a liability related to future performance criteria, A payment of up to $1,050 is payable based on future performance. The contingent consideration liability was recorded at the fair value at the acquisition date. The Company engaged independent valuation experts to assist in determining the fair value of this contingent consideration. During each reporting period through March 31, 2023, the Company will adjust the contingent consideration liability as performance criteria are achieved. The fair value was $926, as of December 31, ~~2017~~ ~~and~~ ~~2016,~~ ~~the Company accrued~~ ~~$405,267~~ ~~and~~ ~~$185,086,~~ ~~respectively, for bonuses and related payroll tax expenses~~2023.

Also, in connection with the ~~bonus plans.~~Evertel acquisition, the Company recorded a holdback liability related to potential misrepresentations and indemnifications against third-party claims. The holdback liability will be released twelve months from the closing date, subject to amounts withheld for actual, pending or potential claims. The holdback liability was recorded at the present value which was the fair value at the acquisition date. Accretion is recorded in each subsequent reporting period based on the discount factor used to arrive at the original fait value. This change in fair value is recorded in the accompanying condensed consolidated statement of operations. The fair value was $235, as of December 31, 2023.

The Company also agreed to issue 270,270 shares of the Company’s common stock to the seller of Evertel twelve months from the closing date. The fair value of the Company’s common stock on the closing date was $1.95, resulting in the addition of $527 to additional paid-in-capital.

10.15. SHARE-BASED COMPENSATION

Stock ~~Option Plans~~option plans

At ~~December 31, 2017,~~ ~~the Company had~~ ~~two~~ ~~equity incentive plans.~~ The ~~2005~~Amended and Restated 2015 Equity Incentive Plan (~~“2005~~(“2015 Equity Plan”) was ~~terminated with respect to new grants in~~ ~~March 2015,~~ ~~but remains in effect for grants issued prior to that time. The~~ ~~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 was amended by the Company’s Board of Directors on December 8, 2020, to increase the number of shares authorized for issuance from 5,000,000 to 10,000,000. On March 16, 2021, the Company’s stockholders approved the plan amendment. The 2015 Equity Plan authorizes ~~for~~the issuance asof stock options, restricted stock, stock appreciation rights, restricted stock units (“RSUs”) and performance awards, to an aggregate of ~~5,000,000~~10,000,000 new shares of common stock to employees, directors, advisors or consultants. At As of December 31, ~~2017,~~ 2023, there were options and restricted stock units outstanding covering ~~2,216,002~~ ~~and~~ ~~2,279,315~~4,146,369 shares of common stock under the ~~2005~~2015 Equity Plan, respectively, and ~~2015~~ ~~Equity Plan, respectively.~~2,302,827 shares of common stock available for grant, for a total of 6,449,196 shares of common stock authorized and unissued under the equity plans.

~~Stock Option Activity~~Share-based compensation

The ~~following table summarizes information about 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~~Company’s employee stock options ~~in accordance with a Separation Agreement~~have various restrictions that reduce option value, including vesting provisions and ~~General Release related~~restrictions on transfer and hedging, among others, and are often exercised prior to ~~the~~ ~~June 30, 2016~~ ~~departure of the Company’s prior chief executive officer (“CEO”). As per the agreement, all unvested options became fully vested on~~ ~~December 31, 2016~~ ~~and shall remain exercisable for a period of~~ 24 ~~months following the~~ ~~December 31, 2016~~ separation date as defined in the agreement. The expense is measured as the excess of the fair value of the modified awards over the fair value of the original awards immediately before its terms are modified as per ASC ~~718~~-20-~~35.~~

~~Performance-Based Stock Options~~

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

~~The Company has made the assumption that the lowest performance target level for each of the years will be met, and therefore~~ ~~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 the~~ ~~2017~~ ~~Annual Meeting of Stockholders. These RSUs were granted as replacements for~~ ~~20,000~~ ~~stock options that would have been granted on the date of the~~ ~~2016~~ ~~Annual Meeting of Stockholders and 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.~~maturity.

Genasys Inc.

Notes to the Condensed Consolidated Financial Statements

(in thousands, except per share and share amounts)

(Unaudited)

On ~~March 14, 2017,~~ There were 887,250 stock options granted during 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.~~

~~Share-Based Compensation~~

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

Three months ended

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 stock options granted in the~~ three months ended December 31, ~~2017~~ ~~and~~ ~~2016~~ ~~had a weighted-average~~2023. There were 1,204,000 stock options granted during the three months ended December 31, 2022. The weighted average estimated fair value of ~~$0.89~~ ~~per share~~employee stock options granted during the three months ended December 31, 2023 and ~~$0.71~~ ~~per share, respectively,~~2022, was calculated using the Black-Scholes ~~option pricing~~option-pricing model with the following ~~weighted-average~~weighted average assumptions (annualized percentages):

	Three months ended					Three months ended
	December 31,					December 31,
	2017		2016			2023			2022
Volatility		45.4%	52.4%	-	53.7%		57.8	%		52.1	%
Risk-free interest rate		2.2%	1.7%	-	2.0%		4.3	%		4.1	%
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 in years							4.2			6.1

~~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 2024 and did not pay a dividend in fiscal 2023.

~~Since the Company has a~~ ~~net operating loss carryforward as~~As of December 31, ~~2017,~~ no ~~excess tax benefit for the tax deductions related to share-based awards was recognized for the~~ ~~three~~ ~~months ended~~ ~~December 31, 2017~~ ~~and~~ ~~2016.~~ ~~As of~~ ~~December 31, 2017,~~ 2023, there was approximately ~~$600,000~~$2,154 of total unrecognized compensation ~~cost~~costs related to ~~non-vested share-based~~outstanding employee ~~compensation arrangements. The cost~~stock options. This amount is expected to be recognized over a ~~weighted-average~~weighted average period of ~~2.1~~2.4 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 10, 2022, the Company granted PVOs to purchase up to 750,000 shares of the Company’s common stock to a key member of management, with a contractual term of seven years. During the year ended September 30, 2023, these options were forfeited due to a voluntary termination of employment. The Company did not record compensation expense related to these options.

On October 8, 2022, the Company awarded performance-based stock options 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 2025 and 2026 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 has not record compensation expense related to these options.

On March 20, 2023, the Company granted PVOs to purchase up to 450,000 shares of the Company’s stock to a key member of management with a contractual term of seven years. Vesting is based upon the achievement of certain performance criteria for each of the first three twelve-month periods following the employee’s start date, including targets related to growth in the institutional ownership of the Company’s common stock and growth in the trading volume of the Company’s common stock during such periods. Additionally, vesting is subject to the employee being employed by the Company on each of the first three anniversaries of the employee’s start date. 225,000 of these options contain a market-based vesting condition and accounting principles do not require the market condition to be achieved in order for compensation expense to be recognized. The Company recorded $62 of compensation expense related to these options during the three months ended December 31, 2023.

The Company did not grant any PVO’s during the three months ended December 31, 2023.

Restricted stock units

During fiscal 2021, 145,950 RSUs were granted to employees that will vest over three years on the anniversary date of the grant. These were issued at a market value of $989, which have and will be expensed on a straight-line basis over the three-year life of the grants.

On November 1, 2021, 10,000 RSUs were granted to a non-employee advisor that vested on the first anniversary of the grant date. These were issued at a market value of $51, which were expensed on a straight-line basis though the November 1, 2022 vest date. On November 1, 2022, 10,000 RSUs were granted to a non-employee advisor that vested on the first anniversary of the grant date. These were issued at a market value of $29, which were expensed on a straight-line basis though the November 1, 2023 vest date. On November 1, 2023, 10,000 RSUs were granted to a non-employee advisor that will vest on the first anniversary of the grant date. These were issued at a market value of $17, which have and will be expensed on a straight-line basis though the November 1, 2024, vest date.

Genasys Inc.

Notes to the Condensed Consolidated Financial Statements

(in thousands, except per share and share amounts)

(Unaudited)

On March 14, 2023, each non-employee member of the Board of Directors received a grant of 30,000 RSUs that will vest on the first anniversary of the grant date. These RSUs were granted at a market value of $417 and have and will be expensed on a straight-line basis through the March 14, 2024, vest date. On February 14, 2023, 145,600 RSUs were granted to employees that will vest over three years on the anniversary date of the grant. These RSUs were issued at a market value of $582, which have and will be expensed on a straight-line basis over the three-year life of the grants.

Compensation expense for RSUs was $228 and $198 for the three months ended December 31, 2023 and 2022, respectively. As of December 31, 2023, there was approximately $666 of total unrecognized compensation costs related to outstanding RSUs. This amount is expected to be recognized over a weighted average period of 1.1 years.

A summary of the Company’s RSUs as of December 31, 2023 is presented below:

	Number of Shares			Weighted Average Grant Date Fair Value
Outstanding September 30, 2023		379,597		$	3.94
Granted		10,000		$	1.73
Released		(10,000	)	$	2.87
Forfeited/cancelled		-		$	-
Outstanding December 31, 2023		379,597		$	3.91

Stock option summary information

A summary of the activity in options to purchase the capital stock of the Company as of December 31, 2023 is presented below:

	Number of Shares			Weighted Average Exercise Price
Outstanding September 30, 2023		2,904,522		$	3.19
Granted		887,250		$	1.70
Forfeited/expired		(25,000	)	$	1.70
Exercised		-		$	-
Outstanding December 31, 2023		3,766,772		$	2.85
Exerciseable December 31, 2023		992,981		$	3.48

Options outstanding are exercisable at prices ranging from $1.51 to $8.03 per share and expire over the period from 2024 to 2030 with an average life of 5.5 years. The aggregate intrinsic value of options outstanding and exercisable as of December 31, 2023 was $322 and $29, respectively. The aggregate intrinsic value represents the difference between the Company’s closing stock price on the last day of trading for the quarter, which was $2.03 per share, and the exercise price multiplied by the number of applicable options. The total intrinsic value of stock options exercised during the three months ended December 31, 2023 was $0 and proceeds from these exercises was $0. The total intrinsic value of stock options exercised during the three months ended December 31, 2022 was $23 and proceeds from these exercises was $32.

The following table summarized information about stock options outstanding as of December 31, 2023:

					Weighted Average		Weighted Average				Weighted Average
Range of			Number		Remaining		Exercise		Number		Exercise
Exercise Prices			Outstanding		Contractual Term		Price		Exercisable		Price
$1.51	-	$1.76		991,407		6.29	$	1.71		104,157	$	1.75
$2.64	-	$2.68		88,000		6.60	$	2.67		-	$	-
$2.69	-	$2.69		1,100,000		5.77	$	2.69		125,000	$	2.69
$3.09	-	$8.03		1,587,365		4.75	$	3.69		763,824	$	3.84
				3,766,772		5.49	$	2.85		992,981	$	3.48

Genasys Inc.

Notes to the Condensed Consolidated Financial Statements

(in thousands, except per share and share amounts)

(Unaudited)

The Company recorded $218 and $222 of stock option compensation expense for employees, directors and consultants for the three months ended December 31, 2023, and 2022, respectively.

Share-based compensation

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

	Three Months Ended
	December 31,
	2023		2022
Cost of revenues	$	39	$	28
Selling, general and administrative		380		373
Research and development		27		19
	$	446	$	420

116. STOCKHOLDERS’1~~. STOCKHOLDERS’~~ EQUITY

Summary

The following table summarizes changes in the components of ~~stockholders~~’stockholders’ equity during the three months ended December 31, ~~2017:~~2023 and the three months ended December 31, 2022 (amounts in thousands, except par value and share amounts):

	Common Stock				Additional					Accumulated Other			Total
			Par Value		Paid-in		Accumulated			Comprehensive			Stockholders'
	Shares		Amount		Capital		Deficit			Loss			Equity
Balance as of September 30, 2023		37,211,071	$	372	$	110,379	$	(76,062	)	$	(505	)	$	33,812
Share-based compensation expense		-		-		446		-			-			446
Issuance of common stock upon offering, net of issuance costs		5,750,000		57		10,449		-			-			10,449
Issuance of common stock upon vesting of restricted stock units		10,000		-		-		-			-			-
Issuance of common stock in business combination		986,486		10		1,924		-			-			1,924
Obligation to issue common stock		-		-		527		-			-			527
Release of obligation to issue common stock		69,564		1		-		-			-			-
Accumulated other comprehensive loss		-		-		-		-			119			119
Net loss		-		-		-		(6,724	)		-			(6,724	)
Balance as of December 31, 2023		44,027,121	$	440	$	123,725	$	(82,786	)	$	(386	)	$	40,553

										Accumulated
	Common Stock				Additional					Other			Total
			Par Value		Paid-in		Accumulated			Comprehensive			Stockholders'
	Shares		Amount		Capital		Deficit			Loss			Equity
Balance as of September 30, 2022		36,611,240		366		108,551		(57,366	)		(792	)		50,393
Share-based compensation expense		-		-		420		-			-			420
Issuance of common stock upon exercise of stock options, net		20,000		-		32		-			-			32
Issuance of common stock upon vesting of restricted stock units		12,667		-		-		-			-			-
Release of obligation to issue common stock		69,564		1		-		-						-
Accumulated other comprehensive loss		-		-		-		-			266			266
Net loss		-		-		-		(3,507	)					(3,507	)
Balance as of December 31, 2022		36,713,471		367		109,003		(60,873	)		(526	)		47,604

Common stock activity

During the three months ended December 31, 2023, there were no exercises of stock options and the Company issued 10,000 shares of common stock in connection with the vesting of RSUs. During the three months ended December 31, 2022, the Company issued 20,000 shares of common stock and received gross proceeds of $32 in connection with the exercise of stock options and the Company issued 12,667 shares of common stock in connection with the vesting of RSUs.

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

Genasys Inc.

Notes to the Condensed Consolidated Financial Statements

(in thousands, except per share and share amounts)

(Unaudited)

On October 4, 2023, the Company completed an underwritten offering of 5,750,000 shares of its common stock at a public offering price of $2.00 per share of common stock. The Company received gross proceeds of approximately $11,500 from the offering, before underwriting discounts and commissions and offering expenses of $1,051. The Company intends to use the net proceeds from this offering for general corporate purposes, including funding organic growth, working capital, capital expenditures, and continued research and development with respect to products and technologies, as well as costs related to post-closing integration with the Evertel business and research and development activities related to the integrated business.

In connection with the Evertel acquisition, the Company issued 986,486 shares of common stock to the former owners of Evertel. The fair value of the Company’s stock on the closing date was $1.95 which resulted in the addition of $1,924 to additional-paid-in-capital.

Also, in connection with the Evertel acquisition, the Company agreed to issue 270,270 shares of the Company’s common stock to the seller of Evertel twelve months from the closing date. The fair value of the Company’s common stock on the closing date was $1.95, resulting in the addition of $527 to additional paid-in-capital.

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 owners of Amika Mobile on each of the first, second and third anniversaries of the closing date. The total number of shares of common stock the Company was obligated to issue was 573,801. The fair value of the Company’s common stock on the closing date was $5.98, resulting in the addition of $3,431 to additional paid-in-capital. During the year ended September 30, 2021, the Company accelerated the issuance of 365,109 of such shares of common stock to a former owner of the Amika Mobile assets. The Company issued 69,564 shares to the former owners of the Amika Mobile assets during each the years ended September 30, 2023 and 2022. During the three months ended December 31, 2023, the Company issued the final 69,564 shares to the former owners of the Amika Mobile assets.

Share ~~Buyback Program~~buyback program

~~The~~In December 2022, the Board of Directors ~~approved a~~extended the Company’s share buyback program in ~~2013~~ ~~under which~~through December 31, 2024. Under the program, the Company was authorized to repurchase up to $4 ~~million~~$5,000 of its outstanding common shares.

There were no shares repurchased d~~uring~~during the ~~quarters~~three months ended December 31, ~~2017~~ 2023 and ~~2016~~ ~~respectively. At~~ ~~December 31, 2017,~~ ~~all~~2022. All repurchased shares ~~were~~have been retired. In ~~December 2017,~~ ~~the Board of Directors extended the program through~~ ~~December 31, 2018.~~

Dividends

There were no dividends declared in the three months ended December 31, ~~2017~~ 2023 and ~~2016.~~2022.

Genasys Inc.

Notes to the Condensed Consolidated Financial Statements

(in thousands, except per share and share amounts)

(Unaudited)

12.17. NET LOSS PER SHARE

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

	Three months ended
	December 31,
	2023			2022
Net loss	$	(6,724	)	$	(3,507	)

Basic and diluted loss per share	$	(0.15	)	$	(0.10	)

Weighted average shares outstanding - basic		43,729,240			36,696,145
Assumed exercise of dilutive options		-			-
Weighted average shares outstanding - diluted		43,729,240			36,696,145

Potentially dilutive securities outstanding at period end excluded from diluted computation as the inclusion would have been antidilutive:
Options		3,766,772			4,814,537
RSU		379,597			340,174
Obligation to issue common stock		-			69,564
Total		4,146,369			5,224,275

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

18. SEGMENT INFORMATION

The Company is engaged in the design, development and commercialization of directed and multidirectional sound technologies, voice broadcast products, and location-based mass messaging software for emergency warning and evacuation management. The Company operates in two 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.

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
	December 31,
	2023			2022
Revenue from external customers
Hardware	$	2,946		$	9,584
Software		1,415			903
	$	4,361		$	10,487

Intersegment revenues
Hardware	$	-		$	-
Software		1,488			1,222
	$	1,488		$	1,222

Segment operating loss
Hardware	$	(3,115	)	$	(28	)
Software		(4,115	)		(3,459	)
	$	(7,230	)	$	(3,487	)

Other expenses:
Depreciation and amortization expense
Hardware	$	96		$	99
Software		633			544
	$	729		$	643

Income tax benefit
Hardware	$	-		$	-
Software		(429	)		-
	$	(429	)	$	-

	December 31,		September 30,
	2023		2023
Long-lived assets
Hardware	$	1,467	$	1,427
Software		10,486		8,551
	$	11,953	$	9,978

Total assets
Hardware	$	31,341	$	28,878
Software		25,297		21,027
	$	56,638	$	49,905

13.19. MAJOR CUSTOMERS, SUPPLIERS AND RELATED INFORMATION

For the three months ended December 31, ~~2017,~~ 2023, revenues from two customers accounted for ~~31%~~14% and ~~26%~~13% of total revenues ~~respectively,~~ with no other single customer accounting for more than 10% of revenues. At As of December 31, ~~2017,~~ 2023, accounts receivable from ~~one~~ ~~customer~~three customers accounted for ~~42%~~35%, 11% and 10% 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,~~ 2022, revenues from one customer accounted for ~~11%~~60% of total revenues with no other single customer accounting for more than 10% of revenues. At As of December 31, ~~2016,~~ 2022, accounts receivable from two customers accounted for ~~40%~~41% and ~~19%~~18% 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 $3,624 and $8,938 for the three months ended December 31, 2023 and 2022, respectively. The following table summarizes revenues by geographic region. Revenues are attributed to countries based on ~~customer~~’scustomer’s delivery location. The following table summarizes revenues by geographic region.

	Three months ended December 31,				Three months ended December 31,
	2017		2016		2023		2022
Americas	$	6,053,038	$	1,622,357	$	3,667	$	9,163
Asia Pacific		1,021,906		984,600		319		759
Europe, Middle East and Africa		553,623		334,377		375		565
Total Revenues	$	7,628,567	$	2,941,334	$	4,361	$	10,487

The following table summarizes long-lived assets by geographic region.

	December 31,		September 30,
	2023		2023
United States	$	11,637	$	9,624
Americas (excluding the United States)		6		7
Europe, Middle East and Africa		310		347
Total long lived assets	$	11,953	$	9,978

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.

~~Item~~ 2.Operations

~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

The discussion and analysis set forth below should be read in conjunction with the 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.~~2023.

Forward Looking Statements

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.

For purposes of this Quarterly Report, the terms “we,”“us,”“our”“Genasys” and the “Company” refer to Genasys Inc. and its consolidated subsidiaries.

Overview

We are a global provider of Protective Communications solutions, including our Genasys Protect software platform and Genasys Long Range Acoustic Devices.  Our ~~Company is~~unified software platform receives information from a ~~leading~~ ~~innovator~~wide variety of sensors and ~~manufacturer~~IoT inputs to collect real-time information on developing and active emergency situations. Genasys uses this information to create and disseminate alerts, warnings, notifications, and instructions through multiple channels before, during, and after public safety and enterprise threats, critical events, and other crisis situations.

Genasys Protect provides a comprehensive portfolio of ~~acoustic communication~~Protective Communications software and hardware systems ~~that control sound from 30° - 360° over short~~serving federal governments and ~~long distances. By broadcasting~~agencies; state and local governmental agencies, and education (“SLED”); and enterprise organizations in sectors including but not limited to oil and gas, utilities, manufacturing, automotive, and healthcare.  Genasys Protect solutions have a diverse range of applications, including emergency warning and mass notification for public safety; critical event management for enterprise companies; de-escalation for defense and law enforcement; critical infrastructure protection; and automated detection of real-time threats such as active shooters and severe weather.

Genasys’ LRAD systems broadcast audible directed voice messages ~~and tones~~ with exceptional clarity from close range out to 5,500 meters. We have a history of successfully delivering innovative systems and solutions in mission critical situations, pioneering the acoustic hailing device (“AHD”) market with the introduction of our first LRAD AHD in 2002 and creating the first multidirectional voice-based public safety mass notification systems in 2012. Building on our proven, best in class solutions and systems, we recently launched the first 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:~~unified, end-to-end Protective Communications platform – Genasys Protect.

• ~~Acoustic Hailing Devices~~The platform includes:

Software Products

Genasys Protect

The Complete Protective Communications Platform

Genasys Protect combines the most comprehensive suite of solutions enabling preparedness, responsiveness, and analytics to keep people, assets, and operations protected against the impacts of natural disasters, terrorism, violent civil unrest, and other dangerous situations, as well as power failures, facility shutdowns, and other non-emergency operational disruptions.

Proven Technology: Genasys solutions have been on the front lines for more than 40 years, providing precision-targeted communications designed to ensure the right people get the right message - right away.

Modular Suite: Built on open standards, Genasys software and hardware systems are designed to easily integrate, whether using the full Genasys suite or complementing the notification platforms customers already have in place.

Predictive Simulation: Genasys Protect is designed to enable customers to test response plans preemptively with advanced simulation of evacuation-level events, including fires and floods, and their impact on infrastructure, including traffic patterns and perimeter establishment.

Unified Viewpoint: One common safety operating picture provides real-time visibility into our customers’ people, assets, and environment by combining first-party data from asset / people-management platforms and IoT sensors with vetted third-party data sources, including the Federal Emergency Management Agency (“FEMA”), National Oceanic and Atmospheric Administration, Department of Homeland Security, and more.

Unmatched Precision: Customized zone mapping enables targeting of mass notifications at the street level, making it easier to sequence response areas from most to least critical.

Multi-channel: Genasys Protect is designed to allow customers to saturate their notification area by simultaneously alerting people across SMS, voice calls, social media, TV, radio, digital signage, and outdoor acoustic devices.

Network Effect: Implementation in neighboring municipalities as well as across public- and private-sector organizations within the same municipality extends coverage and enables greater precision when notifying people of threats.

Genasys Protect ALERT

ALERT is an interactive, cloud-based SaaS solution that enables SLED and enterprise customers to send critical information to at-risk individuals or groups when an emergency occurs. ALERT acts as both a communications input and output, receiving information from state-of-the-art sensors and emergency services, and quickly relaying notifications, alerts, and instructions to at-risk populations and first responders. ALERT communications with the public can be enhanced via Genasys Protect ACOUSTICS, while ALERT communications among first responders and emergency personnel can be augmented and accelerated with Genasys Protect CONNECT (formerly Evertel). ALERT customers can create and send critical, verified, and secure notifications and messages that are geographically specific and targeted using emails, voice calls, text messages, panic buttons, desktop alerts, TV, social media, and more. Additionally, Genasys is a certified provider of Integrated Public Alert and Warning Systems (“~~AHD’s”~~IPAWS”) notifications. IPAWS is the federal public notification platform for the United States, which ALERT customers can use to deliver critical communications in multiple languages to specific populations.

Similarly, enterprise customers are able to send critical communications to at-risk employees, contractors, visitors, or groups based on geographic location or team status. Operated and controlled via a single dashboard that includes two-way polling, duress buttons, field check-ins and recipient locations, ALERT integrates with various data sources, including sensors, emergency services, active directories, human resources, visitor management, and building control systems to find and deliver safety alerts and notifications to residents, employees, staff, contractors, temporary workers, and visitors.

ALERT sends targeted messages based on geographic location, permitting relevant information and instructions to be sent to the appropriate populations. Emergency managers can prepare for natural or man-made disasters by developing evacuation plans that map routes, shelters, traffic control locations, and road closures using ALERT’s extensive public safety resources and mapped zones. This information is easily shared with the public and reduces the time it takes to execute emergency evacuations and conduct orderly repopulations. Auto-Discovery, an innovative feature of the platform, locates and connects with anyone on a wired or wireless network in a fixed area with no opt-in required. When discovered, ALERT anonymizes all recipient information and data. When an emergency occurs, these tools allow at-risk groups or individuals to be notified as quickly as possible without sacrificing their privacy.

In addition to disseminating alerts and notifications, ALERT uses two-way communication tools, including polls and check-ins to receive feedback from targeted populations and first responders. With direct feedback, operators can survey the safety and status of at-risk individuals, learn of developments, update notifications and/or instructions in response to new information, and more.

Genasys Protect EVAC

EVAC enables responding agencies to react swiftly, make collaborative decisions, and communicate event status in real-time to other agencies, businesses, and the public. EVAC determines and communicates the proper scope of a response or evacuation by replacing guesswork with data-driven intelligence. EVAC enhances safety levels for first responders, communities, and large campuses by providing:

●

intelligent zones to improve evacuation planning and communication. EVAC users can build, edit, and act upon geographical location data, including shelters, facilities, and traffic;

●

modeling behaviors to plan for effective responses and/or evacuation scenarios covering emergencies that include wildfires, floods, active shooters, hurricanes, and more;

●

actionable communication through the Genasys Protect mobile app to keep people informed before, during, and after a critical event;

●

a common operating picture across agencies to reduce response times by 90%; and

●

targeted alerting across multiple channels, including intelligible, outdoor speakers for timely, efficient evacuation and public safety notifications.

Genasys Protect CONNECT

CONNECT is a leading cross-agency collaboration platform that streamlines and secures team and one-on-one communications for first responders and public safety agencies. With real-time intelligence sharing that exceeds regulatory privacy requirements for public agencies, CONNECT’s instant communication platform empowers first responders and public safety personnel to collaborate and share information in a single space with text, videos, images, and audio from any location. CONNECT provides a secure space where professionals can exchange information, make decisions, and collaborate with trust in data security. Record retention policies drive compliance that allows agencies and personnel to communicate in confidence.

Enabling public safety professionals to collaborate with other agencies throughout their region, state and country, CONNECT provides real-time interoperability to address critical events and crisis situations more quickly through coordinated efforts. Compliant with all federal and state-level legal requirements for public safety communications, CONNECT data is protected and secured through high-level data encryption within a secure, U.S. based, government-only cloud environment.

Hardware

Genasys Protect ACOUSTICS

ACOUSTICS unites Genasys’ next generation of mass notification speaker systems with Genasys Protect command-and-control software. Most legacy mass notification systems are sirens with limited, if any, voice broadcast capability. ACOUSTICS systems feature the mass notification industry's highest Speech Transmission Index (“STI”), ~~which~~large directional and omni-directional broadcast coverage areas, and an array of options including solar power, battery backup, and satellite connectivity that enable the systems to continue operating when power and telecommunications infrastructure goes down.

ACOUSTICS gives operators the ability to send critical alerts and notifications from emergency operations centers, and authorized computers or smart phones. Emergency alerts and information can be sent via individual, grouped, or networked ACOUSTICS installations, text messages, emails, IPAWS, desktop alerts, TV, voice calls, and social media. Genasys Protect’s layered redundancy helps to ensure the maximum number of people receive Protective Communications and critical notifications.

Genasys LRAD

LRAD is the world’s leading AHD, with the ability to project audible ~~broadcasts~~alert tones and voice messages with exceptional ~~intelligibility~~vocal clarity in a 30° beam from close range ~~out~~ to 5,500 ~~meters, and;~~

• ~~ONE VOICE~~^®Mass Notification Systems(“MNS”), which project 60° - 360° audible broadcasts with industry-leading vocal intelligibility from close range to over 14 square kilometers from a single installation.

~~LRAD~~ ~~systems~~meters. LRADs are a technological breakthrough in broadcasting audible, highly intelligible voice messages and tones over long distances and high ambient noise using minimal power. Our AHD's meet stringent military requirements and are packaged in several form factors, from portable, hand held units to permanently installed, remotely operated systems. Throughused throughout the ~~use of powerful voice commands, prerecorded messages~~world in multiple ~~languages,~~applications and ~~warning tones, our AHD's are designed~~circumstances to ~~create~~safely hail, warn, inform, direct, prevent misunderstandings, determine intent, establish large safety zones, ~~while determining the intent~~resolve uncertain situations, and ~~influencing the behavior of~~save lives. LRADs have been deployed in numerous defense, law enforcement, public safety, maritime, oil & gas and critical infrastructure security ~~threats. We continue to expand our AHD product line to provide a complete range of systems~~installations and applications where clear and intelligible voice communications are essential.

Several LRAD models are available in varying audio outputs, communication coverage areas, sizes, and functionalities. Several options and accessories ~~including our recently patented~~(cameras, searchlights, mounts, and more) are also available to enhance LRAD capabilities.

All LRAD systems are defined by unparalleled audio output and clarity. LRADs use Genasys' proprietary XL driver technology, which generates higher audio output in a smaller, ~~and~~ lighter form ~~factor. We~~factors. The technology also helps ensure voice messages and alert tones cut through background noise and are clearly heard and understood. These competitive advantages, and constant innovation, have ~~incorporated, and plan to continue incorporating, this proprietary technology into our~~made LRAD the de facto standard of the global AHD ~~and ONE VOICE products.~~industry.

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

Our products are designed to meet a broad range of diverse applications including emergency warning and mass notification, fixed and mobile military deployments, maritime, critical infrastructure, perimeter, commercial, border, and homeland security, law enforcement, emergency responder and fire rescue communications, asset protection, 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. Recent Developments

Business developments~~in the fiscal quarter ended December 31, 2017:~~ since September 30, 2023:

•

Awarded critical infrastructure project to engineer, procure and build a Genasys Protect early warning system for 37 dams in Puerto Rico. The project is backed by $194.3 million in FEMA funding.

•

Expanded Genasys Protect EVAC coverage to include all of Los Angeles County, CA under a five year contract

•

●Completed acquisition of Evertel Technologies, subsequently rebranded as Genasys Protect CONNECT

•

Selected by the State of Utah's Department of Corrections to provide secure communications

•

Closed $10.4 million offering of common stock

•

Received ~~$870,000 in AHD orders for~~$1.0 million contract from the U.S. Army ~~and U.S. Marine Corps~~.for Common Remotely Operated Weapon Stations (“CROWS”) LRAD integration prototypes

•

Awarded $2.0 million contract under a multi-phase program to deploy LRADs on naval ships and shore installations of a Middle Eastern country

●•

Announced ~~$1.1 million follow-on AHD order~~new critical infrastructure protection orders from ~~Southeast Asia for border and maritime security~~.three companies in the U.S. Energy sector

•

●Partnered with Ladris Technologies, Inc., an artificial intelligence provider, to deliver comprehensive disaster evacuation modeling solutions across North America and Europe

~~Received $1.5 million follow-on LRAD 360XT order from one of the largest oil & gas companies in Eurasia~~. ~~The mobile mass notification systems are being equipped with our solar power option and integrated with a gas detection alarm system.~~

●

~~Announced $1.0 million LRAD 500X-RE systems and accessories order for domestic and international U.S. Air Force bases~~.

Revenues infor the Company’s first quarter of fiscal ~~quarter ended December 31, 2017,~~2024, were ~~$7.6 million, an increase~~$4,361, a decrease from ~~$2.9 million~~$10,487 in the first ~~fiscal~~ quarter of ~~2017. The increase~~fiscal 2023. Software revenue of $1,415 increased $512, offset by a decrease of $6,638 in ~~revenues was driven by increases~~hardware revenue ($2,946). First quarter hardware revenue in ~~both AHD and mass notification revenues. AHD revenues increased $2,559,000, or 128%, and mass notification revenues increased $2,074,748, or 297%, compared to~~ the ~~first fiscal~~prior year included $5,400 from a U.S. Army program of record. Deliveries against this program of record were completed in the fourth quarter of ~~2017. Based on~~fiscal 2023. A similar sized new program is pending as part of the Department of Defense fiscal year 2024 authorization. The timing of budget cycles, ~~as well as~~government financial issues and military conflict in certain areas of the world, ~~delays in awarding contracts~~ often ~~occur,~~delay contract awards, resulting in uneven quarterly ~~revenues.~~revenue. Gross profit ~~increased~~decreased compared to the same quarter in the prior year as a result of lower hardware revenue and reduced overhead absorption, partially offset by higher ~~sales and higher fixed overhead absorption.~~margin software revenue in this year’s quarter. Operating expenses ~~increased by 16.2% from $2.6 million to $3.0 million~~ in the quarter ended December 31, ~~2017, primarily due~~2023, increased 5% to ~~higher incentive expense accrual based on~~$8,709, compared with $8,319 in 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 first quarter of fiscal 2018 results, reflect a $2.7 million income tax expense including $2.5 million for a decrease tosame period in the deferred tax asset due to enactment 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, weprior year. We reported a net loss of ~~$1,683,253~~$6,724 for the first quarter of fiscal 2024, or ~~$0.05~~$(0.15) per share, compared towith a net loss of ~~$812,680,~~$3,507, or ~~$0.03~~$(0.10) per share, for the same quarter in the prior year.

~~Overall~~ Business Outlook

Our ~~product line-up continues~~products, systems, and solutions continue to gain worldwide awareness and recognition through ~~media exposure, trade show participations,~~increased marketing efforts, product demonstrations, and word of mouth as a result of positive responses and increased ~~acceptance of our products.~~acceptance. We believe we have a solid global brand, technology, and product foundation, ~~with our LRAD-X directed product line,~~ which we ~~have expanded over the years~~continue to ~~service~~expand to 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 defense, public safety, emergency warning, mass notification, critical event management, enterprise safety, and ~~military sector, as well as increasing commercial applications~~law enforcement sectors as a result of ~~continued~~increasing threats to ~~governments,~~government, commerce, ~~and~~ law enforcement, homeland security, and incritical infrastructure. Our products, systems, and solutions also have many applications within the fire rescue, maritime, asset protection, and wildlife preservation business segments.

Genasys has developed a global market and ~~control applications.~~an increased demand for LRADs and advanced mass notification speakers. We have a reputation for producing quality products that feature industry-leading broadcast area coverage, vocal intelligibility, and product reliability. We intend to continue building on our AHD market leadership position by offering enhanced voice broadcast systems and accessories for an expanding range of applications. In executing our strategy, we use direct sales to governments, militaries, large end-users, system integrators, and prime vendors. We have built a worldwide distribution channel consisting of partners and resellers that have significant expertise and experience selling integrated communication solutions into our various target markets. As our primary AHD sales opportunities are with domestic and international governments, military branches, and law enforcement agencies, we are subject to each customer’s unique budget cycle, which leads to long selling cycles and uneven revenue flow, complicating our product planning.

The proliferation of natural and man-made disasters, crisis situations, and civil unrest require technologically advanced, multichannel solutions to deliver clear and timely protective communications to help keep people safe during critical events. Businesses are also incorporating protective communication and emergency management systems that locate and help safeguard employees and infrastructure when crises occur.

By providing the only SaaS platform that unifies sensors and IoT inputs with multichannel, multiagency alerting and notifications, Genasys seeks to deliver reliable, fast, and intuitive solutions for creating and disseminating geolocation-targeted warnings, information, and instructions before, during, and after public safety and enterprise threats.

While the software and hardware mass notification ~~business, particularly~~markets are more mature with many established manufacturers and suppliers, we believe that our advanced technology and unified platform provides opportunities to succeed in the ~~Middle East, Europe~~large and ~~Asia where~~growing public safety, emergency warning, and critical communications markets.

In fiscal 2024, we ~~believe there~~intend to continue pursuing domestic and international business opportunities with the support of business development consultants, key representatives, and resellers. We plan to grow our revenues through increased direct sales to governments and agencies that desire to integrate our communication technologies into their homeland security and public safety systems. This includes building on fiscal 2023 domestic defense sales by pursuing further U.S. military opportunities. We also plan to pursue domestic and international emergency warning, enterprise and critical event management, government, law enforcement, fire rescue, homeland and international security, private and commercial security, border security, maritime security, and wildlife preservation business opportunities. In addition to the matters above, we are ~~greater market opportunities~~authorized for the performance of services and provision of goods pursuant to Delaware General Corporation Law.

Our research and development strategy involves incorporating further innovations and capabilities into our ~~omnidirectional~~Genasys Protect platform to meet the needs of our target markets.

Our Genasys Protect software solutions are more complex offerings. We are pursuing certain certifications, which are often required when bidding on government and mass notification opportunities. We intend to invest engineering resources to enhance our ALERT, EVAC, and CONNECT software solutions to compete for larger emergency warning and critical communications business opportunities. We are also configuring alternative solutions to achieve lower price points to meet the needs of certain customers or applications. We also engage in ongoing value engineering to reduce the cost and simplify the manufacturing of our products. ~~Our selling network has expanded through the addition~~

A large number of ~~sales consultants~~LRAD and ACOUSTICS components and sub-assemblies manufactured by outside suppliers within our supply chain are produced within 50 miles of our facility. We do not source component parts from suppliers in China. It is likely that some of our suppliers source parts in China. Negative impacts on our supply chain could have a material adverse effect on our business.

We have been affected by price increases from our suppliers and logistics as well as ~~continuing~~other inflationary factors such as increased salary, labor, and overhead costs. We regularly review and adjust the sales price of our finished goods to ~~improve and increase~~offset these inflationary factors. Although we do not believe that inflation has had a material impact on 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,financial results through December 31, 2023, sustained 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~~increased inflation in the ~~mass notification market, which includes~~future may have a ~~number~~negative effect on our ability to achieve certain expectations in gross margin and operating expenses. If we are unable to offset the negative impacts of ~~large, well-known competitors.~~inflation with increased prices, our future results could be materially affected.

Critical Accounting Policies

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.~~2023. 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.

The following critical accounting policy was not included in our consolidated financial statements located in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended September 30, 2023.

Business Combinations

We apply the provisions of ASC Topic 805, Business Combinations, in accounting for our acquisitions. The acquired assets and assumed liabilities are recorded at their estimated fair values at the date of acquisition. Goodwill represents the excess of the purchase price over the fair value of net identifiable assets. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the date of acquisition, as well as any contingent consideration, our estimates are inherently uncertain and subject to refinement. During the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with a corresponding offset to goodwill. Upon conclusion of the measurement period, or the final determination of values for assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments will be recorded in our consolidated statements of operations.

Accounting for business combinations requires significant judgment, estimates and assumptions at the acquisition date. In developing estimates of fair values at the acquisition date, we utilize a variety of factors including market data, independent experts, historical and future expected cash flows, growth rates and discount rates. The subjective nature of our assumptions increases the risk associated with estimates surrounding the projected performance of the acquired entity.

Comparison of Results of Operations for the Three Months Ended December 31,, ~~2017~~ 2023 and ~~2016~~2022 (in thousands)

~~Revenues~~

	Three Months Ended
	December 31, 2023						December 31, 2022
				% of						% of
				Total						Total			Fav(Unfav)
	Amount			Revenue			Amount			Revenue			Amount			%
Revenues:
Product sales	$	2,166			49.7	%	$	9,118			86.9	%	$	(6,952	)		(76.2	%)
Contract and other		2,195			50.3	%		1,369			13.1	%		826			60.3	%
Total revenues		4,361			100.0	%		10,487			100.0	%		(6,126	)		(58.4	%)

Cost of revenues		2,882			66.1	%		5,655			53.9	%		2,773			49.0	%
Gross Profit		1,479			33.9	%		4,832			46.1	%		(3,353	)		(69.4	%)

Operating expenses
Selling, general and administrative		6,518			149.5	%		6,384			60.9	%		(134	)		(2.1	%)
Research and development		2,191			50.2	%		1,935			18.5	%		(256	)		(13.2	%)
Total operating expenses		8,709			199.7	%		8,319			79.3	%		(390	)		(4.7	%)

Loss from operations		(7,230	)		(165.8	%)		(3,487	)		(33.3	%)		(3,743	)		107.3	%

Other income (expense), net		77			1.8	%		(20	)		(0.2	%)		97			(485.0	%)

Loss before income taxes		(7,153	)		(164.0	%)		(3,507	)		(33.4	%)		(3,646	)		104.0	%
Income tax benefit		(429	)		(9.8	%)		-			0.0	%		429			100.0	%
Net loss	$	(6,724	)		(154.2	%)	$	(3,507	)		(33.4	%)	$	(3,217	)		91.7	%

Net revenue
Hardware	$	2,946			67.6	%	$	9,584			91.4	%		(6,638	)		(69.3	%)
Software		1,415			32.4	%		903			8.6	%		512			56.7	%
Total net revenue	$	4,361			100.0	%	$	10,487			100.0	%	$	(6,126	)		(58.4	%)

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.

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 %

Revenues

Revenues decreased $6,126, or 58%, compared with the first fiscal quarter in the prior year. Hardware revenue decreased $6,638, partially offset by software revenue ($1,415) which increased $512, compared with the prior year quarter. The lower hardware revenue in the first quarter of fiscal 2024 was largely due to the lower backlog at the start of the fiscal year compared with the prior year amount. First quarter hardware revenue in the prior year included $5,400 from a U.S. Army program of record. Deliveries against this program of record were completed in the fourth quarter of fiscal 2023. A similar sized new program is pending as part of the Department of Defense fiscal year 2024 authorization. The higher software revenue was primarily due to a 85% increase in recurring revenue partially offset by lower professional services performed in the current quarter compared to the prior year due to the larger backlog at September 30, 2017 compared to September 30, 2016. Sales improved in the current quarter both AHD (up $2,559,319 or 128%) and MNS (up $2,074,748, or 297%) product lines compared to the prior year.quarter. The receipt of orders ~~will~~is often be uneven due to the timing of ~~approvals or budgets. At~~budget cycles, government financial issues and military conflict. As of December 31, ~~2017,~~2023, we had aggregate deferred revenue of ~~$437,945~~$4,722 for ~~prepayments from customers in advance of product shipment.~~extended warranty obligations and software support agreements.

Gross Profit

Gross profit decreased $3,353, or 69%, compared with the same quarter in the prior year. The ~~increase~~decrease was due to lower hardware revenue. The decrease in gross profit was due to lower hardware revenue and related reduced overhead absorption, partially offset by higher margin software in the current ~~quarter~~year’s first quarter. Gross profit as a percentage of sales was lower compared towith the prior year ~~was~~period primarily due to reduced overhead absorption as a result of lower hardware revenue in the ~~higher level~~first quarter of ~~sales, partially offset by an increase in manufacturing overhead expenses to support the increased sales.~~fiscal 2024.

~~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~~We have limited warranty cost experience with product updates and changes and estimated future warranty costs can impact our gross margins. We do not believe that historical gross profit margins should be relied upon as an indicator of future gross profit margins.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased ~~$221,962~~$134, or 2%, over the prior year quarter. ~~This reflects $209,322~~The increase was largely due to $231 of higher ~~information technology~~compensation expenses from additional sales and related ~~expenses, $154,197 higher incentive compensation~~personnel and an additional $95 of amortization expense ~~$81,957 higher salaries, benefits and consulting expense, primarily for business development and $59,885 in increased travel. The increases were~~from the Evertel acquisition, offset by a ~~$326,175~~$194 decrease in ~~non-cash compensation, primarily due to the prior year non-recurring expense~~total professional services and travel related to a Separation Agreement 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 fiscal year 2018 and this rate of expense is not expected to recur in future periods.expenses.

We incurred non-cash share-based compensation expenses allocated to selling, general and administrative expenses in the three months ended December 31, ~~2017~~2023 and ~~2016~~2022 of ~~$109,322~~$380 and ~~$435,497,~~$373, respectively. ~~The decrease is primarily due to non-recurring expense related to a Separation Agreement and General Release related to the departure of the Company’s prior CEO in the prior year quarter.~~

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

Research and development expenses increased ~~compared~~$256, or 13%, in the fiscal first quarter due to an increase in engineers over the prior year ~~primarily due to $75,162 for increased product~~period, including the addition of Evertel software development ~~$58,609 for salaries and benefits due to increased engineering staff compared to the prior year quarter and $60,405 for bonus accrual.~~activities.

Included in research and development expenses for the three months ended December 31, ~~2017~~2023 and ~~2016 was $22,930~~2022, were $27 and ~~$23,375~~$19, respectively, of non-cash share-based compensation ~~costs, respectively.~~costs.

Research and development costs vary period to period due to the timing of projects, and the timing and extent of ~~the use of~~using outside consulting, design, and development firms. We seek to 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 fiscal year compared to the prior fiscal year.

Net Loss

Net loss in the first quarter of fiscal year 2024 was $6,724, compared with a net loss of $3,507 in the first quarter of fiscal year 2023. The increase in net loss was primarily due to the lower revenue in the fiscal first quarter. The income tax benefit in the current year period is primarily due to acquisition related accounting leading to the release of a portion of the non-cash valuation allowance against deferred taxes.

Other Metrics

We monitor a number of financial and operating metrics, including adjusted EBITDA, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions. Our business metrics may be calculated in a manner different than similar other business metrics used by other companies.

Adjusted EBITDA

Adjusted EBITDA represents our net income before other income, net income tax expense (benefit), depreciation and amortization expense, and stock-based compensation. We do not consider these items to be indicative of our core operating performance. The items that are non-cash include depreciation and amortization expense and stock-based compensation. Adjusted EBITDA is a measure used by management to understand and evaluate our core operating performance and trends, and to generate future operating plans, make strategic decisions regarding allocation of capital, and invest in initiatives focused on cultivating new markets for our solutions. In particular, the exclusion of certain expenses in calculating adjusted EBITDA facilitates comparisons of our operating performance on a period-to-period basis. Adjusted EBITDA is not a measure calculated in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). We believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors. Nevertheless, use of adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under U.S. GAAP. Some of these limitations are: (1) although depreciation and amortization are non-cash charges, the intangible assets that are amortized and property and equipment that is depreciated, will need to be replaced in the future, and adjusted EBITDA does not reflect cash capital expenditure requirements for such replacement or for new capital expenditure requirements; (2) adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; (3) adjusted EBITDA does not reflect the potentially dilutive impact of equity-based compensation; (4) adjusted EBITDA does not reflect tax payments or receipts that may represent a reduction or increase in cash available to us; and (5) other companies, including companies in our industry, may calculate adjusted EBITDA or similarly titled measures differently, which reduces the usefulness of the metric as a comparative measure. Because of these and other limitations, you should consider adjusted EBITDA alongside our other U.S. GAAP-based financial performance measures, net income and our other U.S. GAAP financial results.

The following table presents a reconciliation of adjusted EBITDA to net income, the most directly comparable U.S. GAAP measure, for each of the periods indicated (in thousands):

	Three months ended
	December 31,
	2023			2022
Net loss	$	(6,724	)	$	(3,507	)
Other (income) loss, net		(77	)		20
Income tax benefit		(429	)		-
Depreciation and amortization		729			643
Stock-based compensation		446			420
Adjusted EBITDA	$	(6,055	)	$	(2,424	)

Segment Results

Segment results include net sales and operating income by segment. Corporate expense including various administrative expenses and costs of a publicly traded company are included in the Hardware segment as per historical financial reporting.

	Software												Hardware
	Three months ended												Three months ended
	December 31,						Fav (Unfav)						December 31,						Fav (Unfav)
	2023			2022			$			%			2023			2022			$			%
Revenue	$	1,415		$	903		$	512			56.7	%	$	2,946		$	9,584		$	(6,638	)		(69.3	%)
Operating loss		(4,115	)		(3,459	)		(656	)		19.0	%		(3,115	)		(28	)		(3,087	)		11025.0	%

Reconciliation of GAAP to Non-GAAP
Depreciation and amortization		633			544			89			16.4	%		96			99			(3	)		(3.0	%)
Stock-based compensation		99			100			(1	)		(1.0	%)		347			320			27			8.4	%
Adjusted EBITDA	$	(3,383	)	$	(2,815	)	$	(568	)		20.2	%	$	(2,672	)	$	391		$	(3,063	)		(783.4	%)

Software Segment

Software segment revenue increased 57% over the prior fiscal year. This primarily reflects a 85% increase in recurring revenue compared to the prior fiscal year.

Operating loss increased $656 in the fiscal first quarter of the current year due to increases in payroll and benefits costs from increased hiring to support software development and sales, increased sales and marketing and related expenses, higher professional services expenses and higher commission expense resulting from the increased revenues.

Hardware Segment

Hardware segment revenue decreased $6,638, or 69%, over the prior year. The decrease was largely due to the lower backlog at the start of this fiscal year compared to the prior year ~~was~~amount. First quarter hardware revenue in the prior year included $5,400 from a U.S. Army program of record. Deliveries against this program of record were completed in the fourth quarter of fiscal 2023. A similar sized new program is pending as part of the Department of Defense fiscal year 2024 authorization.

Operating income decreased $3,087 in the current fiscal year period 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 partially offset by an increase inlower revenue and resultant gross profit. ~~We recognized an income tax benefit of $486,528 for the three months ended December 31, 2016.~~

Liquidity and Capital Resources

Cash and cash equivalents atas of December 31, ~~2017 was $15,117,544,~~2023 were $4,780, compared ~~to $12,803,887 at~~with $8,665 as of September 30, ~~2017 primarily~~2023. We had short-term marketable securities of $8,777 as ~~a result~~ of December 31, 2023, compared with $1,481 as of September 30, 2023. In addition to cash ~~generated from operations. Other than~~and cash equivalents, short term marketable securities, other working capital and expected future cash flows from operating activities in subsequent periods, we have no other unused sources of liquidity at this time.

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 the availability of our ~~liquidity~~internally generated funds include:

●•

ability to meet sales projections;

●•

government spending levels;

●•

introduction of competing technologies;

●•

product mix and effect on margins;

●•

ability to reduce and manage current inventory levels; and

●•

product acceptance in new markets;

●

~~value of shares repurchased; and~~

●

~~value of dividends declared.~~

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

●•

volatility in the capital markets; and

●•

market price and trading volume of our common stock.

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.

Cash Flows

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:

	Three Months Ended				Three months ended
	December 31,				December 31, 2023			December 31, 2022
	2017		2016
Cash provided by:
Cash provided by (used in):
Operating activities	$	1,753,585	$	1,428,286	$	(5,729	)	$	(4,850	)
Investing activities		400,554		69,026		(9,114	)		(483	)
Financing activities		159,518		-		10,449			32

Operating Activities

Net loss of ~~$1,683,253~~$6,724 for the three months ended December 31, ~~2017~~2023 was decreased by ~~$2,960,116~~$920 of non-cash items that included ~~a reduction to deferred income taxes primarily resulting from enactment of the “Act”,~~ share-based compensation, warranty provision, depreciation and amortization, ~~warranty provision,~~amortization of operating lease ROU assets, accretion of acquisition related liabilities and inventory obsolescence. Cash ~~provided~~used by operating activities in the ~~current year~~fiscal first quarter reflected an increase in inventory of $429, an increase in prepaids and other assets of $249 and a decrease in accounts payable of ~~$790,635 due to the timing of payments, decreases in prepaid expenses~~$902 and ~~other of $393,761, an increase in~~ accrued ~~and other~~ liabilities of ~~$311,483, a decrease in other assets of $46,874 and~~$11. This was offset by a decrease in accounts receivable of ~~$3,662.~~$1,666.

Net loss of $3,507 for the three months ended December 31, 2022 was decreased by $1,349 of non-cash items that included share-based compensation, warranty provision, depreciation and amortization, amortization of operating lease ROU assets, and inventory obsolescence. Cash used inby operating activities ~~included~~in the period reflected an increase in inventory of $2,041, and a decrease in ~~payroll~~accrued liabilities and ~~related~~other of ~~$1,023,538 primarily for~~$5,006, comprised of a decrease in the balances of customer deposits received, and 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~~year 2022. This was ~~decreased~~offset 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 $3,482 decrease in accounts receivable, ~~of $1,929,765 due to the collection of~~ a ~~high year-end balance, an~~$624 decrease in prepaid expenses, and a $249 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.

We had accounts receivable of $~~5,678,220 at~~$4,435 as of December 31, ~~2017,~~2023, compared ~~to $5,681,882 at~~with $5,952 as of 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 2017.2023. 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 As of December 31, 2023 and September 30, ~~2017,~~2023, our working capital was ~~$26,485,964~~$15,436 and ~~$25,412,106~~$13,949, respectively. The increase in working capital was primarily due to cash ~~generated from operations.~~raised through financing activities offset by Evertel acquisition related expenses, acquired liabilities and the fiscal first quarter net loss.

Investing Activities

~~In the~~ ~~three months ended December 31, 2017, we decreased our holding of short and long-term marketable securities by $454,721, compared to sales of $84,610 in the three months ended December 31, 2016.~~

~~We also~~ ~~use~~Our net cash ~~in investing activities primarily for the purchase of tooling, computer equipment and software, and investment in new or existing patents. Cash~~ used in investing activities ~~for tooling and patents~~ was ~~$54,167 and $15,584~~$9,114 for the three months ended December 31, ~~2017~~2023, compared with net cash used in investing activities of $483 for the three months ended December 31, 2022. In the first three months of fiscal 2024, we increased our holdings in marketable securities by $7,285, compared with an increase of $385 for the three months ended December 31, 2022. Cash used in investing activities for acquisition of Evertel was $923 and ~~2016,~~cash used to pay the Amika holdback liability was $764. The Company also used $142 and $98 for the purchase of property and equipment for the three months ended December 31, 2023, and 2022, respectively. We anticipate ~~some~~ additional expenditures for tooling and equipment during the balance of fiscal year ~~2018.~~2024.

Financing Activities

In the three months ended December 31, ~~2017, cash~~ 2023, we received $10,449 through financing activities, compared with $32 provided ~~from the exercise of stock options was $159,518. In~~by financing activities for the three months ended December 31, ~~2016,~~2022. In the first three months of fiscal 2024 we ~~had no cash~~received $10,449 in net proceeds from ~~financing activities.~~an offering of the Company’s common stock. In the first three months of fiscal year 2023, we received $32 from the exercise of stock options.

~~The~~In December 2018, the Board of Directors approved a share buyback program ~~in 2013~~beginning January 1, 2019 and expiring on December 31, 2020, under which the Company was authorized to repurchase up to ~~$4 million~~$5,000 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,~~2022, the Board of Directors extended the Company’s share buyback program through December 31, 2024. The previous program expired on December 31, 2018.

There were no shares repurchased during the three months ended December 31, 2023 and December 31, 2022. All repurchased shares have been retired and as of December 31, 2023 and $3,000 was available for share repurchase under this program.

Recent Accounting Pronouncements

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

~~Item~~ 3.

Item3.Quantitative and Qualitative Disclosures about Market Risk.

~~Qua~~~~ntitative~~ ~~and Qua~~~~litative~~ ~~Disclosures about Market Risk.~~

Foreign Currency Risk

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. 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.

~~Item~~ 4.

Item4.Controls and Procedures.

~~Controls and Procedures.~~

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

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

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.~~2023.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during our fiscal quarter ended December 31, ~~2017,~~2023, 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.

PART II. OTHER INFORMATION

~~Item 1.~~

Item 1.Legal Proceedings.

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.

~~Item~~ ~~1A.~~

Item1A.Risk Factors.

~~Risk Factors~~.

~~As a Smaller Reporting Company as defined by Rule 12b-2~~There have been no material changes to the risk factors described under Item 1A of our Annual Report on Form 10-K for the ~~Exchange Act and in item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide~~fiscal year ended September 30, 2023, filed with the ~~information requested by this item.~~SEC on December 7, 2023.

Item2.~~Item~~ 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

~~None~~

~~Item~~ ~~3. Defaults Upon Senior Securities.~~

None.

Item3.Defaults Upon Senior Securities.

~~Item~~ 4.

None.

Item4.Mine Safety Disclosures.

~~Mine Safety Disclosures~~.

Not Applicable.

~~Item~~ 5.

Item5.Other Information.

~~Other Information.~~

~~None.~~During the quarter ended December 31, 2023, none of our directors or officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement,” as that term is used in SEC regulations.

Item6.Exhibits.

~~Item~~ 6.

~~Exhibits~~.


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~~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 (embedded within the Inline XBRL and contained in Exhibit 101)

* Filed concurrently herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	~~LRAD CORPORATION~~GENASYS INC.

Date: February ~~8, 2018~~14, 2024	By:	/s/ ~~DENNIS~~ Dennis D. ~~KLAHN~~Klahn
		Dennis D. Klahn,, ChiefFinancialOfficer
		(Principal Financial Officer)


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)

Large accelerated filer	☐	Accelerated filer	☐

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

	December 31,
	2017			September 30,			December 31,
	(Unaudited)			2017			2023			September 30,
							(Unaudited)			2023
ASSETS
Current assets:
Cash and cash equivalents	$	15,117,544		$	12,803,887		$	4,780		$	8,665
Short-term marketable securities		3,602,254			4,359,542			8,777			1,481
Accounts receivable, net		5,678,220			5,681,882
Restricted cash								-			758
Accounts receivable, net of allowance for credit losses of $65								4,435			5,952
Inventories, net		5,259,934			5,257,234			6,890			6,501
Prepaid expenses and other		589,561			983,322			2,100			1,851
Total current assets		30,247,513			29,085,867			26,982			25,208

Long-term marketable securities		1,005,660			711,124
Deferred tax assets, net		5,622,112			8,331,000
Long-term restricted cash								346			96
Property and equipment, net		505,469			509,603			1,587			1,551
Goodwill								13,151			10,282
Intangible assets, net		53,885			55,689			10,366			8,427
Operating lease right of use assets								3,712			3,886
Other assets		117,644			164,517			494			455
Total assets	$	37,552,283		$	38,857,800		$	56,638		$	49,905

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	1,903,001		$	1,112,366		$	1,897		$	2,785
Accrued liabilities		1,858,548			2,561,395			8,618			7,466
Operating lease liabilities, current portion								1,031			1,008
Total current liabilities								11,546			11,259

Other liabilities, noncurrent								509			551
Operating lease liabilities, noncurrent								4,030			4,283
Total liabilities		3,761,549			3,673,761			16,085			16,093
Commitments and contingencies (Note 9)

Stockholders' equity:
Preferred stock, $0.00001 par value; 5,000,000 shares authorized; none issued and outstanding		-			-			-			-
Common stock, $0.00001 par value; 50,000,000 shares authorized; 32,249,288 and 32,158,436 shares issued and outstanding, respectively		322			322
Common stock, $0.00001 par value; 100,000,000 shares authorized; 44,027,121 and
37,211,071 shares issued and outstanding, respectively								-			-
Additional paid-in capital		88,254,818			87,956,839			123,725			110,379
Accumulated deficit		(54,455,106	)		(52,771,853	)		(82,786	)		(76,062	)
Accumulated other comprehensive loss		(9,300	)		(1,269	)		(386	)		(505	)
Total stockholders' equity		33,790,734			35,184,039			40,553			33,812
Total liabilities and stockholders' equity	$	37,552,283		$	38,857,800		$	56,638		$	49,905

	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	)

	Three Months Ended
`	December 31,
	2023			2022
Operating Activities:
Net loss	$	(6,724	)	$	(3,507	)

Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		729			643
Amortization of debt issuance costs		-			5
Warranty provision		(22	)		24
Inventory obsolescence		39			46
Loss on disposition of fixed assets		2			-
Stock-based compensation		446			420
Partial release of valuation allowance		(517	)		-
Amortization of operating lease right of use asset		192			199
Accretion of acquisition holdback liability		5			12
Accretion of acquisition contingent consideration		46			-

Changes in operating assets and liabilities:
Accounts receivable, net		1,666			3,482
Inventories, net		(429	)		(2,041	)
Prepaid expenses and other		(249	)		624
Accounts payable		(902	)		249
Accrued and other liabilities		(11	)		(5,006	)
Net cash used in operating activities		(5,729	)		(4,850	)

Investing Activities:
Purchases of marketable securities		(7,532	)		(1,994	)
Proceeds from maturities of marketable securities		247			1,609
Cash paid for acquisitions		(923	)		-
Cash paid for asset purchase holdback liability		(764	)		-
Capital expenditures		(142	)		(98	)
Net cash used in investing activities		(9,114	)		(483	)

Financing Activities:
Proceeds from exercise of stock options		-			32
Proceeds from offering of common stock, net of issuance costs		10,449			-
Net cash provided by financing activities		10,449			32
Effect of foreign exchange rate on cash		1			39
Net decrease in cash, cash equivalents, and restricted cash		(4,393	)		(5,262	)
Cash, cash equivalents and restricted cash, beginning of period		9,519			13,659
Cash, cash equivalents and restricted cash, end of period	$	5,126		$	8,397

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

Reconciliation of cash, cash equivalents and restricted cash to the consolidated
balance sheets:
Cash and cash equivalents	$	4,780	$	7,563
Restricted cash, current portion		-		738
Long-term restricted cash		346		96
Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows	$	5,126	$	8,397

Cash paid	$	923
Common stock issued		1,924
Contingent consideration		890
Acquisition holdback liability		230
Common stock to be issued		527
	$	4,494

Assets acquired
Accounts receivable	$	142
Prepaid expenses		27
Intangible assets		2,550
Goodwill		2,772
Total Assets	$	5,491

Liabilities assumed
Accrued commissions	$	10
Deferred revenue		470
Deferred tax liability		517
Total liabilities		997

Net assets acquired	$	4,494

	Fair Value		Est.Useful Life (in years)
Developed technology	$	2,290		7
Customer relationships		260		5
	$	2,550

	Customer deposits			Deferred revenue			Total contract liabilities
Balance as of September 30, 2023	$	766		$	3,254		$	4,020
New performance obligations		819			1,583			2,402
Recognition of revenue as a result of satisfying performance obligations		(363	)		(1,342	)		(1,705	)
Effect of exchange rate on deferred revenue		-			5			5
Balance as of December 31, 2023	$	1,222		$	3,500		$	4,722
Less: non-current portion		-			(509	)		(509	)
Current portion as of December 31, 2023	$	1,222		$	2,991		$	4,213

	December 31, 2017
			Unrealized			Fair		Cash		Short-term		Long-term
	Cost Basis		Losses			Value		Equivalents		Securities		Securities		December 31, 2023
														Cost Basis		Gross Unrealized Gain		Gross Unrealized Loss			Fair Value		Cash Equivalents		Short-term Securities		Long-term Securities
Level 1:
Money Market Funds	$	531,566	$	-		$	531,566	$	531,566	$	-	$	-
Money market funds														$	1,060	$	-	$	-		$	1,060	$	1,060	$	-	$	-

Level 2:
Certificates of deposit	$	936,801	$	-		$	936,801	$	-	$	437,801	$	499,000		302		-		-			302		-		302		-
U.S. government agency bonds															1,161		-		-			1,161		-		1,161		-
Municipal securities		86,186		(198	)		85,988		-		85,988		-		3,707		4		(3	)		3,708		-		3,708		-
Corporate bonds		3,594,227		(9,102	)		3,585,125		-		3,078,465		506,660		3,607		1		(2	)		3,606		-		3,606		-
Subtotal		4,617,214		(9,300	)		4,607,914		-		3,602,254		1,005,660		8,777		5		(5	)		8,777		-		8,777		-

Total	$	5,148,780	$	(9,300	)	$	5,139,480	$	531,566	$	3,602,254	$	1,005,660	$	9,837	$	5	$	(5	)	$	9,837	$	1,060	$	8,777	$	-

	September 30, 2023
	Cost Basis		Gross Unrealized Gain		Gross Unrealized Loss			Fair Value		Cash Equivalents		Short-term Securities		Long-term Securities
Level 1:
Money market funds	$	2,307	$	-	$	-		$	2,307	$	2,307	$	-	$	-

Level 2:
Certificates of deposit		301		-		-			301		-		301		-
Municipal securities		926		-		(7	)		919		-		919		-
Corporate bonds		264		-		(3	)		261		-		261		-
Subtotal		1,491		-		(10	)		1,481		-		1,481		-

Total	$	3,798	$	-	$	(10	)	$	3,788	$	2,307	$	1,481	$	-

	As of December 31, 2023
	In loss position < 12 months					In loss position > 12 months					Total in loss position

	Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss
Certificates of deposit	$	-	$	-		$	-	$	-		$	-	$	-
U.S. government agency bonds		-		-			-		-			-		-
Municipal securities		628		(1	)		132		(2	)		760		(3	)
Corporate bonds		2,882		(2	)		-		-			2,882		(2	)
	$	3,510	$	(3	)	$	132	$	(2	)	$	3,642	$	(5	)

	As of September 30, 2023
	In loss position < 12 months					In loss position > 12 months					Total in loss position
	Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss
Certificates of deposit	$	-	$	-		$	-	$	-		$	-	$	-
U.S. government agency bonds		-		-			-		-			-		-
Municipal securities		684		(2	)		235		(5	)		919		(7	)
Corporate bonds		-		-			261		(3	)		261		(3	)
	$	684	$	(2	)	$	496	$	(8	)	$	1,180	$	(10	)

			Fair Value Measurements at December 31, 2023
	Carrying Value		(Level 1)		(Level 2)		(Level 3)		Gain/(Loss)
Intangible assets from Evertel acquisition	$	2,550	$	-	$	-	$	2,550	$	-
Goodwill from Evertel acquisition	$	2,772	$	-	$	-	$	2,772	$	-

Value at acquisition date	$	890
Remeasurement estimate		46
Balance as of December 31, 2023	$	936

Balance at acquisition date	$	230
Accretion		5
Balance as of December 31, 2023	$	235

Fiscal year ending September 30,
2024 (remaining nine months)		1,861
2025		2,358
2026		2,222
2027		2,048
2028		1,220
Thereafter		657
Total estimated amortization expense	$	10,366

	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						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	%