15
14.
|
Notes to the Condensed Consolidated Financial Statements (in thousands, except per share and share amounts) 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 the 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
The Company has a bonus plan for employees, in accordance with their terms of employment, whereby they can earn a percentage of their salary based on meeting targeted objectives for orders received, revenue, operating income and operating cash flow. In the nine months ended June 30, 2022, 2023, the Company recorded $1,483$762 of bonus expense. In the nine months ended June 30, 2021, 2022, the Company recorded $1,505$1,483 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-partythird-party claims. Adjustments of up to CAD$1,000 (USD$776) (USD$755) will be deducted from the asset purchase holdback liability for up to three years from the closing date. The liability is recorded at fair value in the condensed consolidated balance sheet.
The Company also 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 is obligated to issue is 573,801. The fair value of the Company’s common stock on the closing date was $5.98 per share, 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. During the year ended September 30, 2022, the Company issued 69,564 shares to the former owners of the Amika Mobile assets. During the nine months ended June 30, 2022, 2023, the Company issued 69,564 shares to the former owners of the Amika Mobile assets. There are 139,12869,564 remaining shares of the Company’s common stock subject to issuance under this obligation.
15.
| 15. SHARE-BASED COMPENSATION |
Stock option plans
As of June 30, 2022, the Company had two equity incentive plans. The 2005 Equity Incentive Plan (“2005 Equity Plan”) was terminated with respect to new grants in March 2015 but remains in effect for grants issued prior to that time. The Amended and Restated 2015 Equity Incentive Plan (“(“2015 Equity Plan”) was 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 the issuance of stock options, restricted stock, stock appreciation rights, restricted stock units (“RSUs”) and performance awards, to an aggregate of 10,000,000 new shares of common stock to employees, directors, advisors or consultants. As of June 30, 2022, 2023, there were options and restricted stock units outstanding covering 10,000 and 3,291,7253,673,201 shares of common stock under the 2005 Equity Plan and the 2015 Equity Plan, respectively, and 4,515,3152,821,827 shares of common stock available for grant, for a total of 7,817,0406,495,028 shares of common stock authorized and unissued under the two equity plans.
Share-based compensation
The Company’s employee stock options have various restrictions that reduce option value, including vesting provisions and restrictions on transfer and hedging, among others, and are often exercised prior to their contractual maturity.
Share-based compensation is accounted for in accordance with ASC Topic 718: Compensation - Stock Compensation. Total compensation expense for all share-based awards is based on the estimated fair market value of the equity instrument issued on the grant date. For share-based awards that vest based solely on a service condition, compensation expense is recognized on a straight-line basis over the total requisite service period for the entire award. For share-based awards that vest based on a market condition, compensation expense is recognized on a straight-line basis over the requisite service period of each separately vesting tranche. For share-based awards that vest based on a performance condition, compensation expense is recognized for the number of awards that are expected to vest based on the probable outcome of the performance condition. Compensation cost for these awards will be adjusted to reflect the number of awards that ultimately vest.
Notes to the Condensed Consolidated Financial Statements
(in thousands, except per share and share amounts)
There were 1,849,500 stock options granted during the nine months ended June 30, 2023, of which 225,000 vest based on a market condition. There were 322,000 stock options granted during the nine months ended June 30, 2022. There were 275,000 stock2022, none of which vest based on a market condition.
Stock options granted duringthat do not contain market-based vesting conditions are valued using the nine months ended June 30, 2021. Black-Scholes option pricing model. The weighted average estimated fair value of employee stock options granted, that vest without a market condition, during the nine months ended June 30, 2022 2023 and 2021,2022, was calculated using the Black-Scholes option-pricing model with the following weighted average assumptions (annualized percentages):
| | | Nine months ended | | | Nine months ended | |
| | | June 30, | | | June 30, | |
| | | 2022 | | | 2021 | | | 2023 | | | 2022 | |
Volatility | | 48.2 | % | | 48.5 | % | | 52.1 | % | | 48.1 | % |
Risk-free interest rate | | 1.4 | % | | 0.6 | % | | 4.0 | % | | 1.5 | % |
Dividend yield | | 0.0 | % | | 0.0 | % | | 0.0 | % | | 0.0 | % |
Expected term in years | | 6.7 | | | 6.6 | | | 5.8 | | | 6.8 | |
Expected volatility is based on the historical volatility of the Company’s common stock over the period commensurate with the expected 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 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. Such 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 20222023 and did not pay a dividend in fiscal 2021.2022.
Genasys Inc.
Notes toFor stock options that contain market-based vesting conditions, the Condensed Consolidated Financial Statements
(in thousands, except per sharefair value of these options was determined using a Monte Carlo valuation approach and share amounts)
(Unaudited)
calculated by an independent valuation specialist.
As of June 30, 2022, 2023, there was approximately $1,290$1,804 of total unrecognized compensation costs related to outstanding employee stock options. This amount is expected to be recognized over a weighted average period of 1.42.2 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 October 4, 2019, the Company awarded a performance-based stock option (PVO) to purchase 800,000 shares of the Company’s common stock to a key executive, with a contractual term of seven years. Vesting is based upon the achievement of certain performance criteria for each of fiscal 2022 and 2023 including a minimum free cash flow margin and net revenue targets. Additionally, vesting is subject to the executive being employed by the Company at the time the Company achieves such financial targets. During the year ended September 30, 2022, the Company modified the performance criteria for these PVOs to exclude certain strategic growth initiatives that were not planned at the time of grant. The Company recorded $209 in stock-based compensation expense related to these options in the year ended September 30, 2022. The Company did not record compensation expense related to the 2023 performance-based stock options during the nine months ended June 30, 2023.
On October 8, 2022, the Company awarded additional performance-based stock options to purchase 800,000 shares of the Company’s common stock to the same 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 did not recorded stock-based record compensation expense related to these options.options for the nine months ended June 30, 2023.
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 three months ended June 30, 2023, these options were forfeited due to a voluntary termination of employment. The Company did not record compensation expense related to these options for the nine months ended June 30, 2022.
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 $3 of compensation expense related to these options during the three months ended June 30, 2021 and $4 of compensation expense during the nine months ended June 30, 2023.
Notes to the Condensed Consolidated Financial Statements
(in thousands, except per share and share amounts)
The Company did not grant any PVO’sPVOs during the nine months ended June 30, 2022 and 2021.2022.
Restricted stock units
On March 10,In fiscal 2020,each non-employee member of the Board of Directors received a grant of 30,000 RSUs that vested on the first anniversary of the grant date. These were issued at a market value of $425 and were expensed on a straight-line basis through the March 10, 2021 vest date. Also, in fiscal 2020, 81,270 RSUs were granted to employees that will vestvested over three years on the anniversary date of the grant. These were issued at a market value of $258 whichand have and will bebeen expensed on a straight-line basis over the threethree-year-year life of the grants.
On March 16,During fiscal 2021,each non-employee member of the Board of Directors received a grant of 27,883 RSUs that will vest on the first anniversary of the grant date. These were issued at a market value of $1,100 and were expensed on a straight-line basis through the March 16, 2022 vest date. Also, during fiscal 2021, 145,950 RSUs were granted to employees that will vest over three years on the anniversary date of the grant. These were issued at a market value of $989, which have and will be expensed on a straight-line basis over the three-yearthree-year life of the grants.
On June 7, 2021, 5,000 RSUs with immediate vesting were granted to an employee at a market value of $25. These were expensed during the quarter ended June 30, 2021. On September 1, 2021, two new membersMarch 15, 2022, each non-employee member of the Board of Directors received a grant of 17,50030,000 RSUs whichthat vested on March 16, 2022. the first anniversary of the grant date. These were issued at a market value of $184$407, and were expensed on a straight-line basis through the March 16,15, 2023, vest date. 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 vest on the first anniversary of the grant date. These were issued at a market value of $29, which have and will be expensed on a straight-line basis though the November 1, 2023, vest date.
On March 15, 2022, 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 issuedgranted at a market value of $407, which$417 and have and will be expensed on a straight-line basis through the March 15, 2023 14, 2024, vest date. On November 1, 2021, 10,000February 14, 2023, 145,600 RSUs were granted to a non-employee advisoremployees that will vest over three years on the firstanniversary date of the grant date.grant. These RSUs were issued at a market value of $51, which have and will be expensed on a straight-line basis though the November 1, 2022 vest date. Also, during the nine months ended June 30, 2022, there were 100,800 RSUs granted to employees that will vest over three years on the anniversary of the grant date. These were issued at a market value of $348,$582, which have and will be expensed on a straight-line basis over the three-yearthree-year life of the grants. On March 20, 2023, 20,000 RSUs were granted to an employee with immediate vesting. These were issued at a market value of $66 and were expensed immediately.
Compensation expense for RSUs was $211 and $759 for the three and nine months ended June 30, 2023, respectively. Compensation expense for RSUs was $193 and $1,216 for the three months and nine months ended June 30, 2022, respectively. Compensation expense for RSUs was $363 and $750 for the three and nine months ended June 30, 2021, respectively. As of June 30, 2022, 2023, there was approximately $1,204 of total unrecognized compensation costs related to outstanding RSUs. This amount is expected to be recognized over a weighted average period of 1.41.6 years.
Genasys Inc.
Notes to the Condensed Consolidated Financial Statements
(in thousands, except per share and share amounts)
(Unaudited)
A summary of the Company’s RSUs as of June 30, 2022 2023, is presented below:
| | | Number of Shares | | | Weighted Average Grant Date Fair Value | | | Number of Shares | | | Weighted Average Grant Date Fair Value | |
Outstanding September 30, 2021 | | 399,469 | | | $ | 6.27 | | |
Outstanding September 30, 2022 | | | 342,841 | | | $ | 4.11 | |
Granted | | 260,800 | | | $ | 3.09 | | | 295,600 | | | $ | 3.63 | |
Released | | (270,262 | ) | | $ | 6.42 | | | (253,012 | ) | | $ | 3.73 | |
Forfeited/cancelled | | | (15,666 | ) | | $ | 5.15 | | | | - | | | $ | - | |
Outstanding June 30, 2022 | | | 374,341 | | | $ | 4.00 | | |
Outstanding June 30, 2023 | | | | 385,429 | | | $ | 3.99 | |
Stock option summary information
A summary of the activity in options to purchase the capital stock of the Company as of June 30, 2022 2023, is presented below:
| | | Number of Shares | | | Weighted Average Exercise Price | | | Number of Shares | | | Weighted Average Exercise Price | |
Outstanding September 30, 2021 | | 2,745,384 | | | $ | 3.02 | | |
Outstanding September 30, 2022 | | | 3,940,899 | | | $ | 3.31 | |
Granted | | 322,000 | | | $ | 4.77 | | | 1,849,500 | | | $ | 2.93 | |
Forfeited/expired | | (10,000 | ) | | $ | 5.43 | | | (1,480,362 | ) | | $ | 3.98 | |
Exercised | | | (130,000 | ) | | $ | 1.95 | | | | (1,022,265 | ) | | $ | 1.96 | |
Outstanding June 30, 2022 | | | 2,927,384 | | | $ | 3.26 | | |
Exerciseable June 30, 2022 | | | 1,589,114 | | | $ | 2.57 | | |
Outstanding June 30, 2023 | | | | 3,287,772 | | | $ | 3.21 | |
Exerciseable June 30, 2023 | | | | 817,726 | | | $ | 3.41 | |
Options outstanding are exercisable at prices ranging from $1.31$1.51 to $8.03 per share and expire over the period from 20222023 to 20292030 with an average life of 3.535.16 years. The aggregate intrinsic value of options outstanding and exercisable as of June 30, 2022 2023, was $1,585 and $1,584, respectively.$138. 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 $3.25$2.60 per share, and the exercise price multiplied by the number of applicable options. The total intrinsic value of stock options exercised during the nine months ended June 30, 2022 2023 was $191$762 and proceeds from these exercises was $253.$87. The total intrinsic value of stock options exercised during the nine months ended June 30, 2021 2022 was $455$191 and proceeds from these exercises was $170.$253.
Notes to the Condensed Consolidated Financial Statements
(in thousands, except per share and share amounts)
The following table summarized information about stock options outstanding as of June 30, 2022:2023:
Range of Exercise Prices | | NumberOutstanding | | | Weighted Average Remaining Contractual Term | | | Weighted Average Exercise Price | | | Number Exercisable | | | Weighted Average Exercise Price | |
$1.31 | - | $1.86 | | | 259,157 | | | | 1.53 | | | $ | 1.70 | | | | 259,157 | | | $ | 1.70 | |
$1.99 | - | $1.99 | | | 937,500 | | | | 1.69 | | | $ | 1.99 | | | | 937,500 | | | $ | 1.99 | |
$3.21 | - | $3.21 | | | 20,000 | | | | 6.85 | | | $ | 3.21 | | | | 0 | | | $ | 0 | |
$3.39 | - | $3.39 | | | 800,000 | | | | 4.26 | | | $ | 3.39 | | | | 0 | | | $ | 0 | |
$3.43 | - | $8.03 | | | 910,727 | | | | 5.28 | | | $ | 4.88 | | | | 392,457 | | | $ | 4.53 | |
| | | | | | 2,927,384 | | | | 3.53 | | | $ | 3.26 | | | | 1,589,114 | | | $ | 2.57 | |
Range of | | Number | | | Weighted Average Remaining Contractual | | | Weighted Average Exercise | | | Number | | | Weighted Average Exercise | |
Exercise Prices | | Outstanding | | | Term | | | Price | | | Exercisable | | | Price | |
$1.51 | - | $2.64 | | | 189,157 | | | | 1.88 | | | $ | 1.88 | | | | 159,157 | | | $ | 1.73 | |
$2.69 | - | $2.69 | | | 1,100,000 | | | | 6.27 | | | $ | 2.69 | | | | - | | | $ | - | |
$3.09 | - | $3.39 | | | 1,160,388 | | | | 4.93 | | | $ | 3.33 | | | | 192,138 | | | $ | 3.39 | |
$3.40 | - | $8.03 | | | 838,227 | | | | 4.76 | | | $ | 4.04 | | | | 466,431 | | | $ | 3.99 | |
| | | | | | 3,287,772 | | | | 5.16 | | | $ | 3.21 | | | | 817,726 | | | $ | 3.41 | |
The Company recorded $162$181 and $84$162 of stock option compensation expense for employees, directors and consultants for the three months ended June 30, 2022, 2023 and 2021,2022, respectively. The Company recorded $434$566 and $206$434 of stock option compensation expense for employees, directors and consultants for the nine months ended June 30, 2023 and 2022, and 2021,respectively.
Genasys Inc.
Notes to the Condensed Consolidated Financial Statements
(in thousands, except per share and share amounts)
(Unaudited)
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 | | Nine Months Ended | | | Three Months Ended | | Nine Months Ended | |
| | | June 30, | | June 30, | | | June 30, | | June 30, | |
| | | 2022 | | | 2021 | | | 2022 | | | 2021 | | | 2023 | | | 2022 | | | 2023 | | | 2022 | |
Cost of revenues | | 10 | | | $ | 10 | | | 53 | | | 24 | | | $ | 19 | | | $ | 10 | | | $ | 80 | | | $ | 53 | |
Selling, general and administrative | | 327 | | | 424 | | | 1,544 | | | 904 | | | 351 | | | 327 | | | 1,171 | | | 1,544 | |
Research and development | | | 18 | | | | 12 | | | | 53 | | | | 28 | | | | 26 | | | | 18 | | | | 78 | | | | 53 | |
| | | $ | 355 | | | $ | 446 | | | $ | 1,650 | | | $ | 956 | | | $ | 396 | | | $ | 355 | | | $ | 1,329 | | | $ | 1,650 | |
Notes to the Condensed Consolidated Financial Statements
(in thousands, except per share and share amounts)
16.
| 16. STOCKHOLDERS’ EQUITY |
Summary
The following table summarizes changes in the components of stockholders’ equity during the nine months ended June 30, 2023, and the nine months ended June 30, 2022 and the nine months ended June 30, 2021 (amounts(amounts in thousands, except par value and share amounts):
| | | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | | | | | | | | | | | | | | | Accumulated | | | | |
| | | Common Stock | | Additional | | | | | | Other | | Total | | | Common Stock | | Additional | | | | | | Other | | Total | |
| | | Shares | | | Par Value Amount | | | Paid-in Capital | | | Accumulated Deficit | | | Comprehensive Loss | | | Stockholders' Equity | | | Shares | | | Par Value Amount | | | Paid-in Capital | | | Accumulated Deficit | | | Comprehensive Loss | | | Stockholders' Equity | |
Balance as of September 30, 2021 | | 36,403,833 | | | $ | 364 | | | $ | 107,110 | | | $ | (41,154 | ) | | $ | 2 | | | $ | 65,958 | | |
Balance as of September 30, 2022 | | | 36,611,240 | | | $ | 366 | | | $ | 108,551 | | | $ | (57,366 | ) | | $ | (792 | ) | | $ | 50,393 | |
Share-based compensation expense | | - | | | 0 | | | 558 | | | 0 | | | 0 | | | 558 | | | - | | | - | | | 420 | | | - | | | - | | | 420 | |
Issuance of common stock upon exercise of stock options, net | | 15,000 | | | 0 | | | 46 | | | 0 | | | 0 | | | 46 | | | 20,000 | | | - | | | 32 | | | - | | | - | | | 32 | |
Stock buyback | | (116,868 | ) | | (1 | ) | | (441 | ) | | 0 | | | 0 | | | (441 | ) | |
Issuance of common stock upon vesting of restricted stock units | | | 12,667 | | | - | | | - | | | - | | | - | | | - | |
Release of obligation to issue commons stock | | 69,564 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 69,564 | | | 1 | | | - | | | - | | | | | | - | |
Accumulated other comprehensive loss | | - | | | 0 | | | 0 | | | 0 | | | (85 | ) | | (85 | ) | |
Accumulated other comprehensive income | | | - | | | - | | | - | | | - | | | 266 | | | 266 | |
Net loss | | | - | | | | 0 | | | | 0 | | | | (1,305 | ) | | | 0 | | | | (1,305 | ) | | | - | | | | - | | | | - | | | | (3,507 | ) | | | | | | | (3,507 | ) |
Balance as of December 31, 2021 | | | 36,371,529 | | | $ | 363 | | | $ | 107,273 | | | $ | (42,459 | ) | | $ | (83 | ) | | $ | 64,731 | | |
Balance as of December 31, 2022 | | | | 36,713,471 | | | | 367 | | | $ | 109,003 | | | $ | (60,873 | ) | | $ | (526 | ) | | $ | 47,604 | |
| | | |
Share-based compensation expense | | - | | | 0 | | | 737 | | | 0 | | | 0 | | | 737 | | | - | | | - | | | 513 | | | - | | | - | | | 513 | |
Issuance of common stock upon exercise of stock options, net | | 55,000 | | | 1 | | | 124 | | | 0 | | | 0 | | | 124 | | | 33,765 | | | 1 | | | 54 | | | - | | | - | | | 54 | |
Issuance of common stock upon cashless exercise of stock options, net | | | 15,914 | | | - | | | - | | | - | | | - | | | - | |
Issuance of common stock upon vesting of restricted stock units | | 262,342 | | | 2 | | | 0 | | | 0 | | | 0 | | | 0 | | | 232,761 | | | 2 | | | (2 | ) | | - | | | - | | | (2 | ) |
Shares retained for payment of taxes in connection with net share settlement of restricted stock units | | (18,344 | ) | | 0 | | | (70 | ) | | 0 | | | 0 | | | (70 | ) | | (11,616 | ) | | - | | | (45 | ) | | - | | | - | | | (45 | ) |
Stock buyback | | (142,442 | ) | | (1 | ) | | (557 | ) | | 0 | | | 0 | | | (557 | ) | |
Accumulated other comprehensive loss | | - | | | 0 | | | 0 | | | 0 | | | (1 | ) | | (1 | ) | |
Accumulated other comprehensive income | | | - | | | - | | | - | | | - | | | 81 | | | 81 | |
Net loss | | | - | | | | 0 | | | | 0 | | | | (492 | ) | | | 0 | | | | (492 | ) | | | - | | | | - | | | | - | | | | (3,403 | ) | | | - | | | | (3,403 | ) |
Balance as of March 31, 2022 | | | 36,528,085 | | | $ | 365 | | | $ | 107,507 | | | $ | (42,951 | ) | | $ | (84 | ) | | $ | 64,472 | | |
Balance as of March 31, 2023 | | | | 36,984,295 | | | $ | 370 | | | $ | 109,523 | | | $ | (64,276 | ) | | $ | (445 | ) | | $ | 44,802 | |
| | | |
Share-based compensation expense | | - | | | 0 | | | 355 | | | 0 | | | 0 | | | 355 | | | - | | | - | | | 396 | | | - | | | - | | | 396 | |
Issuance of common stock upon exercise of stock options, net | | 60,000 | | | 1 | | | 83 | | | 0 | | | 0 | | | 83 | | | 1,000 | | | - | | | 1 | | | - | | | - | | | 1 | |
Issuance of common stock upon cashless exercise of stock options, net | | | 372,286 | | | 4 | | | - | | | - | | | - | | | - | |
Issuance of common stock upon vesting of restricted stock units | | 7,920 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 7,584 | | | - | | | - | | | - | | | - | | | - | |
Accumulated other comprehensive loss | | | | 0 | | | 0 | | | 0 | | | (452 | ) | | (452 | ) | |
Retirement of common stock | | | (109,488 | ) | | (1 | ) | | 300 | | | (300 | ) | | | | | - | |
Shares retained for payment of taxes in connection with net share settlement upon exercise of stock options | | | (74,606 | ) | | (1 | ) | | (207 | ) | | - | | | - | | | (207 | ) |
Accumulated other comprehensive income | | | - | | | - | | | - | | | - | | | 21 | | | 21 | |
Net loss | | | | | | | 0 | | | | 0 | | | | (589 | ) | | | 0 | | | | (589 | ) | | | - | | | | - | | | | - | | | | (1,423 | ) | | | - | | | | (1,423 | ) |
Balance as of June 30, 2022 | | | 36,596,005 | | | $ | 366 | | | $ | 107,945 | | | $ | (43,540 | ) | | $ | (536 | ) | | $ | 63,869 | | |
Balance as of June 30, 2023 | | | | 37,181,071 | | | $ | 372 | | | $ | 110,013 | | | $ | (65,999 | ) | | $ | (424 | ) | | $ | 43,590 | |
Notes to the Condensed Consolidated Financial Statements
(in thousands, except per share and share amounts)
| | | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | | | | | | | | | | | | | | | Accumulated | | | | |
| | | Common Stock | | Additional | | | | | | Other | | Total | | | Common Stock | | Additional | | | | | | Other | | Total | |
| | | Shares | | | Par Value Amount | | | Paid-in Capital | | | Accumulated Deficit | | | Comprehensive Loss | | | Stockholders' Equity | | | Shares | | | Par Value Amount | | | Paid-in Capital | | | Accumulated Deficit | | | Comprehensive Loss | | | Stockholders' Equity | |
Balance as of September 30, 2020 | | 33,561,544 | | | $ | 336 | | | $ | 91,248 | | | $ | (41,858 | ) | | $ | (250 | ) | | $ | 49,140 | | |
Balance as of September 30, 2021 | | | 36,403,833 | | | $ | 364 | | | $ | 107,110 | | | $ | (41,154 | ) | | $ | 2 | | | $ | 65,958 | |
Share-based compensation expense | | - | | | 0 | | | 182 | | | 0 | | | 0 | | | 182 | | | - | | | - | | | 558 | | | - | | | - | | | 558 | |
Issuance of common stock upon exercise of stock options, net | | 25,899 | | | 0 | | | 54 | | | 0 | | | 0 | | | 54 | | | 15,000 | | | - | | | 46 | | | - | | | - | | | 46 | |
Obligation to issue common stock | | - | | | 0 | | | 3,431 | | | 0 | | | 0 | | | 3,431 | | |
Accumulated other comprehensive income | | - | | | 0 | | | 0 | | | 0 | | | 469 | | | 469 | | |
Stock buyback | | | (116,868 | ) | | (1 | ) | | (441 | ) | | - | | | - | | | (441 | ) |
Release of obligation to issue commons stock | | | 69,564 | | | - | | | - | | | - | | | - | | | - | |
Accumulated other comprehensive loss | | | - | | | - | | | - | | | - | | | (85 | ) | | (85 | ) |
Net loss | | | - | | | | 0 | | | | 0 | | | | (619 | ) | | | 0 | | | | (619 | ) | | | - | | | | - | | | | - | | | | (1,305 | ) | | | - | | | | (1,305 | ) |
Balance as of December 31, 2020 | | | 33,587,443 | | | $ | 336 | | | $ | 94,915 | | | $ | (42,477 | ) | | $ | 219 | | | $ | 52,657 | | |
Balance as of December 31, 2021 | | | | 36,371,529 | | | | 363 | | | $ | 107,273 | | | $ | (42,459 | ) | | $ | (83 | ) | | $ | 64,731 | |
| | | |
Share-based compensation expense | | - | | | $ | 0 | | | $ | 328 | | | $ | 0 | | | $ | 0 | | | $ | 328 | | | - | | | - | | | 737 | | | - | | | - | | | 737 | |
Issuance of common stock upon exercise of stock options, net | | 60,563 | | | 1 | | | 116 | | | 0 | | | 0 | | | 116 | | | 55,000 | | | 1 | | | 124 | | | - | | | - | | | 124 | |
Issuance of common stock upon vesting of restricted stock units | | 223,633 | | | 2 | | | 0 | | | 0 | | | 0 | | | 0 | | | 262,342 | | | 2 | | | - | | | - | | | - | | | - | |
Shares retained for payment of taxes in connection with net share settlement of restricted stock units | | (22,073 | ) | | 0 | | | (141 | ) | | 0 | | | 0 | | | (141 | ) | | (18,344 | ) | | - | | | (70 | ) | | - | | | - | | | (70 | ) |
Stock buyback | | | (142,442 | ) | | (1 | ) | | (557 | ) | | - | | | - | | | (557 | ) |
Accumulated other comprehensive loss | | - | | | 0 | | | 0 | | | 0 | | | (78 | ) | | (78 | ) | | - | | | - | | | - | | | - | | | (1 | ) | | (1 | ) |
Net income | | | - | | | | 0 | | | | 0 | | | | 262 | | | | 0 | | | | 262 | | |
Balance at March 31, 2021 | | | 33,849,566 | | | $ | 339 | | | $ | 95,218 | | | $ | (42,215 | ) | | $ | 141 | | | $ | 53,144 | | |
Net loss | | | | - | | | | - | | | | - | | | | (492 | ) | | | - | | | | (492 | ) |
Balance as of March 31, 2022 | | | | 36,528,085 | | | | 365 | | | $ | 107,507 | | | $ | (42,951 | ) | | $ | (84 | ) | | $ | 64,472 | |
| | | |
Share-based compensation expense | | - | | | $ | 0 | | | $ | 446 | | | $ | 0 | | | $ | 0 | | | $ | 446 | | | - | | | - | | | $ | 355 | | | - | | | - | | | 355 | |
Issuance of common stock upon exercise of stock options, net | | | 60,000 | | | 1 | | | 83 | | | - | | | - | | | 83 | |
Issuance of common stock upon vesting of restricted stock units | | 5,000 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 7,920 | | | - | | | - | | | - | | | - | | | - | |
Issuance of common stock in business combination | | 2,165,824 | | | 22 | | | 10,938 | | | 0 | | | 0 | | | 10,938 | | |
Release of obligation to issue commons stock | | 121,703 | | | 1 | | | 0 | | | 0 | | | 0 | | | 0 | | |
Accumulated other comprehensive income | | - | | | 0 | | | 0 | | | 0 | | | 183 | | | 183 | | |
Net income | | | - | | | | 0 | | | | 0 | | | | 290 | | | | 0 | | | | 290 | | |
Balance at June 30, 2021 | | | 36,142,093 | | | $ | 362 | | | $ | 106,602 | | | $ | (41,925 | ) | | $ | 324 | | | $ | 65,001 | | |
Accumulated other comprehensive loss | | | - | | | - | | | - | | | - | | | (452 | ) | | (452 | ) |
Net loss | | | | - | | | | - | | | | - | | | | (589 | ) | | | - | | | | (589 | ) |
Balance as of June 30, 2022 | | | | 36,596,005 | | | $ | 366 | | | $ | 107,945 | | | $ | (43,540 | ) | | $ | (536 | ) | | $ | 63,869 | |
Common stock activity
During the nine months ended June 30, 2023, the Company issued 258,871 shares of common stock and received gross proceeds of $87 in connection with the exercise of stock options, and the Company issued 253,012 shares of common stock in connection with the vesting of RSUs. During the three months ended June 30, 2023, an employee exercised 786,747 stock options in a net share settlement transaction. 565,214 shares were used as consideration for the exercise of these options and 74,606 shares were retained for taxes associated with this option exercise, resulting in 146,927 shares being issued to the employee. Also, during the three months ended June 30, 2023, an employee used 109,488 shares of common stock as consideration for the exercise of 150,753 incentive stock options. All shares of common stock surrendered for options exercises have been retired. During the nine months ended June 30, 2022, the Company issued 130,000 shares of common stock and received gross proceeds of $253 in connection with the exercise of stock options, and the Company issued 251,918 shares of common stock in connection with the vesting of RSUs. During the nine months ended June 30, 2021, the Company issued 86,462 shares of common stock and received gross proceeds of $170 in connection with the exercise of stock options and the Company issued 206,560 shares of commons stock in connection with the vesting of RSUs.
In connection with the Amika Mobile asset purchase, the Company agreed to issue 191,267 shares of the Company’s common stock to the former 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 is obligated to issue is 573,801. The fair value of the Company’s common stock on the closing date was $5.98 per share, 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. During the year ended September 30, 2022, the Company issued 69,564 shares to the former owners of the Amika Mobile assets. During the nine months ended June 30, 2022, 2023, the Company issued 69,564 shares to the former owners of the Amika Mobile assets. There are 139,12869,564 remaining shares of the Company’s common stock subject to issuance under this obligation.
Share buyback program
In December 2018, the Board of Directors approved a new share buyback program beginning January 1, 2019, and expiring on December 31, 2020, under which the Company was authorized to repurchase up to $5 million of its outstanding common shares. In December 2020, the Board of Directors extended the buyback program until December 31, 2022. The previousIn December 2022, the Board of Directors extended the Company’s share buyback program expired on through December 31, 2018.2024.
Notes to the Condensed Consolidated Financial Statements
(in thousands, except per share and share amounts)
There were no shares repurchased during the nine months ended June 30, 2023. During the nine months ended June 30, 2022, 259,310 shares were repurchased for $998. There were 0All repurchased shares repurchased during the nine months ended have been retired as of June 30, 2021. As of June 30, 2022, all repurchased shares were retired.2023, and $3 million was available for share repurchase under the program.
Dividends
There were 0no dividends declared in the nine months ended June 30, 2022 2023 and 2021.
Genasys Inc.
Notes to the Condensed Consolidated Financial Statements
(in thousands, except per share and share amounts)
(Unaudited)
2022.
17.
| NET (LOSS) INCOME
17. NET LOSS PER SHARE |
The following table sets forth the computation of basic and diluted net (loss) incomeloss per share:
| | | Three months ended | | Nine months ended | | | Three months ended | | Nine months ended | |
| | | June 30, | | | June 30, | | | June 30, | | | June 30, | |
| | | 2022 | | | 2021 | | | 2022 | | | 2021 | | | 2023 | | | 2022 | | | 2023 | | | 2022 | |
Net (loss) income | | $ | (589 | ) | | $ | 290 | | | $ | (2,386 | ) | | $ | (67 | ) | |
Net loss | | | $ | (1,423 | ) | | $ | (589 | ) | | $ | (8,334 | ) | | $ | (2,386 | ) |
| | | |
Basic (loss) income per share | | $ | (0.02 | ) | | $ | 0.01 | | | $ | (0.07 | ) | | $ | (0.00 | ) | |
Diluted (loss) income per share | | $ | (0.02 | ) | | $ | 0.01 | | | $ | (0.07 | ) | | $ | (0.00 | ) | |
Basic and diluted loss per share | | | $ | (0.04 | ) | | $ | (0.02 | ) | | $ | (0.23 | ) | | $ | (0.07 | ) |
| | | |
Weighted average shares outstanding - basic | | 36,566,900 | | | 34,109,167 | | | 36,459,179 | | | 33,797,774 | | | 37,053,196 | | | 36,566,900 | | | 36,855,014 | | | 36,459,179 | |
Assumed exercise of dilutive options | | | 0 | | | | 1,161,778 | | | | 0 | | | | 0 | | | | - | | | | - | | | | - | | | | - | |
Weighted average shares outstanding - diluted | | | 36,566,900 | | | | 35,270,945 | | | | 36,459,179 | | | | 33,797,774 | | | | 37,053,196 | | | | 36,566,900 | | | | 36,855,014 | | | | 36,459,179 | |
| | | |
Potentially dilutive securities outstanding at period end excluded from diluted computation as the inclusion would have been antidilutive: | | |
Options | | 2,927,384 | | | 1,035,000 | | | 2,927,384 | | | 2,743,718 | | | 3,287,772 | | | 2,927,384 | | | 3,287,772 | | | 2,927,384 | |
RSU | | 374,341 | | | 0 | | | 374,341 | | | 364,469 | | | 385,429 | | | 139,128 | | | 385,429 | | | 374,341 | |
Obligation to issue common stock | | | 139,128 | | | | 452,098 | | | | 139,128 | | | | 452,098 | | | | 69,564 | | | | 374,341 | | | | 69,564 | | | | 139,128 | |
Total | | | 3,440,853 | | | | 1,487,098 | | | | 3,440,853 | | | | 3,560,285 | | | | 3,742,765 | | | | 3,440,853 | | | | 3,742,765 | | | | 3,440,853 | |
18.
| 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 2two 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 salesrevenue 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.
Notes to the Condensed Consolidated Financial Statements
(in thousands, except per share and share amounts)
The following table presents the Company’s segment disclosures:
| | | June 30, | | June 30, | | | Three months ended | | Nine months ended | |
| | | 2022 | | | 2021 | | | 2022 | | | 2021 | | | June 30, | | June 30, | |
| | | | 2023 | | | 2022 | | | 2023 | | | 2022 | |
Revenue from external customers | | |
Hardware | | $ | 13,419 | | | $ | 11,877 | | | $ | 36,041 | | | $ | 29,889 | | | $ | 13,324 | | | $ | 13,419 | | | $ | 33,269 | | | $ | 36,041 | |
Software | | | 733 | | | | 750 | | | | 1,956 | | | | 2,067 | | | | 938 | | | | 733 | | | | 2,693 | | | | 1,956 | |
| | | $ | 14,152 | | | $ | 12,627 | | | $ | 37,997 | | | $ | 31,956 | | | $ | 14,262 | | | $ | 14,152 | | | $ | 35,962 | | | $ | 37,997 | |
| | | |
Intersegment revenues | | |
Hardware | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
Software | | | 860 | | | | 581 | | | | 2,354 | | | | 1,187 | | | | 1,423 | | | | 860 | | | | 4,005 | | | | 2,354 | |
| | | $ | 860 | | | $ | 581 | | | $ | 2,354 | | | $ | 1,187 | | | $ | 1,423 | | | $ | 860 | | | $ | 4,005 | | | $ | 2,354 | |
| | | |
Segment operating income (loss) | | |
Segment operating loss | | |
Hardware | | $ | 2,495 | | | $ | 1,938 | | | $ | 6,204 | | | $ | 4,242 | | | $ | 2,302 | | | $ | 2,495 | | | $ | 2,661 | | | $ | 6,204 | |
Software | | | (3,124 | ) | | | (1,418 | ) | | | (8,969 | ) | | | (3,862 | ) | | | (3,752 | ) | | | (3,124 | ) | | | (11,009 | ) | | | (8,969 | ) |
| | | $ | (629 | ) | | $ | 520 | | | $ | (2,765 | ) | | $ | 380 | | | $ | (1,450 | ) | | $ | (629 | ) | | $ | (8,348 | ) | | $ | (2,765 | ) |
| | | |
Other expenses: | | |
Depreciation and amortization expense | | |
Hardware | | $ | 95 | | | $ | 98 | | | $ | 285 | | | $ | 282 | | | $ | 97 | | | $ | 95 | | | $ | 297 | | | $ | 285 | |
Software | | | 543 | | | | 303 | | | | 1,635 | | | | 671 | | | | 539 | | | | 543 | | | | 1,621 | | | | 1,635 | |
| | | $ | 638 | | | $ | 401 | | | $ | 1,920 | | | $ | 953 | | | $ | 636 | | | $ | 638 | | | $ | 1,918 | | | $ | 1,920 | |
| | | |
Income tax expense (benefit) | | |
Hardware | | $ | (13 | ) | | $ | 447 | | | $ | 1,053 | | | $ | 978 | | | $ | - | | | $ | (13 | ) | | $ | 8 | | | $ | 1,053 | |
Software | | | (18 | ) | | | (219 | ) | | | (1,420 | ) | | | (472 | ) | | | (26 | ) | | | (18 | ) | | | (26 | ) | | | (1,420 | ) |
| | | $ | (31 | ) | | $ | 228 | | | $ | (367 | ) | | $ | 506 | | | $ | (26 | ) | | $ | (31 | ) | | $ | (18 | ) | | $ | (367 | ) |
| | | June 30, | | September 30, | | | June 30, | | September 30, | |
| | | 2022 | | | 2021 | | | 2023 | | | 2022 | |
Long-lived assets | | |
Hardware | | $ | 1,623 | | | $ | 1,748 | | | $ | 1,529 | | | $ | 1,677 | |
Software | | | 11,119 | | | | 12,811 | | | | 9,095 | | | | 10,585 | |
| | | $ | 12,742 | | | $ | 14,559 | | | $ | 10,624 | | | $ | 12,262 | |
| | | |
Total assets | | |
Hardware | | $ | 47,177 | | | $ | 50,364 | | | $ | 38,920 | | | $ | 47,237 | |
Software | | | 37,934 | | | | 39,764 | | | | 21,841 | | | | 24,617 | |
| | | $ | 85,111 | | | $ | 90,128 | | | $ | 60,761 | | | $ | 71,854 | |
19.
| 19. MAJOR CUSTOMERS, SUPPLIERS AND RELATED INFORMATION |
For the three months ended June 30, 2023, revenues from one customer accounted for 68% of total revenues with no other single customer accounting for more than 10% of revenues. For the nine months ended June 30, 2023, revenues from one customer accounted for 61% of total revenues with no other single customer accounting for more than 10% of revenues. As of June 30, 2023, accounts receivable from two customers accounted for 69% and 11% of total accounts receivable, with no other single customer accounting for more than 10% of the accounts receivable balance.
For the three months ended June 30, 2022, revenues from one customer accounted for 77% of total revenues with no other single customer accounting for more than 10% of revenues. For the nine months ended June 30, 2022, revenues from one customer accounted for 70% of total revenues with no other single customer accounting for more than 10% of revenues. As of June 30, 2022, accounts receivable from two customers accounted for 61% and 19% of total accounts receivable, with no other single customer accounting for more than 10% of the accounts receivable balance.
For the three months ended June 30, 2021, revenues from one customer accounted for 62% of total revenues with no other single customer accounting for more than 10% of revenues. For the nine months ended June 30, 2021, revenues from one customer accounted for 54% of total revenues with no other single customer accounting for more than 10% of revenues. As of June 30, 2021, accounts receivable from two customers accounted for 51% and 17% of total accounts receivable, with no other single customer accounting for more than 10% of the accounts receivable balance.
Notes to the Condensed Consolidated Financial Statements
(in thousands, except per share and share amounts)
Revenue from customers in the United States was $12,631$12,177 and $10,564$12,631 for the three months ended June 30, 2022 2023 and 2021,2022, respectively. Revenue from customers in the United States was $31,465$29,526 and $24,401$31,466 for the nine months ended June 30, 2022 2023 and 2021,2022, respectively. The following table summarizes revenues by geographic region. Revenues are attributed to countries based on customer’scustomers’ delivery location. The following table summarizes revenues by geographic region.
| | | June 30, | | | June 30, | |
| | | 2022 | | | 2021 | | | 2022 | | | 2021 | |
Americas | | $ | 12,674 | | | $ | 11,090 | | | $ | 32,205 | | | $ | 25,496 | |
Asia Pacific | | | 514 | | | | 887 | | | | 2,969 | | | | 4,110 | |
Europe, Middle East and Africa | | | 964 | | | | 650 | | | | 2,823 | | | | 2,350 | |
Total Revenues | | $ | 14,152 | | | $ | 12,627 | | | $ | 37,997 | | | $ | 31,956 | |
| | | Three months ended June 30, | | | Nine months ended June 30, | |
| | | 2023 | | | 2022 | | | 2023 | | | 2022 | |
Americas | | $ | 13,189 | | | $ | 12,674 | | | $ | 32,371 | | | $ | 32,205 | |
Asia Pacific | | | 491 | | | | 514 | | | | 1,795 | | | | 2,969 | |
Europe, Middle East and Africa | | | 582 | | | | 964 | | | | 1,796 | | | | 2,823 | |
Total Revenues | | $ | 14,262 | | | $ | 14,152 | | | $ | 35,962 | | | $ | 37,997 | |
The following table summarizes long-lived assets by geographic region.
| | | June 30, | | September 30, | | | March 31, | | September 30, | |
| | | 2022 | | | 2021 | | | 2023 | | | 2022 | |
United States | | 10,079 | | | $ | 11,342 | | | $ | 10,207 | | | $ | 11,800 | |
Americas (excluding the United States) | | 2,204 | | | 2,542 | | | 10 | | | 16 | |
Asia Pacific | | | - | | | - | |
Europe, Middle East and Africa | | | 459 | | | | 675 | | | | 407 | | | | 446 | |
Total long lived assets | | $ | 12,742 | | | $ | 14,559 | | |
| | | | $ | 10,624 | | | $ | 12,262 | |
Item 2. 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, 2021.2022.
Forward Looking Statements
This report contains certain statements of a forward-looking nature relating to future events or future performance. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements but are not the only means of identifying forward-looking statements. Prospective investors are cautioned that such statements are only predictions and actual events or results may differ materially. In evaluating such statements, prospective investors should specifically consider various factors identified in this report and any matters set forth under Part I, Item 1A (Risk Factors) of our Annual Report on Form 10-K, which could cause actual results to differ materially from those indicated by such forward-looking statements.
For purposes of this Quarterly Report, the terms “we,” “us,” “our” “Genasys” and the “Company” refer to Genasys Inc. and its consolidated subsidiaries.
Overview
Genasys is a global provider of criticalunified protective communications hardwaresoftware solutions and softwarehardware systems designed to alert, inform, and inform to help keepsafeguard people, safe. Our unifiedcommunities, and organizations. The Genasys Protect™ platform receivescollects information on developing and active emergency situations from a wide variety of sensors and Internet-of-Things (IoT) inputs and empowers governments, businesses, and organizations to collectdeliver real-time, information on developinggeo-targeted notifications and active emergency situations. Genasys uses this information to create and disseminate alerts, warnings, notifications, and instructions through multiple channelspeople in harm’s way before, during, and after public safety and enterprise threats, critical events, and other crisis situations.threats.
Our multi-channel approachThe Genasys Protect platform includes:
| •
Software GEM Genasys Emergency Management (“GEM”) is Genasys’ software-as-a-service (“SaaS”) product platform that includes GEM Public Safety, GEM Enterprise, Zonehaven and NEWS. | Genasys Emergency Management (GEM) is Genasys’ software-based product platform. The GEM product line consists of GEM Software, IMNS, and Zonehaven.
|
GEM SoftwarePublic Safety is an interactive, cloud-based SaaS solution that sendsenables State, Local and Education (“SLED”) customers to send critical information to at-risk individuals or groups when an emergency occurs. GEM Software 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. GEM Software operatorscustomers can create and send critical, verified, and secure notifications and messages using emails, voice calls, text messages, panic buttons, desktop alerts, television, social media, and more. Additionally, Genasys is a certified provider of Integrated Public Alert and Warning System (“IPAWS”) notifications.
Integrated Mass Notification System (IMNS)GEM Enterprise is Genasys’ comprehensiveempowers businesses and organizations to send critical communications to at-risk employees, contractors, visitors, or groups based on geographic location or team status. Operated and controlled via a single dashboard that includes two-way polling, duress buttons, field check-ins, and recipient locations, GEM SoftwareEnterprise integrates with data sources, including active directories, human resources, visitor management, and Genasys hardware emergency response solution. IMNS gives operators the abilitybuilding control systems to communicate critical notifications across platforms using a commandfind and control interface that can be accessed from an emergency operations center, authorized computer, or smart phone. Alertsdeliver safety alerts and notifications can be sent via text messages, emails, IPAWS, desktop alerts, television, voice calls, social media,to employees, staff, contractors, temporary workers, and Genasys speaker systems. IMNS creates layered redundancy that enables the maximum number of people to receive critical communications.visitors.
Zonehavenis a multi-facetedmultipronged SaaS solutionapplication that serves both first responders and the communitiesjurisdictions they protect. ZonehavenEmergency services agencies can function as a standalone applicationprepare for natural or as a GEM software integration. When an incident occurs,man-made disasters by developing evacuation plans that map routes, shelters, traffic control locations, and road closures using Zonehaven's extensive public safety resources and mapped zones. This information is easily shared with the Zonehaven platform mapspublic and simulatesreduces the speedtime it takes to execute emergency evacuations and direction of the incident and determines which zones (geographic areas) are at risk and need to be evacuated. As an incident develops, Zonehaven’s real-time incident, evacuation status, and repopulation updates provide emergency agencies and at-risk people current information to help them stay safe.conduct orderly repopulations.
| •
| National Emergency Warning System (NEWS) software provides multi-channel public safety notifications and instructions to designated areas, groups, or agencies when a crisis occurs. The NEWS platform is cloud-based, geo-redundant, and end-to-end encrypted. When implemented with mobile telecom services, NEWS delivers Location-based SMS and Cell Broadcast alerts and notifications to anyone, anywhere, with no recipient opt-in, registration, or download required. While other SMS alert providers take up to 15 minutes to find the mobile phones of people in at-risk areas, NEWS locates recipients and delivers messages in near real time. NEWS’ data is anonymized to help people
NEWS (National Emergency Warning System) provides multichannel public safety notifications and instructions to designated areas, groups, or agencies when a crisis occurs. Genasys partners with mobile telecom networks to deliver NEWS SMS and cell broadcast alerts and notifications that can be sent to anyone, anywhere, with no recipient opt-in, registration, or download required. NEWS can locate recipients and deliver messages in near real time, compared with other SMS alert providers that can take up to 15 minutes. Even with NEWS’ reach and scope, all data is anonymized, ensuring individuals stay safe and informed without sacrificing their privacy. |
| •
| LRAD is the world’s leading Acoustic Hailing Device (AHD). LRAD systems broadcast siren tones and audible voice messages with exceptional vocal clarity from close range to 5,500 meters. LRAD systems are used throughout the world in multiple applications to safely hail and warn, inform and direct, prevent misunderstandings, determine intent, establish large safety zones, resolve uncertain situations, and save lives.
|
OurHardware
IMNS (Integrated Mass Notification System) products unite Genasys next generation mass notification speaker systems with GEM command-and-control software. Genasys advanced mass notification systems feature the industry's highest Speech Transmission Index (“STI”), large directional and omni-directional broadcast coverage areas, and an array of options that enable continued operation when power or telecommunications infrastructure goes down.Emergency alerts and information can be sent via individual, grouped or networked IMNS installations, text messages, emails, IPAWS, desktop alerts, television, voice calls, and social media. IMNS' layered redundancy helps to ensure the maximum number of people receive critical communications systemscommunications.
LRAD is the world’s leading Acoustic Hailing Device (“AHD”), projecting audible alert tones and voice messages with exceptional clarity in a 30° beam from close range to 5,500 meters. LRADs are being used throughout the world in multiple applications and circumstances to safely hail, warn, inform, direct, prevent misunderstandings, determine intent, establish large safety zones, resolve uncertain situations, and save lives. LRAD voice and alert tone broadcasts cut through background noise and are clearly heard and understood over distance.
LRAD is the de facto standard of the global AHD market with more than 100 countries using our long-range communication systems in a range of diverse applications that include public safety, emergency warning, mass notification, defense, law enforcement, border and homeland security, critical infrastructure protection, wildlife preservation, and many more.
We continue to develop new critical ommunicationsprotective communications innovations and believe we have established significant competitive advantages in our principal markets.
Recent Developments
Business developments in the fiscal quarter ended June 30, 2022:2023:
| | • | Received $15.7 million LRAD orderGenasys Protect app launched and made available for download from the U.S. Army under AHD Program of RecordApp Store and Google Play
|
| | • | Announced GEM governmentSanta Cruz and enterprise software contractsSan Benito counties selected Genasys to power public safety alerts and expanded GEM and Zonehaven software servicesnotifications, expanding Genasys Protect coverage in multiple cities,California to 32 counties and states18.4 million residents
|
| | • | Awarded $1.5 million in LRAD foreign military salesLarge outdoor entertainment destination ordered Genasys integrated mass notification systems to provide venue tourists and defense ordersvisitors emergency warnings and public safety alerts during critical events
|
| | • | Announced next generation IMNS installations in Japan and order from U.S. Army
|
| •
| Shipped and received new orders for the LRAD 950NXT, the Company's next generation remotely operated long-range communication system placed $10.7 million follow-on AHD program of record order
|
Revenues for the Company’s third quarter of fiscal 2022,2023 were $14.2$14.3 million, ana $0.1 million increase from $12.6$14.2 million in the third quarter of fiscal 2021. IMNS2022. Quarterly software revenue ($3.9 million)of $938 thousand, increased $3,437,$205 thousand, year over year, offset by decreasesa decrease of $17$0.1 million in softwarehardware revenue ($733) and $1,89513.3 million), in LRAD revenue ($9.5 million) compared with the prior yearJune ended quarter. The timing of budget cycles, government financial issues and military conflict in certain areas of the world, often delay hardware contract awards, resulting in uneven quarterly revenue. Gross profit increaseddecreased compared to the same quarter in the prior year, primarily as a result of higher sales.component costs for LRADs delivered against legacy contracts and pricing. Operating expenses in the quarter ended June 30, 2022,2023, increased 22.2%8.7% to $7.2$8.1 million, compared with $5.9$7.5 million in the same period in the prior year. The primary driver of the change is personnel hired in conjunction with our stated investment in building our software business. The Company had 201 employees as of June 30, 2023, as compared with 180 in the prior year period. We reported a net loss of $589$1.4 million for the third quarter of fiscal 2022,2023, or a loss of $0.2$(0.04) per share, compared with a net incomeloss of $290,$589 thousand, or $0.01$(0.02) per share, for the same quarter in the prior year.
Overall Business Outlook
Our products, systems, and solutions continue to gain worldwide awareness and recognition through our sales and marketing efforts, media exposure, product demonstrations, and word of mouth as a result of positive responses and increased acceptance. We believe we have a solid global brand, technology, and product foundation, which we continue to expand to serve new markets and customers for greater business growth. We believe we have strong market opportunities for our product offerings throughout the world in the defense, public safety, emergency warning, mass notification, critical event management, and law enforcement and border and homeland security sectors as a result of increasing threats topublic safety, enterprise, government, commerce, homeland security, and critical infrastructure.organizational threats. 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 an increased demand for LRAD systemsLRADs and advanced outdoor mass notification speakers. We have a reputation for producing quality products that feature industry leadingindustry-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 and financial planning.
The proliferation of natural and man-made disasters, emergency events, violentand civil unrest and military conflicts require technologically advanced, multi-channel solutions to deliver clear and timely critical communications to help keep people safe during crisis situations. Businesses are also implementingincorporating critical communication and emergency management systems that locate and help safeguard employees when crises occur.
By providing the only SaaS platform that unifies sensors and IoT inputs with multi-channel, multi-agencymultichannel, cross-jurisdictional 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 business threats, critical events, and other life-safety situations.enterprise threats.
While the software and hardware mass notification market ismarkets are more mature with many established manufacturers and suppliers, we believe that our advanced technology and unified protective communications platform provides opportunities to succeed in the large and growing public safety, emergency warning, and critical communications markets.
In the remainder of fiscal 2022,2023 and into fiscal 2024, we are continuingintend to pursuecontinue pursuing domestic and international business opportunities with the support of business development consultants, key representatives, and resellers. We plan to grow our revenuerevenues through increased direct sales to governments and agencies that desire to integrate our communication technologies into their defense, homeland security and public safety systems. This includes building on fiscal 2021 domestic defense sales by pursuing further U.S. military opportunities. We also plan to pursue emergency warning, public safety and enterprise critical communications,event management, government, law enforcement, fire rescue, homeland and international security, private and commercial security, border security, maritime security, and wildlife dispersion and preservation business opportunities. In addition to the matters above, we are authorized for the performance of services and provision of goods pursuant to Delaware General Corporation Law.
Our research and development strategy involves incorporating further innovations and capabilities into our GEM, IMNS, Zonehaven, NEWS and LRAD products,Genasys Protect platform, systems, and solutions to meet the needs of our target markets.
Our GEM, IMNS, Zonehaven, and NEWS software solutions representare complex offerings that we intend to message more complex, integrated offerings.succinctly with improved and expanded marketing. We are pursuing certain certifications, which are often required when bidding on government and mass notification opportunities. We intendcontinue to invest engineering resources to enhance our GEM, IMNS, Zonehaven and NEWSGenasys Protect 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.
In March 2020, the World Health Organization ("WHO") classified the COVID-19 outbreak as a pandemic. While the impact of the COVID-19 pandemic did not have a material adverse effect on our financial position or results of operations for the nine months ended June 30, 2022, we monitor the developments and assess areas where there is potential for our business to be impacted. A significant portion of our sales force is working remotely, which could, among other things, negatively impact our ability to engage in sales-related initiatives, or efficiently conduct day-to-day operations. Businesses and governments with which we engage may be operating under restrictions and experiencing disruptions, which may create obstacles in the coordination of business activities, including the negotiation and fulfillment of orders. Disruptions in the supply chain could negatively impact our ability to source materials or manufacture and distribute products. While we do not currently anticipate a material reduction in demand for our commercialized products, we could experience a decrease in new orders, which could negatively impact our revenues and reduce our liquidity and cash flows. Growth in revenue could also be impeded by these factors. The financial markets have been subject to significant volatility that could impact our ability to enter into, modify, and negotiate favorable terms and conditions relative to equity and debt financing activities. We have $11.7 million in cash and cash equivalents as of June 30, 2022, which we believe provides sufficient capital to fund our operations for at least the next twelve months and withstand the potential near-term consequences of the pandemic, although liquidity constraints and access to capital markets could adversely impact our liquidity and warrant changes to our investment strategy. While we have not yet experienced a material impact, the full magnitude of the pandemic cannot be measured at this time, and therefore, any of the aforementioned circumstances, as well as other factors, may cause our results of operations to vary substantially from year to year and quarter to quarter.
Based on various standards published to date, we believe the work our associates perform is critical, essential and life sustaining. We are taking a variety of measures to promote the safety and security of our employees while ensuring the availability and functionality of our critical infrastructure. We are following Center for Disease Control and local guidelines regarding COVID-19 safety in the workplace. In addition, the following events related to the COVID-19 pandemic could result in lost or delayed revenue to the Company: limitations on the ability of our suppliers to meet delivery requirements and commitments; limitations on the ability of our employees to perform their work due to illness caused by the pandemic, or local, state or federal orders requiring employees to remain at home; limitations on the ability of carriers to deliver our products to customers; unforeseen deviations from customers or foreign governments restricting the ability to do business; and, limitations on the ability of our customers to pay us on a timely basis, if at all.
A large number of 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 directly from suppliers in China, however, itChina. It is likely that some of our suppliers source parts or raw materials in China. The aftermath of the COVID-19 pandemic has adversely impactedcontinues to impact worldwide supply chains and the ability to obtain sufficient amounts of component parts, including semiconductor chips and integrated circuits, resins, coating and other equipment and components. Negative impacts on our supply chain could have a material adverse effecteffects on our business. We are in contactcommunicate with our suppliers and evaluating what impact may result from COVID-19.regarding measures to mitigate ongoing worldwide supply chain issues.
We have been affected by price increases from our suppliers and logistics as well as other inflationary factors such as increased salary, labor, and overhead costs. We regularly review and adjust the sales price of our finished goods to offset these inflationary factors. Although we do not believe that inflation has had a material impact on our financial results through June 30, 2022, sustainedSustained or increased inflation in the future may have a negative effect onaffect our ability to achieve certain expectations in gross margin and operating expenses. If we are unable to offset the negative impacts of 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’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, 2021.2022. 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, have a significant impact on the results we report in our financial statements. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. The estimates affect the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.
Comparison of Results of Operations for the Three Months Ended June 30, 20222023 and 20212022 (in thousands)
| | | Three Months Ended | | | | | | | | | | Three Months Ended | | | | | | | | |
| | | June 30, 2022 | | June 30, 2021 | | | | | | | | | | June 30, 2023 | | June 30, 2022 | | | | | | | | |
| | | | | | | % of | | | | | | % of | | | | | | | | | | | | | | % of | | | | | | % of | | | | | | | | |
| | | | | | | Total | | | | | | Total | | Fav(Unfav) | | | | | | | Total | | | | | | Total | | Fav(Unfav) | |
| | | Amount | | | Revenue | | | Amount | | | Revenue | | | Amount | | | % | | | Amount | | | Revenue | | | Amount | | | Revenue | | | Amount | | | % | |
Revenues: | | |
Product sales | | $ | 12,904 | | | 91.2 | % | | $ | 10,719 | | | 84.9 | % | | $ | 2,185 | | | 20.4 | % | |
Product revenue | | | $ | 12,593 | | | 88.3 | % | | $ | 12,904 | | | 91.2 | % | | $ | (311 | ) | | (2.4 | %) |
Contract and other | | | 1,248 | | | 8.8 | % | | | 1,908 | | | 15.1 | % | | | (660 | ) | | (34.6 | %) | | | 1,669 | | | 11.7 | % | | | 1,248 | | | 8.8 | % | | | 421 | | | | 33.7 | % |
Total revenues | | 14,152 | | | 100.0 | % | | 12,627 | | | 100.0 | % | | 1,525 | | | 12.1 | % | | 14,262 | | | 100.0 | % | | 14,152 | | | 100.0 | % | | 110 | | | 0.8 | % |
| | | |
Cost of revenues | | | 7,572 | | | 53.5 | % | | | 6,206 | | | 49.1 | % | | | (1,366 | ) | | (22.0 | %) | | | 7,567 | | | 53.1 | % | | | 7,289 | | | 51.5 | % | | | (278 | ) | | | (3.8 | %) |
Gross profit | | 6,580 | | | 46.5 | % | | 6,421 | | | 50.9 | % | | 159 | | | 2.5 | % | |
Gross Profit | | | 6,695 | | | 46.9 | % | | 6,863 | | | 48.5 | % | | (168 | ) | | (2.4 | %) |
| | | |
Operating expenses | | |
Selling, general and administrative | | 5,502 | | | 38.9 | % | | 4,776 | | | 37.8 | % | �� | | (726 | ) | | (15.2 | %) | | 6,004 | | | 42.1 | % | | 5,785 | | | 40.9 | % | | (219 | ) | | (3.8 | %) |
Research and development | | | 1,707 | | | 12.1 | % | | | 1,125 | | | 8.9 | % | | | (582 | ) | | (51.7 | %) | | | 2,141 | | | 15.0 | % | | | 1,707 | | | 12.1 | % | | | (434 | ) | | | (25.4 | %) |
Total operating expenses | | | 7,209 | | | 50.9 | % | | | 5,901 | | | 46.7 | % | | | (1,308 | ) | | (22.2 | %) | | | 8,145 | | | 57.1 | % | | | 7,492 | | | 52.9 | % | | | (653 | ) | | | (8.7 | %) |
| | | |
(Loss) income from operations | | (629 | ) | | (4.4 | %) | | 520 | | | 4.1 | % | | (1,149 | ) | | (221.0 | %) | |
Loss from operations | | | (1,450 | ) | | (10.2 | %) | | (629 | ) | | (4.4 | %) | | (821 | ) | | 130.5 | % |
| | | |
Other income (expense), net | | | 9 | | | 0.1 | % | | | (2 | ) | | (0.0 | %) | | | 11 | | | (550.0 | %) | |
Other income, net | | | | 1 | | | 0.0 | % | | | 9 | | | 0.1 | % | | | (8 | ) | | | (88.9 | %) |
| | | |
(Loss) income before income taxes | | (620 | ) | | (4.4 | %) | | 518 | | | 4.1 | % | | (1,138 | ) | | (219.7 | %) | |
Income tax (benefit) expense | | | (31 | ) | | (0.2 | %) | | | 228 | | | 1.8 | % | | | 259 | | | 113.6 | % | |
Net (loss) income | | $ | (589 | ) | | (4.2 | %) | | $ | 290 | | | 2.3 | % | | $ | (879 | ) | | (303.1 | %) | |
Loss before income taxes | | | (1,449 | ) | | (10.2 | %) | | (620 | ) | | (4.4 | %) | | (829 | ) | | 133.7 | % |
Income tax benefit | | | | (26 | ) | | (0.2 | %) | | | (31 | ) | | (0.2 | %) | | | (5 | ) | | | 16.1 | % |
Net loss | | | $ | (1,423 | ) | | (10.0 | %) | | $ | (589 | ) | | (4.2 | %) | | $ | (834 | ) | | | 141.6 | % |
| | | |
Net revenue | | |
Hardware | | $ | 13,419 | | | 94.8 | % | | $ | 11,877 | | | 94.1 | % | | 1,542 | | | 13.0 | % | | $ | 13,324 | | | 93.4 | % | | $ | 13,419 | | | 94.8 | % | | $ | (95 | ) | | (0.7 | %) |
Software | | | 733 | | | 5.2 | % | | | 750 | | | 5.9 | % | | | (17 | ) | | (2.3 | %) | | | 938 | | | 6.6 | % | | | 733 | | | 5.2 | % | | | 205 | | | | 28.0 | % |
Total net revenue | | $ | 14,152 | | | 100.0 | % | | $ | 12,627 | | | 100.0 | % | | $ | 1,525 | | | 12.1 | % | | $ | 14,262 | | | 100.0 | % | | $ | 14,152 | | | 100.0 | % | | $ | 110 | | | | 0.8 | % |
The tablestable above setsets forth for the periods indicated, certain items of our condensed consolidated statements of operations expressed in dollars and as a percentage of net revenues. The financial information and the discussion below should be read in conjunction with the condensed consolidated financial statements and notes contained in this report.
Revenues
Revenues increased $1,525, or 12.1%,were $110 higher compared with the same quarter in the prior year. IMNSSoftware revenue ($3,894) increased $3,437, while software$205, partially offset by a $95 decrease in hardware revenue, ($733) decreased $17 and LRAD revenue ($9,525) decreased $1,895, compared with the prior fiscal year quarter. HigherLower hardware revenue in the third quarter of fiscal 20222023 was largely due to the largerlower backlog at the start of thethis fiscal year compared with the prior fiscal year amount. Softwarebacklog. The higher software revenue was essentially unchanged, reflectingprimarily due to a 47% increase in recurring revenue, partially offset by lower professional services performed in the current quarter, offset by higher recurring software revenue.quarter. The receipt of orders is often uneven due to the timing of budget cycles, government financial issues and military conflict. As of June 30, 2022,2023, we had aggregate deferred revenue of $1,340$2,210 for extended warranty obligations and software support agreements.
Gross Profit
The increase in grossGross profit was slightly lower compared with the same period in the prior year was due to higher hardware revenue in this year’s quarter.component costs. Gross profit as a percentage of sales also was slightly lower compared with the prior year period primarily due to higher costs of components in this year’s quarter.period.
As our products have varying gross margins, product mix may affect gross profits. In addition, our margins vary based on the sales channels through which our products are sold in a given period. We continue to implement product updates and changes, including raw material and component changes, that may impact product costs. 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 $726, or 15.2%,$219 over the prior year quarter. The increase was largely due to $242a $407 increase in employee-related costs which included non-cash share-based compensation, partially offset by a $114 decrease in marketing and travel related expenses. There were 76 and 64 employees as of increased amortization expense, $263 from higher travel, salesJune 30, 2023 and marketing activities, and $124 from higher professional services in the current year period.2022, respectively.
We incurred non-cash share-based compensation expenses allocated to selling, general and administrative expenses in the three-monthsthree months ended June 30, 2023 and 2022 of $351 and 2021 of $327, and $424, respectively.
We may expend additional resources on the marketing and selling of our products in future periods as we identify ways to optimize potential opportunities. Commission expenses will fluctuate based on the nature of our sales.
Research and Development Expenses
Research and development expenses increased $582, or 51.7%, this year$434 in the fiscal third quarter primarily due to a $440 increase in employee-related costs which includes non-cash share-based compensation. There were 97 and 87 employees as we have more engineersof June 30, 2023 and more engineering time was incurred to increase the features and functionality of our software offering, including the expansion and integration of Zonehaven into the GEM software platform, as compared with the prior year when more time was devoted to professional service contracts.2022 respectively.
Included in research and development expenses for the three months ended June 30, 2023 and 2022, was $26 and 2021, was $18, and $12, respectively, of non-cash share-based compensation costs.
Research and development costs vary period to period due to the timing of projects, and the timing and extent 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 with new products, customizations, and enhancements. Based on current plans, we may expend additional resources on research and development in the current year compared to the prior year.
Net Loss
Net loss in the third quarter of fiscal year 20222023 was $589,$1,423, compared with a net incomeloss of $290$589 in the third quarter of fiscal year 2021.2022. The decreaseincrease in net loss was primarily dueattributable to the increased cost of sales due to higher component costs, plus higher operating expenses, resultingwhich resulted from hiring additional engineering, sales, and marketing employees.
Comparison of Results of Operations for the Nine Months Ended June 30, 20222023 and 20212022 (in thousands)
| | | Nine Months Ended | | | | | | | | | | Nine Months Ended | | | | | | | | |
| | | June 30, 2022 | | June 30, 2021 | | | | | | | | | | June 30, 2023 | | June 30, 2022 | | | | | | | | |
| | | | | | | % of | | | | | | % of | | | | | | | | | | | | | | % of | | | | | | % of | | | | | | | | |
| | | | | | | Total | | | | | | Total | | Fav(Unfav) | | | | | | | Total | | | | | | Total | | Fav(Unfav) | |
| | | Amount | | | Revenue | | | Amount | | | Revenue | | | Amount | | | % | | | Amount | | | Revenue | | | Amount | | | Revenue | | | Amount | | | % | |
Revenues: | | |
Product sales | | $ | 34,328 | | | 90.3 | % | | $ | 27,800 | | | 87.0 | % | | $ | 6,528 | | | 23.5 | % | |
Product revenue | | | $ | 31,651 | | | 88.0 | % | | $ | 34,328 | | | 90.3 | % | | $ | (2,677 | ) | | (7.8 | %) |
Contract and other | | | 3,669 | | | 9.7 | % | | | 4,156 | | | 13.0 | % | | | (487 | ) | | (11.7 | %) | | | 4,311 | | | 12.0 | % | | | 3,669 | | | 9.7 | % | | | 642 | | | 17.5 | % |
Total revenues | | 37,997 | | | 100.0 | % | | 31,956 | | | 100.0 | % | | 6,041 | | | 18.9 | % | | 35,962 | | | 100.0 | % | | 37,997 | | | 100.0 | % | | (2,035 | ) | | (5.4 | %) |
| | | |
Cost of revenues | | | 19,315 | | | 50.8 | % | | | 16,556 | | | 51.8 | % | | | (2,759 | ) | | (16.7 | %) | | | 19,510 | | | 54.3 | % | | | 18,654 | | | 49.1 | % | | | (856 | ) | | (4.6 | %) |
Gross Profit | | 18,682 | | | 49.2 | % | | 15,400 | | | 48.2 | % | | 3,282 | | | 21.3 | % | | 16,452 | | | 45.7 | % | | 19,343 | | | 50.9 | % | | (2,891 | ) | | (14.9 | %) |
| | | |
Operating expenses | | |
Selling, general and administrative | | 16,133 | | | 42.5 | % | | 11,931 | | | 37.3 | % | | (4,202 | ) | | (35.2 | %) | | 18,443 | | | 51.3 | % | | 16,794 | | | 44.2 | % | | (1,649 | ) | | (9.8 | %) |
Research and development | | | 5,314 | | | 14.0 | % | | | 3,089 | | | 9.7 | % | | | (2,225 | ) | | (72.0 | %) | | | 6,357 | | | 17.7 | % | | | 5,314 | | | 14.0 | % | | | (1,043 | ) | | (19.6 | %) |
Total operating expenses | | | 21,447 | | | 56.4 | % | | | 15,020 | | | 47.0 | % | | | (6,427 | ) | | (42.8 | %) | | | 24,800 | | | 69.0 | % | | | 22,108 | | | 58.2 | % | | | (2,692 | ) | | (12.2 | %) |
| | | |
(Loss) income from operations | | (2,765 | ) | | (7.3 | %) | | 380 | | | 1.2 | % | | (3,145 | ) | | (827.6 | %) | |
Loss from operations | | | (8,348 | ) | | (23.2 | %) | | (2,765 | ) | | (7.3 | %) | | (5,583 | ) | | 201.9 | % |
| | | |
Other income (expense), net | | | 12 | | | 0.0 | % | | | 59 | | | 0.2 | % | | | (47 | ) | | (79.7 | %) | |
Other(expense) income, net | | | | (4 | ) | | (0.0 | %) | | | 12 | | | 0.0 | % | | | (16 | ) | | (133.3 | %) |
| | | |
(Loss) income before income taxes | | (2,753 | ) | | (7.2 | %) | | 439 | | | 1.4 | % | | (3,192 | ) | | (727.1 | %) | |
Income tax (benefit) expense | | | (367 | ) | | (1.0 | %) | | | 506 | | | 1.6 | % | | | 873 | | | 172.5 | % | |
Loss before income taxes | | | (8,352 | ) | | (23.2 | %) | | (2,753 | ) | | (7.2 | %) | | (5,599 | ) | | 203.4 | % |
Income tax benefit | | | | (18 | ) | | (0.1 | %) | | | (367 | ) | | (1.0 | %) | | | (349 | ) | | 95.1 | % |
Net loss | | $ | (2,386 | ) | | (6.3 | %) | | $ | (67 | ) | | (0.2 | %) | | $ | (2,319 | ) | | 3461.2 | % | | $ | (8,334 | ) | | (23.2 | %) | | $ | (2,386 | ) | | (6.3 | %) | | $ | (5,948 | ) | | 249.3 | % |
| | | |
Net revenues | | |
Net revenue | | |
Hardware | | $ | 36,041 | | | 94.9 | % | | $ | 29,889 | | | 93.5 | % | | 6,152 | | | 20.6 | % | | $ | 33,269 | | | 92.5 | % | | $ | 36,041 | | | 94.9 | % | | (2,772 | ) | | (7.7 | %) |
Software | | | 1,956 | | | 5.1 | % | | | 2,067 | | | 6.5 | % | | | (111 | ) | | (5.4 | %) | | | 2,693 | | | 7.5 | % | | | 1,956 | | | 5.1 | % | | | 737 | | | 37.7 | % |
Total net revenues | | $ | 37,997 | | | 100.0 | % | | $ | 31,956 | | | 100.0 | % | | $ | 6,041 | | | 18.9 | % | |
Total net revenue | | | $ | 35,962 | | | 100.0 | % | | $ | 37,997 | | | 100.0 | % | | $ | (2,035 | ) | | (5.4 | %) |
The table above sets forth for the periods indicated, certain items of our condensed consolidated statements of operations expressed in dollars and as a percentage of net revenues. The financial information and the discussion below should be read in conjunction with the condensed consolidated financial statements and notes contained in this report.
Revenues
Revenues increased 18.9%decreased $2,035 for the nine months ended June 30, 2022,2023, compared with the same prior year period, primarily due to the largerlower backlog as of September 30, 20212022, compared with September 30, 2020. LRAD2021. Hardware revenue was $27,652 fordecreased $2,772, partially offset by the current year nine-month period, down $638, or 2.3%, IMNS revenue was $8,389, up $6,790, and$737 increase in software revenue was $1,956, down $111 or 5.4% compared with the same prior year period.revenue. The receipt of orders will often be uneven due to the timing of approvals or budgets. As of June 30, 2022,2023, we had aggregate current deferred revenue of $1,340$2,210 for extended warranty obligations and software support agreements.
Gross Profit
The increasedecrease in gross profit in the nine months ended June 30, 20222023 was primarily due to lower revenue and the higher sales volume. Gross profit as a percentagecost of revenue was highercomponents this fiscal year compared towith the prior year period primarily due to higher revenue and a better mix of revenue in the current year.prior year period.
Our products have varying gross margins, so product mix may affect gross profits. In addition, our margins vary based on the sales channels through which our products are sold in a given period. We continue to implement product updates and changes, including raw material and component changes that may impact product costs. With such product updates and changes, we have limited warranty cost experience and estimated future warranty costs can impact our gross margins. We do not believe that historical gross profit margins should be relied upon as an indicator of future gross profit margins.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $4,202, or 35.2%,$1,649 in the nine months ended June 30, 20222023, compared with the prior year period. The increase in selling, general and administrative expenses was largely due to a $1,679$1,342 increase in employee compensation related costs due towhich includes non-cash stock based compensation, a 20%$507 increase in personnel over the prior year, $973 increase in amortization expense, $849 in higher sales and marketing activities and travel,professional services expenses, and a $445 increase$256 decrease in commission expense.
We incurred non-cash share-based compensation expenses allocated to selling, general and administrative expenses in the nine months ended June 30, 2023 and 2022 of $1,171 and 2021 of $1,544, and $904, respectively.
We may expend additional resources on the marketing and selling of our products in future periods as we identify ways to optimize potential opportunities. Commission expenses will fluctuate based on the nature of our sales.
Research and Development Expenses
Research and development expenses increased $2,225, or 72%, as we$1,043, primarily due to increased our engineering team and increased engineering time was utilized to increase software functionality and features, including the expansion and integration of Zonehaven into the GEM software platform.employee-related costs which included non-cash share-based compensation.
We incurred non-cash share-based compensation expenses allocated to research and development in the nine months ended June 30, 2023 and 2022 of $78 and 2021 of $53, and $28, respectively.
Research and development costs vary period to period due to the timing of projects, amount of support provided on customer projects, and the timing and use of outside consulting, design, and development firms. We continually improve our product offerings, and we expect to continue to expand our product line with new products, customizations, and enhancements. Based on current plans, we may expend additional resources on research and development in the current year compared to the prior year.
Net Loss
Net loss was $2,386 for the first nine months of fiscal 20222023 was $8,334, compared with a $67 net loss in the prior year period. This decreaseperiod net loss of $2,386. The increase in net loss was primarily attributable to lower revenue, the increased cost of sales due to thehigher component costs, and higher operating expenses, partially offset by the higher revenuewhich resulted from hiring additional software engineering, sales, and gross profit in the current year period.marketing employees.
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 (in thousands):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 | | Nine months ended | | | Three months ended | | Nine months ended | |
| | | June 30, | | June 30, | | | June 30, | | June 30, | |
| | | 2022 | | | 2021 | | | 2022 | | | 2021 | | | 2023 | | | 2022 | | | 2023 | | | 2022 | |
Net (loss) income | | $ | (589 | ) | | $ | 290 | | | (2,386 | ) | | (67 | ) | |
Other (income) expense, net | | (9 | ) | | 2 | | | (12 | ) | | (59 | ) | |
Income tax (benefit) expense | | (31 | ) | | 228 | | | (367 | ) | | 506 | | |
Net loss | | | $ | (1,423 | ) | | $ | (589 | ) | | (8,334 | ) | | (2,386 | ) |
Other income (expense), net | | | (1 | ) | | (9 | ) | | 4 | | | (12 | ) |
Income tax expense (benefit) | | | (26 | ) | | (31 | ) | | (18 | ) | | (367 | ) |
Depreciation and amortization | | 638 | | | 401 | | | 1,920 | | | 953 | | | 636 | | | 638 | | | 1,918 | | | 1,920 | |
Stock-based compensation | | | 355 | | | | 446 | | | | 1,650 | | | | 956 | | | | 396 | | | | 355 | | | | 1,329 | | | | 1,650 | |
Adjusted EBITDA | | $ | 364 | | | $ | 1,367 | | | $ | 805 | | | $ | 2,289 | | | $ | (418 | ) | | $ | 364 | | | $ | (5,101 | ) | | $ | 805 | |
Segment Results
Segment results include net revenue 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.
Comparison of Segment Adjusted EBITDA for the Three Months Ended June 30, 2023 and 2022 (in thousands)
| | | Software | | | Hardware | |
| | | Three months ended | | | | | | | | | | | Three months ended | | | | | | | | | |
| | | June 30, | | | Fav (Unfav) | | | June 30, | | | Fav (Unfav) | |
| | | 2023 | | | 2022 | | | $ | | | % | | | 2023 | | | 2022 | | | $ | | | % | |
Revenue | | $ | 938 | | | $ | 733 | | | $ | 205 | | | | 28.0 | % | | $ | 13,324 | | | $ | 13,419 | | | $ | (95 | ) | | | (0.7 | %) |
Operating (loss) Income | | | (3,752 | ) | | | (3,124 | ) | | | (628 | ) | | | 20.1 | % | | | 2,302 | | | | 2,495 | | | | (193 | ) | | | (7.7 | %) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Reconciliation of GAAP to Non-GAAP | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | 539 | | | | 543 | | | | (4 | ) | | | (0.7 | %) | | | 97 | | | | 95 | | | | 2 | | | | 2.1 | % |
Stock-based compensation | | | 99 | | | | 46 | | | | 53 | | | | 115.2 | % | | | 297 | | | | 309 | | | | (12 | ) | | | (3.9 | %) |
Adjusted EBITDA | | $ | (3,114 | ) | | $ | (2,535 | ) | | $ | (579 | ) | | | 22.8 | % | | $ | 2,696 | | | $ | 2,899 | | | $ | (203 | ) | | | (7.0 | %) |
Software Segment
Software segment revenue increased 28% over the prior fiscal year quarter. This primarily reflects a 47% increase in recurring revenue, partially offset by a 24% decrease in professional services, compared with the prior fiscal year period.
Operating loss increased $628 in the third fiscal quarter due to increases in payroll and related costs from increased hiring to support software development and sales.
Hardware Segment
Hardware segment revenue decreased $95 compared with the prior fiscal year period. The decrease was due to the lower backlog at the start of this fiscal year compared with the prior fiscal year beginning backlog.
Operating income decreased $193 in the fiscal 2023 third quarter compared with the same quarter in the prior year due to lower revenue and gross profit resulting from higher cost of components, and higher professional services expense, compensation expense, and sales and marketing expenses, partially offset by lower commission expense.
Comparison of Segment Adjusted EBITDA for the Nine Months Ended June 30, 2023 and 2022 (in thousands)
| | | Software | | | Hardware | |
| | | Nine months ended | | | | | | | | | | | Nine months ended | | | | | | | | | |
| | | June 30, | | | Fav (Unfav) | | | June 30, | | | Fav (Unfav) | |
| | | 2023 | | | 2022 | | | | | | | % | | | $ | 2023 | | | | 2022 | % |
Revenue | | $ | 2,693 | | | $ | 1,956 | | | $ | 737 | | | | 37.7 | % | | $ | 33,269 | | | $ | 36,041 | | | $ | (2,772 | ) | | | (7.7 | %) |
Operating (loss) Income | | | (11,009 | ) | | | (8,969 | ) | | | (2,040 | ) | | | 22.7 | % | | | 2,661 | | | | 6,204 | | | | (3,543 | ) | | | (57.1 | %) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Reconciliation of GAAP to Non-GAAP | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | 1,622 | | | | 1,635 | | | | (13 | ) | | | (0.8 | %) | | | 296 | | | | 285 | | | | 11 | | | | 3.9 | % |
Stock-based compensation | | | 321 | | | | 171 | | | | 150 | | | | 87.7 | % | | | 1,008 | | | | 1,479 | | | | (471 | ) | | | (31.8 | %) |
Adjusted EBITDA | | $ | (9,066 | ) | | $ | (7,163 | ) | | $ | (1,903 | ) | | | 26.6 | % | | $ | 3,965 | | | $ | 7,968 | | | $ | (4,003 | ) | | | (50.2 | %) |
Software Segment
Software segment revenue increased 38% over the prior fiscal year. This primarily reflects a 44% increase in recurring revenue compared with the first nine months of fiscal 2022.
Operating loss increased $2,040, compared with the prior fiscal year period due to increases in payroll and related costs from increased hiring to support software development and sales and higher professional services expense.
Hardware Segment
Hardware segment revenue decreased $2,772, compared with the prior year period. The decrease was largely due to the lower backlog at the start of this fiscal year compared with the prior fiscal year beginning backlog.
Operating income decreased $3,543, compared with the prior fiscal year due to lower revenue and lower gross profit from higher cost of components, partially offset by lower commission expense.
Liquidity and Capital Resources
Cash and cash equivalents as of June 30, 20222023, was $11,723, down $1,444$2,971, compared with $13,167$12,736 as of September 30, 2021.2022. We had short-term marketable securities of $5,270$3,549 as of June 30, 2022,2023, compared with $5,686$6,397 as of September 30, 2021.2022. We had long-term marketable securities of $2,004$392 as of June 30, 2022,2023, compared with $1,875$781 as of September 30, 2021. In addition to2022. Other than cash and cash equivalents, short and long-term marketable securities, other working capital, and expected future cash flows from operating activities in subsequent periods, we have a $10 million revolving lineno unused sources of credit available as a source of liquidity.liquidity at this time.
Although there is uncertainty related to the impact of COVID-19 on the Company’s future results, we believe our efficient business model and strong balance sheet keep us positioned to manage our business through this crisis as it continues to unfold. We continue to manage all aspects of our business including, but not limited to, monitoring the financial health of our customers, suppliers and other third-party relationships, and developing new opportunities for growth.
Principal factors that could affect our liquidity include:
• ability to meet sales projections;
| • | ability to meet revenue projections; |
• government spending levels;
| • | government spending levels; |
• introduction of competing technologies;
| • | introduction of competing technologies; |
• product mix and effect on margins;
| • | product mix and effect on margins; |
• ability to reduce current inventory levels;
| • | ability to reduce current inventory levels; |
• product acceptance in new markets;
| • | product acceptance in new markets; |
• value of shares repurchased;
| • | value of shares repurchased; |
• value of dividends declared;
| • | value of dividends declared; |
• supply chain disruptions;
| • | supply chain disruptions; |
• inflation;
• conflict between Russia and Ukraine;
• impact of COVID-19 on global market conditions; and
| • impact of COVID-19 on customers’ ability to pay. | conflict between Russia and Ukraine; |
Principal factors that could affect our ability to obtain cash from external sources include:
• volatility in the capital markets; and
| • | 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 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, as reflected in the condensed consolidated statements of cash flows, are summarized in the table below:
| | | Nine months ended | | | Nine months ended | |
| | | June 30, 2022 | | | June 30, 2021 | | | June 30, 2023 | | | June 30, 2022 | |
Cash provided by (used in): | | |
Operating activities | | $ | (571 | ) | | $ | 8,314 | | | $ | (12,822 | ) | | $ | (571 | ) |
Investing activities | | 14 | | | (16,237 | ) | | 3,079 | | | 14 | |
Financing activities | | (1,092 | ) | | (27 | ) | | (165 | ) | | (1,092 | ) |
Operating Activities
Net loss of $8,334 for the nine months ended June 30, 2023 was decreased by $4,080 of non-cash items that included share-based compensation, warranty provision, depreciation and amortization, amortization of operating lease ROU assets, accretion of acquisition holdback liability, and inventory obsolescence. Cash used by operating activities in the current year reflected an increase in inventory of $2,127 and accounts receivable of $3,570, and a decrease in accrued and other liabilities of $5,581, comprised of a decrease in the balances of customer deposits received, payment of the Canadian GST/HST, and payment of incentive compensation earned in fiscal year 2022. This was offset by a $1,755 decrease in prepaid expenses and a $955 increase in accounts payable.
Net loss of $2,386 for the nine months ended June 30, 2022 was decreased by $4,006 of non-cash items that included share-based compensation, depreciation and amortization, amortization of operating lease ROU assets, an increase to deferred income taxes, warranty provision and inventory obsolescence. Cash used by operating activities in the current year reflected an increase in inventory of $2,563, and a decrease in accrued liabilities and other of $3,012, comprised of a decrease in the balances of customer deposits received, and payment of incentive compensation earned in fiscal year 2021. This was offset by a $1,964 decrease in accounts receivable, a $1,049 decrease in prepaid expenses, and a $371 increase in accounts payable.
Net loss of $67 for the nine months ended June 30, 2021 was offset by $3,257 of non-cash items that included depreciation and amortization, share-based compensation, operating lease ROU asset amortization, warranty provision, inventory obsolescence, both realized and unrealized loss on a foreign currency forward contract, and a reduction to deferred income taxes. Cash provided by operating activities for the prior year reflected an increase of $1,134 in accounts payable, primarily for inventory related purchases, and a $5,988 increase in accrued and other liabilities, primarily from a $7,410 increase in customer deposits resulting from increased hardware orders, received in the prior fiscal year offset by a $630 reduction to accrued contract costs. Cash used in operating activities for the nine months ended June 30, 2021, reflected a $788 increase in inventory, a $636 increase in prepaid expense, and a $574 increase in accounts receivable.
We had accounts receivable of $5,691$10,353 as of June 30, 2022,2023, compared with $7,682$6,744 as of September 30, 2021.2022. Terms with individual customers vary greatly. We regularly provide thirty-day terms 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.
As of June 30, 20222023, and September 30, 2021,2022, our working capital was $17,613$14,757 and $18,019,$20,197, respectively. The decrease in working capital was primarily due to the net loss this period changeand decrease in the short-term/long-term mix of marketable securities,prepaid expenses and the use of cash to repurchase shares of Company stock.accrued liabilities.
Investing Activities
Our net cash provided by investing activities was $3,079 for the nine months ended June 30, 2023, compared with net cash provided by investing activities of $14 for the nine months ended June 30, 2022, compared with net cash used in investing activities of $16,237 for2022. In the nine months ended June 30, 2021. In thefirst nine months of fiscal 2022, we decreased2023, our holdings in short and long-term marketable securities decreased by $205$3,308, compared with an increasea decrease of $208$205 for the nine months endingended June 30, 2021.2022. Cash used in investing activities for the purchase of property and equipment was $191$229 and $181$191 for the nine months ended June 30, 2022,2023 and 2021,2022, respectively. We anticipate additional expenditures for tooling and equipment during the balance of fiscal year 2022. During the first nine months of fiscal 2021, $15,848 was used for acquisitions. 2023.
Financing Activities
In the nine months ended June 30, 2022,2023, we used $1,092$165 for financing activities, compared with $27$1,092 used in financing activities for the nine months ended June 30, 2021.2022. In the first nine months of fiscal 2023, we received $87 from the exercise of stock options and used $45 to settle statutory tax withholding requirements upon vesting of restricted stock units and used $207 to settle statutory tax withholding requirements upon the exercise of stock options. In the first nine months of fiscal 2022 we received $253 from the exercise of stock options and used $998 to repurchase shares of our common stock, $70 to settle statutory tax withholding requirements upon vesting of restricted stock units, and $277 in the repayment of promissory notes upon the certification of completed projects by goverenmentgovernment agencies in Spain. In the first nine months of fiscal year 2021, we received $170 from the exercise of stock options, which was offset by $141 of cash used to settle statutory tax withholding requirements upon vesting of restricted stock awards, $18 in payments on promissory notes, and $38 of cash paid in connection with the establishment of our $10 million line of credit.
In December 2018, the Board of Directors approved a new share buyback program beginning January 1, 2019, and expiring on December 31, 2020, under which the Company was authorized to repurchase up to $5 million of its outstanding common shares. In December 2020, the board voted to extend this program’s expiration date toBoard of Directors extended the buyback program until December 31, 2022. In December 2022, the Board of Directors extended the Company’s share buyback program through December 31, 2024.
There were no shares repurchased during the nine months ended June 30, 2023. During the nine months ended June 30, 2022, 259,310 shares were purchased for $998. No shares were repurchased during the nine months ended June 30, 2021. All repurchased shares have been retired and as of June 30, 2022,2023, and $3.0 million 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.
Item3.Quantitative and Qualitative Disclosures about Market Risk. | Quantitative and Qualitative Disclosures about Market Risk.
|
Foreign Currency Risk
We consider our direct exposure to foreign exchange rate fluctuations to be minimal. 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 torevenue with 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.
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 June 30, 2022.2023.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during our fiscal quarter ended June 30, 2022,2023, 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.Legal Proceedings. | 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’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.
Item1A.Risk Factors. | Risk Factors.
|
There have been no material changes to the risk factors described under Item 1A of our Annual Report on Form 10-K for the fiscal year ended September 30, 2021,2022, filed with the SEC on November 23, 2021, except for those noted below:December 16, 2022.
The conflict between RussiaItem2.Unregistered Sales of Equity Securities and Ukraine and the related implications may negatively impact our operations.
In February 2022, Russia invaded Ukraine. As a result, the U.S. and certain other countries have imposed sanctions on Russia and could impose further sanctions, as well as potential retaliatory actions by Russia, that could damage or disrupt international commerce and the global economy. It is not possible to predict the broader or longer-term consequencesUse of this conflict or the impact of sanctions, embargoes, regional instability, geopolitical shifts and adverse effects on macroeconomic conditions, security conditions, currency exchange rates and financial markets. Such geopolitical instability and uncertainty could have a negative impact on our ability to sell, ship products, collect payments, and support customers in certain regions based on trade restrictions, embargoes and export control law restrictions, supply disruptions, and logistics restrictions including closures of air space, and could increase the costs, risks and adverse impacts from supply chain and logistics challenges.
The potential effects of the conflict between Russia and Ukraine also could impact many of the other risk factors described in Item 1A, Risk Factors, in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021. Given the evolving nature of this conflict, the related sanctions, potential governmental actions and economic impact, such potential impacts remain uncertain. While we expect the impacts of conflict between Russia and Ukraine could have an effect on our business, financial condition and results of operations, we are unable to predict the extent or nature of these impacts at this time.
Risks related to global economic instability, including global supply chain issues, inflation, labor costs, and fuel and energy costs, may affect the Company’s business.Proceeds.
The increasingly volatile global economic environment has created market uncertainty. A slowdown in the financial markets or other economic conditions including but not limited to global supply chain issues, inflation, fuel and energy costs, freight costs, lack of available credit, interest rates, and tax rates, may adversely affect the Company’s growth and profitability. Fluctuation of prices and availability of commodities and materials used in the manufacture of our products may affect the cost of operations. In addition, increasing wage inflation and challenges hiring qualified personnel may impact our ability to meet customer demand.
The potential effects of market uncertainty and inflation could also impact many of the other risk factors described in Item 1A, Risk Factors, in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021. While we expect the impacts of market uncertainty and inflation could have an effect on our business, financial condition and results of operations, we are unable to predict the extent or nature of these impacts at this time.
Item 2.
| Unregistered Sales of Equity Securities and Use of Proceeds.
|
None.
ItemItem3.Defaults Upon Senior Securities. | Defaults Upon Senior Securities.
|
None.
ItemItem4.Mine Safety Disclosures. | Mine Safety Disclosures.
|
Not Applicable.
Item5.Other Information. | Other Information.
|
None.Rule 10b5-1 Trading Plans
During the three months ended June 30, 2023, none of our directors or officers (as defined in Rule 16a-1(f) under the Exchange Act) adopted or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act or any “non-Rule 10b5-1 trading arrangement” as defined in Item 408(c) of Regulation S-K. ItemItem6.Exhibits. | 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* |
| | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document* |
| | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document* |
| | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document* |
| | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document* |
| | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document* |
| | |
| 104 | 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.
| | | |
| | GENASYS INC. |
| | | |
Date: August 11, 202210, 2023 | By: | /s/ Dennis D. Klahn |
| | | Dennis D. Klahn, Chief Financial Officer |
| | | (Principal Financial Officer) |
